Displaying items by tag: CBAM

The European Green Deal (EGD) is a set of policy initiatives by the European Union (EU) with the overarching aim of making Europe the first continent to reach climate neutrality by 2050. The purpose of this study is to analyse the implications of the EGD on African trade. The objectives include understanding the EGD in the African context, and analysing affected African traded commodities and the implications that stem from its introduction. The methodology included a desk review, document analysis, and conducting extensive data analysis using an exposure and vulnerability methodology.

Thes study has five parts.The first part provides an overview of the European Green Deal, and the second part highlights how Africa trades with the EU. The third part highlights the implications for African trade. The remaining two parts examine international responses – what other countries are doing to respond to the EGD and their implications for Africa; and suggested policy responses the African continent can pursue to limit its exposure and vulnerability to any negative trade effects of the EGD.

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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