Nikki Kergozou
OECD Economic Surveys: South Africa 2025
Abstract
South Africa needs to accelerate its efforts to reduce greenhouse gas emissions to meet its commitments, while adapting to climate risks. Gradually increasing the effective carbon price can strengthen incentives to efficiently reduce emissions. Improving the availability of quality public transport options and implementing rail-sector reforms will reduce transport emissions. Finally, more effective sectoral policies, including across agriculture, industry and carbon sinks would also help reduce emissions. Climate policies will require significant resources, which the country also needs to eliminate poverty and reduce inequality. Paying close attention to the political economy of climate policies and supporting vulnerable groups will be key to the success of climate policies. Strong governance practices and clear responsibilities and coordination across government agencies will support policy implementation. South Africa is highly vulnerable to the changing climate. Enhancing water-supply security, resilience to flood risks and climate-resilient infrastructure requires well-functioning municipalities, sufficient financing and greater insurance coverage.
Reducing greenhouse gas (GHG) emissions and preparing for the impacts of climate change in South Africa is challenging. As a semi-arid country, South Africa is likely to face more frequent periods of droughts. With growth being sluggish, resources to finance the transition are limited and compete with other pressing issues, such as reducing poverty. In this context, this chapter considers policies to help South Africa achieve a cost-effective and fair climate-change transition, while becoming more resilient to climate change.
The chapter accompanies Chapter 4 on South Africa’s electricity sector, which is also key for reducing emissions, but which is analysed separately due to other critical issues around energy security. Additionally, Chapter 2 outlines labour market and social policies to help ensure a just green transition.
At first sight, South Africa’s performance in terms of greenhouse gas (GHG) emissions appears relatively good compared to other countries. Its emissions per capita are below the OECD average and similar to the European Union average (Figure 3.1, Panel A). One factor contributing to South Africa’s relatively low emissions per capita is its relatively modest GDP and consumption per capita. In addition, total GHG emissions have been declining in recent years. In 2022, emissions had fallen by around 18% since a peak in 2008, although they remained around 40% above 1990 levels (Panel B).
This performance hides, however, worrisome emission pressures over the medium to long term. Population and economic growth are two key factors that will put upward pressure on total emissions (Panel C). South Africa’s population increased by 64% between 1990 and 2022 and is projected to increase by around 9% between 2022 and 2030 and by 24% between 2022 and 2050. In parallel, a relatively slow annual increase in economic activity, averaging only 0.8% over the past decade, has limited the increase in total emissions. If potential growth picks up, emissions could rise quicky if the structure of South African GDP does not also change. An increase in the availability of electricity and structural reform efforts could lead to such an acceleration in growth (Chapters 2 and 4).
South Africa’s economic activity is highly emissions and energy intensive in part due to coal-generated electricity (Panels D and E). The GHG intensity of GDP has declined since 1990, partly reflecting the larger size of the services sector in the economy, the shift to electric furnaces in the iron and steel sector, the decline in aluminum production and the decrease in livestock (DFFE, 2024[1]). Nevertheless, the energy South Africa is using is becoming more carbon intensive (Panel F).
Consequently, mitigation action must accelerate rapidly for South Africa to meet its 2030 emission target of 350-420 Mt CO2e and its 2050 commitment to net-zero emissions (Panel B). This will require action across sectors to reduce the energy intensity of GDP (Box 3.1). The financing of such reforms could benefit from more effective climate taxation, which will also help change incentives, together with financial assistance for the climate transition from developed countries to complement limited resources in South Africa.
Climate mitigation policies will provide additional benefits. For example, mitigation action will benefit health, with the coal-intensive economy contributing to elevated levels of pollution. Mean exposure to fine particulates (PM2.5) was the fourth highest amongst G20 countries in 2019. Exposure substantially increases the risk of heart and respiratory diseases and stroke. Furthermore, progress on mitigation policies can also help address other dimensions of the green transition. For instance, tackling mitigation can reduce some types of biodiversity risk. While mitigation policies will reduce risks, adaptation policies should also be strengthened as South Africa will need to adapt to more frequent and intense drought, changing rainfall patterns and flooding.
The following section of this chapter outlines key institutional and governance challenges to support the climate transition. The third section looks how mitigation and financing policies could be achieved in a fair and efficient way. The fourth section focuses on policies to reduce emissions in various sectors: transport, agriculture and forestry, and industry. Lastly, the chapter discusses some of the challenges in adapting to climate-related hazards.
Note: G20EME is an unweighted average. Emissions exclude LULUCF unless stated. GDP measured in 2015 PPP USD. Panel D: Emissions per unit of GDP. Panel E: Total energy supply per unit of GDP. Panel F: CO2 emissions from fuel combustion per unit of total energy supply.
Source: Department of Forestry, Fisheries and the Environment (2024[2]); OECD Environment Statistics database; IEA World Energy Balances database; IEA Indicators of CO2 Emissions from Fuel Combustion Statistics: Greenhouse Gas Emissions from Energy database.
Around 41.1% of emissions result from electricity generation and 5.8% from the manufacturing of solid fuels, including coal (Figure 3.2, see Chapter 4). Nevertheless, achieving climate objectives will also require policy action beyond the electricity sector. In 2022, and excluding land use, land-use change and forestry (LULUCF):
The agriculture sector represents 11% of emissions, with enteric fermentation (i.e. cattle) contributing to 68% of these emissions. Agricultural emissions have declined by 9% since 2000 as livestock numbers have fallen. The sector is facing challenges in reducing emissions, managing water resources and adapting to climate change.
Transport accounted for 11% of emissions, with road transport representing 10.7%. Public transport suffers from accessibility, reliability, safety and affordability concerns while urban sprawl places heightened demands on the transport system. A low share of freight is transported by rail.
Industrial processes accounted for 6.4% of emissions in 2022, including ferroalloys (1.8%), iron and steel (1.3%) and cement (1%), and manufacturing industries and construction accounted for 5.6%. There remains room to improve processes and become more energy efficient.
Solid waste disposal accounted for 2.4% and wastewater treatment and discharge for 1.9% of emissions. Landfill rates are high and are often not operated in line with national standards.
