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Climate change is one of the most complex challenges facing South Africa as the country designs plans and policies for future economic growth and development. Higher temperatures and more variable rainfall are already affecting the economy and are expected to continue for decades. The degree to which climate change affects different regions in South Africa is likely to vary significantly, characterized by wide ranges in the direction and magnitude of change in key climate variables, especially precipitation. These uncertainties interact with South Africa’s growth and development challenges and complicate planning and policy formation in support national development objectives. This chapter presents key research on changes in climate experienced in South Africa in recent years, along with projected changes in years to come. It illustrates the uncertainties related to climate change and the key channels through which climate change affects the economy. The economic and developmental impacts of such changes are presented along with the lessons for adaptation policy. As energy will be a key focus area for mitigation efforts in the country, this chapter also outlines the implications of such a transition and the factors that need to be accounted for in limiting the impacts on vulnerable populations.

Rainfed agriculture is the primary impact channel for agrarian economies like Zambia, but it is uncertain how future climate will be and by how much it will affect agriculture, household welfare, and economic growth. We use an integrated framework that combines climate models, biophysical models, and an economy-wide computable general equilibrium model based on a 2007 Social Accounting Matrix to assess the impacts of climate change on agriculture, economic growth, and household welfare in Zambia. We address the uncertainty associated with climate change by using data from the general circulation models based on 819 potential future climate scenarios. There are three main results. First, rainfall is projected to decline with the Southern and Western regions of Zambia worst affected, and temperature is projected to increase by 2050. Second, climate change is projected to reduce crop yield and production, with maize expected to be the hardest hit. These impacts are progressive over time. And lastly, based only on the agricultural impact channel, climate change will likely reduce national gross domestic product (GDP), agricultural production, and household welfare. There are significant regional differences, with the Southern and Western regions projected to bear the most substantial negative impacts of climate change on crop yield and production. These findings have implications for targeting of adaptation interventions needed to sustain the future of smallholder agriculture in Zambia.

Since 2007, large and unexpected declines in generation costs for renewable energy systems, particularly solar but also wind, combined with policy measures designed to limit greenhouse gas emissions, have created a paradigm shift in energy systems. Variable renewable energy now dominates total investment in electricity power generation systems. This dominance of variable renewable energy in investment has thrust the systems integration task of matching electricity supply with demand to center stage, presenting new challenges for energy policy and planning as well as for the institutional organization of power systems. Despite these challenges, there is ample reason to believe that variable renewables will attain very high levels of penetration into energy systems, particularly in regions well endowed with solar and wind potential. Similar to their success with mobile phone telephony, many developing countries have a significant opportunity to leapfrog directly to more advanced energy technologies that are low cost, reliable, environmentally more benign, and well suited to serving dispersed rural populations.

This introductory paper sets out the rationale for revisiting questions surrounding biofuel futures in Southern Africa and exploring the case for the establishment of a regional market. This contrasts with most research that has focused upon benefits and risks of production and consumption for individual countries. The analysis in this issue suggests that while benefits exist, the key challenges that have stifled production and consumption to date would need to be overcome. Unlocking trade requires relaxing requirements for South African manufacturers to source all their feedstock domestically. Key among factors to encourage production is resolving agricultural investment processes, particularly designing inclusive business models and clarifying land acquisition processes.

Mozambique has historically been prone to natural disasters due to its geographical location, but over the past 20 years the intensity and frequency of droughts, floods and cyclones has increased, negatively affecting the entire economy, particularly agriculture. These impacts are expected to worsen, as climatic conditions become hotter and drier. This study estimates the impacts of climate change on the agriculture sector and household welfare in Mozambique using a dynamic computable general equilibrium model. Specifically, the study investigates the impact of climate change on agricultural production, looking at implications for various crops and regions in the country. It also reports climate change impacts on both urban and rural household welfare. A probabilistic approach considering a distribution of climate shocks under two global mitigation futures (i.e. unconstrained emissions and level 1 stabilization) is used to evaluate the impacts of climate change on the economy, providing a range for the potential impact of climate change and the uncertainties related to it. Climate impacts are considered through five key channels: agriculture, roads, hydropower, sea-level rise and cyclones. The analysis shows that acute negative impacts are experienced in the agricultural sector, particularly for maize and cassava as crop yields decrease. Successful global mitigation efforts of reducing CO2 concentration to 560 ppm by 2100 (L1S) decreases the degree of uncertainty of the impact of climate change on the Mozambican economy, as the GDP is expected to increase up to USD 6.0 billion.

Mozambique is one of the most promising African countries for producing biofuels and the national biofuel policy of 2009 identifies measures to incentivize biofuel production. Demand for biofuels i...

Potential biofuel demand in South Africa is estimated to increase to 1550 million litres by 2025 due to mandatory blending rates. Land and water constraints, however, limit the ability for domestic...

In this paper an improved energy-economic model is used to analyse the transition away from coal and toward renewable energy in South Africa. The model enhancements presented in this paper allow for a more accurate assessment of changing coal costs on potential energy and emissions pathways for South Africa. The better representation of the coal sector provides insights on the timing and magnitude of coal mine and power plant retirements, which are a crucial part of information in developing policies required to ameliorate any negative impacts resulting from the energy transition.These negative impacts currently form a social obstacle to change in energy policy. To illustrate the model advances two potential power generation pathways for South Africa are compared: a least-cost energy mix which does not include new coal power plants; and one where renewable capacity in the power sector is constrained, resulting in ~25GW new coal-fired power plant capacity. A comparison of these scenarios shows that, with rising coal costs and lower coal export demand, persisting with coal-based power generation does not “save jobs” in South Africa at the aggregate level, as higher powerinvestment is required in the constrained scenario. This, combined with the higher electricity price experienced in the constrained scenario, negatively affects the rest of the economy, offsetting any positive gains from continued coal-based power generation.

