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Potential impacts of a global cap and share scheme on South Africa

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J. Wakeford
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This study seeks to identify the initial impact that a global cap and share (C&S) scheme might have on South Africa, based on a set of limiting assumptions. In particular, it attempts to quantify the immediate impacts on energy process, the macro economy, household expenditure and income, industries and the competitiveness of renewable energy sources. Stabilising the world’s climate system and preventing a climate catastrophe requires urgent and coordinated international action to reduce the atmospheric concentration of global greenhouse gases. The findings of this report indicate that C&S would have a substantial impact on the South African economy and society, even in immediate terms. Some of key points made include:

because of South Africa’s high energy intensity relative to the world average, the net impact of C&S, taking into account the total cost of emission permits after adjusting for the balance of emissions embodied in trade as well as national income from Pollution Authorisation Permits (PAPs), is a substantial negative percentage of GDP
at the household level, C&S would effect a substantial degree of income redistribution within South Africa given the existing extent of inequality in energy consumption and income
the adoption of C&S could assist the South African government’s commitment to poverty alleviation. In addition to this, over time there is likely to be a relative decline in long-distance international trade so that opportunities for import substitution will improve
renewable sources of energy become much more cost effective than coal-fired electricity even at moderate CO2 price levels. This suggests C&S would help to kick-start a domestic renewable energy industry.

The authors conclude that the paper demonstrates that more extensive research and analysis into the potential impacts of C&S is worth undertaking. For instance, more complex economic modeling could be applied to estimate some of the dynamic responses of industrial sectors and households to higher energy prices.