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Understanding the impact of a low carbon transition on South Africa

CPI South Africa – Understanding the impact of a low carbon transition on South Africa – March 2019

Foreword 7
Preface 9
Executive summary  11
1. Introduction  19
2. Measuring transition risk in South Africa  23
2.1. Scoping 24
2.2. Calculating the external value at risk from trends outside South Africa 25
2.3. Calculating the value at risk arising from government policy decisions 27
2.4. Designing policies to mitigate transition risk and to reduce its impact 27
3. Transition risk in South Africa: a summary of our results 29
3.1. Transition risk from external trends arising outside South Africa’s control  31
3.2. The risk to corporations and their investors 41
3.3. Risk and risk transfer to the national government and implications for sovereign credit 42
4. External threats and how they are transmitted through the economy 45
4.1. Explicit risk allocation 47
4.2. Implicit risk transfers 51
4.3. Summary 61
5. Capturing the benefits of the global low carbon transition 63
5.1. Sources and potential benefits of an oil price windfall 64
5.2. Reallocating the windfall to offset transition risks 64
5.3. The benefits of lower adaptation costs 65
5.4. Implicit transfer of benefits and matching flows of upside benefits and downside risks or costs 66
5.5. The timing of costs and benefits 68
6. The costs and benefits of extending South Africa’s climate ambition 71
6.1. Power station closures 73
6.2. Secunda coal-to-liquids closure 75
6.3. The timing of all risks – external and internal – in South Africa 76
6.4. Research alternatives and develop potential funding plans / transition plans for the closure of carbon-intensive
assets 78
6.5. Work with international development financial institutions and other financiers to address these issues 78
7. Managing the impact on the sovereign rating 81
7.1. Potential causes of a sovereign rating downgrade 81
7.2. Potential causes of an unexpected, sharp rise in sovereign debt 82
7.3. Summary 84
8. Conclusion: a plan of action for South Africa’s policymakers 85
Annex A: Company summaries 91
Annex B: Sustainability risks and their impact on financial stability 102
Annex C: Further information on CPI global modelling assumptions 104
References 109

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