The Organisation for Economic Cooperation on Development (OECD) released its 2013 Economic Survey of South Africa this week in Midrand, Johannesburg.

At the launch, Angel Gurría, OECD secretary-general, highlighted how the country can use “green growth” as a new driver of growth in South Africa.

The OECD promotes policies to improve the economic and social well-being of people from around the world.

Gurría says: “The second big theme of the survey is green growth, with a focus on climate change and water. South Africa’s economy is energy-intensive, with primary energy use per unit of GDP among the highest in the world, second only to Finland, Canada and Iceland. It is also more reliant on coal for electricity generation than anywhere else, with 92% of electricity generation fuelled by coal. As a result, South Africa has among the highest carbon emissions per unit of GDP in the world. It is 43% higher than the global mean in per capita greenhouse gas emission and close to the average of upper-income countries.”

“Moreover, there has been less decoupling of GDP and CO₂ emissions than in most other countries. This in part reflects the abundance of coal and other minerals, and that mining, which is a major activity in the South African economy, is energy-intensive. But another reason is that for a long time the prices of electricity and coal used for electricity generation have been too low. Despite sharp rises since 2008, electricity prices are still among the lowest in the world, at about half of the prices in the OECD, and remain below marginal cost.”

“It is therefore crucial to ensure that electricity prices fully cover costs, including capital costs, with coal inputs valued at world prices net of transport costs. This would require further increases in electricity tariffs. Since prices have already risen steeply, it should be done in a way that minimises adjustment costs and with targeted support for the poor. It is not easy, but it can be done.”

“Correcting below-market prices is not the whole story, however. A carbon tax has been proposed. However, its design has become more complex and there are parallel plans for carbon budgeting by sector. Taking due account of administrative capacity constraints, we would favour a simple carbon tax rather than carbon budgeting with cap-and-trade provisions or industrial policies driven by subsidies and tax breaks. Such a tax would be uniform, based on the carbon content of fuels. It would also apply to all sectors and avoid border tax adjustments and the earmarking of “recycled” revenues.”

For further information please contact the South Africa Desk at the OECD Economics Department at eco.survey@oecd.org.