Land use, land-use change and forestry reduced net emissions by 9% in 2022, the largest sectoral decline, accounting for 54% of total reductions (or 31 Mt CO2e annually from 2010 to 2022).
GHG emissions by sector as a percentage of total emissions, 2022 or latest available
Note: Energy industries include electricity generation, the manufacture of solid fuels (i.e. coal and wood) and petrol refining.
Source: Department of Forestry, Fisheries and the Environment (2024[2]); OECD Environment Database; OECD calculations.
3.2.1. Meeting climate targets will be challenging
South Africa’s emissions of 436 Mt CO2e in 2022 were within the target range of 398-510 Mt CO2e for 2025 and are likely to remain within the range over the next three years (Figure 3.1, Panel B) (DFFE, 2024[1]; 2024[2]). However, several studies estimate that South Africa will not attain its 2030 target (NewClimate institute et al., 2022[3]; PBL, 2024[4]; United Nations Environment Programme, 2023[5]). Emissions need to decline by a minimum of 3.6% and a maximum of 19.7% from 2022 to achieve the 2030 target range of 350-420 Mt CO2e. This decline may be compromised if South Africa does not complete its reforms in key electricity policies (DFFE, 2024[1]) (see Chapter 4). Emissions will need to decline significantly to meet South Africa’s aspirational goal for reaching net-zero carbon emissions by 2050, as outlined in its 2021 Low-Emissions Development Strategy (LEDS).
Achieving the 2030 target requires more ambitious policies. The 2030 target is more ambitious than the previous Nationally Determined Contribution (NDC) for 2030 and is almost consistent with the Paris Agreement’s 1.5ºC temperature limit (Climate Action Tracker, 2024[6]). Achieving the 2030 target will require 3% additional investment per year across the energy, transport, waste, agriculture and environment sectors (DFFE, 2024[1]). However, there remains a notable absence of an explicit, detailed transition path for achieving net-zero emissions by 2050. Providing more detailed information on the planned transition pathway would be highly beneficial to increase certainty for investors and funding. In addition, determining and committing to quantitative sectoral targets across all emitting sectors could help reach overall emission targets. A Draft Sectoral Emission Targets Report was released for public comment in 2024 but only some sectors face quantitative targets and others face qualitative targets, such as ensuring the implementation of a particular policy. South Africa aims to submit another updated NDC in 2025 for 2030 and 2035.
Average stringency by policy category in South Africa
Note: Policy stringency is defined as the degree to which policies incentivise emission reductions. High values indicate that the policy in each year was more stringent compared to all other countries and years and not necessarily that the policy is sufficient to meet mitigation goals.
Source: OECD Climate Actions and Policies Measurement Framework (CAPMF) database.
OECD indicators suggest the stringency of South Africa’s climate action has increased yet remains weak compared to OECD and G20 economies. The Climate Actions and Policies Measurement Framework suggests a sharp increase in the stringency of targets, governance and data and modest increase in non-market-based instruments, such as standards and regulation (Figure 3.3). The stringency of market-based instruments, which includes explicit and implicit carbon pricing tools or other charges related to reducing emissions, is broadly unchanged. The Environmental Policy Stringency Index, which includes water and air quality, also points to a low level of policy stringency in 2020, the third lowest across OECD and G20 economies (not including Argentina and Saudi Arabia).
The OECD’s Climate Actions and Policies Measurement Framework suggests that South Africa’s climate strategy is similar to that of Latin American countries, including Argentina, Brazil, Chile, Costa Rica, and Peru, as well as Australia, India, Indonesia, Israel, Mexico, Saudi Arabia and Türkiye (D’Arcangelo, Kruse and Pisu, 2023[7]). These countries typically focus on a few policy instruments, which are usually non-market based, concentrated in a few sectors, typically industry, and whose stringency is relatively weak.
3.2.2. Improving climate governance and policy implementation
Although South Africa has strong climate policy ambitions, there is a notable disparity between these ambitions and practical outcomes (Presidential Climate Commission, 2024[8]; Averchenkova, Gannon and Curran, 2019[9]). While energy issues are front of mind, climate change remains a low public priority, resulting in low public pressure and few political costs for “bad” climate behaviour (Calland, 2023[10]). Examples of disparities between ambitions and outcomes include:
The Climate Change Act was first released for public consultation in 2018, tabled in Parliament in 2022, enacted in July 2024 and came into operation in March 2025, excluding some deferred provisions (Box 3.2). Until its enactment there was no legal enforcement for several climate policies and the 2021 NDC was not enshrined in law.
The slow implementation of the carbon tax has added to uncertainty (World Bank Group, 2022[11]). The first phase of the tax started in 2019, after almost 10 years of consultation, in part due to the lack of horizontal coordination between the National Treasury and the Department of Environmental Affairs (now the Department of Forestry, Fisheries and the Environment (DFFE)) (Averchenkova and Lazaro, 2020[12]). The second phase, scheduled to occur after a government review, which could adjust rates and tax-free allowances, wa delayed from 2023 to 2026.
Compulsory carbon budgets and mitigation plans for companies have been delayed by several years. Introduced in the National Climate Change Response Policy in 2011, carbon budgets were voluntary in their first phase, originally intended for 2016-2020. Compulsory carbon budgets are planned to come into effect in 2026.
Several key electricity sector reforms have taken years to be implemented (see Chapter 4).
Poor clarity on roles and responsibilities of environmental competencies within government and government departments working in silos result in contrasting policies and contradictory government positions (Averchenkova and Lazaro, 2020[12]; Presidential Climate Commission, 2024[8]). The Presidency, Department of Forestry, Fisheries and the Environment, Department of Mineral Resources and Energy and National Treasury are pushing ahead with policies and frameworks with insufficient alignment (Presidential Climate Commission, 2024[8]). Ensuring the coordination of climate policies across ministries and levels of government can help boost policy effectiveness. The 2024 Climate Change Act aims to encourage coordination and foster institutional coherence and enhance adaptation governance across levels of government. The Act requires every organ of state exercising a power that is affected by climate change to assess risks and vulnerabilities while adhering to its objectives. In addition, ensuring a robust policy framework and governance structure for climate policies, involving clear roles and responsibilities and coordination across various government agencies will be essential for the timely enactment, implementation and coordination of climate legislation and policies (DFFE, 2024[2]).
