90
N. Kidunduhu
utilizing renewable energy sources because of the need for affordable,
reliable, readily available and sufficient energy supply to meet demand.
3.3.4 Transition Risk
The transition to a lower carbon economy is not without risk for the
countries that are dependent on fossil fuels for their energy needs and
export ventures. The transition calls for the replacement or retirement of
carbon-intensive industries and infrastructure. Companies and investors
in these carbon-intensive industries will be impelled to close up shop
and in anticipation will attempt to offset costs by passing them on to
consumers. Equally, workers in these industries will suffer the risk of
redundancy and unemployment. In South Africa, the aggregate impact of
a transition to its coal industry and the ripple effect to its entire economy
has been costed at USD120 billion.
75 This is arguably a ‘small’ cost to
pay compared to the cost of the effects of climate change, however, when
measured using time preference—the cost seems less onerous the further
away in the time it has to be borne.
Governments will have to grapple with reduced income on the one
hand and on the other, increased expenses from deploying energy systems
and financially supporting industries and workers affected by the transition—yet the lower income will have already eroded the ability to offer
such support.
These risks will naturally fall on the public balance sheet, thereby overburdening public finances as well as compromising the sovereign credit
rating and the state’s capacity to meet its developmental agenda. African
countries are thus faced with the daunting responsibility of absorbing
and financing a transition risk and yet lack the capacity to do so.
75 Matthew Huxham et al., ‘Understanding the Impact of a Low Carbon Transition on South
Africa’ (2019) Climate Policy Initiative (CPI) Energy Finance Report.
N. Kidunduhu
utilizing renewable energy sources because of the need for affordable,
reliable, readily available and sufficient energy supply to meet demand.
3.3.4 Transition Risk
The transition to a lower carbon economy is not without risk for the
countries that are dependent on fossil fuels for their energy needs and
export ventures. The transition calls for the replacement or retirement of
carbon-intensive industries and infrastructure. Companies and investors
in these carbon-intensive industries will be impelled to close up shop
and in anticipation will attempt to offset costs by passing them on to
consumers. Equally, workers in these industries will suffer the risk of
redundancy and unemployment. In South Africa, the aggregate impact of
a transition to its coal industry and the ripple effect to its entire economy
has been costed at USD120 billion.
75 This is arguably a ‘small’ cost to
pay compared to the cost of the effects of climate change, however, when
measured using time preference—the cost seems less onerous the further
away in the time it has to be borne.
Governments will have to grapple with reduced income on the one
hand and on the other, increased expenses from deploying energy systems
and financially supporting industries and workers affected by the transition—yet the lower income will have already eroded the ability to offer
such support.
These risks will naturally fall on the public balance sheet, thereby overburdening public finances as well as compromising the sovereign credit
rating and the state’s capacity to meet its developmental agenda. African
countries are thus faced with the daunting responsibility of absorbing
and financing a transition risk and yet lack the capacity to do so.
75 Matthew Huxham et al., ‘Understanding the Impact of a Low Carbon Transition on South
Africa’ (2019) Climate Policy Initiative (CPI) Energy Finance Report.