SA Carbon Tax and CBAM: Avoiding Double Taxation on Steel Exports

SA Carbon Tax and CBAM: The Double Taxation Question

One of the most frequently asked questions from South African steel exporters is: "If I'm already paying the South African Carbon Tax, do I also have to pay CBAM?" The answer is nuanced — and the interaction between the two mechanisms has significant financial implications.

How the SA Carbon Tax Works

South Africa's Carbon Tax Act (Act 15 of 2019) imposes a carbon price on greenhouse gas emissions from industrial processes. Key features:

• Current rate: R190/tCO₂ (approximately €9/tCO₂ at current exchange rates)
• Scope: Direct (Scope 1) emissions from industrial processes
• Allowances: Various tax-free allowances reduce the effective rate significantly
• Phase 1 (2019–2022): Extensive allowances meant effective rate was very low
• Phase 2 (2023–2030): Allowances are being reduced, increasing the effective rate

For most South African steel producers, the effective carbon tax rate after allowances is currently R50–R80/tCO₂ (approximately €2.50–€4/tCO₂).

How CBAM Accounts for Third-Country Carbon Prices

Article 9 of Regulation (EU) 2023/956 provides that the CBAM liability can be reduced by the carbon price paid in the country of origin. Specifically:

"The number of CBAM certificates to be surrendered shall be reduced to reflect the carbon price paid in the country of origin for the declared embedded emissions."

This means that if a South African steel producer has paid the SA Carbon Tax on the emissions embedded in goods exported to the EU, the EU importer can claim a deduction from their CBAM liability.

The Deduction Mechanism

The deduction is calculated as follows:

1. Determine the carbon price paid in South Africa (in EUR/tCO₂)
2. Multiply by the embedded emissions in the exported goods
3. Deduct this amount from the CBAM certificate liability

Example:

• SA steel exporter ships 10,000 tonnes of hot-rolled coil to the EU
• Embedded emissions: 10,000 × 2.18 = 21,800 tCO₂ (using EU default)
• CBAM liability at €65/tCO₂: €1,417,000
• SA Carbon Tax paid: R80/tCO₂ effective rate = ~€4/tCO₂
• Deduction: 21,800 × €4 = €87,200
• Net CBAM liability: €1,329,800

The deduction is meaningful but modest — the SA Carbon Tax rate is approximately 6% of the EU ETS price, so the deduction reduces CBAM liability by approximately 6%.

The Documentation Requirements

To claim the carbon price deduction, the EU importer must provide:

1. Evidence that the carbon price was paid in South Africa
2. The applicable carbon price in EUR/tCO₂
3. Documentation linking the carbon price payment to the specific goods exported

South African exporters should work with their EU importers to ensure this documentation is prepared and available before the 30 September 2027 surrender deadline.

The Policy Advocacy Angle

South Africa has been actively engaging with the EU on CBAM, arguing that the mechanism is inconsistent with WTO rules and that the SA Carbon Tax should be given greater recognition. The Department of Trade, Industry and Competition (DTIC) and National Treasury are involved in these discussions.

Monitor the CBAM Registry News [blocked] for updates on SA-EU CBAM negotiations.