South Africa’s climate policy is largely shaped at the national level. Key institutions include the following:
The Department of Forestry, Fisheries and the Environment (DFFE) coordinates and monitors national environmental policies.
The Presidential Climate Commission (PCC) advises on mitigation and adaptation measures and monitors and evaluates progress towards targets. The President chairs the Commission with members representing government, organised labour, civil society and business.
Municipalities manage water and waste services. They play a key role in adaptation plans, climate-related disasters, local infrastructure and land-use planning, and distribute around 40% of electricity.
Recent key climate policies and legislation include the following:
The 2011 National Climate Change Response Policy (NCCRP) outlines the vision and policy framework to respond to climate change.
The National Climate Change Adaptation Strategy (NCCAS) outlines a vision for adapting to and building resilience against climate change.
The Just Transition Framework developed by the Presidential Climate Commission sets out a vision for shifting to an equitable, zero-carbon economy and identifies key policy areas and principles. It initially focused on the coal and auto value chains, agriculture and tourism.
The 2024 Climate Change Act provides a regulatory framework for setting national and sectoral emission targets and carbon budgets to high-emitting companies. It also introduces institutional and coordination arrangements across national, provincial and local governments. The Act mandates the alignment of all laws, policies and measures of government departments with its provisions. It also imposes obligations on all three tiers of government to map, plan for and respond to adaptation needs. The Act came into operation in March 2025, excluding some deferred provisions.
The Just Energy Transition Investment Plan (JET IP) outlines investments in electricity, new energy vehicles, green hydrogen and municipal capacity between 2023 and 2027 (see Chapter 4).
Source: DFFE (2024[2]); Presidential Climate Commission (2022[13]).
3.2.3. Strengthening climate advice
A greater role for expert advice within the Presidential Climate Commission (PCC) could help bring a longer-term and evidence-based perspective (Averchenkova and Lazaro, 2020[12]). The PCC currently advises on mitigation and adaptation measures and monitors and evaluates progress towards climate targets. Several countries have created independent advisory bodies (Box 3.3). Some have active technical advisory roles in setting targets and proposing policies. These advisory bodies can also help disseminate knowledge about climate change and nurture constructive narratives about climate policies, helping build public acceptance and trust (D’Arcangelo et al., 2022[14]). Increasing the share of climate scientists on the PCC could help support the quality of technical scientific advice. Few current members have scientific credentials, most represent government, organised labour, civil society and business.
The PCC could play a larger role in providing guidance and support to the government on policy implementation and coordinating policies across ministries and levels of government, which has been a challenge (see above). For example, establishing a clear agenda with the government could help ensure that the PCC advises on pertinent challenges and policy questions. In addition, increasing technical discussions with government departments and the PCC could help foster policy coordination. The independence of the PCC’s advice could be strengthened by ensuring sufficient financing for its core activities. In the 2023/24 financial year, 43% of the PCC’s revenues were from donors. The Climate Change Act outlines that the PCC can receive funding by way of grants or donations that must be unconditional. However, the need for significant donations to undertake their functions may increase risks of lobbying. Providing the PCC with sufficient means will ensure their capacity to fulfil these functions and reduce the risk of a conflict of interest.
A potential lack of independence of the PCC could limit its role as an independent advisor, its policy credibility and its ability to strengthen climate governance (Averchenkova and Lazaro, 2020[12]). Independent advisory bodies can make climate policies more informed and predictable and less prone to political cycles. Some help coordinate different policies across government. The responsibility that these bodies assume over policy recommendations, even if the government makes the final decision, can potentially alleviate political difficulties when making controversial choices (D’Arcangelo et al., 2022[14]). Such a body can also help manage trade-offs across policies and sectors. However, the PCC risks lacking independence, with the President appointing its members. Adapting the role of the PCC to a more independent climate advisory body could further help support climate governance.
The UK’s Climate Change Committee (CCC) is an executive non-departmental public body. It provides independent analysis and advises the government on setting legally binding carbon budgets and reaching the goals of the UK’s Climate Change Act. It also monitors government actions. The Committee annually reports on progress to parliament. The government must respond to these reports and produce statements on the policies implemented to meet the carbon budget and emission goals.
In New Zealand, the Climate Change Response (Zero Carbon) Amendment Act (2019) established a Climate Change Commission. This Commission provides independent expert advice to the government and reviews progress towards emissions reduction and adaptation goals.
The Danish Environmental Economic Council provides analysis and advice to policymakers. The Council prepares an annual climate status report that assesses whether existing policies are sufficient to meet emission targets and presents a possible climate policy programme to the Parliament.
The Netherland’s Environmental Assessment Agency annually releases the Climate and Energy Outlook, which reports the expected CO2 emissions and the progress of the country in reducing them.
Source: D’Arcangelo et al., (2022[14]).
Economy-wide climate mitigation measures in South Africa include carbon pricing, fuel taxes, carbon budgets, regulation and fiscal incentives. While encouraging mitigation efforts, they can also represent a source of government revenues, which will be key to support green investment and enhance social policies. Accessing international climate finance, such as the Green Climate Fund, and leveraging private sector investments will also be essential.
3.3.1. Mobilising financing for climate action
Climate finance in South Africa needs to increase. South Africa requires on average ZAR 535 billion (around 7.6% of 2023 GDP) per year to meet its NDC target by 2030 and on average ZAR 334 billion (around 4.8% of 2023 GDP) per year to meet its net zero goal by 2050 (de Aragão Fernanes et al., 2023[15]). This is a three to fourfold increase from the tracked annual average climate finance of ZAR 131 billion over 2019-21. South Africa’s ambitions in its climate change policy depend on available financing. For example, 3% more investment per year compared to the investment that will be generated from planned policies outlined in South Africa’s Sectoral Emission Targets would reduce emissions to the lower bound of the 2030 target band (DFFE, 2024[1]).
