Recently, the Pan-African policy support organization, the African Future Policies Hub, hosted a webinar to discuss the impact of these amendments. The main concern is the inclusion of indirect emissions in the CBAM, which poses a serious challenge for African enterprises. Indirect emissions refer to the carbon emissions generated by the electricity consumed during the production process of products. For African countries, such as South Africa, the challenges brought by this are even more serious because South Africa relies heavily on coal-fired power generation. The CBAM amendment will gradually require producers to track and report the carbon intensity of electricity used in their production processes, not just the direct emissions from on-site manufacturing. Hendrik de Villiers, one of the panel members participating in the online seminar and the head of the environmental sustainability initiative at aluminium producer Hulamin, warned of the possible impact of this shift, saying: "The introduction of indirect emissions..." It is possible to completely exclude us from the European market unless there are dramatic changes. African exporters using carbon-intensive electricity will face higher carbon adjustment costs, requiring them to accurately calculate electricity emissions, invest in clean alternative energy sources, establish sound reporting mechanisms, and may also need to restructure their energy procurement strategies. The amendment proposes to incorporate the indirect emissions adjustment mechanism in phases, leaving time for enterprises to make adjustments, but it will bring uncertainties to future requirements. De Villiers urged policymakers to take urgent action. Policy makers need to pay attention as soon as possible... Use this money to decarbonize your country so that you can remain or become more competitive and... First of all, take care of the most difficult industries. Seutame Maimele, an economist with the Strategic Agency for Trade and Industrial Policy (TIPS) of South Africa, pointed out that the affected enterprises responded inadequately. We can see that there are still many inadequacies in terms of greenhouse gas (emission reduction) infrastructure... We may need at least five years to prepare... Only in this way can the affected enterprises in South Africa be well-prepared to respond. The initial regulatory system of CBAM was proposed by the European Union in 2021, imposing a carbon tax on the import of certain goods to ensure that non-EU producers comply with standards similar to those of EU manufacturers. This mechanism is designed to prevent carbon escape, that is, enterprises move their production to countries with lenient climate policies to avoid carbon taxes. It requires importers to purchase CBAM certificates equivalent to the EU carbon price, thereby creating a fair competitive environment between EU producers who have already paid under the EU emissions trading scheme and foreign competitors. The transition period of CBAM began in October 2023 and was originally scheduled to be fully implemented on January 1 next year. One of the key modifications is the introduction of a minimum exemption limit, which will exempt occasional or minor importers in the EU. Studies show that approximately 80% of EU importers account for only 0.1% of their emissions, while 10% of importers make up over 99% of the CBAM's target emissions. Therefore, the amendment adjusted the threshold of the CBAM for larger importers while exempting smaller ones, explained Olivia Rumble, director of climate law, who co-authored a report on this topic with other scholars by the Centre for Africa's Future Policy, which was released on March 14. Previously, there was an import threshold of 150 euros. If the value was lower than this, the CBAM mechanism would not apply. The adjusted CBAM proposes to abolish this customs exemption and replace it with an import quantity threshold of 50 tons per year for each importer. Importers below this threshold only need to monitor their quantity to ensure that it does not exceed this number. Lamble pointed out that importers might spread their imports among multiple enterprises to bypass this threshold, but considering the financial costs and strict anti-abuse regulations, this is unlikely. The threshold and related exemptions only apply to EU importers and do not apply to small businesses in Africa or other exporting countries. However, African exporters who sell to small importers in the European Union may benefit from this change. Nevertheless, the overall impact on exports remains significant, as 99% of indirect emissions are still within the range set by the CBAM. In 2023, a study completed by the African Climate Foundation (ACF) and the London School of Economics & Political Science estimated that The CBAM will reduce Africa's total GDP by 0.91%, equivalent to a reduction of 25 billion US dollars compared to the GDP in 2021. The proportion of this impact in the gross domestic product is higher for African countries than for other countries. The reasons are that the European Union is the main export market for Africa and the carbon intensity of African goods. In response to these concerns, many African countries have requested the postponement of the implementation of the CBAM or the granting of exemptions to Africa and the least developed countries. However, CBAM does not offer such an exemption opportunity. On the contrary, they merely postponed the payment time of the importers. Although CBAM will still be fully implemented on January 1 next year, the submission deadline for CBAM certificates has been postponed to August 31, 2027. This means that despite the delay in payment times, African exporters will still face the cost of embedded emissions in 2026. To address these challenges, De Villiers put forward several suggestions for African exporters. First of all, he emphasized the importance of building a precise emission tracking system.
First of all, you must track the metal raw materials because the materials you put into the furnace... It can be the raw metals from smelters with extremely high carbon footprints... "It could also be zero-carbon footprint recycled metals that enter your process," he said. Contacting upstream suppliers is also a crucial move. De Villiers said, "So, contact with upstream suppliers is necessary..." For importers of metals, stainless steel, aluminium or iron, this is a major matter that you must consider. He also shared the experience of Hulamin Company and suggested starting the verification as early as possible. This week, we will start an informal procedure with a capable partner as we hope to be well-prepared to prevent any unexpected incidents during certification or verification. The adoption of specific emission measurement methods was also highlighted. De Villiers said, "We calculated the quantities of liquefied petroleum gas and natural gas used, and then adopted an emission coefficient..." A coefficient approved by the International Energy Agency (IEA).
