Implementing the OECD Framework for Industry’s Net‑Zero Transition in South Africa

4. Recommendations, next steps and conclusion

Abstract

This Chapter summarises a series of recommendations, drawing from the findings of the previous chapters, and briefly outlines a way forward to implement them. The recommendations build on the economic assessment of selected technologies as well as on broader considerations related to the South African iron and steel sector. The Chapter also suggests the next steps for the dissemination of the results of the Framework implementation.

4.1. Recommendations to accelerate the decarbonisation of the iron and steel sector in South Africa

The recommendations presented in this chapter are grounded in a comprehensive assessment, following the process of the OECD Framework for Industry’s net-zero transition. First, they reflect findings from the analyses of key indicators in the country, including on climate and energy, industry and investment. Second, they respond to barriers associated with the deployment of selected low-carbon options prioritised for this study: the improvement of scrap-based electric arc furnace (S-B EAF), the integration of carbon capture and use in existing blast furnaces (BF-(CCU)-BOF) and the development of renewable hydrogen-based direct reduced iron and steel production (H2-DRI-EAF). Third, the proposed solutions have been informed by a wide range of international toolkits, frameworks and best practices, complemented by extensive stakeholder engagement. This includes consultations conducted throughout the Framework’s implementation process, notably through bilateral meetings and the convening of Technical Advisory Committee meetings between 2023 and 2025, involving policymakers, industry stakeholders, financial institutions and civil society organisations. Therefore, the set of recommendations aim to support the decarbonisation of the entire South African iron and steel sector, covering both existing and future assets.

The implementation of recommendations should follow a three-step structure, reflecting the sequence of actions required to enable large-scale investment and deployment of low-carbon technologies in the sector. First, it is essential to establish the enabling conditions necessary to trigger demand and support early investment, through government-led initiatives such as policy roadmaps, regulatory instruments including carbon pricing and market-oriented measures like the development of sustainable industrial hubs and lead markets for low-emissions iron and steel. Second, targeted mechanisms are required to mitigate and share risks, thereby improving the bankability and investment-readiness of projects. Finally, the identification and mobilisation of financing solutions (both public and private, domestic and international) is critical to ensure the availability of capital at scale and bridge the green premium gap between low-carbon options and conventional processes. All these steps are necessary and their effectiveness relies on coherent deployment. Given the urgency to decarbonise the steel sector to meet economic deployment and climate objectives, the list of recommendations in Table 4.1 focusses on actions that could be undertaken within 5 years. The implementation of the recommendations will be subject to ensuring fiscal sustainability and maintaining a broad tax base and will require preliminary assessment of the costs and benefits of industrial policies, in alignment with the principles of technology neutrality and alignment with the country’s climate objectives.

Table 4.1. Summary of recommendations

Main challenge addressed	Recommendation	Lead institution	Stage
Policy framework	Develop a National Roadmap for the steel sector, building on the Steel Master Plan and ensuring alignment with other national strategies	Steel Master Plan team the dtic DFFE DEE DMPR	Short-term (< 3 years)
	Encourage the adoption of the South African Green Finance Taxonomy to encourage increased investments in sustainable technologies	National Treasury South Africa Sustainable Finance Initiative	Short-term (<3 years)
	Strengthen carbon pricing mechanisms, while safeguarding the competitiveness of the domestic industry in relation to imports and/or ensuring public acceptance of higher carbon pricing	National Treasury	Mid-term (3-5 years) to long-term (>5 years)
Steel market conditions	Launch a consultation to assess the domestic readiness and willingness to pay green premiums for iron and steel	the dtic	Very short-term (< 1 year)
	Engage in international initiatives to develop common definitions and standards for low-emissions iron and steel	the dtic	Short-term (< 3 years)
	Promote green iron trade through international partnerships	the dtic	Short-term (<3 years) to mid-term (3-5 years)
Production inputs	Accelerate efforts to decarbonise the electricity mix and finance the power grid’s modernisation	DEE	Short-term (< 3 years) to mid-term (3-5years)
Infrastructure	Prioritise investment on shared infrastructure and industrial hubs, in particular for renewable hydrogen	the dtic	Short-term (<3 years) to mid-term (3-5 years)
Capacity	Bolster capacity building and technology partnerships for industry decarbonisation	Steel Master Plan team with all social partners	Short-term (<3 years) to mid-term (3-5 years)
Financing	Assess the appropriateness of tax incentives for decarbonisation projects	National Treasury	Short-term (<3 years)
	Develop guarantee products, notably to reduce the Weighted Average Cost of Capital (WACC)	National Treasury with domestic financiers, DFIs, export credit agencies and international climate funding	Short-term (<3 years)
	Provide concessional long-term financing, possibly in the form of CAPEX or time-bound Contracts for Difference (CfD)	IDC / DBSA / JET FP with DFIs, export credit agencies and international climate funding	Short-term (<3 years)
	Develop or use an existing country platform (such as the JET Funding Platform) to create a pipeline of projects and attract investment	JET FP	Short-term (<3 years)
	Promote ESCOs to facilitate the adoption of energy efficiency solutions in the steel sector	DEE ESCO Association of South Africa	Short-term (<3 years) to mid-term (3-5 years)