International financing could represent a significant source of climate financing. Over 2019-21, 91% of South Africa’s tracked climate finance came from domestic sources, of which 86% came from the private sector (de Aragão Fernanes et al., 2023[15]). Under the Paris Agreement, developed nations are obligated to provide financial assistance to support the climate transitions of developing countries. A key goal in South Africa’s updated first Nationally Determined Contribution is to access a minimum of USD 8 billion (around 2% of 2023 GDP) per year in international financial support by 2030. Over 2021 and 2022 combined, South Africa received over USD 5 billion in bilateral support and USD 26 million in multilateral support (DFFE, 2023[16]), well below this objective.
One key source of international financial support is the Just Energy Transition Partnership (JETP), yet this represents only a small amount of the total support needed. The JETP is an international financing cooperation mechanism designed to help coal-dependent emerging economies make a just energy transition away from coal. By 2024, the JETP had promised USD 11.7 billion in financing, with around USD 821 million in the form of grants. The JETP spurred South Africa to prepare the Just Energy Transition Investment Plan (JET IP), to guide the funding and identify areas to bridge financing gaps. It estimates investment needs at ZAR 1.5 trillion (USD 98.7 billion) between 2023 and 2027. While below the amount required, financing from the JETP is intended to leverage more resources from private and public sources.
Many of South Africa’s climate policies have taken years to be implemented yet trust in climate governance and policies and the ability to see tangible progress mitigation and adaptation actions will play a key role in sourcing additional financing. Research indicates that institutional strength, measured through metrics such as the rule of law, governance and corruption, plays a decisive role in determining a country’s ability to efficiently reduce emissions and access climate finance (Lyeonov et al., 2023[17]). This underscores the importance of robust governance and transparency in climate policies and the need to address corruption (Chapter 1). Enhancing institutional frameworks will enable a more equitable and cost-effective green transition, while simultaneously promoting broader economic growth (Chapters 1 and 4). Increasing carbon pricing and removing fiscal support to fossil fuels can also support revenue (see below).
3.3.2. Prioritising policies that efficiently reduce emissions while providing financing
Increasing carbon prices alongside support for households and firms
Carbon pricing is a key policy tool to reduce emissions in a cost-effective manner (D’Arcangelo et al., 2022[14]; 2022[18]). Carbon pricing provides incentives to abate emissions in cost-effective ways and to invest in low-carbon technologies. In addition, it temporarily increases government revenues, which can support green investment or social policies to offset the potential regressive or affordability impact of mitigation policies or fiscal consolidation efforts.
South Africa’s average net effective carbon price is low by international standards and, as in most OECD countries, there is significant variation across sectors and energy sources (Figure 3.4). Average net effective carbon prices are below the OECD average in the electricity and industry sectors and above the OECD average in the buildings, agriculture and fisheries and transport sectors (Panel B). This is largely due to fuel excise taxes leading to relatively higher prices for diesel, gasoline and kerosene while carbon tax rates are zero to low across the board (Panels B and C).
South Africa’s effective carbon tax rate, the rate that firms actually pay by accounting for the low carbon tax rate and the significant share of emissions exempt from taxation, is estimated to be insufficient for the country to meet its 2030 emission target (IMF, 2023[19]). Achieving this target would require effective carbon tax rates to be significantly higher than those currently proposed by 2030, assuming no other mitigation measures (IMF, 2023[19]) (Table 3.1).
An increase in the effective carbon tax rate could occur through a higher carbon tax rate, which is currently planned to increase but will remain relatively low. The government has enacted annual increases in the carbon tax rate until 2030 (Table 3.1). There are no annual increases currently proposed beyond 2030, though the government has committed to quadruple the rate between 2030 and 2050 to USD 120. While more ambitious and incremental increases are necessary, the overall approach may be needed in the short term to balance various constraints. A strong and clear commitment that climate policies, including effective carbon tax rates, will increase in the coming years and decades in order for South Africa to meet its climate commitments, will encourage firms to increasingly prioritise investments and lower their carbon footprint. Adhering to announced future tariffs increases and demonstrating a consistent track record of action up to 2030 can provide the necessary policy certainty without prematurely committing to a specific annual outlook for carbon tax rates. Premature commitments risk locking in rates that may, when implemented, fail to sufficiently incentivise firms to reduce their emissions or adequately reflect the prevailing economic environment.
Average net effective carbon prices, 2023
Note: The net effective carbon price is the net effect of fuel excise taxes, carbon taxes, permit prices and fuel subsidies.
Source: OECD Net Effective Carbon Rates database.
An increase in the effective carbon tax rate could also occur by reducing large tax-free allowances that lower firms’ carbon tax liability (Table 3.1). The combined maximum tax-free allowances for emissions exempt from the carbon tax represent 85% of combustion emissions and 95% of industrial process and fugitive emissions. A 2024 National Treasury discussion paper set out proposals to reduce some of the tax-free allowances (National Treasury, 2024[20]). After public consultation, the 2025 Budget proposed to maintain the basic tax-free allowance until the end of 2030 and proposed no plans to reduce the total size of other allowances.
Reducing total tax-free allowances will incentivise emission reductions, but not all allowances have an equal impact on emissions. Allowances that provide no incentive to reduce emissions should be reduced first. This includes the basic allowance, the allowance for industrial process and fugitive emissions and the allowance for trade-exposed sectors. The trade-exposure allowance is not targeted to the most trade-exposed firms. Benefitting firms must be in a sector with a trade intensity of at least 30% to fully benefit from the trade exposure allowance, which is well below the average sectoral trade intensity of 69% (National Treasury, 2024[20]).
Increasing the share of tax-free allowances that provide some incentive to reduce emissions – the performance allowance and the carbon offset allowance – will better support climate objectives:
The performance allowance incentivises firms to reduce their emissions to a sectoral benchmark. These benchmarks, last reviewed in 2021, will be updated in 2025 to reflect technological developments. Ensuring their regular revision and stringency will be key to their effectiveness.
