Yet another trade problem for Minister Patel and his delegation in Washington will be US plans to impose a carbon border tax which will push up the price of steel and other carbon intensive goods imported into the US.
South Africa and the US both objected when the European Union announced its carbon border tax. Now the US plans to follow the EU’s lead and South African goods will be threatened in two of its main export markets.
As the financial newspaper Business Day reported, “the noose is tightening on exporters around the world – including South Africa – that have high levels of greenhouse gas emissions in their production processes”.
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.
Apart from these industries’ own production processes, they use electricity which, in South Africa, is mostly derived from coal. South Africa has its own carbon tax, but it is being applied slowly. The difference will be paid at EU borders from 2026.
For the country applying the border tax, it is seen as an equaliser. They are imposing costs on their industries as countries seek to reduce carbon emissions in terms of the 2015 Paris agreement on climate change.
The tax treats imports according to the same standards as local producers, applying a carbon price to ensure that imports do not enjoy an unfair advantage over local industries.
The measure, officially a carbon border adjustment mechanism or CBAM, also aims to prevent “carbon leakage” – the relocation of factories to countries with less ambitious climate policies.
However, for countries whose goods will be subject to the tax, it can be seen as “green protectionism” – the accusation Patel levelled against the EU. He also called it “profoundly unhelpful”.
A report on the implications of the EU border tax for Africa estimated that African countries could lose $25 billion a year.
Details of the US measure, such as when and how it will be applied, will not be known until legislation is introduced. While it will primarily be aimed at China, South Africa and other countries will be caught in the crossfire.