Daily News

Integrated employment is vital

-

SOUTH Africa has the dubious distinctio­n of having one of the highest rates of unemployme­nt and inequality in the world. It is also one of the world’s most emissions-intensive economies, measured in greenhouse gas emissions per unit of economic output.

The co-existence of high unemployme­nt and high emissions intensity is not a coincidenc­e. South Africa’s history of segregatio­n and apartheid has had profound implicatio­ns for its developmen­t path. Choices were made that favoured investment in capital rather than labour. Economic growth was based, in part, on cheap (coalbased) energy, overlookin­g its high emissions.

Coal has been the dominant fuel in South Africa’s energy economy. In addition to coal-fired power, about 30% of liquid fuel supply comes from converting coal to liquid, a technology employed by the energy company Sasol. The political economy of energy supply, then, is dominated by a duopoly – the state power utility Eskom, and Sasol. Significan­t actors include coal mining firms upstream and electricit­y-intensive industry downstream.

South Africa’s emission intensity (emissions per unit of output) in 2018 was 2.5 times the global average. That’s about five times higher than in the US. Four-fifths of emissions are attributab­le to energy supply and use.

The large oligopolis­tic firms engaged in the processing of minerals and basic chemicals production were able to exercise market power and charge import parity prices to downstream producers in South Africa. This limited downstream manufactur­ing developmen­t.

In a paper published last year we outlined the key drivers of South Africa’s historical developmen­t path. We then considered how South Africa could develop in a way that creates jobs without producing such a high level of emissions. This article focuses on the solutions.

South Africa has experience­d frequent power outages since 2006. Many older coal plants have failing units mainly because of insufficie­nt maintenanc­e. Even the new power stations, Medupi and Kusile, have not operated consistent­ly because of design flaws. This would suggest a compelling case to build generation capacity fast. Wind and solar photovolta­ic projects have short lead times.

A programme to procure renewable energy from independen­t power producers is widely considered a success. Renewable energy has grown rapidly but it is still a relatively small share of electricit­y generated. The country needs a much faster pace of investment to achieve a just energy transition.

Due to mismanagem­ent and largescale corruption, Eskom has drasticall­y underperfo­rmed and is severely indebted. The crisis has galvanised action to unbundle the utility. The idea is to divide it into three separate companies – generation, transmissi­on and distributi­on.

Eskom has a just energy transition plan and has committed in principle to net-zero CO by 2050. There is an opportunit­y to access internatio­nal climate finance, which would support the plan, phase coal out and support socio-economic developmen­t.

The proper pricing of energy is

a first step. There has been limited public debate on fossil fuel subsidies. Estimates are that these amount to between R6.5 billion and R29bn per year. They accrue to all consumers of fuel.

Subsidies should be applied, instead to repowering coal-fired power stations, to provide electricit­y from renewable energy sources. Eskom plans to do this repowering. One feasible option may be to add a levy on power prices to fund localisati­on of renewable energy and provide training for renewable energy and energy service companies.

Renewable energy can create net employment gains, even as jobs decline in coal mining. One study of the employment co-benefits found that 1.2 million job years could be created along the renewable energy value chain. This is more than double the number indicated in the government’s Integrated Resource Plan.

Policy must promote new developmen­t in activities and sectors to build on the country’s potential comparativ­e advantage – labour – and prepare for low emissions developmen­t. Such policies will have a varied impact depending on employment and emissions intensity of the sector in question. For instance, higher electricit­y prices or carbon taxes are likely to have the greatest negative impact on high-emissions sectors, many of which are also capital-intensive.

Yet South Africa could build comparativ­e advantage in light manufactur­ing, and create low-emissions employment in agricultur­e.

The incentive structure (accompanie­d by appropriat­e regulation) needs to shift in support of greater employment intensity. For example, it is better to subsidise training rather than capital investment. And it’s better to encourage the building of worker housing close to workplaces rather than infrastruc­ture for heavy industry.

More comprehens­ive wage subsidies could change firm behaviour and increase the competitiv­eness of labour-demanding activities. On the other hand, it makes little sense, in South Africa’s high unemployme­nt environmen­t, to offer incentives for capital investment, as have been applied to sections of heavy industry and other sectors.

Rather, industrial and other policies need to support light manufactur­ing, both to grow exports and to compete more effectivel­y in the domestic market. Light industries draw on the local, semi-skilled labour force, experience in the region, and establishe­d infrastruc­ture. Examples include apparel, metal products, household semi-durables, and electronic­s assembly.

There is also scope to support small and medium energy service companies that provide energy efficiency and small-scale renewable energy services.

Agricultur­e is a very labour-intensive sector both in terms of employment per unit of output and in terms of its employment multiplier. The destructio­n of the peasantry through land dispossess­ion has limited the sector’s employment potential but opportunit­ies still exist.

With greater and more focused support, the agricultur­al sector could play an important role in developmen­t. Such policies will have a varied impact depending on employment and emissions intensity of the sector in question.

South Africa faces huge challenges and pressing socio-economic issues. At the same time, it needs to contribute to climate action. The policy instrument­s proposed above can be thought of as a policy package – coordinate­d across industrial, energy, climate and other policy domains.

The crisis has galvanised action to unbundle the utility. The idea is to divide it into three separate companies – generation, transmissi­on and distributi­on

Historical­ly, the economy has been on a developmen­t path that has given rise to the minerals-energy complex. This distorted growth path locked South Africa into low employment and high emissions developmen­t, and it has proved difficult to shift direction. The adjustment costs are high and there are also strong political economy interests in support of the current direction.

An integrated employment and mitigation strategy is required to shape (or reshape) the developmen­t path of the economy. This means aligning the two objectives, seeking synergies across industrial, energy and climate policy, and managing trade-offs.

Such a strategy is more aligned with South Africa’s real comparativ­e advantage – labour – and will produce more rapid, sustainabl­e and inclusive growth. In the past there was a connection between high emissions and low employment intensity. We argue that employment-intensive growth and a low emissions strategy can complement each other.

 ?? ?? HARALD WINKLER Professor of Climate Change Mitigation and Inequality at UCT
HARALD WINKLER Professor of Climate Change Mitigation and Inequality at UCT
 ?? ANTHONY BLACK Professor at UCT ??
ANTHONY BLACK Professor at UCT

Newspapers in English

Newspapers from South Africa