Climate Policy Initiative (CPI) Energy Finance on Tuesday released its latest report, which looks at the impact of a low carbon transition on South Africa.
CPI found that the impact on South Africa of a global low-carbon transition over the period of its analysis from 2013 to 2035 could be $124-billion in present value terms.
The initiative said the country’s public balance sheet would explicitly face 16% of the downside risk, rising to more than half once implicit transfers, such as company and municipality bailouts, State-owned entity guarantees and additional social spending are factored in.
Additionally, currently planned investment decisions that may include government finance could add an extra $25-billion to the $124-billion potential transition risk and would put further pressure on the country’s sovereign rating and generate more risk.
CPI said, however, that the South African government could mitigate much of this risk, provided that it planned in advance to develop the fiscal, financial and policy tools required to shift transition risk away from parties without the capacity to bear it and to capture transition-related upside.
As a result of the transition, lower global oil demand would lead to lower oil prices, noted CPI, adding that this would present South Africa with $45-billion of potential gains, which could either be passed through to consumers or leveraged by the government to offset the $124-billion in transition risk.
“South Africa is well placed to benefit from new markets for minerals used in emerging low-carbon technologies, such as manganese and vanadium used in energy storage technologies. Platinum group metals, the largest export commodity, could also benefit if there is significant global take-up of fuel cell technologies.”
For the report, CPI looked at South African export and domestic sectors that are most exposed to a low-carbon transition. For the export sector, CPI examined thermal coal and related infrastructure, including ports and freight rail.
For the domestic sector, CPI looked at coal mining, power generation, the oil value chain and synthetic fuel production from coal and gas.