The carbon offset allowance reduces the tax liability of firms that invest in carbon offset projects. It aims to provide flexibility to hard to abate sectors, incentivise mitigation and investment in sectors not directly covered by the tax, such as agriculture, forestry and waste, and develop the carbon market. This allowance will represent 10-15% of firms’ emissions in 2026. This rate will be slightly above the typical allowance globally of around 5-10% but appears appropriate given substantial green investment needs. Similarly, allowing new renewable energy projects to qualify as carbon offset projects, though uncommon internationally, may be appropriate given emission reduction and energy security goals (Chapter 4).
While carbon offset projects incentivise a reduction in emissions, firms’ ability to qualify for the carbon offset allowance has been limited. One contributor is lengthy bureaucratic processes and elevated costs from following international standards. South Africa is developing a framework and criteria for evaluating and approving local carbon standards that could be eligible under the carbon offset system. Ensuring the swift publication of these standards will be key to increase the number of projects. Supporting the development of the local carbon market, including the capacity and expertise within firms to initiate and develop carbon offset projects, will also help increase the supply of projects.
Increasing political acceptability
A more ambitious increase in effective carbon prices could provide a significant source of revenues for climate policies until the decrease in emissions begins to lower revenues (Black et al., 2024[21]). For example, broad-based effective carbon prices of at least EUR 60 or around ZAR 1 100 per tonne of CO2e, which still remains below the price needed to meet 2030 emission targets, could generate revenues of 8.4% of GDP based off South Africa’s emissions and revenue in 2018, up from 2.6% of GDP (D’Arcangelo et al., 2022[18]). Such an increase is also estimated to reduce emissions by 18.5%, assuming a linear emission responsiveness to effective carbon prices.
Making higher effective carbon taxes politically acceptable is a significant challenge. Low economic growth and elevated geopolitical uncertainty are increasing firms’ vulnerabilities and limiting the acceptability of increasing effective carbon tax rates. Offsetting regressive elements can help increase public acceptance of climate policies (Dechezleprêtre et al., 2022[22]). South Africa does this with its carbon tax, though low carbon tax revenues, which reached only 0.03% of GDP in the 2023/24 fiscal year, will keep this channel limited. An increase in the carbon tax could help increase support, such as funding the expansion of the electricity grid and transmission infrastructure, reskilling programmes, free basic electricity, public transport infrastructure, municipal infrastructure, water, fire, waste mitigation and adaptation programmes and disaster risk reduction (National Treasury, 2024[20]). Promoting public awareness that carbon tax revenues could help fund such policies could help increase its acceptability.
Removing fiscal support to fossil fuels
While fuel taxes are relatively high, there remains government support for fossil fuels that weakens incentives for energy savings or fuel switching (while reducing government revenues). Fuel taxes were estimated at 1.3% of GDP in the 2023/24 fiscal year. However, in 2022 the fiscal cost of support measures for fossil fuels reached an estimated 1.05% of GDP, which is well above the OECD and G20 averages of 0.6% and 0.4% of GDP (OECD, 2023[23]). Some industries are eligible for a partial or full refund of the fuel levy for diesel use, notably electricity, mining, manufacturers of foodstuffs and agriculture. The 2025 Budget announced that this will increase to a full refund on eligible diesel purchases from April 2026. Individuals benefit from under-taxed fringe benefits for the private use of company cars within the personal income tax. These tax benefits for individuals and businesses should be phased out (Chapter 1). Congestion pricing can also raise revenues, which could help fund public transport infrastructure, while reducing car use and addressing externalities from road transport (see below).
Increasing the efficiency of carbon budgets
There are challenges in ensuring effective and efficient carbon budgets. Following almost 15 years of discussion on the policy (see above), mandatory carbon budgets for large companies in high-emitting sectors were intended to enter force in 2026. However, their implementation, required under the Climate Change Act, has been deferred until regulations for their implementation have been developed. Compliance costs can be understood as an implicit carbon price (D’Arcangelo et al., 2022[14]). The Department of Forestry, Fisheries and the Environment will allocate relevant entities a five-year carbon budget. Emissions exceeding this budget will be subject to a higher carbon tax rate (of ZAR 640 per tonne of CO2e compared to the standard rate of ZAR 308 in 2026).
One concern is that carbon budgets are expected to be set at the firm level, creating more opportunities for lobbying, which could lead to lenient budgets and unfair policies – particularly given South Africa's weak safeguards against lobbying (see Chapter 1). At the same time, defining carbon budgets at the sectoral level poses challenges due to the country’s highly concentrated market structure. Another issue is the integration of stringent sectoral emission benchmarks with the existing carbon tax system, which already includes a tax-free allowance for companies that meet sectoral benchmarks (see above). In the long run, transitioning to an emissions trading scheme (ETS) could facilitate more cost-effective emissions reductions. However, at least in the short to medium term, an ETS would face significant practical challenges in South Africa (Partnership for Market Readiness, 2017[24]).
Beyond cross-sectoral policies, such as the carbon tax, sector-specific policies can help address the particular mitigation challenges that each sector faces and ensure alignment with total emission goals. Transport, agriculture and land-use and industrial policies can play a key role in climate mitigation policies.
3.4.1. Creating a greener and more efficient transport system
South Africa’s fragmented towns and cities, high private passenger vehicle use and limited formal public transport make it difficult to create an efficient and low-emission transport system. Segregation policies during the apartheid era have left a legacy of spatially dislocated settlements and urban sprawl. This results in long travel distances, difficulties in making public transport financially viable, increasing emissions as well as costs for firms to transport goods and for people to get to work (Chapter 2).
The formal public transport offer has deteriorated in recent years, largely due underfunding, corruption and inefficient management (Walters and Pisa, 2023[25]), as has freight rail transport. In 2020, 43.5% of workers used private transport as their main mode of travel to work (Statistics South Africa, 2021[26]) and the share of goods transported by road has increased sharply since 2020 (RSA, 2023[27]). The projected increase in the population from 63 million in 2025 to 75 million in 2050 will increase the demand for transport, while rising GDP per capita will likely increase the use of private vehicles. Similarly, economic growth will increase freight transport. Without reforms that ensure the availability of quality public transport options and low-emission freight transport, transport-related emissions risk increasing.
