EU Carbon Regulations Could Threaten South Africa’s Export Competitiveness

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JEREMY MAGGS: For exporters in South Africa, accessing the European market now hinges on more than just competitive pricing, quality, and tariffs. It increasingly requires proof of what exactly is included in your supply chain.

What does this entail? It involves everything from carbon emissions to labor practices. With the implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM), carbon-intensive South African exporters may face significant commercial challenges.

Let’s delve deeper into this topic. Joining us is Scott Williams, director of business sustainability at Forvis Mazars South Africa. Welcome back to the program, Scott.

Is the European Union effectively establishing a new trade barrier for South African exporters with these demands?

SCOTT WILLIAMS: It could certainly be perceived that way. When we consider South Africa, we must look at it in the broader global context. The EU aims to create a level playing field for carbon-intensive products, such as iron, steel, aluminum, and cement, coming from outside the EU.

Within the EU, there are established prices under the EU Emissions Trading Scheme (EU ETS) that local suppliers adhere to.

Read: SA seeks the same EU carbon border tax flexibility as the US.

The CBAM initiative’s goal is to create parity by imposing similar tariffs on non-EU suppliers based on their direct and indirect carbon emissions, thus ensuring fair competition for EU producers.

This is undoubtedly a challenge for South African exporters to the EU.

JEREMY MAGGS: It’s a significant challenge given that 98% of our exports currently enter duty-free. How much of that benefit could the CBAM potentially undermine?

SCOTT WILLIAMS: The focus is currently on specific sectors and products like iron, steel, aluminum, cement, fertilizers, hydrogen, and electricity. Some of these are directly relevant to South African exports to the EU.

I believe that CBAM is a new initiative, fully enacted and operational since 2026, and there are likely to be additional products included in the future.

Some of these future products may be highly pertinent to South African exporters, particularly large-scale commodities and agricultural goods.

As a result, the impact on South African exporters is expected to increase rather than decrease over the coming years.

JEREMY MAGGS: Our reliance on coal for electricity does render South African products structurally less competitive in Europe. The challenge is whether exporters can realistically address this issue, given that Eskom’s generation mix is largely beyond their control. It’s indeed a complex puzzle.

SCOTT WILLIAMS: It is indeed a complex issue. Our coal-intensive energy mix from Eskom does disadvantage South African producers compared to certain non-EU competitors exporting to the EU.

We’ve observed that companies, especially in the mining sector, are attempting to lessen their dependence on Eskom by investing in renewable energy solutions, such as solar systems installed at mining sites.

However, these instances are more isolated; on a broader scale, the composition of the Eskom grid poses substantial challenges for South African companies looking to export to the EU.

JEREMY MAGGS: You assert that transparency is becoming a prerequisite for market access. That makes sense. However, how many South African businesses are equipped to provide the necessary information when requested?

SCOTT WILLIAMS: That is indeed another significant challenge. If we examine the top 40 companies on the JSE (Johannesburg Stock Exchange), our largest listed firms, they commonly have robust data regarding their environmental impact, as well as their social and labor practices throughout their supply chains.

The risk lies primarily with companies that fall just below that top tier—those large private exporters with significant EU market share, where even if regulatory pressures are absent, customers still want assurance about the environmental and social footprints of their products, especially if they originate from regions known for human rights or labor issues.

JEREMY MAGGS: Could there be a risk that smaller exporters might be excluded due to compliance being too cumbersome, complex, or expensive?

SCOTT WILLIAMS: Absolutely, Jeremy. There’s a tangible risk of that occurring.

I believe that smaller exporters can mitigate this risk by pursuing transparency and establishing direct communication with their EU customers to better understand the specific information required, and formulating a timeline and plan to meet those demands.

Read:

SA’s impending 30% US tariff: Trade, investment, and growth in question.

David vs Goliath: How the EU Carbon Border Adjustment Mechanism will affect Africa.

Starting now is essential. Tackle it in manageable segments if needed. The key is to avoid the ‘ostrich approach’ of ignoring the issue, as it won’t simply disappear.

JEREMY MAGGS: That’s a valid point. What should inform that plan at the outset if one is to approach it incrementally?

SCOTT WILLIAMS: Initially, you should connect with your largest customers who have these specific requirements to ascertain exactly what they need.

With a clear understanding of those needs, you can collaborate with consultants to identify immediate priorities—areas where you can make improvements with minimal effort or cost.

Read: South Africa warns the UK carbon border tax will exacerbate inequality.

Then, identify those areas requiring more resources and time, and develop a comprehensive strategy for addressing them.

In my experience, customers appreciate seeing a tangible plan with actionable steps that can be monitored, leading them to be more willing to engage and collaborate.

JEREMY MAGGS: To conclude, if I’m an exporter, I might question when legitimate climate regulations could start to resemble green protectionism.

SCOTT WILLIAMS: That’s a valid concern, and it opens up a complex discussion. There is undoubtedly an element of protectionism for EU industrial producers related to initiatives like CBAM and broader EU sustainability reporting requirements, and that observation is quite fair.

For South African industries and producers, the crucial consideration should be: what does this mean for my long-term strategy?

Will it pose an insurmountable obstacle, or can I adapt my strategy proactively to ensure I don’t lose key customers and markets?

There’s no one-size-fits-all solution; each company must assess its own circumstances.

JEREMY MAGGS: Thank you very much, Scott Williams, director of business sustainability at Forvis Mazars South Africa.