Note: CAPEX: capital expenditures; DBSA: Development Bank of Southern Africa; DEE: Department of Electricity and Energy; DFFE: Department of Forestry, Fisheries and the Environment; DFIs: Development Finance Institutions; DMPR: Department of Mineral and Petroleum Resource; ESCO: energy service company; IDC: Industrial Development Corporation of South Africa; JET FP: JET Funding Platform; the dtic: Department of Trade, Industry and Competition.

4.1.1. Develop a National Roadmap for the steel sector

The dtic should lead the preparation of a comprehensive and integrated national roadmap for the steel sector, expanding on the existing Steel Master Plan and building on the process launched in November 2024 to review the implementation of the Steel Master Plan (Department of Trade, Industry and Competition, 2025[1]). The roadmap should provide and align milestones and targets with national strategies like SAREM and South Africa’s NDC 3.0, facilitating coherent policy and investment decisions that support long-term industry revitalisation and decarbonisation. The national roadmap should be a unifying platform where government, industry and labour collaborate actively and openly, building on the approach of the Steel Master Plan.

The national roadmap should provide a pathway with a structured plan of action covering notably the development of iron and steel production capacity, technologies, demand evolution, investment needs, trade policies and jobs and skills deployment. Consistent targets and milestones, both in the mid-term (2030/2035) and long-term (2050) would set a clear vision and would provide guardrails to craft specific policies and supporting measures in the short-term. An earmarked budget to achieve the goals should be confirmed at its launch. Acknowledging South Africa’s national circumstances in the context of global pathways can help the country to benefit from international financial and technical assistance.

The actions should be associated with a (limited) set of qualitative and quantitative indicators, coherent with the mid and long-term targets. It should assign roles and responsibilities to government, industry, finance and civil society stakeholders, with checkpoints and a body monitoring and reporting transparently on progress at predefined dates. This monitoring and reporting process should be coordinated by the Steel Master Plan team and could build on the recent experience on the assessment of South African trade policies on the steel sector (see Box 4.1).

Box 4.1. Study on the impact of the International Trade Administration Commission of South Africa (ITAC) trade tools on the steel sector

In 2024, the dtic ordered a study to review the impact of ITAC trade tools on the steel sector to inform and balance future interventions. The study considered tariffs, trade remedies and rebate applications which were received, approved and implemented by ITAC between 2015 and 2021. The impact of trade tools on key economic variables in the steel sector, e.g. production, investment, jobs, imports and the profitability of companies in the steel sector, impact of trade tools on key economic variables in the sector, e.g. production, investment, jobs, imports and the profitability of companies.

The report highlights that the South African steel sector has been underpinned by poor performance over the reference period. It underlines that at the upstream level, the impact of the measures was mixed, while some trade measures ensured that local market conditions do not worsen for certain categories of steel products.

Source: (Genesis Analytics, forthcoming[2])

4.1.2. Encourage the adoption of the South African Green Finance Taxonomy

The South African Green Finance Taxonomy, published in 2022, provides clarity to the financial sector on identifying green investments, reducing the costs of issuing a labelled financial instrument, supporting regulatory and supervision oversight of the financial sector and providing regulators with a reference to align green financial products (National Treasury, International Finance Corporation, 2022[3]). A technical report from the Climate Policy Initiative and GreenCape was published in 2025 and recognises that the South African Green Finance Taxonomy aligns well with international alignment, covering broad environmental objectives and economic sectors, particularly in climate change mitigation, reinforcing its compatibility with global taxonomies and the Paris Agreement.

However, despite the recent global growth in climate finance, investors with sustainability mandates have been hesitant to allocate capital to support the decarbonisation of hard-to-abate sectors such as steel (South African Institute of International Affairs, 2024[4]). The South African Green Finance Taxonomy is currently being implemented voluntarily, with the primary goal of facilitating its adoption and acceptance across the market. Further encouraging the adoption of the taxonomy by South African investors through a national disclosure framework, or, in case the voluntary approach does not yield sufficient results, requiring mandatory implementation, would help track the progress of companies and financial institutions in financing sustainable activities and projects, particularly in the steel sector.

