Carbon Border Taxes Put South Africa Exports at Risk, Study Says

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(Bloomberg) — South Africa’s key export industries are becoming increasingly vulnerable as climate policies like cross-border carbon taxes take hold, according to a study by Net Zero Tracker.

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About 422,000 South African jobs are supported by exports to countries with active or incoming carbon border adjustment mechanisms, Net Zero Tracker’s researchers wrote in the report, released Monday CET. 

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The taxes have “implications for jobs, inequality and tackling poverty in one of the world’s most unequal societies,” they added, while urging wealthier countries to support South Africa’s path to decarbonization. 

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Carbon border adjustment mechanisms, or CBAMs, are designed to reduce emissions by ensuring imports are subject to the same surcharges as domestically produced goods that use carbon-intensive methods. The European Union, South Africa’s second-biggest trade partner after China, will start levying charges through its CBAM next year. The UK plans to follow suit and countries including Australia and Japan are also considering introducing measures.

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“It’s bad for South Africa,” said John Lang, the project’s lead at Net Zero Tracker, which is run by four organizations including the UK’s Energy and Climate Intelligence Unit. “The rubber is going to hit the road next year.”  

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South Africa has joined India and Brazil in protesting against CBAMs, which they see as a form of protectionism. It has threatened to raise a complaint with the World Trade Organization.

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South Africa relies on coal for about four-fifths of its electricity generation and thus has the most carbon-intensive economy among the Group of 20 major economies. 

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The country’s basic metals sector, which accounted for almost a third of its exports in 2023, “has nearly twice the embodied carbon dioxide emissions of its next most carbon-intensive peer country,” Net Zero Tracker said. If CBAMs expand beyond raw materials, as the researchers expect, other South African industries will be at risk. Its automotive sector has the second-highest emissions in the world and its agricultural producers create three times the emissions of some peer countries, the researchers found. 

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In total, 78% of South Africa’s exports go to countries that have net zero targets, according to the study. Those exports support 1.2 million jobs in total. 

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“For South Africa, this is both a warning and an opportunity,” the researchers wrote. “Decarbonising production is not just a climate imperative — it’s a strategic necessity for maintaining global competitiveness.”

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While the cross-border carbon taxes create immediate risks, South Africa also has economic advantages including renewable energy resources, critical minerals and access to major trade and diplomatic frameworks, they added.