The case for decarbonisation

South Africa’s carbon-intensive electricity sector is cramping our economic growth and global competitiveness. By Anna Mouton.

South Africa is the world’s 12^th biggest energy consumer in terms of kilowatt-hours used per dollar GDP according to 2022 figures compiled by Our World in Data. Shockingly, South Africa is the world’s second-largest carbon emitter per unit of energy produced. About a third of our carbon emissions are linked to our exports.

“South Africa’s electricity sector is responsible for 41% of our carbon emissions,” said André de Ruyter, former CEO of Eskom. By comparison, the next-biggest contributors, the petrochemical industry and the transport sector, are each responsible for 11%, with agriculture and forestry in fourth place at 10%.

“A huge lurch backwards”

“South Africa had a plan,” said De Ruyter. “Government policy in terms of its 2019 Integrated Resource Plan was to shut down about 22 gigawatts or roughly half of Eskom’s installed capacity by 2035.”

By replacing poorly maintained, unreliable coal-fired power stations at the end of their economic lives with renewable energy, South Africa could responsibly and gradually decarbonise the energy sector. This plan was in place until 2023 when the government issued a new Integrated Resource Plan.

“It was a huge lurch backwards towards less reliance on low-carbon electricity, and far more gas and additional new coal facilities, which will be incredibly difficult to finance and execute, and with significant risks for corruption and delays,” commented De Ruyter.

However, if the electricity sector decarbonised in accordance with the Eskom 2035 strategy, it would take South Africa 39% of the way to meeting our commitments under the binding Paris Agreement, an international climate change treaty adopted at the 2015 United Nations Climate Change Conference in Paris. The Agreement came into force in November 2016.

So far, South African climate policies and emissions reduction targets are insufficient to meet the Agreement’s goal of limiting the rise of global temperature to 1.5 °C. South Africa’s continued reliance on highly carbon-intensive coal-fired plants and intended expansion of fossil-gas capacity are crippling our progress toward a just energy transition.

Trade impacts of carbon intensity

“The carbon budget of the world — the total amount of carbon we can emit if we want to limit global warming to 1.5 °C — is almost depleted,” said De Ruyter. “We need significant reductions in global emissions, and rich countries are starting to tackle this through various regulatory interventions.”

He elaborated that the European Union implemented an emissions trading system in 2005, and the United States has cap-and-trade schemes in various states. The problem is that carbon prices in developed countries tend to be far higher than in developing countries.

“This causes capital to flow to jurisdictions where investors face the least resistance and the lowest cost to emit carbon,” said De Ruyter. “The European Union and the United States are concerned that manufacturers and other carbon emitters will relocate their carbon-intensive operations to other countries.”

These businesses will export their products back to the European Union and the United States, resulting in so-called carbon leakage — emissions shift from one country to another while global emissions continue unabated.

To prevent carbon leakage and protect their industries, the European Union recently introduced the Carbon Border Adjustment Mechanism (CBAM), by which a carbon price will be imposed on certain imports to equalise the carbon tax of the importing and exporting countries.

According to De Ruyter, the United States is considering similar legislation. “This can be enormously costly for countries like South Africa that cannot accelerate the decarbonisation of their economies but who depend on trade with the EU and the US for the bulk of their exports,” he said.

De Ruyter shared the results of a South African Reserve Bank analysis that concluded the CBAM could cost South Africa 350 000 jobs and reduce our GDP by 0.9% by 2050. The CBAM currently only applies to specific sectors. Should similar measures be adopted by all countries over all industries, South African job losses could reach nearly 4 million by 2050, with a GDP reduction of 9.3%.

Fortunately, agriculture is not currently covered by the European CBAM or similar mechanisms in the United States and the United Kingdom. This may change as countries struggle to meet climate commitments — our export-based fruit industries must be prepared.

Change for the better

The political fallout from job losses is probably one reason the government has been reluctant to decarbonise. “Clearly, there are legitimate concerns that there would be jobs at risk in the coal value chain,” conceded De Ruyter.

However, he pointed out that although 60 000–90 000 jobs could be lost, an independent study done for Eskom estimated that 160 000–170 000 jobs would be created, leading to a net gain of 70 000–110 000 jobs. These figures don’t even take the potential job losses due to carbon border taxes into account.

Decarbonisation has other benefits, such as improved air quality. De Ruyter stated that about 27 000 South Africans currently die prematurely from causes linked to ambient air pollution.

He also sees opportunities for agriculture. “We often overlook how thirsty the Eskom power stations are. They consume an incredible amount of water,” he said.

Phasing out the old coal-fired plants under the 2019 Integrated Resource Plan would have liberated about 170 billion litres of water annually. Many South African regions already have irrigation infrastructure that could channel this water to expand agriculture.

“There are several spurious arguments against this transition,” said De Ruyter. He refuted the claims that solar and wind generation are costly, that we need baseload energy, and that moving away from fossil fuels will damage economic growth.

For example, over the past 30 years, the United States has grown its GDP per capita by 60% while reducing carbon emissions. During the same period, the German economy expanded by 50% while reducing carbon emissions by 40%.

“There are many climate denialists — people who say that it’s all a big hoax to manipulate the world away from coal, oil, and gas,” said De Ruyter. But, as he argues, decarbonisation will support energy independence, improve air quality and health, create new jobs, and safeguard export industries.

So, he concluded, even if climate change is a hoax, the only risk of believing it is that we inadvertently make the world a better place.

Watch De Ruyter’s presentation on the Hortgro YouTube channel.