We develop a sequential approach to link a bottom-up energy sector model to a detailed dynamic general equilibrium model of South Africa. The approach is designed to simultaneously address the shortcomings and maintain the attractive features of detailed energy sector and general equilibrium models. It also reflects common country-level energy planning processes. We illustrate the capabilities of this integrated bottom-up approach by analyzing the implications of (i) a carbon tax, (ii) liberalization of import supply restrictions in order to exploit regional hydropower potential, and (iii) a combined policy where both carbon taxes and import liberalization are pursued. For the combined scenario, our results suggest substantial emissions reductions relative to Baseline at essentially no cost to economic growth but about a one percent reduction in employment. We conclude that a regional energy strategy, anchored in hydropower, represents a potentially inexpensive approach to decarbonizing the South African economy. The strategy also has political economy attractions in that the combined approach reduces the burden of adjustment of politically sensitive sectors.

Globally, governments are investigating transport solutions that not only reduce their national emissions but also decrease their reliance on energy imports and increase clean air in cities and towns. A transition in the transport sector is seemingly inevitable considering these priorities. This study outlines some key socio-economic implications of a transition in South Africa’s transport system, building on work previously done. The focus was on a rapid decarbonisation of the South African economy and the potential impacts of implementing efficiency improvements in the transport sector, including mode-switching. The overall finding was that a more ambitious decarbonisation target would have marginal impact on the economy relative to South Africa’s nationally-determined contribution. It was further found that the implementation of efficiency improvements and changes in behaviour (decreased mileage, increased occupancy, increased rail use and increased use of public transport) could significantly reduce the burden on the economy of a higher GHG emission reduction target.

This article assesses the predictive ability of asset prices relative to other variables in forecasting inflation and real GDP growth in South Africa. A total of 42 asset and non-asset predictor variables are considered. Forecasts of inflation and real GDP growth are computed using both individual predictor autoregressive distributed lag (ARDL) models, forecast combination approaches, as well as large scale models. The large scale data models considered include Bayesian vector autoregressive models and classical and Bayesian univariate and multivariate factor augmented vector autoregressive models. The models are estimated for an in-sample of 1980:Q2 to 1999:Q4, and then one- to eight-step-ahead forecasts for inflation and real GDP growth are evaluated over the 2000:Q1 to 2010:Q2 out-of-sample period. Principle Component forecast combination models are found to produce the most accurate out-of-sample forecasts of inflation and real GDP growth relative to the other combination and more sophisticated models considered. Asset prices are found to contain particularly useful information for forecasting inflation and real GDP growth at certain horizons. Asset prices are however found to be stronger predictors of inflation, particularly in the long run. JEL Classification: C11, C32, R53

This paper documents the construction of a South African Social Accounting Matrix (SAM) for the year 2012. The SAM is built using a Statistics South Africa Supply Table and Use Table, National Accounts, and various household and labour market surveys. It provides a detailed representation of the South African economy and identifies 62 activities and 104 commodities; labour is disaggregated by education attainment level; and households by per capita expenditure deciles. Information on labour is drawn from the 2012 Labour Market Dynamics Survey of the Quarterly Labour Force Survey. Data on households is taken from the 2008/9 Living Conditions Survey. The SAM identifies government, investment, and foreign accounts. It is a useful database for conducting economy-wide impact assessments, including SAM-based multiplier analysis and computable general equilibrium modelling.

This study represents the first attempt at an integrated approach to assessing the potential impacts of climate change on the national economy of South Africa via a number of (but not necessarily all) impact channels. The study focuses on outcomes by abou

We link a bottom-up energy sector model to a recursive dynamic computable general equilibrium model of South Africa in order to examine two of the country main energy policy considerations: (i) the introduction of a carbon tax and (ii) liberalization of i

South Africa is considering introducing a carbon tax to reduce greenhouse gas emissions. Following a discussion of the motivations for considering a carbon tax, we evaluate potential impacts using a dynamic economywide model linked to an energy sector model including a detailed evaluation of border carbon adjustments. Results indicate that a phased-in carbon tax of US$30 per ton of CO2 can achieve national emissions reductions targets set for 2025. Relative to a baseline with free disposal of CO2, constant world prices and no change in trading partner behavior, the preferred tax scenario reduces national welfare and employment by about 1.2 and 0.6 percent, respectively. However, if trading partners unilaterally impose a carbon consumption tax on South African exports, then welfare/employment losses exceed those from a domestic carbon tax. South Africa can lessen welfare/employment losses by introducing its own border carbon adjustments. The mode for recycling carbon tax revenues strongly influences distributional outcomes, with tradeoffs between growth and equity.

We introduce a linked modeling framework based on existing computable general equilibrium and energy planning models for South Africa. The combined model provides for a more accurate assessment of the macroeconomic impacts of detailed energy build plans as it takes behavior changes into account. We apply the framework to alternative standard energy policies. We find that nuclear build plans constitute a significant risk to growth, particularly if cost overruns are experienced. Current results point to more detailed analysis of regional energy and renewable energy options, particularly if limiting carbon emissions is an objective.