Sunday Times

SA to challenge EU over ‘unilateral’ emissions regime

Proposed taxation mechanism will have profound impact on Africa’s developmen­t, says trade minister

- By KHULEKANI MAGUBANE

The CBAM, together with the other measures on deforestat­ion, will impact very, very significan­tly on our ability to export

Ebrahim Patel

Minister of trade, industry & competitio­n

South Africa will be taking on the EU regarding its carbon border adjustment mechanism (CBAM) and associated carbon taxes at a trade meeting in Abu Dhabi later this month.

“We’ve pointed out the very significan­t impact this will have on industrial­isation on the African continent. [The] CBAM, together with the other measures on deforestat­ion, will impact very, very significan­tly on our ability to export,” minister of trade, industry & competitio­n Ebrahim Patel told Business Times.

“At the same time, we are now taking our discussion to the World Trade Organisati­on [WTO] in a few weeks’ time, where trade ministers across the world will get together and reflect on trade climate change,” he said.

Patel was speaking on the sidelines of the 2024 Investing in African Mining Indaba in Cape Town this week. He said he and his advisers would participat­e in a WTO meeting in Abu Dhabi on February 26-29, the second gathering of trade ministers since the pandemic.

The CBAM policy, to be introduced in January 2026, proposes a carbon tax on imports — such as hydrogen, steel, fertiliser, iron and aluminium — whose production is carbon-intensive.

The scheme seeks to achieve net neutrality by 2050. According to trade and industrial policy strategies, as much as $7.3bn (aboutR140b­n) worth of African exports are at risk. South Africa’s most vulnerable sectors are iron and steel and aluminium — worth just under 1% of the country’s GDP and nearly 3% of its exports.

Patel said he had met European officials to voice the concerns of South Africa and the continent about CBAM and its impact on the region’s industrial­isation, where he had pointed out that the continent’s emissions are dwarfed by those of the developed world.

“I’ve met with the German state minister [and] raised our concerns, and essentiall­y what it comes down to is our view that the CBAM put forward by the EU is in contravent­ion of both the Paris Agreement and the WTO,” he said.

Patel said the CBAM is unilateral in its current form, and that the world’s policy on emissions needed to take the perspectiv­e of the developing world into account.

“It’s a unilateral step when the world needs multilater­alism. We need a rulesbased system where we co-design the rules. Everybody must contribute to [tackling] climate change. It’s real. It’s going to impact the global south too. But it can’t be done unilateral­ly. It can’t be done by the imposition of a mechanism of one trading partner or one market on behalf of the global commons,” he said.

“I’m looking forward to a constructi­ve engagement with the EU on these matters, and I have raised it with my counterpar­t, the trade commission­er of the EU, Valdis Dombrovski­s.”

Minerals Council South Africa CEO Mzila Mthenjane said discussion­s about the CBAM and emissions should be handled appropriat­ely by South Africans, as the carbon tax would also affect exports to other regions, as global trade policy shifted more towards reducing emissions.

“It’s something that does need to be thought about seriously. The EU is proceeding with the [CBAM]. There are country-to-country engagement­s in terms of trying to alleviate the impact on South African exports to the EU and get some concession­s.

“But I think what it highlights ... is what South Africa’s energy strategy is insofar as [its] investment in renewables [is concerned], and therefore [what it intends to do] over time [to reduce] the carbon content of products that are going to be exported, not only to Europe, but [also] globally,” he said.

South Africa’s mining sector was taking the lead in ensuring the production of its goods reduced both direct and indirect emissions, Mthenjane added.

“This is why you see the mining industry investing heavily in its own renewables, particular­ly to reduce scope 1, which is the direct emissions, as well as scope 2, which is the electricit­y from Eskom. So the operations of mines are becoming carbon-efficient,” he said.

Mineral resources & energy minister Gwede Mantashe said engagement on the impact of the CBAM would be critical to minimising its fallout.

“I don’t think economics works with assurances. There is no economic activity that depends on assurances. It is a function of projection and analysis, and you predict what will happen and you pre-empt it with your plan. So we can’t give assurances that there will be exports and so forth because we are not the exporter,” he said.

“It is going to be a very serious issue for us because we are a developing economy. We are not a developed economy. That is one thing we must internalis­e as South Africans, and we must work on it,” he said.

David Luke of the Firoz Lalji Institute for Africa, who specialise­s in trade policy and trade negotiatio­ns, said African nations could respond to the CBAM in six ways: by exerting diplomatic pressure; mounting a legal challenge; financing an energy transition; developing a voluntary carbon credit market; setting up a uniform African carbon credit scheme; and linking sustainabi­lity with trade.

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 ?? Picture: 123RF/VDWOLF ?? The EU’s carbon border adjustment mechanism calls for taxes on carbon-intensive products.
Picture: 123RF/VDWOLF The EU’s carbon border adjustment mechanism calls for taxes on carbon-intensive products.

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