By transitioning to renewables, manufacturers can thrive amid rising energy costs and carbon taxes

South Africa’s manufacturing and industrial sectors are increasingly facing major energy challenges. With global markets demanding reduced carbon emissions and the cost of carbon taxes on the rise, local manufacturers find themselves navigating an increasingly complex landscape.

Carbon costs at the border: EU targets high-emission imports

Several tax measures are being implemented by the European market, one of the most significant being the Carbon Border Adjustment Mechanism (CBAM). This is a carbon import tax introduced by the European Union to level the playing field between local (EU) and foreign manufacturers. It charges a carbon-based fee on selected imported goods based on the CO₂ emissions embedded in their production. This regulation specifically targets carbon-intensive exports such as steel and aluminium, placing a levy on imports to the EU from countries where the energy mix is heavily dependent on coal power.

CBAM aims to prevent carbon leakage, where companies relocate production to countries with weaker climate regulations to avoid carbon costs. It ensures that imported goods face the same carbon pricing as those produced in Europe.

CBAM rollout has been structured into phases. From October 2023 to December 2025, a transitional phase is in place during which companies are required to report emissions for CBAM-covered goods, although no fees will be applied just yet. From January 2026, a definitive phase will begin, with EU importers required to start paying CBAM fees on goods based on reported emissions. Between 2030 and 2034, CBAM is expected to expand further to cover indirect electricity emissions and additional sectors such as hydrogen, chemicals, and plastics.

The CBAM rate is linked to the EU Carbon Price (EURO / ton) and will be calculated as follows:

• Embedded emissions (tons CO₂ per ton of product) × EU carbon price (€/ton)
• Less any domestic carbon tax paid (e.g. in South Africa)

This presents a significant challenge for South African exporters, in sectors like iron, steel, aluminium, cement, and fertilisers.

To avoid these financial drawbacks, manufacturers must demonstrate their direct emissions (e.g. fossil fuel combustion during production) and emissions from grid electricity use. This is where renewables can play a crucial role. While renewables won’t be able to directly reduce direct emissions, it can help by replacing diesel generators or reducing diesel usage and electrifying fossil fuel-based processes (such as furnaces).

As this regulation is set to take effect within the next two years, local exporters will need to act fast to remain competitive.

Additional taxes coming into effect

Locally, South African businesses are also facing increased carbon tax initiatives being led by government, particularly targeting high-emission sectors such as manufacturing, mining, transport, agriculture and waste. Proposed amendments include a gradual increase of the current carbon tax rate of R236 per tonne of CO2 and the introduction of a mandatory carbon budget system in 2026, which will require industries to meet emissions reduction targets. These changes highlight the growing focus on sustainability and the need for businesses to adopt by finding solutions to comply with new regulations, avoiding potential impacts to their bottom line.

However, businesses that can demonstrate a lower carbon footprint, whether through clean energy adoption or other sustainability measures, such as reducing waste through recycling and reusing materials or adopting sustainable transport options, can mitigate or avoid these additional tax burdens, restoring their competitive edge.

Corporate climate commitments driving broader sustainability goals

Beyond CBAM and government carbon taxes, some major corporations, while not necessarily subject to direct carbon taxes, have committed to reducing their global carbon emissions by a specified percentage within a set timeframe, in line with their Environmental, Social and Governance (ESG) goals. These commitments place considerable pressure on subsidiary manufacturers to implement carbon reduction strategies as well.

Solar delivers dual benefits

Harnessing solar energy can greatly assist South African businesses in reducing their carbon footprint. With the country’s grid still largely coal-dependent, every kilowatt-hour of solar energy consumed in place of grid electricity cuts carbon emissions by one kilogram. This reduction is greater compared to countries with cleaner energy sources, highlighting solar energy’s potential significant impact in South Africa’s sustainability transition.

For instance, if a manufacturing facility installs a rooftop solar plant to generate 30% of its power needs, it achieves a corresponding 30% reduction in its carbon footprint with regards to energy usage. This not only helps the business to align with emission reduction targets but also lowers operational costs by decreasing its dependence on more costly grid electricity. This dual advantage sets solar apart from alternative compliance strategies for businesses, like purchasing carbon credits. While businesses have the option to purchase carbon credits the drawback is that they provide no direct financial savings. Solar energy on the other hand, is a strategic investment that addresses sustainability goals while improving the bottom line.

Capital constraints slowing solar adoption

Despite the long-term financial and sustainability benefits for commercial and industrial clients, particularly in energy-intensive sectors, the upfront capital investment required to build a solar plant can be substantial. Investing in solar infrastructure can divert funds away from core business priorities such as facility expansion or new equipment acquisition. To overcome these barriers, businesses can consider a funded solution in the form of Power Purchase Agreement (PPA) or Equipment Rental.

Obtaining a funded solution from a renewable energy provider allows businesses to secure long-term access to clean electricity without owning the generation assets. Another advantage is that the provider will also take care of the renewable energy plants, thus the client does not need to worry about maintaining and operating the plant themselves – which can also include unforeseen costs and risks. With a funded solution, all these costs and services is included in your monthly rate.

Renewable energy providers such as Sustainable Power Solutions (SPS) offer fully integrated end-to-end solutions which include a Funding, Engineering, Procurement and Construction (EPC) as well as ongoing O&M services. It is also important that businesses should look to engage with reputable renewable energy providers that can deliver turnkey, wholistic solutions tailored to their specific needs. Be it carbon reduction objectives, financial requirements, or even energy security, a quality provider will begin with a comprehensive assessment of a client’s needs, targets and long-term operational goals to design a customised solution at a competitive rate.

The reality is carbon taxes, emissions regulations, and corporate sustainability mandates are no longer distant threats—they are fast becoming real cost factors that can significantly impact a business’s bottom line. For South African manufacturers and exporters, adopting renewable energy is not just about ticking ESG boxes—it’s a strategic move to stay competitive in a changing global economy.

Solar, in particular, offers a tangible way to cut carbon emissions and reduce operating costs simultaneously. And for those without the capital or appetite to own and manage energy infrastructure, fully funded, turnkey solutions—like those offered by Sustainable Power Solutions (SPS)—provide a practical, hassle-free path forward.

With the right partner, transitioning to clean energy doesn’t have to be complex—it can be smart, simple, and sustainable.

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By Anja Visagie, Chief Growth & Marketing Officer at Sustainable Power Solutions (SPS)