Reviving rail transport
Passenger and freight rail services function poorly, with issues in service reliability and access, safety and security and train overcrowding (Department of Transport, 2021[28]). Among workers who used public transport, the share who commuted by rail declined from 12.9% to 3.2% between 2013 and 2020 (Statistics South Africa, 2021[26]). Overall dissatisfaction with services increased from 47% to 66% of households over the same period. Notable issues included waiting time (82%), travel time (72%) and security on the train (62%). A low share of freight is transported by rail. This results in higher emissions and costs, reducing export competitiveness and making imports more expensive.
Rail infrastructure has significantly degraded due to a long period of underinvestment and increasing theft and vandalism, reducing train services (Department of Transport, 2022[29]; 2021[28]). Improving the rail network is complicated by there being two track gauges, a narrow gauge (Cape gauge) as well as a standard gauge. Gradual progress towards a single gauge is needed. The Department of Transport is undertaking strategic rail network planning and oversight to guide investment decisions. This includes classifying branch lines as strategic or non-strategic, with strategic lines put out for concessioning when their infrastructure needs extend beyond the government’s budget.
State-owned railway enterprises Transnet and PRASA face significant operational, financial and governance challenges, which stem from institutional dysfunctionalities related to market behaviour, roles and responsibilities (Department of Transport, 2022[29]). Transnet is responsible for freight transport through railway, ports and pipelines infrastructure. PRASA, the Passenger Rail Agency of South Africa, operates urban rail networks and long-distance passenger services.
Reforms are making important changes to improve the governance of Transnet and PRASA, open the rail sector to competition and create the conditions to support private sector investment, but must be fully implemented to reap the benefits. They include the 2022 National Rail Policy, the Economic Regulation of Transport Act and the Freight Logistics Roadmap, which have been advanced through the National Logistics Crisis Committee. Reforms are splitting the market structure. This includes transforming Transnet Freight Rail, which operates and manages the long-distance rail network, by separating its Infrastructure Manager and Train Operator functions. Consequently, every open line will be managed by an infrastructure manager, who can provide no preferential access for any train operator.
The reforms will allow and regulate private rail-service operators. To support competition in the rail sector, the Economic Regulation of Transport Act established a single transport regulator, covering the rail sector, and merging the previously separate aviation, maritime and road transport regulators. The regulator will monitor and enforce compliance, regulate prices and investigate complaints, helping to increase competitiveness and efficiency and ensure access to transport networks. This is a welcome step to provide the necessary conditions for private investment. Ensuring that the regulator has sufficient resources and independence will help it to most efficiently increase competition.
The declining rail freight sector has resulted in long delays in freight transport, constraining businesses and limiting exports, and has become increasingly uncompetitive with road transport. The government, businesses and unions formed the National Logistics Crisis Committee (NLCC), chaired by the President, to support the implementation of numerous detailed plans. This includes the Freight Logistics Roadmap, which will identify suitable areas for private sector participation, given the significant investment needs. Ensuring the necessary enabling conditions, including strong governance frameworks and regulation, will help support private investment.
Improving local formal and informal public transport
The formal public transport offer has deteriorated in recent years, which includes a limited number of public buses that struggle to achieve financial viability. In 2020, around 16.6% of public transport users commuted to work by bus, down from 19.5% in 2013. Since 2009 the Public Transport Network Grant has incentivised cities to develop Bus Rapid Transit systems, although its take up has been slow (OECD, 2022[30]). Improving the financial and operational sustainability of existing systems will be key to understand the possibilities to further expand public transport to meet transport needs.
Reforms intend to devolve provincial bus contracts and passenger rail to municipalities to help improve public transport, yet this relies on municipalities having sufficient resources and capacity. This reform under the Cities Support Programme intends to allow municipalities to use financial resources more efficiently to develop road and rail transport adapted for local users’ needs and optimise public transport routes. It also aims to reduce grant inefficiencies and prevent the duplication of subsidies. While this reform offers potential, ensuring sufficient municipal capacity to implement these projects will be key to develop a quality public transport offer (see below).
Minibus taxis took over 80% of public transport users to work in 2020 (Statistics South Africa, 2021[26]), providing many options in routes and schedules, yet greening the sector faces significant challenges. The industry is highly fragmented, poorly regulated and operates partly informally: around 30% of minibus taxis operate without a license (Walters and Pisa, 2023[25]). Some local governments have engaged with minibus taxi operators when first rolling out Bus Rapid Transit systems, involving operators as shareholders and drivers (OECD, 2022[30]). However, efforts to formalise the sector have made limited progress since, in part due to the complexities of the sector. More recently the government’s Revised Taxi Recapitalisation Programme provides drivers an allowance to scrap unroadworthy vehicles while also aiming to formalise the industry. Continuing efforts to formalise the sector will help increase compliance with emission standards and regulations (ITF, 2023[31]). Supporting the digitalisation of minibus taxi services, such as cashless fare collection, as is being piloted, could also contribute. The Cities Support Programme proposes a framework to include minibus taxis in the integrated public transport network system. A pilot project aiming to formalise taxi associations through creating companies and supporting businesses should start in 2025.
Greater support could encourage minibus taxis to modernise the fleet with more fuel-efficient vehicles and transition to electric vehicles in the long term (Department of Transport, 2018[32]). Electrification will require increasing the supply of renewable energy (see Chapter 4) whilst in the meantime developing innovative solutions, including solar panels, taxi stands and batteries. The Cities Support Programme aims to identify the potential of transitioning the industry to electric vehicles and support the capital investment in charging infrastructure. Some private companies retailing and leasing electric minibus taxis are using solar energy while other private companies and research institutions are investigating how to advance the feasibility of electric minibus taxis, including retrofitting vehicles and infrastructure (Stellenbosch University, 2024[33]). Such initiatives are at an early stage and further support could advance their progress. As their feasibility advances, support measures, such as guaranteed loans conditional on formalisation and compliance with regulations, could help drivers invest in electric vehicles.
Reducing the use and increasing the energy efficiency of private passenger vehicles
Introducing congestion pricing in some urban settings for fuel-based vehicles can incentivise the use of public transport and electric vehicles, address externalities from road transport more effectively than fuel taxes (van Dender, 2019[34]) and help fund public transport infrastructure. Adjusting charges based on the time or day and traffic volumes can help optimise the policy (ITF, 2021[35]). For example, in Norway all major cities use environmentally differentiated rates to discourage urban traffic and reduce congestion. Investing revenues into improving public transport infrastructure can help improve public transport and political acceptability (ITF, 2023[31]). For example, London’s congestion charge funds public transport.
