By Larry Claasen
THE European Union’s (EU) move to decarbonise its economy could have far reaching implications for some sectors of the Western Cape.
The EU’s Carbon Border Adjustment Mechanism (CBAM), which is a pricing tool for the greenhouse gases emitted during the production for certain goods imported into the trade bloc, was adopted on 17 May 2023 and will come into effect on 1 January 2026.
Karen Bosman, Head: advocacy & advisory at Wesgro says the iron and steel, as well as aluminium and hydrogen sectors face risks that are “particularly pronounced.”
The total value of iron and steel exports subject to the CBAM and destined for the EU reached R1,62-billion in 2022. As a result, a considerable 21,86% of the Western Cape’s iron and steel sector exports faced potential losses due to the implications of the EU CBAM in that year.”
The EU has consistently held a pivotal position as a key market for the Western Cape’s aluminium exports, accounting for approximately 8,50% of global aluminium exports in 2023.
“In 2023, approximately R52,2-million worth of aluminium exports were subject to the EU CBAM policy and destined for the EU, translating to a potential risk exposure of around 5.27% with a potential impact of -0,01% on nominal GDP.”
More carbon taxes on the way
The EU is not the only trade bloc/country considering implementing carbon border taxes and tariffs.
“We know that the UK is also set to implement a CBAM, and there are indications that various other jurisdictions will follow suit. Countries are considering how best to respond to the EU and other potential CBAMs, and how this will play out is yet to be seen. “
Though the impact of CBAM could be far reaching for some local businesses, Bosman says this is a misconception.
Not all products
“There is a perception that CBAMs are going to be imposed on all products. This is not the case. At least not in the near term.”
Bosman says the BAM only applies to certain products imported into the EU from non-EU countries and is directly linked to the European Emissions Trade System (EU ETS).
“Initially it will apply only to a limited number of carbon-intensive product categories, including cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen.”
Saying this, Bosman says CBAM might be expanded in scope over time.
“It will always be linked to the EU ETS, and will therefore not apply to products beyond the ambit of the EU ETS. The EU ETS is also set to expand, but at this point not to all products.”
Another misconception is that the CBAM is the only regulatory tool in the EU Green Deal “tool kit.”
“Other regulations are also placing increasing pressure on exporters to decarbonise and incorporate climate-related reporting. Many of these enforce emissions reduction and due diligence across global supply chains at corporate level, and include, for example, the EU Corporate Sustainability Reporting Directive (CSRD) and the EU Corporate Supply Chain Due Diligence Directive (CSDDD),” says Bosman
She says these regulations are starting to come into force in the EU, and will also start putting pressure on exporters to measure and track decarbonisation, among other social and environmental metrics.
