EU carbon rules threaten to erode SA’s export advantage

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JEREMY MAGGS: For South African exporters, access to Europe is no longer just about price, quality and tariffs. Increasingly, it’s about being able to prove exactly what sits inside your supply chain.

What am I talking about? Well, everything from carbon emissions to labour practices. With the EU’s Carbon Border Adjustment Mechanism (CBAM) now in force, that could become a serious commercial threat for carbon-intensive South African exporters.

So let’s put some flesh on the bones on this story. Scott Williams is with us, director of business sustainability at Forvis Mazars South Africa. Scott, welcome back to the programme.

Is the European Union then effectively putting up a new trade barrier against South African exporters, given those new demands?

SCOTT WILLIAMS: One could see it that way. Certainly not looking at South African in isolation, but really outside of the EU, the EU is looking to level the playing field when it comes to carbon-intensive products like iron, steel, aluminium, cement and so on.

Within the EU there are existing prices with their EU Emissions Trading Scheme (EU ETS) that EU-based suppliers are in scope for.

Read: SA wants same EU carbon border tax flexibility as US

The CBAM initiative really is looking to level that playing field, as I say, by putting similar, tariffs, if you like, onto non-EU suppliers based on the direct carbon and indirect carbon emissions attached to these products to really level the playing field for EU suppliers.

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So yes, it is a challenge for South African exporters into the EU, that’s for sure.

JEREMY MAGGS: And it’s a big challenge because as I understand it, 98% of our exports currently enter duty free. How much of that advantage then could CBAM actually wipe out?

SCOTT WILLIAMS: So it’s really looking at specific sectors right now, specific products, iron, steel, aluminium, cement, fertilisers, hydrogen, electricity. Some of those much more applicable to the South African exports to the EU than others.

I do feel that CBAM is a new initiative, it only became fully enacted and active in 2026, and I do think further products will be added to it.

I’m sure that some of those, as they are, will be highly relevant to South African exporters as well, be it from other large-scale commodities, agricultural produce perhaps.

So it’s going to have, if anything, an increasing impact on South African exporters rather than a decreasing impact in the next few years.

JEREMY MAGGS: Our coal-heavy electricity system does make South African products, therefore, structurally less competitive in Europe. But the problem here is, can an exporter realistically fix that problem if Eskom’s generation mix is largely out of its control? It’s a real conundrum.

SCOTT WILLIAMS: It is a real conundrum. Yes, because, as you say, our energy mix from Eskom is highly coal intensive.

Compared to some non-EU rivals that will also be exporting products to the EU, it does put South African producers at a disadvantage.

We’ve seen in areas like the mining sector and other industries, our companies trying to reduce their reliance on Eskom through their own renewable energy infrastructure, be that solar on land that they have at mining sites or other examples as well.

Read: Carbon border taxes put South Africa exports at risk, study says

But those are more isolated examples, I would say, and a broader scale. Yes, the Eskom grid composition presents a huge challenge for South African companies looking to send their product to the EU.

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JEREMY MAGGS: You argue that transparency is becoming a condition of market access. All well and good. So there will be specific data that European buyers will demand. I guess the question is how many South African businesses can produce that information when asked for it.

SCOTT WILLIAMS: So yeah, another big challenge. I think if we look at our JSE (Johannesburg Stock Exchange) top 40, and our largest listed companies, they typically already have strong data on their environmental footprint, also their social and labour practices, human rights and so on, across, certainly if not their entire supply chain, across the major components of their supply chain.

I think the risk and the challenge lies at the level just below that.

So perhaps our listed companies that are not of that top 40, top 100 scale and also our large private companies  that do have a lot of exports to the EU as well, and other markets where even if it’s not a regulation or a legislated demand, they want to know about the provenance of what they are buying in terms of the environmental footprint and social impacts – your labour rights, human rights, especially if core components or initial ingredients, if you want to call them that, are coming from areas where there is a known issue with human rights or labour rights, which can be the case across the African continent.

JEREMY MAGGS: Is there a danger that smaller exporters could be locked out because compliance is too onerous and complex and expensive?

SCOTT WILLIAMS: Yes, I think there’s definitely a risk of that, Jeremy.

I think the way that companies get to grips with that risk, especially those smaller exporters, is through that transparency, is through direct communication with customers in the EU or other areas where this kind of information is needed and demanded, and really starting to work on a plan, a timeline of how they can get to where they need to be to satisfy those customers’ demands.

Read:

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I always say start now. You can take it in bite-sized chunks if there’s a lot of work to do. And really, the key thing is not to take the old ostrich approach of bury your head in the sand and hope that this goes away, because the reality is that it won’t.

JEREMY MAGGS: Fair point. So what would inform that plan immediately then, if you’re going to tackle it in bite-sized chunks?

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SCOTT WILLIAMS: So I think immediately you would be engaging with your largest customers where they have these demands and getting the exact specifics of what they need.

Once you have that lay of the land or understanding of what the requirements are, you can then work with yourself, work with a consulting partner to understand what is the low hanging fruit, what areas can I immediately address without too much effort or expense?

Read: South Africa tells UK carbon border tax will deepen inequality

And what are those areas that are going to be intensive, it will take me a bit longer and where I need some more help. And almost coming up with that very detailed plan on how you’re going to address it.

That’s actually something, in my experience, that those customers welcome. If they can see that you have a tangible plan, you’ve got action points and you can monitor it, they really are willing to engage and work with you, in my experience.

JEREMY MAGGS: Just a final question. If I’m an exporter, I might be asking myself at what point does legitimate climate regulation, such as we’re talking about, start looking like green protectionism?

SCOTT WILLIAMS: Yeah, it’s a very, very valid question and we could open Pandora’s box going through that one, I do think there is definitely a strong element of protectionism of EU industrial producers as a result of things like CBAM and even the broader sustainability reporting requirements within the EU. I think that is a very fair comment.

I think for South African industries and South African producers, the key thing is then thinking, what does this mean for my long-term strategy?

Is it going to be an obstacle which is almost immovable and difficult to get over, or can I adjust my approach, and how do I do it proactively to make sure that I’m not left behind and I don’t lose key customers and key markets?

It’s not a one-size-fits-all. I think every company has to look at it in their own circumstances, I guess.

JEREMY MAGGS: Scott Williams, thank you very much indeed. You’re the director of business sustainability at Forvis Mazars South Africa.

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