Recent amendments to the EU’s Carbon Border Adjustment Mechanism (CBAM) regulatory framework, introduced on February 26, are expected to have significant implications for African exporters.

The impact of these amendments was discussed during a webinar on March 26, hosted by the pan-African policy support organisation African Future Policies Hub.

Among the key concerns raised was the inclusion of indirect emissions in the CBAM framework, which could present significant challenges for African businesses.

Indirect emissions refer to the carbon emissions generated from electricity consumption during a product's manufacturing process. This poses a particular challenge for African countries such as South Africa, where electricity grids rely heavily on coal-based power generation.

The CBAM amendments will gradually require manufacturers to track and report the carbon intensity of the electricity used in their production processes, expanding the scope beyond direct emissions from on-site manufacturing.

One of the webinar’s panel members, aluminium producer Hulamin environmental sustainability initiative head Hendrik de Villiers emphasised the potential ramifications of this shift, stating, "The introduction of indirect emissions . . . has the potential to push us out of the European market completely, unless something drastically happens."

African exporters with carbon-intensive electricity generation will face higher carbon adjustment costs, requiring them to measure their electricity-related emissions accurately, invest in cleaner energy alternatives, develop robust reporting mechanisms, and potentially restructure their energy procurement strategies.

The amendments suggest a phased approach to including indirect emissions, allowing time for businesses to adjust but creating uncertainty about future requirements.

De Villiers urged policymakers to take urgent action.

"Policymakers need to really pay attention to this urgently . . . use that money to decarbonise your country so that you remain or become competitive and . . . look after the hardest industries first,” he said.

TIPS economist Seutame Maimele pointed to the lack of preparedness among affected firms.

"We see that there's still a lot of unpreparedness in terms of the greenhouse-gas [emissions reduction] infrastructure . . . we might need at least five years to prepare . . . to allow the South African affected firms to be well prepared,” he said.

The original CBAM regulatory framework was introduced by the EU in 2021 to impose a carbon price on imports of certain goods, ensuring that non-EU producers adhere to similar environmental standards as EU manufacturers. The mechanism is designed to prevent carbon leakage, where companies relocate production to countries with weaker climate policies to avoid carbon pricing.

It requires importers to buy CBAM certificates equivalent to the EU carbon price, thus levelling the playing field between EU producers, who already pay under the EU Emissions Trading Scheme, and foreign competitors. The transitional phase of CBAM began in October 2023, with full implementation scheduled for January 1, next year.

Among the key amendments is the introduction of a minimum exemption limit, which would exempt occasional or smaller importers in the EU. Research has shown that about 80% of EU importers accounted for only 0.1% of emissions, while 10% accounted for more than 99% of emissions targeted by the CBAM.

Accordingly, the amendments adjust the CBAM threshold to target larger importers while exempting smaller ones, explained Climate Legal director Olivia Rumble, who co-authored an African Future Policies Hub report on the subject, published on March 14.

Previously, a €150 import value threshold existed, below which the CBAM did not apply. The amendments propose removing this customs exemption and replacing it with a volumetric threshold set at 50 t of product per importer, assessed cumulatively over a year. Importers falling below this threshold will only need to monitor their volumes to ensure they do not exceed it.

Rumble noted that there was a risk of EU importers restructuring their operations to split imports across multiple companies to bypass the threshold, but this was considered unlikely owing to financial costs and stringent anti-abuse provisions.

The threshold and related exemption apply only to EU importers, not to small businesses in Africa or other exporting states. However, African exporters selling to small EU importers may benefit from this change. Despite this, the overall impact on exports remains significant, as 99% of emissions still fall within CBAM’s scope.

A study by the African Climate Foundation and the London School of Economics and Political Science in 2023 estimated that CBAM could reduce Africa’s overall GDP by 0.91%, equivalent to a $25-billion decline at 2021 GDP levels.

The impact as a share of GDP is expected to be higher for African countries than for any other region owing to the EU’s role as a key export market and the carbon intensity of African commodities.

In response to these concerns, numerous African countries have advocated for a postponement of CBAM or an exemption for African and least-developed countries.

However, the proposed amendments offer no such relief. Instead, they merely defer the payment obligation for importers until a later date.

While CBAM is still set for full implementation on January 1, next year, the surrendering of CBAM certificates is proposed to be delayed until August 31, 2027. This means that African exporters will still face the costs of embedded emissions in 2026, despite the deferral of payment obligations.

To navigate these challenges, De Villiers highlighted several key strategies for African exporters. He stressed the importance of developing accurate emissions tracking systems.

"You must track your metal inputs first of all, because what you put into your furnace . . . can be either virgin metal that comes from a smelter that has an extremely high embedded carbon footprint . . . or recycled metal which enters your process with a zero carbon footprint,” he said.

Engaging with upstream suppliers was also highlighted as a crucial step.

"Hence the need to engage with your upstream suppliers . . . In the case of importers of metal and stainless steel and aluminium or iron, that is the big thing that you have to take account of," De Villiers said.

He also recommended starting verification processes early, sharing Hulamin’s approach: "We are starting an informal process with a competent partner this week, because we want to be prepared and make sure that we don't have surprises when we are trying to get certified or verified."

The use of specific emissions measurement methodologies was emphasised.

"We measure the amount of liquefied petroleum gas and natural gas that we use, and then there is an emission factor which is applied to that . . . using an International Energy Agency-approved emission factor,” De Villiers said.