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We need to find a way out of our path dependence on coal to make the economy more resilient, writes Saliem Fakir, head of the Policy and Futures Unit at WWF-SA.
Because the abundance of coal has allowed energy to become an essential feature of production and the economy in general, there is a tight link between coal and the South African economy. Coal has been used as an industrial development policy tool to harness the enormous wealth and diversity of South Africa’s rich mineral endowment. This has subsequently developed links into downstream industries, creating a broad and loosely defined MEC. The MEC has been described by some as a unique feature of a system of accumulation in which the minerals and energy sectors are intertwined.
Given that the MEC sectors are by nature capital intensive, policies have structured incentives in a manner that has further enhanced the capital intensity of the economy. Today there are renewed policy attempts to stimulate economic development by improving the beneficiation streams and linkages between mining and industrial development. However, the extent to which these linkages can be fostered in a significant way remains a challenge.
Path dependence will remain a strong feature of the coal economy given the extensive cross-linkages with various components of the economy as a whole and the financialisation of coal assets on the Johannesburg Stock Exchange. Coal is also a significant contributor to job creation and export earnings. Thus coal will not be easily matched by other energy carriers without significant effort and resource availability.
However, the high use of coal, which has marked the South African legacy, will be much more constrained in the future. Many factors are narrowing the window for coal to remain the preferred fuel for energy, despite its domestic abundance, diverse uses and cheapness. These factors vary from declining reserves, supply constraints, quality and the global impact of coal on climate change issues. Large coal deposits may even remain unexploited owing to a lack of financing and infrastructure. Coal production and transport costs will also increase because poor quality coal needs more washing, and new mines will not be located in close proximity to coal-fired power stations. These challenges – or what one may call headwinds for coal – mean that, as natural and non-natural factors suggest, we need to find a way out of our path dependence on coal to make the South African economy more resilient.