The unfortunate fact that South Africa has one of the highest unemployment and inequality rates on the planet is one of the country’s many dubious distinctions. When measured in terms of the amount of greenhouse gas emissions produced about the amount of economic output, it is also among the most emissions-intensive economies in the world.
There is no such thing as a coincidental occurrence when rising unemployment and rising emission levels coexist. The practice of apartheid and racial segregation throughout South Africa’s history has had profound effects on the country’s path to economic development. There were decisions made that favored the investment of capital over the investment of labor. Inadequate attention was paid to the emissions caused by coal production while it was the primary driver of economic growth.
In South Africa’s energy economy, coal has traditionally been the most important fuel. In addition to power generated by burning coal, approximately thirty percent of the world’s supply of liquid fuel comes from a technology developed by the energy supplier Sasol that transforms coal into a liquid. The state utility company Eskom and Sasol together form a duopoly that controls the economics of energy supply. This duopoly is the dominant force in the energy supply market. Companies involved in coal mining are significant actors upstream, while industries that depend heavily on electricity are significant downstream.
In 2018, South Africa’s emission intensity, measured as emissions per unit of output, was 2.5 times higher than the average for the rest of the world. That is approximately five times greater than the rate in the United States. The generation and consumption of energy are responsible for approximately four-fifths of all emissions.
In South Africa, the large oligopolistic firms that were involved in the processing of minerals and the production of fundamental chemicals were able to exercise their market power and charge downstream producers prices that were equivalent to import parity. Because of this, the development of downstream manufacturing was restricted.
We outlined the primary contributors to South Africa’s historical development path in an article that was published the previous year. After that, we viewed how South Africa might grow in a way that would result in the creation of jobs while simultaneously reducing the number of emissions produced. The solutions are the primary focus of this article.
The Critical Situation Regarding the Country’s Supply of Energy
Since the year 2006, South Africa has frequently been affected by power outages. A significant number of older coal power stations have units that are failing, primarily as a result of inadequate maintenance. Due to design flaws, not even the newest power stations, Medupi and Kusile, have been operating reliably. This would imply that there is a compelling case for building generation capacity as quickly as possible. The lead times for wind and solar photovoltaic initiatives are relatively short.
However, These Suggestions Have Been Met With Opposition
A program that aims to purchase renewable energy from individual power producers has met with widespread praise for its effectiveness. Despite the rapid growth, renewable energy still accounts for a relatively small portion of the total amount of electricity generated. For the nation to accomplish a just energy transition, the rate at which investments are made needs to be significantly accelerated.
Eskom has not met expectations and has racked up a significant amount of debt as a result of poor management and widespread instances of corruption. As a result of the crisis, action has been taken to unbundle the utility. The plan is to break it up into three distinct businesses: generation, transmission, and distribution.
Eskom has developed a just power transition plan and has indicated that it intends to achieve net-zero CO2 emissions by the year 2050. There is a possibility of gaining access to global climate financing, which would endorse the plan, assist in the transition away from coal, and promote socioeconomic growth. This plan has gained momentum thanks to support from political parties
- Options for public policy relating to the reduction of emissions and the creation of new jobs
- An employment-intensive and low-emissions strategic plan would include the following components:
- Alterations made to the government’s various rebates, incentive schemes, and subsidies
- Suitable legislation.
The first thing that needs to be addressed is the appropriate pricing of energy. There hasn’t been much discussion in the public sphere about the subsidies for fossil fuels. These are estimated to amount to anywhere between R6.5 billion and R29 billion every single year. They are an expense that is borne by all customers of petrol.
Instead of applying subsidies to the repowering of coal-fired power stations, these subsidies should be applied to the provision of renewable energy-generated electricity. This repowering is something that Eskom intends to do. To finance the localization of renewable energy sources and to offer to coach renewable power service companies, one viable option may be to impose a tax or fee on the cost of electricity.
Even though the number of jobs in the coal mining industry is decreasing, renewable energy can still create net employment gains. According to the findings of one study that investigated the employment co-benefits, the value chain for renewable energy could potentially create 1.2 million job years. This is significantly higher than the number that was estimated in the integrated resource plan for the government.
To capitalize on the country’s prospective competitive advantages – labor – and to get ready for low-emissions development, public policy needs to encourage new development in a variety of activities and industries. The employment rate and amount of pollution produced by the industry in question will both play a role in determining how these policies will affect those fields. For instance, high-emissions industries, which are frequently also capital-intensive, are likely to be the ones hit the hardest by higher electricity prices and carbon taxes because these factors are expected to have the most negative effect.
Nevertheless, South Africa has the potential to establish a competitive edge in light manufacturing and to create low-emissions employment opportunities in the agricultural sector.
Increasing Employment Opportunities While Simultaneously Combating Poverty
Changes need to be made to the incentive structure, which should be accompanied by appropriate regulation, to support increased employment intensity. For instance, rather than investing in capital, it is wiser to subsidize educational opportunities. In addition, it is preferable to encourage the construction of worker housing near worksites rather than encouraging the construction of infrastructure for industrial jobs.
It is possible that more thorough wage handouts could change the behavior of firms and boost the competitiveness of activities that require the use of labor. On the contrary, it makes little sense to give incentives for capital investment in South Africa given the country’s high unemployment rate. Such incentives, however, have been applied to certain segments of heavy and other industries.
Instead, manufacturing and other policies ought to encourage light production, both to develop exports and to enhance competition in the local market. Light industries make use of the local, semi-skilled labor force, the expertise available in the area, and the infrastructure that has already been established. Examples of such products include clothing, products made of metal, household semi-durables, and electronic assembly.
There is also room for the support of small and medium-sized energy service businesses that provide services related to energy efficiency and renewable energy production on a small scale.
Agriculture is a very labor-intensive industry, both in terms of the number of jobs it creates and the number of jobs it generates for other industries through its employment multiplier. The elimination of the peasantry through the confiscation of their land has reduced the employment opportunities available in this sector, but there are still some open positions.
The agricultural sector has the potential to play a crucial part in development if it receives increased and more targeted support. The employment rate and amount of pollution produced by the industry in question will both play a role in determining how these policies will affect those fields.
What Comes Next
South Africa is confronted with enormous obstacles and critical socio-economic problems. In the meantime, it must make some sort of contribution to the fight against climate change. One way to think about the policy tools that were presented above is as a policy package, which would coordinate industrial, energy, climate, and any other relevant policy domains.
Throughout its development, the economy has followed a course that has led to the formation of the minerals-energy complex. This distorted path of growth trapped South Africa into poor job prospects and high emissions growth, and it has proven to be difficult to make a course correction in this direction. The costs of adjustment are high, and there are substantial political and economic interests that support the course that is currently being followed.
To mold (or remold) the course of the economy’s development, it is necessary to implement a comprehensive employment and mitigation strategy. To do this, the two goals need to be aligned, synergies need to be sought across industrial, energy, and climate policy, and trade-offs need to be managed.
A strategy like this is more in line with South Africa’s true comparative advantage, which is its labor force, and it will result in growth that is more rapid, more sustainable, and more inclusive. There used to be a correlation between high levels of emissions and poor employment intensity in the past. We contend that a strategy to reduce emissions and growth that is employment-intensive can be complementary to one another.