Carbon taxes heat up Africa

The issue of carbon border taxes is getting more complicated.

It’s a very real – and very expensive – issue for South Africa, and for every other country exporting to the European Union, whose carbon border regulations come into effect later this year. The United States has indicated that it will soon follow suit.

The EU imposes high carbon taxes on its manufacturing industries. The border tax is meant to protect EU manufacturers from domestic competition with imports from countries that have lower carbon taxes. Goods entering the EU will be subject to a tax equivalent to what producers would have paid in the EU.

The EU border tax comes into effect in 2026, but importers will have to start reporting on their carbon content from October this year. It will apply to carbon-intensive products such as iron and steel, cement, aluminium, fertilisers, electricity and hydrogen.

South Africa has its own carbon tax, but it is being applied slowly and the rates are far lower than in the EU.

South Africa’s trade minister, Ebrahim Patel, has called the EU measure “profoundly unhelpful” and labelled it a “green trade barrier”. He objected to the EU’s unilateral decision, saying such issues should be decided by multilateral discussion and negotiation with the countries affected.

A different approach has been put forward by Seutame Maimele, an economist at the independent Trade and Industrial Policy Strategies (TIPS) research institution. As reported in the financial newspaper Business Day, Maimele argued that South Africa and other African countries that have the EU as an important trading partner should speed up their implementation of carbon taxes.

His reasoning is simple: if African companies pay the EU border tax, the money goes into EU coffers. If they pay it in their home country, the finances stay at home and can be used to fund local decarbonisation efforts.

The urgency of decarbonisation was “a hard economic reality” for South Africa, said Crispian Olver, head of the country’s Presidential Climate Commission. 

“If we don’t decarbonise, we’re going to be shut out of the global trading system and we will lose massive amounts of jobs,” he said during a BBC interview.