Displaying items by tag: Carbon border tax

This Working Paper offers an overview of how governments in the Global South are responding to the EU CBAM, in contrast to responses from developed nations. It examines the background and essential measures of CBAM in relation to the reactions of major transnational groupings and the effects of CBAM on primary trading partners. Furthermore, it aims to analyse the differences in responses and approaches to the EU CBAM from African countries, BRICS (Brazil, Russia, India, China and South Africa) nations, and developing countries such as the United States (US), Japan, the United Kingdom (UK)
and Canada.

CBAM is a key policy tool that forms part of the European Green Deal (EGD) to reduce net GHG emissions across Europe and abroad. Within this context, CBAM can be defined as a carbon border tax on embedded GHG emissions of carbon-intensive products imported into the EU. The main intent is to equalise the price of carbon between EU products and imports, by ensuring importers face similar conditions to EU manufacturers, and that the European climate objectives are not undermined by carbon leakage. In its current form, cement, aluminium, fertilisers, electric energy production, hydrogen, iron and steel, as well as some precursors (input materials, i.e. iron ore) and a limited number of downstream products are targeted. Other products are set to be added after the transitional period. These products remain highly exposed in terms of international climate change policies. In South Africa, a total of US$2.8 billion (about R52.4 billion) of South African exports (based on 2022 data) are at risk in the short term, with this number set to increase as the CBAM covers more and more products. The iron and steel (including iron ore) and aluminium industries are particularly at jeopardy, in the short term.

This paper provides an augmented analyses of the Policy Brief by Monaisa and Maimele  (2023), entitled The European Union’s Carbon Border Adjustment Mechanism and implications for South African exports. It updates analysis post the adoption of CBAM on 10 May 2023, reflecting on the vulnerability of the South African economy.

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TIPS Senior Economist Gaylor Montmasson-Clair took part in the Presidential Climate Commission webinar - see articles

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In 2019, the European Union (EU) introduced the Fit for 55 policy package. The policy package aims to reduce the EU’s net greenhouse gas emissions by 55% by 2030 compared to 1990 levels and achieve carbon neutrality by 2050. It includes the Carbon Border Adjustment Mechanism (CBAM), a carbon border tax on embedded GHGs of carbon-intensive products imported into the EU.

The first proposal of the CBAM was published in July 2021. Since July 2021, the CBAM has undergone significant changes. In May 2022, the European Parliamentary Committee on Environment, the implementing agent of the CBAM, published amendments to the CBAM. In June 2022, the European Parliament voted on and approved these amendments. In December 2022, members of the European Parliament reached a provisional and conditional agreement with the European Council on CBAM, with rules to apply from 1 October 2023 with a transition period. The agreement was endorsed by the ENVI in February 2023. It needs to be confirmed by ambassadors of the EU Member States and by the European Parliament and adopted by both institutions before its finalisation.

The TIPS policy brief, European Green Deal: The Carbon Border Adjustment Mechanism and implications for South African and European Union trade by Lerato Monaisa (2021), provided an initial analysis of the impact of the CBAM on South African exports. This policy brief provides an updated analysis, reflecting on the implications of the new provisionally agreed CBAM proposal for South African exports.

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The European Green Deal (EGD) is a is a set of policy initiatives by the European Commission with the overarching aim of making Europe climate neutral by 2050. These policy initiatives aim to make all sectors of the European Union’s economy fit to contribute to the European Union reaching its climate targets by 2030 in a fair, cost-effective and competitive way. The EGD proposes several action plans and initiatives in priority areas, which include energy, land, biodiversity, clean air, sustainable foods and buildings, among others. South African exporters to the European Union will need to adapt to this change, to assure their long-term competitiveness in a changing market. This study provides an initial look at the EGD and its potential implications for South African trade with the European Union. The particular proposed headline initiative of the EGD in the form of a Carbon Border Adjustment Mechanism is unpacked more specifically in this study, while an analysis of potential opportunities to expand trade associated with “environmental goods” products are also highlighted.

Media release

The European Union’s Green Deal (EGD): A call to action for South African exporters