GRACELIN BASKARAN: SA dragging feet on just energy transition

The just energy transition has come under fire from political leadership in recent weeks. It has become a scapegoat for rationalising continued energy shortages.

However, the reality is that the world is transitioning to clean energy — and if SA does not come along collaboratively, its economy is going to get (more) hurt.

SA is one of the most carbon-intensive economies in the world. In 2021, the country was the 14th biggest emitter of carbon dioxide and had higher emissions than more advanced economies, including Australia and the UK, and oil-producing heavyweights United Arab Emirates and Iraq.

But what is even more damning is that SA’s carbon intensity — or the measure of carbon dioxide produced per dollar of GDP — is the second highest in the world, over triple the global average, six times the Organisation for Economic Co-operation and Development average, and nearly double the carbon intensity of China.

Carbon intensity is a critical consideration given that it is a determinant of levies and other punitive measures applied by countries’ rolling policies at the environment-trade nexus. One such example is the Carbon Border Adjustment Mechanism (CBAM), which is designed to reduce carbon leakage and maintain the competitiveness of European industries working to decarbonise their production processes.

SA’s economy is vulnerable to emissions-related trade policies, given that it is emissions intensive and export reliant. SA’s exports accounted for 33.4% of GDP in 2022, higher than all Brics countries and higher than the average for African countries, upper middle-income countries, and the world. In 2021, SA exported $143bn, ranking 34th out of 226 countries.

When looking at the level of carbon dioxide emissions embedded in trade, which measures emissions exported or imported as a percentage of domestic production emissions, SA is the fifth largest exporter of carbon dioxide in the world, performing better than only Venezuela and Kazakhstan.

Export industries in SA demonstrate higher carbon intensity embedded in gross exports, compared to global carbon emitters. The country has the second highest carbon intensity embedded gross exports in the world.

SA has significant potential to reduce its carbon intensity. Consider that its carbon intensity for motor vehicle exports is 1,511 tonnes per dollar million, compared to 438 tonnes per dollar million for motor vehicle imports. This means that the carbon intensity of an exported vehicle is more than three times as high as the carbon intensity of imported vehicles.

SA also does not benefit from the provisions that policies that the CBAM has for disadvantaged partners. The resolution adopted by parliament has special exemptions for least developed countries and small island developing states. The rationale is that these countries are not contributing to emissions and are lower income. As an upper middle-income country (and large polluter) SA is not eligible for either exemption.

SA has been dragging its feet on a response to mitigating the huge blow that the plethora of emissions-related trade policies will have on its economy.

The automotive sector is a good example. As the largest manufacturing activity, it is a key source of export revenues and job creation. However, the majority of the country’s key export partners for vehicle exports have banned sales of new vehicles with internal combustion emissions after 2035 in Europe and North America. The UK has banned the sale of new petrol and diesel vehicles commencing 2030; the EU in 2035; and various US states, including Maryland, Massachusetts, Washington and New York, after 2035.

This will have a crippling blow on the export basket, given SA does not produce electric vehicles. In 2022, 351,785 vehicle units were exported. The EU, US and UK imported 77.3% of SA’s passenger vehicle exports. Additionally, SA exported R69bn in automotive components and just more than half of them were catalytic converters, a component that is not used in electric vehicles.

Yet again, there is no clear plan to rapidly shift over to manufacture electric vehicles.

These policies are just the tip of the iceberg in terms of what is to come. It is also likely we will see emissions policies built into future preferential trade agreement negotiations.

SA policymakers would better use their time in escalating efforts to reduce carbon intensity, developing incentives to bring private investment for green technology, and reducing red tape for renewable energy investments.

The objective of the just energy transition is to make the clean energy transition smoother, but policymakers resistance will not stop the transition, it will simply make it economically damaging.

This is not about Komati — it’s about building a resilient economy that can withstand the climate crisis. As it stands, SA’s export basket will be unable to withstand the crisis.

• Baskaran, a development economist, is a non-resident fellow at the Brookings Institution in Washington DC.