4.1.3. Strengthen carbon pricing mechanisms

Increasing carbon prices can provide policy certainty and help achieve South Africa’s NDC commitments. The Carbon tax discussion paper about the phase two of the carbon tax, prepared by the National Treasury in 2025, proposes to align carbon tax reforms with the 5-year adjustment timeframe for the NDCs, considering the emissions trajectories and technology evolution. The 2022 Taxation Laws Amendment Act 2022 sets an increase of the tax to ZAR 308/t CO₂e (USD 20/t CO₂e) in 2026 and at least ZAR 462/t CO₂e (USD 30/t CO₂e) in 2030 (National Treasury, 2024[5]). However, these levels are below the Carbon Tax needed in South Africa to achieve NDC, which according to the International Monetary Fund should reach USD 120/t CO₂e (Asian Development Bank (ADB), 2023[6]). They are also below the carbon price required to make BF-(CCU)-BOF and H2-DRI-EAF competitive with the conventional Blast Furnace-Basic Oxygen Furnace route, estimated around USD 100-150/t CO₂e.

The current carbon tax proposes an array of adjustments, notably for steel companies. The sector and other hard-to-abate industries can benefit from a tax-free allowance that can reach 95% of the carbon tax. While this measure helps to protect the competitiveness of the industry, it reduces the incentive to invest in low-carbon options. The current carbon tax scheme also includes a “carrot”, in the form of a performance tax-free allowance to reward companies that perform better than an approved industry greenhouse gas (GHG) emissions intensity benchmark.

The implementation in 2026 of the European Union Carbon Border Adjustment Mechanisms (CBAM) will likely affect the trade patterns of the iron and steel sector and this trend could amplify as other jurisdictions are exploring similar Border Carbon Adjustments. In this context, countries such as Viet Nam, Malaysia and Morocco announced plans to introduce a carbon tax to localise the revenues from carbon pricing. South Africa could follow a similar path, while ensuring that the proceeds are used to protect vulnerable businesses and households or engage with the European Union to explore channeling back CBAM revenues towards investments in decarbonising the South African iron and steel sector.

Recognising the dual objective to maintain a competitive industry and to decarbonise the South African economy, it is essential to gradually (i) increase the level of the carbon tax, (ii) reduce the tax-free allowances and (iii) increase the performance tax-free allowance. In parallel, recycling the revenues from the carbon tax can help to free resources to support the decarbonisation efforts of steel companies, make the changes of the carbon tax scheme more acceptable for the industry protect vulnerable households and workers. These revenues could be earmarked to the most exposed hard-to-abate industries,1 and in the case of steel, aligned with the budget requirement related to the proposed national roadmap.

4.1.4. Launch a consultation to assess the domestic readiness and willingness to pay green premiums for iron and steel

Several low-carbon options for ironmaking and steelmaking are significantly more expensive than conventional high-emitting processes. For instance, the BF-(CCU)-BOF and H2-DRI-EAF routes are respectively around USD 100 and USD 200 per tonne of steel costlier than the BF-BOF route. Creating a lead market for low-emissions iron and steel is vital to stimulate investment in these technologies. While public support can help, the magnitude of the green premium and the fiscal constraints require the private sector and end-consumers to absorb part of the premium. As the steel sector is exposed to international trade, demand-creation measures should aim to lead to a self-sustained market.

As a first step, convening key national stakeholders to evaluate market conditions, consumer and industrial willingness to pay a premium for low-carbon steel products will help to identify the current gap between the demand-side readiness and South Africa’s aspirations to decarbonise. This consultation should then lead to prioritising voluntary initiatives, mandatory quotas for certain products or customers segments (such as automotive or appliances), or to introduce a green public procurement strategy aligned with the Public Procurement Act and other preferential procurement regulations.

4.1.5. Engage in international initiatives to develop common definitions and standards for low-emissions iron and steel

Definitions, standards and certifications are key pre-requisites to the trade of low-emissions iron and steel. While these instruments can be developed at national level, ensuring their reliability with international standards is essential, given the high trade exposure of the steel sector. As a first step, the existence of internationally recognised, interoperable definitions would provide a steppingstone to develop standards and certifications. South Africa could build on its current experience as a chair of the International Partnership for Hydrogen and Fuel Cells in the Economy that brings together 27 governments to work notably on hydrogen standards and certification. Further, international commercial agreements that include terms that reference certain standards, definitions and certifications for low-emissions iron and steel would act as market incentives for adoption by companies.

As low-carbon iron, steel and methanol produced in South Africa are likely to be sold at least partially on international market, it will be important to assess the stranded asset risk related to the implementation of CCU. Indeed, the BF-(CCU)-BOF route’s carbon intensity is more than four times higher than the H2-DRI-EAF one and the methanol produced via this process is eventually released in the atmosphere. As a consequence, stringent international regulations may lead to higher green premiums for the H2-DRI-EAF routes and low or no premium for the BF-(CCU)-BOF route.

4.1.6. Promote green iron trade through international partnerships

South Africa can capitalise on the competitive advantage due to its natural resources to transitioning to renewable hydrogen and direct reduction of iron ore. Steelmakers globally are exploring options to decouple ironmaking and steelmaking operations, in order to produce DRI/HBI in countries endowed with land availability and rich renewable resources, while producing steel closer to consumption centres, in existing electric arc furnaces and in markets with high scrap availability.

