South Africa's aluminium exports could lose more than half their value to levies under the EU's Carbon Border Adjustment Mechanism (CBAM), according to manufacturer Hulamin.
South African products exported to the EU are assumed to have embedded greenhouse gas (GHG) emissions of around 18t CO2 equivalent (CO2e)/t on average, Hulamin environmental sustainability head Hendrik de Villiers said.
Hulamin is Africa's largest aluminium manufacturer, with a capacity of 200,000 t/yr.
The exact CBAM levy is not known yet, but a rate of €80/t CO2e would translate into €1,440/t for unprocessed South African aluminium, De Villiers noted.
Assuming an LME aluminium price of €2,500/t, CBAM could absorb well over 50pc of the value of unprocessed South African product by 2034, he said, adding: "This is, of course, the worst-case scenario, where no mitigating actions are taken."
De Villiers was speaking during a webinar hosted by the EU Chamber of Commerce and Industry in Southern Africa and the European Delegation to South Africa.
CBAM's transition phase — during which EU importers must provide greenhouse gas (GHG) emissions data to the EU — ends on 31 December 2025. From 1 January 2026, EU importers will have to surrender CBAM certificates for emissions embedded in their products.
By 2034, it is assumed CBAM will be levied on Scope 1 and Scope 2 emissions. Scope 1 emissions are direct GHG emissions from a company's operations, while Scope 2 are from the generation of a firm's purchased electricity.
In 2023, South Africa's CBAM-affected exports to the EU had a total value of €1.1bn, or 5pc of the total value of the country's exports, according to the European Commission's directorate of taxation and customs.
"CBAM will have an important impact on South Africa, because around 4pc of the country's global exports are iron and steel and around 1pc is aluminium," the directorate's CBAM unit head, Vicente Hurtado Roa, said. The EU also receives some 35pc of South Africa's aluminium exports, he said.
The European Commission's own figures show South African exports of CBAM goods to the EU running at 1.09mn t/yr — with 900,000t of this iron and steel, and the rest aluminium.
De Villiers outlined measures that could help mitigate CBAM costs. Manufacturers could cut their energy intensity through efficiency improvements, for example.
Scope 2 emissions can be reduced by integrating renewables and other low-carbon generation sources into the aluminium supply chain. "However, this cannot be done independent from the national grid," De Villiers pointed out.
De Villiers also suggested that the South African government should use the country's carbon tax to offset CBAM and retain tax revenues locally.
Since CBAM takes into account carbon taxes paid in the country of origin, the government should tax emissions and use the revenue to support decarbonisation of domestic industry, especially energy-intensive users that benefit the economy but are at risk from the high grid emission factor.
Around 80pc of South Africa's electricity is coal-fired and the country is the 15th largest GHG emitter, according to the World Resources Institute. This means the inclusion of Scope 2 emissions in CBAM is South African energy-intensive manufacturers' "biggest concern", De Villiers said.
South Africa's carbon tax was phased in from June 2019 at 120 rand/t CO2e ($7/t CO2e), and had increased to R134/t CO2e by the end of 2022. The Treasury is targeting $30/t CO2e by 2030.
