EU Carbon Border Adjustment Mechanism Regulations (CBAM)

Your guide to navigating the complexities of the EU carbon tax regulation and how it affects South African Companies.

aerial view of supply chains

What is the EU Carbon Border Adjustment Mechanism?

The Carbon Border Adjustment Mechanism, or CBAM, is a new European Union regulation that imposes a price on carbon emissions embedded in goods imported into the EU. This policy requires companies to report these emissions and purchase CBAM certificates, effectively levelling the playing field for European businesses while encouraging other countries, including South Africa, to reduce their emissions. For South African exporters, this could mean added costs when exporting carbon-intensive goods like iron, steel, aluminium, and cement to the EU , unless emissions are curbed to meet EU standards.

Find out more about the implementation of CBAM.

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CBAM: A Global Shift Towards Sustainable Trade

On 10th May 2023, the European Parliament and Council introduced CBAM to prevent carbon-intensive imports from undermining the EU’s climate objectives and to promote the adoption of cleaner production practices worldwide. . This regulation is a key component of the EU’s strategy to achieve climate neutrality by 2050as well as address the risk of unfair trade advantages accruing to countries with lower emissions standards. For South African businesses, this is a signal that carbon efficiency is becoming an essential aspect of international trade competitiveness.

Which Sectors are Affected by CBAM?

During the transitional phase until 31st December 2025, CBAM targets imports of iron, steel, aluminium, hydrogen, fertilisers, electricity, and cement. South African companies involved in these sectors need to prepare for the reporting and compliance requirements. Future expansions of CBAM may include other carbon-intensive products, which could further impact South African exports to the EU.

What do South African Businesses Need to do Now?

To comply with CBAM, South African exporters must start gathering data on the carbon emissions of their products. Key steps include:

  1. Assess Product Scope and Origin: Identify which products are subject to CBAM and evaluate their carbon footprint.
  2. Collect GHG Data: Gather greenhouse gas data from production processes to accurately report emissions associated with exported goods.
  3. Establish a GHG Reporting System: Set up a system to track and report both direct and indirect emissions.
  4. Prepare for CBAM Registration and Reporting: Register with the CBAM Authority and prepare for quarterly emissions reporting through the CBAM Portal.

What Are the Penalties for Non-compliance with CBAM?

Failure to comply with CBAM reporting requirements can lead to significant financial penalties. South African companies may face fines ranging from EUR 10 to EUR 50 per tonne of unreported emissions if reports are missing, incorrect, or incomplete. The National Competent Authority (NCA) has the authority to initiate correction procedures, and failure to address these corrections can result in additional penalties.

ACCESS THE EU CBAM REGULATION

What Happens Next?

As CBAM progresses, South African companies exporting to the EU must conduct thorough impact assessments and develop compliance roadmaps. This approach will not only help in meeting mandatory reporting requirements but also prepare businesses for future expansions of CBAM. The transition to purchasing CBAM certificates will focus on covering the GHG footprint of products, thus aligning business practices with international carbon reduction standards.

Implications for South African Exporters

CBAM’s introduction represents a broader global movement towards sustainable trade. For South African exporters, this necessitates a review and potential adjustment of production processes to reduce carbon emissions and avoid the additional costs associated with CBAM compliance. Proactively engaging in carbon reduction strategies will not only help avoid penalties but also enhance competitiveness in a low-carbon global market.

Next Steps for South African Companies

With CBAM set to become a standard part of doing business with the EU, it is essential for South African companies to stay ahead by aligning their operations with these requirements. A proactive approach, focusing on understanding the full scope of CBAM’s impact, will position South African businesses not just for compliance, but for leadership in sustainable trade practices.

How Anthesis South Africa Can Help

Anthesis South Africa offers extensive expertise in GHG inventories, climate reporting, and compliance strategies tailored for local businesses. Our team can guide South African companies through the complexities of CBAM, from initial impact assessments to implementing robust reporting systems and managing the financial liabilities of CBAM certificates. With our support, South African exporters can effectively navigate these new regulations, ensuring compliance and maintaining access to the EU market.

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