This scenario could offer a flexible option for South Africa to develop standalone DRI/HBI plant, where the production could be sold domestically and internationally, depending on market opportunities and to possibly develop further electric arc furnaces in the country when the domestic supply-demand balance requires it. It may also help reduce the capital expenditure (CAPEX) needs in the short term, as investments in the electric arc furnace and the related renewable power generation and storage assets could be evaluated in a second phase.

While the economic and labour benefits would be lower than for the development of a low-emissions steel plant, they could already be significant, based on analyses carried out in Australia and Canada (Russell, 2025[7]). For instance, (Jonas Algers, 2025[8]) estimates up to 14 000 jobs created and USD 16 billion value added every year, in a maximum case where all iron ore is reduced to green HBI domestically (considering 55.1 Mt current iron ore exports in 2022, comparable level with South Africa) (Jonas Algers, 2025[8]).

This approach could significantly help optimise global value chains and help South Africa’s trading partners reduce their emissions and support their steel industry. Therefore, it would be essential to ensure a fair and balanced value creation for both partners, through trade partnerships, offtake agreement, or technical cooperation. It could build on the bilateral partnerships established with Japan, Germany and the European Union for renewable hydrogen (GIZ, 2025[9]).

4.1.7. Accelerate efforts to decarbonise the electricity mix and finance the power grid’s modernisation

Low-cost renewable electricity is a pre-requisite to build low-emissions iron and steel making. Cost parameters should reflect the potential competitive edge of South Africa due to its natural resources. The introduction of the Electricity Regulation Amendment Act and the South African Wholesale Electricity Market (SAWEM) present opportunities for independent power producers (IPPs) and can help attract more private investment to deploy renewable electricity generation assets. Furthermore, investments in storage projects and transmission infrastructure will be necessary to develop capacity for competitive green iron and steel in South Africa. A dispatchable supply of electricity and hydrogen will be an essential element, as DRI plants, electric arc furnaces and blast furnaces equipped with carbon capture need to operate continuously.

Exploring a larger spectrum of alternative financing models, in particular through public-private partnerships (PPP), could leverage private finance for power transmission projects. For instance, Independent Transmission Projects (ITP) is an interesting example of PPP, whereby private sector actors are invited to bid for the financing, construction and operation of a specific power transmission asset and the auction winner receives a stable, long-term fee from the public sector. The project developer is paid a revenue stream that usually rewards availability rather than traffic (meaning private investors are not impacted by changes in the amount of power transmitted through interconnecting networks) and the costs are spread over time for the public TSO (Cordonnier and Denis, 2025[10]). In April 2025, South Africa announced that government will pursue private investment for the construction of transmission lines through the ITP model (SA News, 2025[11]).

Key measures can be initiated in the short-term to accelerate efforts to boost renewable electricity supply and modernise the power grid:

• On renewable power generation: reducing the time gap between the bid windows of REIPPP could ensure continuity in renewables supply. In addition, establishing a wholesale market could enable competitive trading.

• On power grid: select and pilot more efficient grid financing models. A new OECD Toolkit on transmission grid financing outlines a simple framework to select a transmission grid financing model2 suitable for a given country context and to plan the main steps for its implementation (OECD, Forthcoming[12]).

4.1.8. Prioritise investment in shared infrastructure and industrial hubs

Sustainable industrial hubs can facilitate and accelerate the decarbonisation of hard-to-abate sectors like steel, cement and chemicals to achieve net-zero goals. They offer the opportunity to mutualise and optimise resources and develop sustainable value chains, for instance by providing shared infrastructure and bundling demand for renewable electricity, clean hydrogen and derivatives such as iron and steel.

South Africa can build on its Special Economic Zones (SEZ) programme and repurpose their activities to develop sustainable industries and infrastructures (Department of Trade, Industry and Competition, n.d.[13]). The SEZ already include key success factors for the development of low-emissions iron and steel production in South Africa, notably the access to land and logistic infrastructures, an industrial development zone and a free trade zone to facilitate exports.

SEZ could be repurposed or adapted to incorporate sustainability objectives, that could help achieve NDCs and attract investment. Indeed, the interest of industry leaders for the development of green corridors, for instance between South Africa and Europe,3 could mobilise foreign direct investment (FDI) in energy-intensive industries. In addition, public-private partnerships can be an effective option to support the development of transport and storage infrastructure. For instance, appropriate risk-sharing arrangements between governments and industries will be important to support the cost-effective deployment of CCUS infrastructure (IEA, 2019[14]). DFIs can provide patient, long-term and concessional funding for key infrastructure supporting the industry and be a catalyst for private sector investment. Considering a greater flexibility to conditions currently hampering DFIs interventions, such as stringent local content requirements in procurement, could help to crowd in investment in critical infrastructure.

