South Africa is facing potential economic challenges due to its high carbon intensity and low effective carbon price. This situation leaves the country vulnerable to economic disruptions from carbon border adjustment mechanisms (CBAM) and evolving consumer preferences. Although current assessments of the European Union's CBAM indicate minimal initial effects, these are expected to grow as more goods fall under such adjustments, additional countries adopt similar measures, and consumers increasingly favor less carbon-intensive products.
To mitigate these risks, South Africa requires a higher, more stable, and effective carbon pricing strategy. This approach would facilitate the transition to a greener economy while preventing revenue losses. The government could utilize the additional revenues generated from improved carbon pricing to support clean investments and alleviate some negative consequences associated with carbon taxation.
Efforts should focus on minimizing economic and financial barriers during this transition by employing both price-based and non-price-based strategies. Policymakers must concentrate on positioning South Africa as a favorable destination for green production compared to other nations. This strategic positioning could help reduce exposure to CBAMs and shifting consumer attitudes.