Socio-economic impact assessment of CBAM on the South African economy

Abram Marema, Tshwanelo Rakaibe, Anieke Swanepoel, Boitumelo Tlokolo, Lwazilenkosi Nqoko, Richmore Dondofema

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Abstract

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is a regulatory framework aimed at pricing carbon emissions embedded in imported goods. This presents substantial risks for South Africa’s carbon-intensive industries. The study aims to determine the potential socio-economic effects of CBAM on South Africa’s export industries, with an emphasis on the iron & steel, aluminium, cement, and fertiliser industries. Using the macroeconomic impact model (MEIM), the socio-economic effects were quantified. Three scenarios were explored, and under the mid-case scenario, the results reveal an estimated total loss of approximately R10.2 billion (0.21% of real GDP) in GDP, R20.3 billion in capital formation, R7.0 billion in household income, R2.7 billion in government revenue and R4.8 billion in net exports as a result of the imposition of CBAM across four industries (iron & steel, aluminium, fertiliser and cement). About 18 100 FTE jobs are also estimated to be lost. The decline in government revenue is estimated to leave about 26 251 grant beneficiaries, 599 educators, 126 hospital beds, 21 doctors and 134 low-cost houses unfunded. The iron & steel industry is estimated to be the most impacted, followed by aluminium, due to its large export base to the EU. These results highlight the need to decarbonise the production processes of these industries by 2030 to mitigate these impacts. Enhancing decarbonisation strategies in South Africa, such as improving energy efficiency, material efficiency and substitution, and investing in clean energy technologies, is crucial in the face of changing global trade flows.

Keywords
Carbon Border Adjustment Mechanism (CBAM), South Africa, Decarbonisation, Export industries, Socio-economic effects