Understanding-the-impact-of-a-low-carbon-transition-on-South-Africa

Resource Overview: Understanding the impact of a low carbon transition on South Africa

As the global economy shifts toward a low-carbon future consistent with the Paris Agreement, South Africa faces a complex array of financial risks. This guide from the Climate Policy Initiative (CPI) examines how this global transition threatens to reduce demand and prices for carbon-intensive exports, particularly coal, while potentially creating new economic opportunities, such as those arising from lower global oil prices. The resource highlights that South Africa’s transition is not solely an environmental challenge but a significant economic and financial one, with a "transition risk" estimated at more than $120 billion in present value terms between 2013 and 2035.

Key insights from the guide include:

Significant Exposure to External Trends: Approximately 75% of South Africa’s transition risk is driven by factors beyond the government’s control, such as shifting global demand for coal and oil. Nearly 50% of this risk has already been realised through changes in long-term market forecasts since 2013. Concentration of Risk on the Public Balance Sheet While investors initially bear the bulk of the direct risk, implicit transfers and contingent liabilities mean the national government could end up exposed to more than half of the total transition risk. This concentration could jeopardise South Africa’s investment-grade sovereign credit rating. The Importance of Proactive Policy: The guide emphasises that proactive government planning—such as avoiding new investments that increase transition risk and leveraging potential oil price windfalls—can help mitigate these costs. Strategic Recommendations: Policymakers are encouraged to make risk allocation explicit, prioritise investments resilient to the global transition (e.g., renewable energy and relevant minerals), and work with international development financial institutions to develop innovative financial solutions.