4.1.9. Bolster capacity building and technology partnerships for industry decarbonisation

Strengthening skills development, workforce training and knowledge sharing through partnerships between government, academia and industry will be essential to support the green transition. Social partnership would facilitate collaboration at a local level and help strengthen and scale up approaches to develop relevant skills for the green transition. It is important to distinguish between jobs and skills, as skill analysis offers an even more disaggregated level to examine and unpick the complex dynamics of the greening of the economy. Skills for the green transition not only require technical skills specific to renewable and green industries be required, but also transversal skills, such as technological expertise, management capabilities and competencies in innovation and change management (OECD, 2023[15]).

In addition to skills development, technology partnerships may be essential to deploy decarbonisation solutions, including energy efficiency, renewable hydrogen and DRI production or carbon capture. When technologies are unavailable locally, developing technology transfer, for instance via Mintek,4 or building partnerships with international companies, like those demonstrated by HyIron in Namibia, could be explored (European Commission, 2025[16]).

4.1.10. Assess the appropriateness of tax incentives for decarbonisation projects

Tax incentives, including corporate income tax reduction or expenditure-based incentives, can stimulate capital investments in low-emissions steel technologies. To maximise impact, tax incentives should be designed to target emissions-reducing investments with clear eligibility criteria. Time-bound provisions could encourage timely action while limiting fiscal exposure, especially as first-of-a-kind projects will require more support than followers.

South Africa can build on the lessons learned from past and existing programmes to design and adapt tax incentives, such as:

• 12I Tax Allowance Incentive to support greenfield and brownfield investments (Department of Trade, Industry and Competition, n.d.[17]).

• 12L Income Tax Allowance on Energy Efficiency Savings (South African National Energy Development Institute, 2025[18]).

• An SEZ incentive for companies, including a reduced corporate tax rate of 15%.

Compared to tax incentives that apply to the income generated from investment (e.g. reduced CIT rates or tax exemptions), incentives tied to the expenditures incurred in an investment project (e.g. accelerated depreciation and enhanced investment allowances) confer larger relative gains on lower profit investments that are less likely to go ahead in their absence. Several ex-post studies show that expenditure-based incentives can induce additional investment and they do not imply a fiscal cost that grows with project profitability. As a result, they are expected to result in more investment per unit of revenue foregone. Expenditure-based incentives have larger effects on investment incentives for capital-intensive projects, which characterise important clean technologies like renewable energy generation or green hydrogen production (Dressler and Warwick, 2025[19]).

4.1.11. Develop guarantee products to reduce the cost of capital

Steel being a capital-intensive industry, a high cost of capital can strongly deteriorate the profitability of investment projects and deter investors. Guarantee products can play a key role in reducing the country risk—including political risk, policy reliability and public support predictability—but also technology-specific risks related to nascent technologies. These instruments can have a better leverage than direct financing instruments to mobilise private capital. The strategic use of de-risking instruments such as guarantees can reduce the total project cost, therefore reducing the need for direct support from public finance to make projects economically viable. However, these instruments should not be deployed in silos but should be integrated within risk mitigation packages (OECD/The World Bank, 2024[20]). In the case of renewable hydrogen projects, a public de-risked scenario could reduce the estimated cost of capital in South Africa from 11.1% to 8.4% (Egli et al., 2025[21]).

The National Treasury, together with relevant country platforms, could set up and coordinate a working group to evaluate the most suitable instruments that could be deployed for the technologies included in an iron and steel sectoral national roadmap. The working group should involve the main guarantee providers active in South Africa: Multilateral Development Banks (MDBs), Development Finance Institutions (DFIs), Export Credit Agencies (ECAs) and Specialised Institutions (CPI, 2024[22]). As risk mitigation packages are often specific to technologies and project commercial structure, the working group should ideally propose a suite of complementary guarantee instruments based on well-identified potential projects.

4.1.12. Provide concessional long-term financing, possibly in the form of CAPEX or time-bound Contracts for Difference (CfD)

For the low-carbon options that show a significant green premium, the current (and projected) levels of carbon pricing remain unlikely to reach the levels required to make projects bankable by 2030. Targeted and time-bound support would be needed to attract investors. CAPEX grants are attractive for the private sector as they help overcome the high upfront cost and for administrative ease.5 A downside of CAPEX support is that it does not mitigate risks associated with future project cashflows. It could then be coupled with CfD, that can better address market risk mitigation. In the case of Carbon Contracts for Difference, the size of the subsidy would decline over time as the carbon price rises.

However, these instruments exert significant pressure on the public budget. They should therefore be limited to first-of-a-kind projects and designed according to other complementary measures, such as carbon pricing (which may provide revenues to finance these instruments) or tax incentives (which may help reduce the direct financing needs from CAPEX grants). Furthermore, concessional financing could also come from Development Finance Institutions and foreign governments, through instruments such as the H2Global Mechanism6 or programmes such as the EU Global Gateway Investment Package (European Commission, n.d.[23]).

