Big risk to South African exports

South Africa must accelerate its transition to renewable energy to avoid export penalties being threatened by key trading partners, a government official said on Wednesday.

“We are doing this for ourselves because it is absolutely the right way to go,” said Vukile Davidson, National Treasury’s chief director of financial markets and stability. “But we are also going to increasingly have to deal with external pressure.”

The European Union plans a levy on certain carbon-intensive imports, though South Africa has argued the so-called carbon border adjustment mechanism may break World Trade Organization rules.

South Africa, which gets 80% of its electricity from coal, is trying to increase its supply of renewable energy to reduce greenhouse gas emissions and its reliance on Eskom.

The country is suffering from its worst power outages on record because the state-owned utility’s poorly maintained and ageing power stations can’t meet demand.

The South African central bank has predicted that power cuts, known locally as load shedding, will shave two percentage points off the nation’s economic growth this year.

Part of preparing for the country’s energy transition is legislation to provide regulatory certainty necessary to draw capital from the private sector.

“People need to know what they’re investing in and the carbon intensity of what those investments are and long-term sustainability of those investments,” Davidson said during a virtual National Treasury conference. “There is a particular case for long-term savers through pension funds and the like.”


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