The European Union Carbon Border Adjustment Mechanism (EU CBAM) is anticipated to come into effect in January 2023, with a transitional period between 2023 and 2025 where only reporting is required. This will potentially have a significant impact on South African businesses exporting to the EU.

CBAM is an EU carbon border tax on goods imported into the EU internal market, based on the imported products’ CO₂ emissions. Each year, EU importers must surrender CBAM tax certificates to cover the cost of emissions embedded in the imported products. This is unless a third country producer can prove that a domestic carbon price was already paid, in which case this can be deducted from the CBAM levy payable.

As a result, exports from any country that has not decarbonised or implemented an EU equivalent carbon price could become relatively more expensive on the EU market.

Five sectors that have high carbon emissions and a high risk of carbon leakage will be first and most affected by CBAM in the short-term: iron and steel, aluminium, cement, fertilisers and electricity.

However, more companies across an increasing number of sectors could be impacted by the broadening of CBAM’s scope over time. Initially limited to 30 main product categories from the five sectors above as per the European Commission’s proposal, the European Parliament is already taking a stricter stance, proposing to also cover organic chemicals, plastics, hydrogen and ammonia from the start. Who will get their way will be determined in the months ahead.

Similarly, the CBAM proposal currently excludes indirect emissions, but there is a high chance indirect GHG emissions from the electricity used to produce goods will be included in the final legislation.

While exporters to the EU in affected sectors must immediately and proactively prepare for CBAM, all companies need to begin aligning their business models to a low-carbon future, to ensure long-term competitiveness and take advantage of the opportunities CBAM can bring.

Local companies seeking assistance can contact us directly for CBAM advice and access to seamless GHG and carbon tax monitoring and reporting solutions that can also identify key areas for emissions reductions now and over the longer-term.