Before Vladimir Putin’s invasion of Ukraine the world’s scramble to “green” its energy basket was rapidly turning coal into a pariah. Putin left us with a global energy shortage that forced the world to re-embrace coal, much to the glee of companies that mine it.
But this was always designed to be a temporary stopgap amid extraordinary circumstances. This week’s Intergovernmental Panel on Climate Change (IPCC) report reminds us that if we let go of our stopgap the return will be exponential.
The annual IPCC reports generally invoke a sense of gloom over what feels like an inevitable apocalypse. They remind us of the damage we’ve done to our planet, leading to famine-inducing droughts and upwards of 45,000 deaths annually from natural disasters.
As we grapple with our own guilt (or at least mine) for being an end user of coal-fired electricity (thanks, Eskom), this week’s report reminds us that if we scramble towards renewables our aggregated efforts can yield improvements, and quickly: “Deep, rapid and sustained reductions in greenhouse gas emissions would lead to a discernible slowdown in global warming within about two decades, and to discernible changes in atmospheric composition within a few years.”
While we can’t entirely undo the damage from 150 years of fossil fuel use, the IPCC report gives us hope: “Some future changes are unavoidable and/or irreversible but can be limited by deep, rapid and sustained global greenhouse gas emissions reduction.”
High elasticity
Global political will to accelerate the transition is hardly in sync. There are two “buckets” of countries, and fossil fuel elasticity is the differentiating factor. Some countries have more political will and a stronger social compact, and in these places the elasticity of substitution between renewables and coal is higher. Where political will fails and elasticity is lower, greenhouse gas taxes and policies such as import restrictions will force a reduction of emissions, but it’s a longer and more painful journey.
Countries with high elasticity of substitution include Iceland, Denmark, the Netherlands, UK and Morocco. Denmark has committed to reducing emissions by 70% compared with 1990 levels by 2030, and to use renewable energy for half of its requirements. Morocco is expecting to have 52% renewable energy by 2030.
Then there are countries with low elasticity that will reduce emissions through the stick part of the carrot-and-stick metaphor. Greenhouse gas taxes and tighter regulations will be deployed to facilitate decarbonisation. SA errs more on this side, when looking at the pace of decarbonisation and adherence to coal-fired power.
If countries delay their weaning off fossil fuels, the near-term macroeconomic costs will be higher due to increasing taxes and regulations. An example of this is the carbon border adjustment mechanism (CBAM), the EU’s tool to put a fair price on emissions during the production of carbon-intensive imports and incentivise clean production in non-EU countries. CBAM puts EU firms on an equal footing with industries from countries with fewer climate policies.
Costly inaction
When examining the sectors that are covered by the CBAM, SA is the world’s tenth most-exposed economy, due to about $1.5bn of aluminium, iron and steel exports, and within the top five developing countries to be affected for cement, glass, aluminium, steel and ferrous metals, chemicals and fertiliser.
Inaction can be costly. Estimates show that if the CBAM uses a carbon price of $44/tonne the income of developed countries would increase by $2.5bn while developing countries would lose $5.9bn. Accelerating the “greening” process can enable countries to benefit from CBAM rather than be penalised by it.
On the tax front, SA became the first African country to roll out a formal carbon tax, in 2019. Kudos on that one, especially considering that 80% of emissions would be covered by the tax. The tax was implemented in part to enable SA to withstand climate restrictions from other countries. However, the tax remains low and the extension of the transition phase from 2022 to 2025 will disadvantage SA firms by making them less competitive and undermining green investments.
A key finding of the IPCC report applies across all countries: “Effective climate action is enabled by political commitment, well-aligned multilevel governance [and] institutional frameworks”.
It’s not too late. A look at SA’s compounding climate shocks in recent years, including severe droughts and floods that have taken the lives of hundreds of people and undermined the livelihoods of thousands, should be a stark reminder of why we need to do our part. It needn’t be a political issue, but it does require political will.
• Dr Baskaran, a development economist, is a bye-fellow in economics at the University of Cambridge.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.