{ "title": "How South Africa Can Advance Reforms to Achieve its Climate Goals", "publication": "IMF News, February 18, 2022", "sourceUrl": "https://www.imf.org/en/news/articles/2022/02/21/cf-how-south-africa-can-advance-reforms-to-achieve-its-climate-goals", "canonical": "https://www.imf.org/en/news/articles/2022/02/21/cf-how-south-africa-can-advance-reforms-to-achieve-its-climate-goals", "overlayPath": "/en/news/articles/2022/02/21/cf-how-south-africa-can-advance-reforms-to-achieve-its-climate-goals/index.md", "summary": "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.", "authors": [ "Haonan Qu IMF African Department February" ], "publishDate": "2022-02-18", "sections": [ { "heading": "Overview", "content": "- The review explores how to raise growth, reduce inequality and unemployment, and bolster the economy’s green credentials and climate resilience.\n- The pandemic deepened South Africa’s economic problems, including a decade-long stagnation of per-capita income, high unemployment, and vast income inequality.\n- The rebound from the crisis presents an opportunity that requires addressing deep structural constraints to make the recovery durable.\n- South Africa’s ambition of achieving carbon-neutrality by midcentury requires a profound economic transformation built on significant green investments, supported by:\n - a business-friendly environment,\n - a labor market that makes it easier to create jobs, and\n - improved governance and transparency." }, { "heading": "A just climate transition", "content": "- South Africa is vulnerable to the increased frequency and severity of extreme weather events.\n- High dependence on coal for energy increases greenhouse gas emissions.\n- A just transition involves moving away from fossil fuels while sharing benefits broadly:\n - Improves environmental and health conditions and creates new and better jobs.\n - Ensures affected communities can face the transition at a minimum cost and benefit from a more climate-resilient economy.\n - Challenges: millions of livelihoods connected to the coal value chain make a just transition difficult and necessitate careful implementation.\n- Authorities have taken encouraging initial steps; the international community has shown interest in contributing as evidenced by the support pledged at the COP26 climate summit." }, { "heading": "Making the energy market competitive with reliable supply at lower costs", "content": "- In a competitive market, the energy sector would respond to relative prices of different sources, particularly coal and renewables.\n- Drivers that will help bring down costs and facilitate the transition:\n - Adequate carbon pricing,\n - Advances in technology,\n - Enhanced competition in the sector.\n- The cost of renewable energy in South Africa has declined significantly and become competitive with coal.\n- IMF staff simulations: assuming a progressive increase in the carbon tax to $75 a ton of greenhouse gases by 2030, the share of renewable energy could more than double in a competitive energy market comparing to that in a rigid one.\n- Fundamental changes needed:\n - An overhaul of the state power company, Eskom:\n - High-debt monopoly has become an impediment to economic growth via rising electricity tariffs and frequent power outages.\n - Eskom should move to a viable business model, reduce its footprint in the sector, and compete with private-sector producers and providers.\n - Regulatory streamlining:\n - Red tape and burdensome bureaucratic procedures in the sector should be streamlined to give better opportunities for businesses to compete and innovate." }, { "heading": "Reforms to facilitate a green transition", "content": "- A green and climate-resilient future with lower poverty and inequality will require higher growth; achieving higher growth requires reforms to:\n - Put public debt on a sustainable path:\n - Contain fiscal risks, including from state-owned enterprises (SOEs) vulnerable to decarbonization transition (notably those in charge of network industries).\n - Streamline inefficient government transfers to SOEs to create room for more productive activities.\n - Better design of carbon taxes (now too low when factoring in allowances and exemptions) would:\n - Provide a more effective price signal to reduce greenhouse gas emissions, and\n - Open policy room to assist low-income households and vulnerable workers and regions.\n - Promote job creation to help workers migrate out of the coal value chain:\n - The economic recovery in 2021, mainly driven by lifting pandemic-related mobility restrictions and improvements in terms of trade and global financial conditions, has not created many jobs.\n - Renewable energy rollout will create jobs, but challenges include mismatches in job location and necessary qualifications as well as education and training.\n - Addressing these challenges is essential to support displaced workers and to prepare the young for the future.\n - Welcome all firms to invest and compete on a level playing field to stimulate private investment:\n - Policy signals related to a green recovery need to be consistent.\n - Address governance vulnerabilities:\n - Accelerating governance reforms and fighting corruption will foster trust among stakeholders and contribute to better planning and implementation of the climate transition.\n - Efficient utilization of resources to support affected communities and regions will be essential to ensuring social cohesion." }, { "heading": "Key findings and projections", "content": "- Carbon-neutrality target: midcentury.\n- IMF simulation assumption: progressive increase in the carbon tax to $75 a ton of greenhouse gases by 2030.\n- Outcome in simulation: the share of renewable energy could more than double in a competitive energy market versus a rigid one.