4.1.13. Develop or use an existing country platform to create a pipeline of projects and attract investment

A country platform is a government-led tool to align national development priorities with international support, including finance, technology and technical assistance. It brings together public and private stakeholders, development partners and investors around a shared national investment plan or climate strategy. The objective is to create a coherent, transparent and investible policy and institutional framework that enhances the confidence of financiers and reduces fragmentation in international support. On finance and investment, country platforms can be transformative by (i) mobilising finance at the appropriate scale, (ii) developing pipelines of projects and (iii) focusing on delivery and minimising transaction costs (Robinson, 2025[24]).

Under its G20 Presidency in 2025, South Africa is championing the concept of country platforms. The country has launched its Just Energy Transition Partnership (JETP) with an International Partners Group comprising several governments from advanced economies that pledged to mobilise an initial USD 8.5 billion between 2023 and 2027. Subsequently, the government Just Energy Transition Investment Plan for South Africa for the five-year period 2023–2027 that sets out the scale of need and the investments required to achieve the decarbonisation commitments in South Africa’s NDC (Climate Commission, n.d.[25]). In 2025, the country launched the JET Funding Platform (JET FP) with a focus on energy efficiency and renewable hydrogen projects.

In the context of the preparation of the NDC 3.0, South Africa could expand the scope of the JET FP to include hard-to-abate industries, including iron and steel. This would be instrumental to develop a pipeline of credible and bankable projects, with support of international stakeholders, like MDBs that have significant resources to support, including to onboard donors not familiar with country context. This could be timely, as on June 2025, the Climate Investment Funds (CIF) announced that South Africa was one of the seven inaugural countries selected to participate in CIF’s USD 1 billion Industry Decarbonisation Investment Programme, a global concessional finance initiative dedicated to reducing industrial emissions in developing countries (Climate Investment Funds, 2025[26]).

The JET FP could provide the right platform across the entire project lifecycle. At development phase, the JET FP could help attract technical assistance for project preparation. Indeed, collaboration in the project preparation phase and robust studies before the final investment decision (FID) can help reduce the perceived project risk and therefore improve the attractiveness of the project. Pre-FID can be more easily financed by grants, subsidies, or repayable advances (if the project reaches FID), including through domestic and international public support (including from MDBs), or even philanthropic support. Once a project is close to reach FID, the JET FP could connect projects and investments and improve coordination between donors.

4.1.14. Promote ESCOs to facilitate the adoption of energy efficiency solutions

The 12L Income Tax Allowance on Energy Efficiency Savings provides good incentive in the short term but the economic analysis also shows some projects being profitable already. Further fostering the development of the ESCO model could help deploy profitable energy efficiency technologies across steel companies. Successful implementation would require clarifying contracting frameworks, performance measurement standards and financing options for ESCOs. Capacity building for both ESCO providers and steel producers is crucial to ensure technical proficiency and trust. Rigorous monitoring and verification protocols will be essential to guarantee energy savings and build investor confidence.

As energy efficiency solutions are often replicable in various industrial subsectors, a first step could be to undertake a mapping of the energy consumption of the sites of the South African industry (possibly starting with a subset of strategic industrial subsectors including steel, as well as industrial hubs) and develop an technology catalogue, based on the ones developed in other countries, but adapting the technology availability and prices to the South African context.

4.2. Next steps: contributions of the OECD Framework implementation in South Africa to the broader policy dialogue

The Framework outcomes yield insights into the fields of industry, energy, climate and financing which will be determined by the national circumstances and priorities of the industry sector. As the project transitions from implementation to application, several potential next steps can support the integration of its findings into national and international processes.

Efforts will be made to share the project’s key results both within the country and internationally, to ensure broad awareness and uptake of its insights. This includes planned dissemination activities, active collaboration with complementary initiatives (see Box 4.2) and stakeholder engagement to explore follow-up opportunities. These efforts aim to deepen collaboration between the OECD and governments in support of industrial decarbonisation.

Box 4.2. Other initiatives on the decarbonisation of the steel sector in South Africa

National Roadmap for decarbonising South Africa’s steel industry

In April 2023, the Leadership Group for Industry Transition (LeadIT) and Trade & Industrial Policy Strategies (TIPS) organised a workshop, hosted by the South African government, to advance the development of a national roadmap for decarbonising South Africa’s steel industry. The workshop brought together more than 40 decision-makers and experts from industry, government, academia and civil society.

At the workshop, three priority areas were identified as central to a low-emissions steel transition in South Africa:

• Realising South Africa’s potential competitive edge in low-emissions steel production, building on the country’s position as a lead iron ore producer, combined with its rich renewable energy resources.

• Improving the business case and building skills for a just and equitable transition, notably through public-private partnerships to develop technological readiness for low-carbon production and educate workers to transition to the new industry.

• Build-out of fossil-free energy, in particular by decarbonising the power sector and enhancing grid reliability

Accelerating South Africa’s Steel Decarbonisation

The United Nations Industrial Development Organization (UNIDO), Guidehouse and the Industrial Development Corporation (IDC) are preparing a 5.5-year project foreseen to start in 2026. The project aims to catalyse industrial decarbonisation of South Africa by supporting a shift to near-zero emission steel production with the uptake of innovative technologies and enabling policy framework.

