CBAM could harm developing economies – South Africa

Carbon Border Adjustment Mechanism (CBAM) will hurt developing economies if they do not rapidly phase out fossil fuels in favor of green energy. This opinion was expressed by South African President Cyril Ramaphosa at a climate change conference organized by the National Treasury and the World Bank in Pretoria, Reuters reports.

The carbon intensity of South Africa’s economy, which relies heavily on burning coal to generate electricity, is unsustainable, he said. This dependence began to create significant risks.

South Africa was the most carbon-intensive major economy in 2022, producing 709g of carbon dioxide per кВт⋅год of energy produced, according to think tank Ember. According to Climate Transparency, the country entered the top 15 world leaders in greenhouse gas emissions, ranking above Turkey, Italy, France and the UK.

Recently, South Africa’s new energy minister pledged to accelerate the transition to renewable energy by changing the rhetoric of a predecessor who defended the coal business. However, little is known about the details of this plan.

Western donors offer billions of dollars in loans to finance the country’s environmental transition, but South African officials claim that these loans barely cover the necessary amounts.

South Africa has some of the best solar and wind capacity in the world, but investors are scared off by years of bureaucratic delays in issuing licenses and political uncertainty. Last year, the government postponed the decommissioning of eight coal-fired power plants until 2030, citing energy security.

According to Africa Confidential, impact assessments suggest that South Africa’s economy will be hit hardest by CBAM in Africa, along with Mozambique and Angola. Under the worst-case scenario of the African Climate Fund, the continent’s exports could decline by 4%.

Other economists point out that African states may impose their own carbon levies or use «resource shuffling» to export low-emission goods to Europe and high-emission goods to other markets to limit the impact of CBAM.

Previously, South Africa intended, together with India, to challenge CBAM in the World Trade Organization, but in recent months this rhetoric has become less belligerent. The European Commission launched negotiations with the governments of several countries, including Pretoria, in order to mitigate the consequences of the introduction of the mechanism of transboundary carbon adjustment.

In May of this year, South Africa notified the World Trade Organization regarding the introduction of a protective duty of 9% on imports of hot-rolled steel from all countries for a period of 200 days, starting from June 28, 2024. The event aims to protect local industry from the influx of imports. Developing countries will be exempt from the duty.