Improving road maintenance would also help reduce emissions. The maintenance backlog for surfaced roads was estimated at around 3% of GDP in 2022 (OECD, 2022[30]). Uneven road surfaces substantially increase vehicles’ fuel consumption. Operation Vala Zonke programme aims to fix potholes on national, provincial and municipal roads.
Aggressive driving consumes more fuel than standard driving behaviour and can increase road casualties. Road mortality is elevated: around 24.5 South Africans per 100 000 die every year on the roads, compared to 21 per 100,000 in the average low-income country (WHO, 2023[36]). Encouraging drivers to modify their behaviour will help reduce emissions and improve road safety for drivers and pedestrians.
3.4.2. Improving agricultural practices and increasing the capacity of carbon sinks
Some policies promote the use of conservation and climate-smart agricultural practices and technologies but an overarching policy could advance the reduction in agricultural emissions (DFFE, 2024[2]; DFFE, 2020[37]; Switch Africa Green Programme, 2020[38]). The 2017 Draft Conservation Agriculture Policy and the 2018 Draft Climate Smart Agriculture (CSA) Strategic Framework include measures to reduce the vulnerability of agricultural systems and integrate climate smart agriculture practices. However, these policies never received final approval. Updating and approving them will significantly enhance agricultural practices. Agriculture is subject to the carbon tax indirectly through fuel and energy costs, and energy-intensive inputs such as fertiliser, although the fuel tax rebate dilutes incentives to lower fossil-fuel use.
High levels of inequality and historical remnants of the apartheid era are highly visible in the agricultural sector and need to be considered when designing climate policies. The government is in the process of redistributing agricultural land currently held by the government to indigenous farmers, although this restitution has been slower than intended (OECD, 2020[39]). Accelerating land reform could help increase the uptake of CSA practices, access to capital and investments in climate-smart technologies.
Land-use, land-use change and forestry (LULUCF) has contributed the most to emission reductions between 2010 and 2022 (DFFE, 2024[2]), yet additional policies that reduce deforestation could further increase the size of carbon sinks. This could include developing and implementing the National Reduction of Emissions from Deforestation and forest Degradation (REDD+) programme, which started in 2015 and represents one of the qualitative sectoral targets of the Department of Forestry, Fisheries and the Environment (DEFF, 2020[40]). A potential barrier identified in 2020 is that the management of woodlands, indigenous forests, forest regulations and oversight in the Department of Forestry, Fisheries and the Environment faces severe financial and resource capacity constraints (DEFF, 2020[40]). Ensuring sufficient capacity will be key to the programme’s success.
Around 31% of South Africa’s land area is covered by forests, which are highly exposed to wildfires, with 71% of tree-covered areas exposed to very high or extreme fire danger for more than three consecutive days between 2018-2022. Fire Protection Associations can struggle with the participation of landowners on whose land fire may start, funding and inadequate fire-fighting equipment (DFFE, 2024[41]). Ensuring sufficient resources for effective fire management will help support carbon sinks.
3.4.1. Reducing emissions in industry
Improving energy efficiency will be key to decarbonise industrial processes. Key contributors to industrial process emissions include ferroalloys (1.8%), iron and steel (1.3%) and cement (1%), while manufacturing industries and construction account for 5.6%. As countries implement increasingly stringent climate policies, including on imported products, insufficient progress in reducing emissions could put South Africa’s industrial and manufacturing exports at risk. The recent regulation mandating all newly imported electric motors to meet certain efficiency performance standards will help unlock greater efficiency gains (IEA, 2021[42]). Complementing this with measures that extend to the wider motor-driven system and other industrial equipment, including the implementation of energy management systems, could enable further savings (IEA, 2021[42]). In buildings, strengthening energy management systems and standards for appliances, especially for cooling, will help reduce energy consumption (IEA, 2021[42]). Continuing to implement process and energy efficiency improvements and increase fuel switching and material substitution could reduce emissions by 40% in heavy manufacturing sectors, including metals, minerals, machinery and pulp and paper (NBI, 2023[43]). However, emissions in iron and steel and cement production are strongly directly related to their physical production process (NBI, 2023[43]). Increasing use of new technologies, such as green hydrogen, will play a key role in decarbonising the sector.
South Africa is highly vulnerable to the changing climate (DFFE, 2024[2]). Average temperatures are rising (Figure 3.5, Panel A). Population exposure to heat stress is higher than in many OECD and G20 economies (Maes et al., 2022[44]). Rainfall intensity is increasing while the fresh water supply system is already under strain and climate change is adding to existing water security challenges (DFFE, 2020[37]). Agriculture is facing increasingly variable weather conditions, lowering cropland soil moisture (Panel B). Climate change will degrade land and impact yields, pest outbreaks and crop production (DFFE, 2020[37]). Climate change is disproportionately impacting low-income earners and vulnerable populations, who often live in areas more at risk yet have fewer resources to manage such shocks (DFFE, 2024[2]). Women will also experience climate change differently to men, with women more vulnerable to the impacts of poverty.
Source: OECD Environment Statistics database.
South Africa’s climate adaptation policies face challenges. Climate change adaptation measures cannot change the likelihood of a hazard occurring or its intensity but can influence the degree of a country’s exposure and vulnerability, including by supporting South Africa’s key challenges of reducing poverty, unemployment and inequality. South Africa’s 2020 National Climate Change Adaptation Strategy (NCCAS) enhanced adaptation governance and legal frameworks, which were enshrined in the 2024 Climate Change Act. The NCCAS also aims to enhance water-supply security, deploy flood protection measures, support climate-smart agriculture and develop climate-resilient infrastructure. However, these plans face several challenges, including poorly functioning municipalities, unequal agricultural water rights, insufficiently priced water and poorly maintained water infrastructure, discussed below.