The project, titled “Accelerating South Africa’s Steel Decarbonisation”, could be funded by the Mitigation Action Facility (MAF), for a total budget of EUR 25 million:

• On the technical component (EUR 8 million), the project will provide targeted technical assistance to accelerate decarbonisation in the steel sector through policy support, capacity building and investment pipeline development. It will help refine the policy framework, support pilot projects with financial and technical assistance and guide companies in preparing bankable investment proposals. Technology Implementation Action Plans will be developed with steel producers to support the adoption of near-zero-emission technologies. Smaller firms will receive advisory support on renewable energy procurement. Capacity building will include training on hydrogen technologies, safety and compliance with policies like the EU CBAM, delivered in collaboration with industry associations. Awareness efforts will focus on circularity, low-carbon technologies and international policy impacts. The technical component will also have a strong focus on gender equality and inclusion.

• On the financial component (EUR 17 million), the project will develop a financial mechanism with the dual purpose of demonstrating profitability during the project preparation phase and addressing the first-mover disadvantage that often hinders early investments. This mechanism will be designed to catalyse larger-scale investments in the steel sector and will be tailored to overcome identified market and financing barriers. The funding approach will blend grant and concessional resources from the Mitigation Action Facility (MAF) with equity and debt contributions from local development finance institutions and structured private sector loans at commercial rates. Each project will be evaluated against defined criteria to determine the most suitable mix of financial instruments, such as non-recoverable grants, concessional loans, off-taker and loan guarantees and interest rate and operational expenditure subsidies.

Climate Investment Funds’ Industry Decarbonisation investment programme

The Climate Investment Funds (CIF) has announced in June 2024 the design of an industry decarbonisation investment programme, a global concessional finance initiative investing in industrial greenhouse gas emissions reduction in developing countries. The USD 1 billion Industry Decarbonisation investment programme is part of CIF’s USD 9 billion Clean Technology Fund, underpinned by the CIF Capital Markets Mechanism (CCMM), a first-of-its-kind instrument mobilising private capital to advance countries’ priorities for sustainable, inclusive and resilient development.

In June 2025, seven countries (Brazil, Egypt, Mexico, Namibia, South Africa, Türkiye and Uzbekistan) were invited as inaugural countries for the Industry Decarbonisation investment programme. The programme is designed specifically to drive private sector participation and encourages businesses, governments and multilateral development banks to work together through innovative funding mechanisms.

The programme’s brochure specifically highlights six areas of opportunity for South Africa: (i) decarbonise the steel industry and industrial parks; (ii) transform industrial parks into green special economic zones; (iii) scale clean steel and hydrogen projects with private-sector co-financing; (iv) support enabling conditions for improved grid resilience and energy diversification in support of industrial decarbonisation; (v) strengthen community resilience and workforce upskilling in affected regions; and (vi) enhance policy coherence between national climate goals and industrial agendas.

Agora Industry’s and Southern Transitions’ Green Iron Trade project

In 2025, Agora Industry and Southern Transitions have led a project on international green iron markets. The analysis builds on a techno-economic analysis to assess the potential of mutually beneficial trade partnerships between large primary steel producers (such as Japan, South Korea and mainland Europe) and “sweet spots” for green iron production, such as Brazil, South Africa, Australia and the MENA region. Strategic trade partnerships, supported by green iron standards, trade instruments and long term off-take agreements, can be used as a basis to secure low-cost green iron access for importers while creating enabling investment conditions for large scale investments in renewable hydrogen-based DRI plants.

The granular analysis confirms that importing green iron (instead of importing hydrogen and iron ore) can make economic and strategic sense for both parties. For importing countries, green iron trade could reduce iron costs by up to 26%, thereby maintaining competitiveness of steel production, while sustaining the bulk of jobs in the midstream and downstream industries. For producing countries, domestic iron production can drive industrial growth, deliver socio-economic benefits and enable the green transition. For instance, South Africa’s renewables potential, high-grade iron ore and industrial ecosystem lead to a global edge in hydrogen-based DRI production. The techno-economic analysis estimates that meeting 1.5% (3.0 Mt) of global green iron demand by 2040 could generate around 12 000 jobs across the value chain in the country and triple revenues compared to iron ore exports.

Source: (LeadIT, 2023[27]; UNIDO, 2025[28]; Climate Investment Funds, 2025[26])

The findings and recommendations outlined above can lead to the development of targeted future work, such as policy briefs and illustrative use cases to support evidence-based policymaking. In addition, there is scope to apply the approach and lessons learned to other hard-to-abate sectors, thereby broadening the impact of the work and reinforcing cross-sectoral alignment with national climate and industrial goals.

