Potential job losses for over half a million South Africans loom as global carbon border taxes materialsize, according to a warning from the Net Zero Tracker.
South Africa's economy faces significant challenges and opportunities in the wake of carbon border adjustment mechanisms (CBAMs) being implemented by developed countries, particularly in carbon-intensive sectors such as automotive and basic metals.
### Potential Impacts
The introduction of CBAMs could lead to job losses and economic risks for South Africa. Over 500,000 jobs are at risk, with around 422,000 tied to exports to countries with existing or imminent carbon border taxes, such as the EU and the UK, and an additional 89,000 jobs linked to exports to countries considering similar measures, such as Japan and Australia.
The automotive sector is heavily exposed, as 65% of South Africa's vehicle exports by value go to countries implementing carbon taxes. The basic metals sector is particularly vulnerable due to its high carbon intensity, with South Africa's basic metals having nearly twice the embodied CO2 compared to competitors. This increased risk of reduced competitiveness and shrinking market access is further exacerbated by South Africa's heavy reliance on coal for electricity, which drives the high carbon intensity of its manufactured exports.
South Africa could also face losses in export revenue and foreign exchange due to carbon-intensive exports becoming uncompetitive. Exports amount to about $135 billion, with 78% going to markets with net-zero emission targets, indicating broad economic exposure to carbon constraints.
### Opportunities
Despite the challenges, the implementation of CBAMs also presents opportunities for South Africa. The introduction of carbon border taxes can act as a catalyst for modernising and decarbonising key sectors, notably the automotive and metals industries. By reducing reliance on coal and investing in cleaner energy and production technologies, South Africa can lower embodied emissions in its exports, maintaining or regaining competitiveness in global markets with carbon regulations.
Aligning with global net-zero targets can open access to greener markets and attract investment in sustainable industries and green technologies. Transitioning industries like automotive manufacturing towards electric vehicles or more efficient production methods can create new jobs while preserving export revenues.
South Africa has potential in renewables and could integrate cleaner energy sources to reduce the carbon footprint of its industrial base, lessening the impact of CBAMs. Innovation and policy shifts supporting carbon pricing domestically could help level the playing field and prepare industries for the global carbon economy.
### Summary
South Africa faces serious risks of job losses, reduced export competitiveness, and economic strain in the face of carbon border taxes, particularly in carbon-intensive sectors like automotive and basic metals. However, these challenges also present an opportunity to accelerate green transition strategies, align with global decarbonization trends, and ultimately enhance the resilience and sustainability of its export-driven economy.
The success of these initiatives hinges on financial and political support from developed countries, particularly those involved in the Just Energy Transition Partnership (JETP) with South Africa. The JETP nations, including the UK, EU, Denmark, France, Germany, and the Netherlands, are under pressure to honour their commitment of $8.5 billion in funding to help South Africa reduce its dependence on fossil fuels.
South Africa has key advantages for the low-carbon transition, including world-class renewable energy potential, rich reserves of critical minerals, and representation in major trade and governance bodies. The South African government has laid the foundation for long-term decarbonization through the Climate Change Act of 2024 and the Just Transition Framework.
Sources: [1] Net Zero Tracker, "Carbon Competitiveness: South Africa at the Net Zero-Trade Nexus" [2] BloombergNEF, "South Africa's Automotive Industry Faces Uncertain Future with Carbon Border Taxes" [3] World Resources Institute, "South Africa's Basic Metals Industry at Risk from Carbon Border Adjustment Mechanisms" [4] International Energy Agency, "South Africa's Energy and Emissions Outlook"
- The automotive and metals industries in South Africa could benefit from the implementation of carbon border taxes by modernizing and decarbonizing, thus lowering embodied emissions in their exports and maintaining competitiveness in global markets with carbon regulations.
- By redirecting investments towards cleaner energy and production technologies, South Africa can reduce its reliance on coal, lowering the carbon intensity of its manufactured exports and improving its competitiveness.
- Aligning with global net-zero targets can open access to greener markets for South Africa, attracting investment in sustainable industries and green technologies.
- Innovation and policy shifts supporting carbon pricing domestically, as well as financial and political support from developed countries like those in the Just Energy Transition Partnership, are crucial to help industries prepare for the global carbon economy and lessen the impact of carbon border adjustment mechanisms.
