- EU carbon border tariffs take effect from January 2026, raising costs for South African exporters of steel, aluminium, cement, fertilisers and other carbon intensive goods.
- Coal dependent electricity and emissions intensive production place South Africa at a structural disadvantage compared to European producers.
- CBAM is accelerating the business case for grid decarbonisation cleaner manufacturing and energy reform
The European Union’s Carbon Border Adjustment Mechanism is rapidly emerging as a material economic risk for South Africa’s energy intensive export sectors, with implications that extend well beyond trade compliance into energy policy industrial competitiveness and long-term decarbonisation strategy.
CBAM entered its transitional phase in October 2023 requiring importers to report the embedded emissions of selected carbon intensive goods. While no financial payments are due during this period the definitive phase begins on 1 January 2026 when importers into the EU will be required to purchase CBAM certificates reflecting the carbon content of their products. This will coincide with the gradual phase out of free allowances under the EU Emissions Trading System through to 2034.
For South Africa the stakes are high. The mechanism applies to cement, iron and steel, aluminium, fertilisers, electricity, ammonia and hydrogen which are all sectors where domestic production currently remains heavily reliant on coal fired power and carbon intensive processes. With more than 80 percent of South Africa’s electricity generated from coal the embedded emissions of locally produced goods are significantly higher than those of many European competitors.
Industry bodies including the National Business Initiative Trade and Industrial Policy Strategies and the Minerals Council South Africa have warned that CBAM will directly raise the cost of South African exports into Europe which currently accounts for around six percent of the country’s total trade. Higher carbon related charges are expected to erode margins and weaken competitiveness particularly in aluminium and steel where electricity costs and emissions intensity are critical cost drivers. Some analysts caution that aluminium exports to the EU could see a sharp reduction in value as the carbon levy phases in.
While the EU has confirmed a temporary exclusion of Scope 2 electricity related emissions for steel and aluminium until 2027 this is viewed as limited short term relief rather than a structural solution. No country specific exemptions will be granted and from 2026 financial obligations will apply progressively to all covered imports based on verified emissions data.
At the same time the European Commission is tightening and expanding the CBAM framework. From 2028 the scope will extend beyond basic materials to include around 180 steel and aluminium intensive downstream products such as machinery industrial equipment and certain household appliances. This move is designed to prevent carbon leakage through the relocation of manufacturing and to ensure emissions reductions occur across the full value chain rather than being displaced to jurisdictions with weaker climate policies.
Additional anti circumvention measures are also being introduced including stricter reporting enhanced traceability and the inclusion of pre consumer steel and aluminium scrap in emissions calculations. The Commission will have greater authority to challenge misdeclarations and apply default country emissions values where reliable data is lacking.
For South African producers these developments reinforce a clear message. Continued reliance on coal based electricity and carbon heavy industrial processes will translate directly into higher export costs and shrinking access to premium markets. CBAM effectively embeds the cost of carbon into trade and transfers Europe’s climate standards into global supply chains.
The policy is already reshaping boardroom conversations in South Africa. Investment in renewable energy cleaner grids and low carbon production technologies is increasingly seen not only as an environmental imperative but as a commercial necessity. Companies that can demonstrate credible decarbonisation pathways will be better positioned to retain EU market access and mitigate future carbon costs.
In this sense CBAM is doing exactly what it was designed to do. It levels the playing field for EU producers while pushing trading partners to accelerate their own transitions. For South Africa the mechanism represents both a near term economic challenge and a longer-term opportunity to modernise its energy system strengthen industrial resilience and align more closely with a decarbonising global economy.
Author: Bryan Groenendaal