The outcomes may also serve as a basis for advancing international policy dialogue on industry transition. Engagement in platforms such as the G20 and the Inclusive Framework for Carbon Mitigation Approaches (IFCMA) can help promote alignment, share experiences, foster cooperation and accelerate efforts on global industrial decarbonisation.

4.3. Conclusion

South Africa holds significant potential to emerge as a leader in the production of low-emissions iron and steel, leveraging its abundant renewable energy resources, mineral endowment and industrial land. The country also benefits from one of the most advanced financial sectors in Africa and an array of supportive roadmaps, plans and policies, such as the Steel Master Plan released in 2021.

Nevertheless, the South African steel sector faces substantial structural challenges that threaten its long-term viability. Persistent issues related to unreliable infrastructure, particularly in power supply and logistics, coupled with exposure to international competition, have eroded the competitiveness of domestic steel producers. These pressures have contributed to a period of underperformance, underinvestment and reduced production capacity. Policies that foster a more competitive steel industry must address these challenges if the sector is to thrive in a low-carbon future.

Certain decarbonisation measures, such as energy efficiency improvements, already present viable investment cases. Other progress not specific to the steel sector will have positive spillovers on the steel industry: for instance, the planned increase of the share of renewables in South Africa’s power mix would significantly accelerate steel decarbonisation. However, advanced technologies for deep emissions reduction, such as hydrogen-based steelmaking or carbon capture, remain significantly more costly than conventional processes. This green premium deters private investment and risks delaying the transformation of the sector.

Decarbonising the iron and steel sector must serve a dual purpose: advancing economic and industrial development while achieving emissions reductions. This will also benefit downstream industries that are dependent on steel. Support for decarbonisation must be structured to catalyse investment, without placing unsustainable pressure on already constrained public finances.

A combination of complementary instruments is necessary to overcome the barriers to steel decarbonisation in South Africa. First, robust enabling conditions must be established through coherent regulation, targeted infrastructure development and effective carbon pricing, underpinned by clear market signals for low-emissions products. Second, de-risking and economic instruments should be used to attract private capital and reduce investment uncertainty. Finally, direct public financial support (time-bound and targeted) should be deployed in coordination with international climate finance and cooperation mechanisms.

This report has outlined key recommendations to unlock and mobilise the scale of investment required to decarbonise South Africa’s iron and steel sector. More broadly, it is essential that this transformation supports a Just Transition, by creating decent, green jobs, delivering socioeconomic benefits and ensuring that no one is left behind. South Africa has already laid important groundwork through initiatives such as the Just Energy Transition Partnership (JETP), the Just Energy Transition Investment Plan (JET IP) and the JET Funding Platform (JET FP). Building on this foundation with a coordinated, inclusive and investment-oriented strategy will be vital to realising a resilient, low-carbon industrial future.

References

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[25] Climate Commission (n.d.), South Africa’s Just Energy Transition Investment Plan (JET-IP), https://www.climatecommission.org.za/south-africas-jet-ip.

[26] Climate Investment Funds (2025), CIF Selects Seven Inaugural Countries to Pioneer Industry Decarbonization, https://cif.org/news/IndustryCountries (accessed on 18 June 2025).

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[30] Department of Trade, Industry and Competition (2024), Manufacturing Support Programme, https://www.thedtic.gov.za/manufacturing-support-programme-msp/ (accessed on 30 June 2025).

[17] Department of Trade, Industry and Competition (n.d.), 12I Tax Allowance Incentive, https://www.thedtic.gov.za/financial-and-non-financial-support/incentives/12i-tax-allowance-incentive/.

[13] Department of Trade, Industry and Competition (n.d.), Special Economic Zones, https://www.thedtic.gov.za/sectors-and-services-2/industrial-development/special-economic-zones/.

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Notes

← 1.  If the revenues from carbon pricing are too low, other sources could be explored, for instance by re-channelling inefficient fuel subsidies.

← 2.  The toolkit presents several models with varying involvement of the public sector: public investment, minority private investment, ITP and generation-linked models, merchant line, whole-of-grid concession and full privatisation.

← 3.  Anglo American, Tata Steel, CMB, VUKA Marine, Freeport Saldanha and ENGIE

← 4.  The mandate of Mintek is to serve South Africa’s national interest through research and development, technology transfer, promote mineral technology and encourage the establishment and expansion of industries in the field of minerals and products derived therefrom (Government of South Africa, 2025[29]).

← 5.  Existing programmes such as the Manufacturing Support Programme (MSP) could be used for small projects such as energy efficiency ones described in this report (Department of Trade, Industry and Competition, 2024[30]).

← 6.  A double-auction mechanism combined with an intermediary that enters contracts with sellers and buyers. This intermediary then buys products (clean hydrogen and derivatives) to sell them through an auction at a lower price to end consumers supporting demand build up. The price difference is covered by public funding. In July 2024, an Egyptian plant of Fertiglobe has won the first H2Global auction for renewable ammonia.