South Africa’s Energy Fiscal Policies

If designed in the right way, fiscal policies—subsidies, taxes, and grants—can help governments reach their energy and climate targets. But right now, in South Africa, billions are spent propping up the existing fossil fuel system, straining the public budget and encouraging unsustainable consumption. Today, the International Institute for Sustainable Development released the report South Africa’s Energy Fiscal Policies: An inventory of subsidies, taxes and policies impacting the energy transition. The report explores the extent to which South Africa’s current energy fiscal policies reflect its goal to develop a robust, low-carbon, and affordable domestic energy system. It provides concrete recommendations for the government to align these policies with its climate and environmental targets by reforming fossil fuels subsidies and increasing investments in green energy solutions. IISD experts found that energy subsidies in South Africa more than tripled between FY2017 and FY2020 to ZAR 172 billion (USD 10.4 billion), covering bailouts for carbon-intensive industries, carbon tax exemptions, the oil and gas sector, electricity, and nuclear energy—with the largest subsidies allocated to fossil fuels and coal-fired electricity. Current fossil fuel subsidies are far too high and must be reformed in a way that will help vulnerable households and boost the transition to clean energy. Today, these subsidies take a heavy toll on people’s health and the climate, with pollution from fossil fuel use costing South Africans ZAR 550 billion each year in environmental harm and damage to public health. The government must improve the transparency of its energy fiscal policies to spur the growth of renewable power capacities and help the country meet its climate goals.