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EU carbon tax accelerates Africa’s push for renewables

From the newsletter
The EU's Carbon Border Adjustment Mechanism (CBAM) policy, set for full implementation by January 2026, is pushing African countries to reassess their energy policies. Egypt this week announced plans to create a national platform to mobilise concessional financing and grants to support the greening of private-sector industrial projects.
The CBAM imposes an extra EU tariff on imports of carbon-intensive goods, including cement, iron, steel, aluminium, fertiliser, electricity and hydrogen.
African countries are projected to lose about $25 billion in annual exports. South Africa, Morocco and Egypt are expected to bear the greatest burden.
More details
In 2024, the EU was Egypt's largest trading partner, with a total trade volume of $37.8 billion, accounting for 26.5% of its total exports. Key manufactured goods exported include plastics and their products, fertilisers, iron and steel, and aluminium. Given that Egypt's electricity grid still heavily relies on fossil fuels for 88% of its power, its exports to the EU face the risk of becoming more expensive under the new regulations.
In response, the Egyptian government has announced plans to develop a roadmap for implementing the CBAM policy to lessen the expected impact on its industries. Apart from the proposed plan to have a specialised fund, Egypt has started implementing private-to-private power generation to allow industrial customers to establish their own power plants from renewables with the help of the private sector. Already, 400 MW of capacity has been approved for development.
On the other front, Egypt is implementing the Green Sustainable Industries (GSI) programme, which offers various financing options, including soft loans and non-refundable grants, to modernise Egyptian factories. Through the GSI Programme, development partners have provided $315 million. Egypt is also among seven countries, including Namibia and South Africa, to participate in the Climate Investment Funds' (CIF) Industrial Decarbonization Program, which offers nearly $1 billion in concessional finance for the private industrial sector. And is currently in discussions to determine the size of its share.
South Africa is identified as one of the top 20 countries globally most exposed to the EU CBAM, with approximately $1.5 billion, or 1.6% of its total exports, falling under the mechanism's scope. Mozambique is even more affected, with nearly 20% of its total exports, predominantly aluminium, covered by CBAM. The direct consequence of CBAM levies is that carbon-intensive exports from Africa to the EU will become more expensive. Projections indicate significant declines in exports to the EU across the initially covered sectors: aluminium exports could fall by up to 13.9%, iron and steel by 8.2%, fertilisers by 3.9%, and cement by 3.1%.
African countries in general are moving fast to update their policies to allow IPPs to sell power directly to consumers. At least 12 countries selected in the Mission 300 initiative by the World Bank are expected to make their policies more investor-ready as a conditional requirement for funding. So far, a few countries have allowed private sector participation, like Zambia, Kenya, and Egypt, and some have even gone as far as to unbundle the electricity sector, like Nigeria and South Africa. This has opened up captive power generation from renewables, with last year seeing at least 500 MW in solar installed capacities.
The opportunity for energy-intensive industries, like those in cement, mining, iron and steel manufacturing, and aluminium, to switch to renewables is thus economically appealing. This is not just for the industries but also IPPs, given these customers' large consumption and strong revenue flows that guarantee payment. This is enabling the private sector to commit to big investment projects. For instance, early this month, Egyptalum signed a deal with Scatec to develop a 1,000 MWh solar plant with 200 MW of battery storage set to be the largest captive power plant in Africa.
The attractiveness of renewables is now extending to investments in meeting baseload demands. CrossBoundary Energy, for instance, is constructing what will be Africa's first truly baseload power solution from renewable sources for the Kamoa Copper mines in the Democratic Republic of Congo. This project marks a continental first. On the returns side, several private equity funds are successfully exiting their investments. The most recent example is AIIM, which sold its stake in three South African renewable energy projects for $41.8 million.
Our take
CBAM, while it can be seen as punitive in the short term, the benefits that will arise from African countries complying are immense. This is not just in saving what it could lose in exports but also the competitive edge African products will gain.
There's growing evidence that African renewables are profitable. Recent private equity exits point to that. And the industrial segment customers offer even more guaranteed returns given their consumption and revenue patterns. There are a high number of bankable projects that private investors should pour their money into.
Renewables prices have come down, and technologyhas matured to the point that they can meet baseload power demand affordably. Recent deals will serve to attract industrial majors who previously saw intermittent renewables as unsuitable for their core operations, thereby accelerating large-scale decarbonisation.