Delaying the fair energy transition could be costly

Recent research by economists at the University of Cape Town (UCT) suggests that delaying the just energy transition could be costly, particularly in light of evolving trade protocols that increasingly call for environmentally friendly alternatives such as electric vehicles or green steel.

The paper, written by Professor Haroon Bhorat, Dr François Steenkamp and their colleagues from UCT's Development Policy Research Unit (DPRU), sheds light on how many jobs depend on the industry and examines possible transition strategies. Their paper is titled “How will the just energy transition affect the livelihoods of households dependent on the coal industry in South Africa?”

Climate stabilisation, as called for in the Paris Agreement, requires a shift away from fossil fuel-based economic production and processes. In particular, the call to move away from coal is crucial given South Africa's high dependence on this energy source. The country is a larger CO2 emitter than the global average: 86% of its primary energy supply and 85% of its CO2 emissions come from coal.

South Africa is in the early stages of moving away from coal, but this is not without socio-economic costs as coal has direct and indirect economic impacts. Coal is a relatively cheap source of energy, accounting for US$3.8 billion and 3.97% of total merchandise exports, and provides employment and livelihoods for many South Africans.

The research contributes to the ongoing policy debate surrounding the JET in South Africa by carefully deriving a robust empirical estimate of the coal labour market in South Africa and the associated coal-based electricity sector in Mpumalanga. The authors also provide measures of household dependence on coal and the electricity sector. These first empirical insights into the size and shape of the coal labour market can inform the scale and scope of these policy interventions. Given the heterogeneous nature of the labour market, a diverse package of policy interventions is likely required.

“While the transition from coal to renewable energy sources is necessary, it also brings with it significant challenges,” says Steenkamp, ​​senior research officer at DPRU. “The coal industry not only provides a significant number of jobs, but also contributes to other sectors such as transport, petrochemicals and power generation. The closure of coal mines and coal-fired power plants will therefore have far-reaching consequences, particularly in terms of employment and economic stability in coal-dependent regions.”

It is estimated that between 76 000 and 108 000 people were employed in the coal mining industry in South Africa in 2019, accounting for about 0.5% of the country's total employment. Most of these jobs are in Mpumalanga, where the coal industry is a major employer. Approximately 5% of the province's total employment is in the coal industry, with certain municipalities such as Emalahleni and Msukaligwa having a much higher percentage.

The average coal miner is a black African aged 25 to 44 with a relatively high level of education; 60 to 71 percent have completed at least secondary education. The industry is semi-skilled, with a significant proportion of workers engaged in manual and machine operations. Many workers in the industry enjoy relatively favourable working conditions, including permanent contracts and benefits such as pensions and health insurance.

According to Steenkamp, ​​there are about 46,100 coal households in Mpumalanga, many of which are highly dependent on the coal industry. “The study shows that 58.9% of these households depend on the income of a single coal worker, making them particularly vulnerable to the impacts of the transition. In addition, a significant proportion of these households have one or more dependents, which further exacerbates their vulnerability.”

Steenkamp adds: “The electricity industry, which is also linked to coal through coal-fired power stations, employed about 30 481 people in Mpumalanga in 2019. Workers in this industry have similar demographic characteristics to coal workers and also enjoy relatively favourable working conditions. Like coal households, many households in the utility industry are also affected by the transition, particularly those that rely exclusively on income from this sector.”

The JET presents a complex challenge in terms of labour market transitions. The study identifies three main groups within the coal and utilities industries based on their likelihood of a successful transition to alternative employment:

• Highly skilled group: This group, which represents 29.28% of the workforce, consists of workers with post-secondary education in highly or semi-skilled occupations. These workers are likely to find alternative employment opportunities, making their transition less problematic.
• Medium-skilled group: This group represents 62.82% of the workforce and consists of workers with completed secondary education in highly or semi-skilled occupations. The future of this group is uncertain, as some of them may need additional training to successfully manage the transition, while others may need government intervention to secure green jobs.
• Low-skilled group: The most vulnerable group, representing 7.9% of the workforce, are workers in low-skilled occupations who are unlikely to find alternative employment easily. Social protection measures such as income support will be essential for these workers.

“In addition, a significant proportion of workers, especially those aged 45 to 64, are likely to retire within the next decade. This group will need tailored early retirement packages as part of the transition strategy,” notes Steenkamp.

“It is important to recognise the diversity of the workforce,” he adds. “One approach will not fit all. Policymakers will need to take a range of measures to address the different needs of different groups of workers. These measures could include skills development programmes, social protection measures and economic diversification strategies. This will help mitigate the impact of the transition on vulnerable households and regions.”

Steenkamp says that while the coal phase-out is necessary for South Africa's environmental and economic future, it must be carefully managed to ensure that the livelihoods of those who depend on the coal industry are not unduly impacted. “The findings of this study can help shape the policies needed for a just and fair transition.”

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