As South Africa grapples with the imminent 1 January 2026 deadline for compliance with the European Union’s Carbon Border Adjustment Mechanism (CBAM), experts are voicing grave concerns about the country's preparedness.
With the threat of a 0.3% cut to gross domestic product (GDP) from affected industries by 2030, the urgency to accelerate the green transition has never been clearer.
As the 2026 deadline approaches, the onus rests on South Africa to bolster its readiness for the dual challenge of reducing carbon emissions and meeting international compliance standards. The stakes could not be higher for the local economy, with the clock ticking ominously towards a future shaped by green regulations.
The International Fiscal Association (IFA) South Africa recently highlighted the pressing nature of the situation.
“The EU has completed its first year of transitioning towards a permanent CBAM, which means local exporters are left with just over a year to adapt," said Johann Hattingh, a Professor of international tax law at the University of Cape Town and an IFA executive.
Hattingh stressed that South Africa’s energy-intensive economy, coupled with one of the lowest carbon tax rates globally, puts local exporters at a distinct disadvantage.
Under the CBAM framework, from January 2026, South African importers will face penalties linked to the greenhouse gas (GHG) emissions associated with their products, starting with sectors such as aluminium, steel, fertilisers, electrical energy, hydrogen, and cement.
The EU plans to expand this list as soon as 2030.
South Africa ranks among the top 15 countries expected to be significantly affected by these new regulations, placing it in a category that includes other major exporters like China, Brazil, and India.
Seutame Maimele, an economist with the Trade and Industrial Policy Strategy (TIPS), yesterday offered insight into the implications for local industries.
Maimele pointed out that South Africa’s carbon intensity and the relatively small share of CBAM-covered goods in the EU import basket limit its bargaining power.
“For South Africa to effectively engage with the EU, a cooperative stance with other countries in the global south may provide leverage,” Maimele said.
One of the critical challenges facing local firms is the requirement to report actual emissions—a sizeable shift from relying on default values published by the European Commission.
As the fourth quarterly CBAM report approaches at the end of October, the pressure mounts for South Africa to establish robust Monitoring, Reporting, and Verification (MRV) systems.
“Some firms have begun developing MRV systems, but many are lagging behind; this process can take at least five years,” Maimele explained.
Moreover, verification remains a significant hurdle. Most South African companies find the verification process costly and are limited by a lack of domestic capacity, often relying on costly international consultants to conduct verification for their Environmental, Social, and Governance (ESG) reporting.
“While seeking new markets is an option, it is costly and remains a last resort,” Maimele noted, emphasising that dialogues between the government and affected industries currently focus on adaptation strategies to meet the CBAM’s requirements.
Meanwhile, Hattingh further added that the CBAM aims to combat carbon leakage by preventing EU producers from relocating their operations to countries with less stringent carbon regulations.
"The CBAM regime highlights the interdependence of trading partners and exposes the power imbalances inherent in international trade, where some nations can influence the fiscal policies of others,“ Hattingh said.
BUSINESS REPORT