Economic Sector Support: Carbon Border Adjustment Mechanism (CBAM)

CARBON BORDER ADJUSTMENT MECHANISM (CBAM)

What is CBAM?

CBAM is a policy tool that aims to improve consistency in applying carbon pricing between goods produced by different authorities, preventing carbon leakage which occurs when the production of carbon-intensive goods moves from more strict enforcement to less strict ones. The European Union (EU) and countries such as Australia, Turkey, Japan, the United States (the US recently introduced the Clean Competition Act and Foreign Pollution Fee Act) as well as the United Kingdom (UK), are evaluating CBAM as a carbon border tax on carbon-intensive products that are imported. The mechanism charges imports and sometimes rebates on exports with a transitional period. The policy was applied in October 2023 and will be enforced in 2026 by the EU.

Which sectors are covered in the scope of CBAM?

In the EU context, CBAM applies to imports of iron, steel, aluminium, electricity, certain fertilisers, cement and hydrogen, as well as certain precursors (i.e. cathode active materials) and a limited number of simple downstream products such as screws and bolts. The European Parliament have signalled that they aim to expand the scope to include plastics and chemicals by 2026 and to all sectors covered by the EU Emissions Trading Systems (EU ETS) by 2030.

How does this affect the Western Cape?

The Western Cape`s energy-related emissions are dominated by electricity, with the City of Cape Town and the West Coast responsible for 80% of the total energy consumption. South Africa faces significant carbon price differences compared to other countries emissions allowance, requiring importers to buy and submit CBAM certificates. The country`s high electricity generation intensity makes it vulnerable to CBAM, making it one of the most carbon-intensive exporters globally.

CBAM resources

• Trade and Industrial Policy Strategies (TIPS) - The European Green Deal (EGD) and its implications for African Trade
• WESGRO - European Union Carbon Adjustment Mechanism (CBAM)
• Presidential Climate Commission (PCC) - CBAM
• GREENCAPE – Carbon Border Adjustment Mechanism CBAM

CBAM technical Support

For any enquiries and technical support on CBAM-related matters, please contact GreenCape at info@greencape.co.za.

Who is GreenCape?

Established in 2010 to support the development of South Africa’s green economy, GreenCape is a not-for-profit company that drives the widespread adoption of economically viable green economy solutions from South Africa.

The organization works with businesses, investors, academia and government to help unlock the investment and employment potential of green technologies and services and to support a transition to a resilient green economy.

Latest news and events 

• Carbon taxation in South Africa and the risks of Carbon Border Adjustment Mechanisms

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