South African manufacturers of steel and other carbon-intensive products may soon face a new difficulty for their exports to the European Union – a carbon border tax which is likely to push up the price of their products in EU markets.
The import tax, agreed by EU members at the end of last year, will come into effect in 2026, but reporting on levels of carbon emissions for exporters to the EU begins in October this year.
The carbon border tax will initially affect EU imports of cement, iron and steel, aluminium, fertilisers and electricity. As EU manufacturers have to pay carbon taxes as part of the EU drive to reduce greenhouse gas emissions, the border tax is designed to ensure that imports from countries with less strict regulations do not enjoy a price advantage.
Importers will have to buy carbon certificates corresponding to the carbon price that would have been paid in the EU if the goods had been produced there.
The EU sees it as ensuring fair competition, but already there are accusations of “green protectionism”. The United States and South Africa are among the countries that have expressed concern, and there is speculation that it could end in a dispute at the World Trade Organisation.
Alternatively, there could be negotiations, compromises or an increased drive by exporters to the EU to lower their carbon emissions and thus the EU import tax. Compliance will push up costs and raise prices in producing countries.
Supporters see this as a necessary awakening to the need to reduce emissions and to include carbon costs in world trade.
