The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) is not just another trade policy but a game changer with massive implications for developing regions like Africa. Introduced as part of the EU’s Green Deal and Fit for 55 packages, CBAM aims to combat carbon leakage and incentivize global industrial decarbonization.
The EU bloc seeks to cut emissions by at least 55% by 2030 and achieve climate neutrality by 2050. The policy’s implications are widespread, as African economies rely heavily on carbon-intensive exports to the EU. The European Commission predicts that the CBAM may reduce exports from African countries from between €5.6 billion (around $5.8bn) and €6 billion (around $6.2bn) in 2030 to €3.9 billion (around $4bn).
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The EU’s Carbon Border Adjustment Mechanism (CBAM) is a tool for putting a fair price on carbon emitted during the production of carbon-intensive goods entering the EU and encouraging cleaner industrial production in non-EU countries. By confirming that a price has been paid for the embedded carbon emissions generated in the production of certain goods imported into the EU, the CBAM will ensure that the carbon price of imports is equivalent to the carbon price of the domestic output and that the EU’s climate objectives are not undermined.
The CBAM is designed to be compatible with WTO rules. CBAM will apply in its definitive regime from 2026, while the current transitional phase lasts between 2023 and 2025. This gradual introduction of the CBAM is aligned with the phase-out of the allocation of free allowances under the EU Emissions Trading System (ETS) to support the decarbonization of the EU industry.
Other reports have suggested that the CBAM would widen the gap between developed and developing countries. The recent Africa’s Green Economy Summit (AGES) 2025 in Cape Town provided a platform for industry leaders to analyze CBAM’s impact and highlight potential responses.
The EU’s CBAM: A carbon tax or a trade barrier?
CBAM is a carbon pricing mechanism that imposes a levy on imported goods based on their embedded carbon emissions. One rationale behind CBAM is to prevent carbon leakage, a scenario in which businesses relocate carbon-intensive production to jurisdictions with laxer climate policies to avoid stringent EU carbon pricing.
The EU’s CBAM currently applies to six sectors: Iron and steel, aluminium, cement, fertilizers, electricity, and hydrogen. Importers in the EU must declare the embedded emissions of these products and pay a levy based on the difference between the EU carbon price and any carbon tax already paid in the exporting country.
Suppose an African country has an existing carbon tax or emissions trading system. The amount can be deducted from the CBAM charge. While this may encourage cleaner production, it threatens Africa’s competitive edge in these industries.
Irshaad Kathrada, CEO, Localization Support Fund, South Africa Sebastiaan Surie, CEO of CFM NL & Head of Green Hydrogen Climate Funds Manager, South Africa, Alex McNamara, Head of Environment, NBI, South Africa, Witness Mokwana, Director: Green Economy, Department of Economic Development, Gauteng Province, South Africa; and Carlijn Nouwen, Co-Founder of Climate Action Platform – Africa (CAP-A), The Netherlands, who attended the session virtually, was on the AGES panel and featured industry and policy experts.
They examined CBAM’s risks and opportunities for Africa, emphasizing that $25 billion worth of African exports are directly impacted. This includes 26% fertilizers, 16% iron and steel, and 12% cement and aluminium exports to the EU.
Session attendees heard carbon-intensive exports from Africa to the EU will become more expensive due to CBAM levies. This has significant implications for South Africa, as the EU is South Africa’s largest trading partner.
South Africa and Mozambique: Most vulnerable to CBAM
Among African nations, South Africa and Mozambique are particularly at risk. The South African Reserve Bank (SARB) pointed out last year that 2019 South Africa’s share of total exports to the EU was 19%, and the total value of exports subject to the EU CBAM was roughly $1.5 billion, or 1.6% of total exports.
“This has earned South Africa a spot in the top 20 countries most exposed to the EU CBAM. However, the net impact on trade will depend on the ease of substitution of exports with less carbon-intensive options. It will also depend on shifting exports to other destinations with less stringent climate-related trade restrictions,” said the SARB.
The Carnegie Endowment organization previously reported that Mozambique is the most affected economy in relative terms. Almost 20% of its total exports are products covered by CBAM—or, to a significant degree, a single good: aluminium.
“According to this measure, most of the countries most affected by CBAM – such as Mozambique, Bosnia and Herzegovina, Ukraine, Serbia, North Macedonia, Montenegro, Zimbabwe, Moldova, and Albania are either low-income countries (LICs) in Africa or LDCs or developing countries in the EU’s neighborhood.”
Despite these challenges, the AGES session heard that CBAM presents opportunities for Africa to position itself as a leader in green industrialization. Surie emphasized the role of green hydrogen in reducing Africa’s CBAM exposure, green hydrogen is produced using renewable energy, making it CBAM-exempt. Africa can become a competitive global supplier with abundant solar and wind resources.
Africa currently exports 98% of its mined bauxite raw, but only 2% is processed into aluminium locally. By investing in green-powered processing facilities, Africa could increase its value-added exports and take advantage of CBAM incentives.
Africa’s low competing land use and high solar/wind capacity make it ideal for green industrial development. Investments in renewable energy projects would reduce CBAM liabilities and improve energy security and job creation. African exporters can explore alternative markets that do not impose CBAM levies, such as intra-African trade under the African Continental Free Trade Area (AfCFTA).
Is the EU’s CBAM a necessary climate policy or a hidden trade war?
The session recommended policy advocacy, CBAM negotiation, green industrialization and renewable energy investments, and developing carbon markets and domestic pricing mechanisms. Investing in carbon credit projects could provide African firms with alternative revenue streams and CBAM mitigation strategies.
The panellists agreed that the EU’s CBAM presents risks and transformative opportunities for Africa. Panellists concurred that the continent could emerge as a global leader in green industrialization if African governments and industries take proactive steps.
With abundant renewable energy potential, critical mineral reserves and a young workforce, Africa is uniquely positioned to turn CBAM from a trade barrier into a catalyst for sustainable growth – opportunities some of the panellists highlighted. However, this requires strategic policymaking, international cooperation and investment in green infrastructure.
Last year, Dr Omar Farouk Ibrahim, Secretary-General of the African Petroleum Producers Organization (APPO), called for a unified African front in the global energy landscape. He warned against the detrimental effects of CBAM and that developed nations, historically responsible for the bulk of global emissions, should focus on addressing their legacy emissions rather than imposing trade barriers on developing countries.
Referencing modelling from the Global Trade Analysis Project (GTAP) database 10.0, the SARB said it assumes an EU carbon price of $75,75 imposed from 2026 on the embedded carbon content of only direct emissions, by the current EU proposal. The carbon price and emissions data for South Africa are taken directly from the World Bank Carbon Pricing Dashboard.
The results show that the current version of the EU CBAM could reduce total exports to the EU by 4% in 2030 (or 0.02% of GDP) relative to a baseline with no CBAM. The decline is mainly driven by the cement and iron and steel sectors, both of which see declines of more than 30%. Still, the overall results suggest minor impacts initially, these are likely to increase as the coverage of the adjustment mechanism rises.
The panelists agreed that while measures such as CBAM are essential, their interaction with and integration into the global trading system must be examined, especially in relation to countries’ industrial policies and developmental objectives.
The EU’s CBAM may be a double-edged sword for Africa that could stifle economic growth or ignite a green revolution. The coming years will reveal whether it is a barrier to development or a catalyst for transformation.