The world is forging ahead with its collective commitment to be carbon neutral by 2050, and top of the agenda in developing countries is how to do this equitably.

Businesses are finding their way around carbon trading, offsetting and taxing to finance climate action in both the domestic and international markets, but the concept of carbon neutrality remains elusive and theoretical. As a result, pathway models and scenarios to achieve these goals are being considered by all parties to the United Nations Framework Convention on Climate Change (UNFCCC), who are signatories to the 2015 Paris Agreement.

Once a year, they are also expected to revise and update their emission targets at the Conference of the Parties (COP), which compels governments to shift policy and incentivise emission cuts in business and industry.

For developing and emerging markets, these pathways present various levels of risks and opportunities but the stakes are even higher for Africa’s 14th largest greenhouse gas (GHG) emitter and one of the most unequal countries in the world – South Africa.

What will it take for South Africa to reach net zero?

The United Nations Environment Programme (UNEP) has established that the world needs to collectively halve emissions by 2030 to meet the Paris Agreement targets, which are aimed at keeping global warming below 2°C.

To do this, various instruments have been developed to accelerate action without putting jobs at risk, and academics, researchers and policy makers are proposing pathways for each sector of the economy. Among them are those submitted to Cyril Ramaphosa’s Presidential Climate Commission (PCC), which is finalising a framework to guide the transition.

The National Business Initiative (NBI), in partnership with Business Unity South Africa (BUSA) and the Boston Consulting Group (BCG) have released several science-based pathway reports to help achieve the transition for sectors like mining, electricity, petrochemicals, agriculture, forestry and other land use.

According to South Africa’s Net-Zero Transition, a study these three bodies released in 2022, a just transition to a competitive, net-zero South Africa hinges on the nation’s ability to unlock its world-class renewable-energy resources at scale and at an unprecedented pace.

It’s a huge undertaking and South Africa will need R6 trillion to achieve its net-zero target with a combined installation capacity in renewable energy of 190 GW to enable 60% of emission reductions.

This will require an unprecedented roll-out in infrastructure. By 2030, R310 billion in investments will be needed – the power sector will require half of this to meet its own ambitious emission targets that are anticipated to drop between 350-420 Mt CO2e (metric tons of carbon dioxide equivalent).

The study authors therefore concluded: “International development finance will be critical to fund non-bankable investments (such as social costs and reskilling costs) and to cover the economic gap in new green industries to attract further private-sector investment.” This includes subsidising green-hydrogen costs and stimulating supply-side investments.

Balancing risks and opportunities on the road to net zero

Decarbonising presents a major shift in our economy and raises important questions about how it’ll reach its targets with minimal risk to vulnerable groups and development.

In its current form, the PCC framework sets out the actions that the government and its social partners will take to achieve a just transition. It notes that climate change exacerbates poverty, unemployment and inequality in the country but also warns that the transition to renewables is not an environmental imperative but an economic imperative, as not making the transition will bring major risks for international trade.

The transition to renewables on the path to net zero therefore supports South Africa’s broader effort to redesign the economy to benefit most citizens, and to enable deep, just and transformational shifts. And yet it poses risks for some of the country’s biggest industries.

Which industries are most vulnerable to the net-zero transition?

• South Africa’s coal value chain faces one of the earliest disruptions in the global transition towards reaching net-zero emissions. The International Energy Agency’s 2022 report shows that coal, despite bigger demand because of the Russia-Ukraine war, will plateau before steadily declining globally after 2030. This poses major risks for provinces like Mpumalanga where over 50% of provincial GDP comes from coal mining and 70% of all employees are concentrated in four towns in the province.

The risks to this sector include revenue loss from reduced coal exports, job losses and economic losses in coal-mining communities, possibly creating ghost towns if there isn’t economic diversification.

However, coal-intensive companies like Eskom, Sasol and electricity-intensive aluminium and ferro-alloy producers can reduce this risk by developing or transforming to non-fossil-fuel operations.

On the upside, the mining sector is at an advanced stage with plans to expand independent power production for its operations through massive solar plants.

• In the automotive sector, the bulk of employment lies in its support industries – over 250 000 people work as mechanics, over 250 000 are employed in the taxi sector and around 130 000 by petrol stations.

What about Eskom and renewable energy?

Eskom’s balance sheet and debt burden remain a concern given that loadshedding doesn’t show any signs of abating and the net-zero target is only 27 years away. The state-owned enterprise’s debt stands at R423 billion and the government has agreed to provide R254 billion debt relief over the next three years.

At the same time, the recent relaxation of limits on independent power producers will boost private investment in renewable energy – early in 2023, the Renewable Independent Power Producer Procurement Programme (REIPPPP) identified six preferred bidders to add solar power to the grid.

Ironically, South Africa’s status as one of the world’s largest emitters of greenhouse gas and reliance on coal for over 80% of its electricity have made it a go-to recipient of funding from developed countries who are responsible for financing and supporting decarbonisation in emerging markets.

This funding in support of our decarbonisation plan will be crucial if we are to achieve net zero by 2050.

Browse ‘Business Insights’ for more interviews, articles and opinion pieces to inform your thinking.