New EU Carbon Law could hit S.African economy hard: Reserve Bank warns of devastating job losses

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The South African Reserve Bank has warned that the European Union’s (EU) carbon border adjustment mechanism could decimate South Africa’s exports and cost the country thousands of jobs.

The Reserve Bank issued this warning in an economic note detailing the potential effect of the EU’s carbon border adjustment mechanism (CBAM) on South Africa’s export sectors.

This mechanism is intended to be used by the EU to put a price on the carbon emitted during the production of goods that enter the economic bloc.

It is due to be phased in from 2026 to 2034 and will initially cover imports of iron, steel, cement, aluminium, fertiliser, hydrogen, and electricity but may be expanded in the future.

“All export sectors experience declines as coverage of the CBAM extends to all sectors of the economy and all direct and indirect emissions from upstream value chains,” the Bank said.

“Total exports fall by 10.1% in 2050, and GDP declines by 9.3% relative to the baseline.”

“The employment effects are large: 350,000 jobs will be lost by 2050 if more countries adopt a CBAM. This number rises to 2.6 million if all exports are subject to a CBAM.”

“Poverty and inequality also rise, with negative consequences for household welfare. Under different assumptions, the results are different. However, the costs will be large and negative in the absence of any mitigating action.”

The main issue for the South African industry is its reliance on coal for most of its electricity generation, making its manufacturing carbon-intensive.

The country’s key exports include coal and metals such as platinum and gold, which are largely produced using electricity generated from fossil fuels.

Its manufactured exports, such as cars, also rely on coal-generated power.

The Department of Trade, Industry, and Competition submitted a submission to the European Commission last year to urge the economic bloc to reconsider the CBAM’s proposal.

It said the EU’s plan to put a carbon levy on imported goods is an attempt to shift the burden for climate action to developing countries and may contravene World Trade Organization rules.

“CBAM has the effect of transferring the burden of climate action onto developing economies and places undue and unjust burdens on our country and industries,” the Department said.

“The high dependence on the extraction and export of raw materials for beneficiation elsewhere is a historical legacy that was imposed upon us,” it said in a reference to Europe’s colonial past.

In the submission, the department stressed its commitment to the energy transition, including an ambitious emission reduction target, but said that the CBAM plan was unfair, protectionist, and counterproductive.

“The framing of the EU’s CBAM policy is considered to be coercive, as it imposes climate mitigation policy onto developing countries,” it said.

“Rather than driving climate ambition, it risks compromising our ability to achieve our climate objectives.”

The result, it said, would advantage exports coming into the EU from richer countries and increase inequality, poverty and unemployment in countries like South Africa.

The country is not alone in its concerns. The EU plans have already caused diplomatic unease in China and India.

For its part, the EU argues that the CBAM is in line with international trade rules as an environmental measure designed to stop the industry from moving carbon emissions outside of the bloc as it imposes stricter climate measures on the industry.

It also says the mechanism has been designed to be WTO-compliant and will assess the impact of the measure on the poorest countries. Still, that argument hasn’t won favour with South Africa.

Leading industrial nations are likely to benefit from “reciprocal exemptions” under measures being discussed, meaning that the CBAM will breach WTO non-discrimination rules, it said.

“There are two moral and practical imperatives that need to be respected: historical responsibility for current environmental degradation and the capability to address the problem.”

Source: https://dailyinvestor.com/south-africa/51759/reserve-bank-warns-of-devestating-job-losses/

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