(Bloomberg) — A recent report by the South African Reserve Bank warns that the country’s economic growth may suffer significantly if carbon taxes are widely imposed on its exports.
The report indicates that the impact could potentially amount to 10% of exports and over 9% of the gross domestic product by 2050 under a worst-case scenario where all trading partners levy carbon taxes on exports. However, the report also suggests that the consequences could be less severe based on various studies analyzing the effects of the European Union’s new Carbon Border Adjustment Mechanism on South African exports.
The South African Reserve Bank emphasizes the need for transitioning to a greener economy due to the country’s high carbon intensity, despite contributing only 1% to global greenhouse gas emissions. With about 80% of its power generation coming from coal, South Africa faces challenges in reducing carbon intensity. The report recommends accelerating the green transition by swiftly reducing the carbon intensity of production and implementing higher local carbon taxes to use the additional revenue effectively.
The EU’s Carbon Border Adjustment Mechanism aims to safeguard the bloc’s competitiveness and impose a fair price on emissions used in the production of imported goods, with enforcement starting in 2026. Initially impacting South Africa’s natural resource sectors, such as mining, the mechanism could result in a modest 4% decline in exports to the EU and a marginal 0.02% reduction in gross domestic product by 2030.
However, if the EU’s mechanism extends to all South African exports and is adopted by other countries like the US, Canada, and Japan, the repercussions would be severe. The report projects a significant 10.1% decrease in total exports and a 9.3% decline in GDP by 2050 compared to the baseline scenario. Job losses are also anticipated, with 350,000 jobs at risk by 2050 under a broader implementation of the Carbon Border Adjustment Mechanism, potentially rising to 2.6 million job losses if all exports face such levies.
Even with potential negotiations for exemptions, South Africa remains exposed to risks from shifting consumer preferences and faster adaptation to carbon-related border levies by trade competitors.
