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How South Africa Can Advance Reforms to Achieve its Climate Goals
February 18, 2022
Pictured is the Tutuka Power Station in South Africa’s Mpumalanga province. The country is highly reliant on coal for power generation. (Photo: GroblerduPreez/iStock by Getty Images)
In our recent review of South Africa’s economy we explore how to raise growth, reduce inequality and unemployment, and bolster the economy’s green credentials and climate resilience. These challenges have been deepened by the pandemic, which exacerbated South Africa’s economic problems, including a decade-long stagnation of per-capita income, high unemployment, and vast income inequality. But the challenges can be met in a complementary manner.
The rebound from the crisis presents an opportunity. To seize on this, the government will need to address deep structural constraints that limit the durability of the economic recovery. South Africa’s ambition of achieving carbon-neutrality by midcentury requires a profound economic transformation built on significant green investments, in turn supported by a business-friendly environment, a labor market that makes it easier to create jobs, and improved governance and transparency.
South Africa is vulnerable to the increased frequency and severity of extreme weather events. Also, the nation’s high dependence on coal for energy increases its greenhouse gas emissions.
A just transition involves a move away from fossil fuels, with the benefits being shared by all. The transition will improve environmental and health conditions and create new and better jobs. Crucially, affected communities will be able to face the transition at a minimum cost and benefit from a more climate-resilient economy. But with millions of livelihoods connected to the coal value chain, achieving a just transition will be challenging and needs to be done carefully.
The authorities have taken encouraging initial steps. The international community has shown interest in contributing to the transition as evidenced by the support pledged at the COP26 climate summit.
In a competitive market, the energy sector would be responsive to the relative prices of different sources, particularly to the prices of coal and of renewables. Adequate carbon pricing, advances in technology, and enhanced competition in the sector will help bring down costs and facilitate the transition to renewable energy.
The cost of renewable energy in South Africa has already declined significantly and become competitive with that of energy from coal. Assuming a progressive increase in the carbon tax to $75 a ton of greenhouse gases by 2030, IMF staff simulations show that the share of renewable energy could more than double in a competitive energy market comparing to that in a rigid one.
Fundamental changes are needed to build a competitive energy market:
A green and climate-resilient future with lower poverty and inequality will require higher growth. Higher growth, in turn, will require reforms to:
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Haonan Qu is a senior economist in the IMF’s African Department.
