The European Union’s Carbon Border Adjustment Mechanism (CBAM), which will impose penalties on exports that carry a high carbon footprint, presents both challenges and opportunities for South Africa, says wind energy developer Red Cap. South Africa can avoid potential penalties by fast-tracking renewable electricity infrastructure – a move that would improve its overall economic resilience and enable long-term power security.
CBAM is planned for full implementation from 2026 and will require importers to pay for the carbon emissions embedded in goods they bring into the EU. This would raise the cost of South African exports, particularly in carbon-intensive industries like iron, steel, aluminium, and cement. Total exports to the EU could drop by 4%, and in carbon-intensive sectors, exports could reduce by more than 30%, according to Reserve Bank estimates.
“This is a pivotal moment for South Africa’s energy planning,” said Mark Tanton, CEO of Red Cap. “If we can rapidly scale transmission infrastructure so that more renewable energy projects can connect to the grid, it will lift our entire export sector. This will not only reduce the carbon footprint of industries across the board but also ensure that smaller companies, who cannot afford private energy solutions, benefit as well.”
By investing in transmission infrastructure and expanding renewable energy capacity, the country can reduce emissions, enhance energy security, and open up new opportunities for economic growth.
An opportunity to go greener, faster – but support is needed
Europe’s plans to incentivise decarbonisation are a good idea, provided developing countries also have support to shift their energy base, said Tanton. “We can’t ignore that climate change is real, and we support mechanisms that force the world to go cleaner, faster,” he said.
Tanton emphasised that while rapid decarbonisation is critically important, it isn’t fair to penalise emerging economies who bear little historical responsibility for climate change, but now have a heavier burden for their own industrial development.
“There should be a mechanism to assist developing countries in becoming cleaner, but the obligation can’t fall squarely on the shoulders of these countries. We didn’t contribute to the first 100 years of CO2 emissions. So, our stance is that the way CBAM is implemented could be problematic if there is no assistance given to developing countries,” he said.
Investing in grid infrastructure can help avoid carbon penalties
While South Africa’s electricity sector is dominated by coal, it is already shifting to renewables like wind and solar which are more cost-effective. It is estimated that there are over 22GW of new renewable projects in the pipeline. Nevertheless, with renewable sources contributing only 9% of the current energy mix, the country remains at a disadvantage globally. In Denmark, for instance, renewable energy accounts for 50% of electricity generation.
However, the real bottleneck, according to Tanton, is in funding and developing the new transmission infrastructure. And with CBAM’s potential penalties looming, large corporates have already started self-sourcing their own energy supplies. The problem with this approach is that only a few companies are able to decarbonise, with the rest of the economy left with no benefit.
“This is a system-wide issue. Businesses should push for, and work with, government to double down on expanding the grid and enabling more renewable energy projects to connect, so that we can all decarbonise effectively,” he said.
Red Cap Energy is a leading local developer in renewable energy, with a depth of experience developing wind farms. To date, the renewable energy company has developed 191MW of installed wind power and has 1.5-gigawatts (GW) of wind power fully permitted, with an additional 2GW in various stages of development. For more information, visit www.red-cap.co.za