How will Carbon Border Taxes Affect SA?

A Carbon Border Tax is being proposed by the European Commission as an adjustment mechanism to level the carbon pricing playing field and to reduce the risk of ‘carbon leakage’, focusing on energy-intensive industries such as cement, iron and steel.

South African businesses could be impacted by this proposed EU carbon border tax where emission-intensive South African goods exported to the EU could become relatively more expensive – and thus less competitive – on the EU market than similar goods made in the EU and elsewhere in the world where production is less carbon intensive. It would level the playing field for EU companies and likely lead to a reduction in exports of such goods to the EU.

In South Africa, carbon leakage is currently addressed through the Trade Allowance of up to 10% under the Carbon Tax. This reduces the burden of domestic producers that are trade exposed and thereby the price of goods exported. A carbon border tax would probably provide a more targeted measure by raising prices of imports.

Such a local Carbon Border Tax Adjustment is being considered by National Treasury. Currently the Carbon Tax rate is relatively low, with little impact on the competitiveness of South African products. However, as local carbon price increases and the current emissions allowances decrease, the risk of carbon leakage in South Africa may have to be addressed with a local Carbon Border Tax Adjustment.

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