CBAM Explained: Levelling the Playing Field and Tackling Carbon Leakage

Gaylor Montmasson-Clair outlines the implementation of the Carbon Border Adjustment Mechanism (CBAM) by the European Union, which acts as a carbon tax at the EU border.

This mechanism requires goods exported from South Africa and other countries that haven't faced a carbon price to be taxed similarly to European companies, thereby levelling the playing field. CBAM is part of a broader trend, with other countries like the UK, Canada, and the U.S. considering similar measures.

Additionally, CBAM is just one of many EU regulations impacting economies in the Global South, including policies related to agriculture and circular economy initiatives. The CBAM transition period began in October 2023 and will last until the end of 2025, during which companies can prepare for carbon pricing starting in 2026 and increasing until 2034.

For South Africa, the iron and steel and aluminium industries will face challenges in accessing the European market if they do not decarbonise or implement a domestic carbon price, highlighting the urgency for effective strategies to comply with CBAM and broader regulatory changes.