Carbon Tax Dilemma: EU Policy Spells Trillion-Rand Worry for Coal-Reliant South Africa

As South Africa grapples with a struggling economy and a critical energy crisis, a looming carbon tax from the European Union could intensify the country’s economic predicament. The EU’s newly approved carbon border adjustment mechanism may potentially cost South Africa a whopping R1.63 trillion over the next 15 years, as projected by analysts at S&P Global Ratings.

EU’s Response to Climate Change

The carbon tax policy is a response to increasing concerns about climate change, underscored by recent record-breaking temperatures and heatwaves in various European countries. This development follows the final approval of the carbon border adjustment mechanism by the EU in May, with the goal to slash Europe’s greenhouse gas emissions by at least 55% by 2030.

South Africa’s Stand on the Carbon Tax

City Press noted that the South African government lodged an objection to the European Commission, arguing that the carbon tax unfairly shifts the climate change burden onto South Africa’s struggling economy.

The carbon tax, set to be enacted in 2026, would initially impact South Africa’s iron, steel, and aluminium sectors. Subsequently, industries focusing on plastics and fertilisers could face the same fate.

South Africa’s Coal Dependence

South Africa’s heavy dependence on coal power is widely known, and it’s a point of contention with international environmental standards. Gwede Mantashe, the Minister for Mineral Resources and Energy, recently noted the connection between efforts to move away from coal and the load shedding currently afflicting the country.

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In the face of pressures from developed nations like those in Europe to reduce coal reliance, Mantashe voiced strong objections. He emphasized, “South Africans must never allow ourselves to be encircled by the developed nations who fund lobbyists to pit our country’s developmental needs against their own self-serving protection of the environment.”

Mantashe stressed the country’s right to determine its own pace and scale of transition.

Coal Infrastructure as Load-shedding Solution?

Adding to the discourse, former Eskom CEO Jacob Maroga suggested that focusing on existing coal infrastructure, rather than independent power producers offering renewable energy alternatives, could be Eskom’s best solution to load shedding. He affirmed, “The most important lever to end load-shedding is to have an improved and consistent performance of the coal fleet.”

However, the EU’s new carbon tax policy brings a fresh layer of complexity to South Africa’s energy crisis and its already strained economy, forcing a reconsideration of its energy sources and climate change response strategy.