\n- Recent recovery context: economic recovery in 2021 has not created many jobs." }, { "heading": "Policy recommendations (summary)", "content": "- Overhaul Eskom to reduce its footprint, adopt a viable business model, and allow competition with private producers.\n- Streamline regulatory red tape in the energy sector to spur competition and innovation.\n- Reform fiscal policy to put public debt on a sustainable path and limit fiscal risks from SOEs.\n- Redesign carbon taxes to be more effective (current design is too low when factoring in allowances and exemptions) and use revenue to protect low-income households and vulnerable workers and regions.\n- Promote job creation and targeted education and training to facilitate worker transition out of the coal value chain.\n- Ensure consistent policy signals to welcome private investment and competition.\n- Accelerate governance reforms and anti-corruption measures to improve planning, implementation, and social cohesion.\n\nBy Haonan Qu, IMF African Department.\n\n---\n\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- Chart of the Week\n- PRESS CENTER\n- Read the staff report\n- Read the report on selected issues\n- South Africa and the IMF\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2022/02/21/cf-how-south-africa-can-advance-reforms-to-achieve-its-climate-goals" } ], "bullets": [ "[Markdown version](/en/news/articles/2022/02/21/cf-how-south-africa-can-advance-reforms-to-achieve-its-climate-goals/index.md)", "[Structured JSON version](/en/news/articles/2022/02/21/cf-how-south-africa-can-advance-reforms-to-achieve-its-climate-goals/index.json)", "[Bundle manifest](/en/news/articles/2022/02/21/cf-how-south-africa-can-advance-reforms-to-achieve-its-climate-goals/bundle-manifest.json)", "Authors: Haonan Qu IMF African Department February", "Published: February 18, 2022", "The review explores how to raise growth, reduce inequality and unemployment, and bolster the economy’s green credentials and climate resilience.", "The pandemic deepened South Africa’s economic problems, including a decade-long stagnation of per-capita income, high unemployment, and vast income inequality.", "The rebound from the crisis presents an opportunity that requires addressing deep structural constraints to make the recovery durable.", "South Africa’s ambition of achieving carbon-neutrality by midcentury requires a profound economic transformation built on significant green investments, supported by:", "South Africa is vulnerable to the increased frequency and severity of extreme weather events.", "High dependence on coal for energy increases greenhouse gas emissions.", "A just transition involves moving away from fossil fuels while sharing benefits broadly:", "Authorities have taken encouraging initial steps; the international community has shown interest in contributing as evidenced by the support pledged at the COP26 climate summit.", "In a competitive market, the energy sector would respond to relative prices of different sources, particularly coal and renewables.", "Drivers that will help bring down costs and facilitate the transition:", "The cost of renewable energy in South Africa has declined significantly and become competitive with coal.", "IMF staff simulations: assuming a progressive increase in the carbon tax to $75 a ton of greenhouse gases by 2030, the share of renewable energy could more than double in a competitive energy market comparing to that in a rigid one.", "Fundamental changes needed:", "A green and climate-resilient future with lower poverty and inequality will require higher growth; achieving higher growth requires reforms to:", "Carbon-neutrality target: midcentury.", "IMF simulation assumption: progressive increase in the carbon tax to $75 a ton of greenhouse gases by 2030.", "Outcome in simulation: the share of renewable energy could more than double in a competitive energy market versus a rigid one.", "Recent recovery context: economic recovery in 2021 has not created many jobs.", "Overhaul Eskom to reduce its footprint, adopt a viable business model, and allow competition with private producers.", "Streamline regulatory red tape in the energy sector to spur competition and innovation.", "Reform fiscal policy to put public debt on a sustainable path and limit fiscal risks from SOEs.", "Redesign carbon taxes to be more effective (current design is too low when factoring in allowances and exemptions) and use revenue to protect low-income households and vulnerable workers and regions.", "Promote job creation and targeted education and training to facilitate worker transition out of the coal value chain.", "Ensure consistent policy signals to welcome private investment and competition.", "Accelerate governance reforms and anti-corruption measures to improve planning, implementation, and social cohesion.", "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)", "[Chart of the Week](https://www.imf.org/en/Blogs/chart-of-the-week)", "[PRESS CENTER](http://presscenter.imf.org/)", "[Read the staff report](https://www.imf.org/en/Publications/CR/Issues/2022/02/10/South-Africa-2021-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-513001)", "[Read the report on selected issues](https://www.imf.org/en/Publications/CR/Issues/2022/02/10/South-Africa-Selected-Issues-513004)", "[South Africa and the IMF](https://www.imf.org/en/Countries/ZAF)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2022/02/21/cf-how-south-africa-can-advance-reforms-to-achieve-its-climate-goals/index.md", "json": "/en/news/articles/2022/02/21/cf-how-south-africa-can-advance-reforms-to-achieve-its-climate-goals/index.json", "bundleManifest": "/en/news/articles/2022/02/21/cf-how-south-africa-can-advance-reforms-to-achieve-its-climate-goals/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T00:59:57.793Z" }