Obtaining sufficient financing is another barrier to adaptation policies (see above). The National Climate Change Adaptation Strategy is estimated to cost up to USD 292 billion, or 86% of 2020 GDP, over 2021-2030, whilst the government faces fiscal constraints. Over 2019-21, only 12% of total climate financing received was dedicated to adaptation and 7% to both adaptation and mitigation (de Aragão Fernanes et al., 2023[15]). Measuring progress will be key to help attract financing and inform and adjust adaptation policies (OECD, 2024[45]).
3.5.1. Improving the functioning of municipalities to implement adaptation policies
Municipalities have a key role to play in climate policies, particularly adaptation policies, but are struggling to achieve their mandates. Municipalities manage water and waste services and play a key role in urban planning and infrastructure. In 2023, 163 out of 257 municipalities were classified as dysfunctional, in part due to resource constraints, poor governance and ineffective and sometimes corrupt financial and administrative management (Presidency of the Republic of South Africa, 2023[46]). Some local governments are unaware of how to select, prioritise and implement climate actions and others lack support from national and provincial governments (Presidential Climate Commission, 2024[8]; Averchenkova and Lazaro, 2020[12]). Municipality’s lack of institutional capacity can hinder communication between the central coordinating body for environmental policy, the Department of Forestry, Fisheries and the Environment and implementing agencies (DFFE, 2023[16]).
Local governments’ ability to operate effectively and implement climate policies is constrained by insufficient financial resources due to an unsustainable financial model (Presidential Climate Commission, 2024[8]; Sibiya et al., 2023[47]). Municipalities receive around 10% of their funding from central government and tariffs from public service delivery make up the remainder. However, tariff revenue is being reduced by fewer households paying their service bills since the pandemic. While some municipalities have incorporated climate projects in their integrated development plans, no budget is allocated to them (Sibiya et al., 2023[47]). Central government is taking steps to support municipalities, including under phase 2 of Operation Vulindlela (see Chapter 1). The Local Government Climate Change Support Programme aims to facilitate capacity building and knowledge transfer. The Climate Change Response Fund in development aims to mobilise public and private funding for adaptation, including for infrastructure resilience, technical assistance and capacity building. Nevertheless, reforming the municipal financial model, which is currently being reviewed, will help ensure that municipalities have sufficient financial resources and skilled staff, and improve their governance the efficiency of service delivery, which will be key for them to successfully implement climate policies and provide services (Box 3.4, and see Chapters 1 and 4).
Many municipalities struggle to deliver waste services and operate landfills in line with national standards and licensing requirements. Around 84.4% of urban households and 12.5% of rural households had their refuse removed weekly or less regularly in 2023 (General Household Survey), often leading to illegal dumping or burning of waste. Out of what was collected, 89% went to landfill in 2017 (Department of Environmental Affairs, 2018[48]). Insufficient waste services and the burning of waste impact air and water quality, contaminate land and release hazardous compounds.
Under the National Waste Management Strategy, the Department of Forestry, Fisheries and the Environment is supporting local governments to implement integrated waste management plans and services. However, financial constraints remain a major hurdle. Gradually introducing waste charges would help recover the cost of services and encourage waste reduction. Reforming the municipal funding model could also benefit waste services.
3.5.2. Improving the management of water
South Africa’s fresh-water supply system is under strain and will face increasing challenges as the climate changes. Climate change is increasing evaporation, and changes in soil moisture and changes in recharge and runoff are also likely to impact water quality. Large differences in rainfall across the country contribute to the challenge. Water-supply shortages could significantly limit economic growth and living standards (see Chapter 1). Cape Town almost ran out of municipal water in 2019 and Johannesburg faced regular interruptions over 2024. Demand for water is also increasing as the population and industry grows.
Numerous dams help manage water resources and deal with floods and drought. These can store around two-thirds of the country’s mean annual rainfall. Furthermore, water is imported from Lesotho. However, South Africa is approaching full utilisation of available surface water yields and running out of suitable new dam sites (DWS, 2023[49]).
Increasing the efficiency of agricultural water consumption
Agriculture and livestock are estimated to use around 64% of the country’s water yet the sector pays significantly lower tariffs than other users (DWS, 2023[49]; OECD, 2020[39]). Agricultural water consumption is largely unmetered and there are concerns about unauthorised abstraction and wastage. While farmers have increased the efficiency of their irrigation, there remains scope for improvement (Olley et al., 2024[50]). Pricing water, whilst including provisions to ensure equity, can help increase the efficiency of its use.
Not all farmers have equal rights to access water. The government is in the process of redistributing agricultural land to indigenous farmers, which has been slow. Nevertheless, the reallocation of water rights has not always kept pace (OECD, 2020[39]). As such, the transfer of some irrigable land without a water allocation has limited the ability of some recipients to use the land productively (DWS, 2023[49]). One aim of the National Water Amendment Bill, released for public comment in late 2023, is to strengthen the ability of the Department of Water and Sanitation to improve equity in water use allocation and reform water entitlements. A swift implementation of the Bill, redistribution of land and reallocation of water rights could help increase uptake of climate-smart agricultural practices, investments in irrigation schemes and other infrastructure.
Increasing the efficiency and quality of municipal water supply systems
Studies found that 29% of municipal water supply systems were identified to be in a critical state of performance in 2023, up from 18% in 2014 (DWS, 2023[51]). Additionally, 47% of fresh water supply was estimated to be either lost before reaching the customer or not paid for, wasting water and potential revenue. Municipal-run water management services are performing poorly, impacted by shortfalls in skilled personnel, planning, maintenance and sound accounting and effective billing measures. Contributory factors include illegal connections and poor revenue collection (DWS, 2023[52]).
Furthermore, water quality is poor: 46% of water supply systems have an unacceptable level of microbiological water quality (DWS, 2023[51]). An estimated 64% of wastewater treatment works are at a high or critical risk of discharging partially treated or untreated water into rivers and the environment. Wastewater discharge has negative environmental impacts and poses risks to human health, such as cholera outbreaks. Poor water quality is often related to sub-standard operations, defective infrastructure, inadequate disinfection and a lack of scientific knowledge (DWS, 2023[51]).
In a welcome step, the Water Services Amendment Bill will separate the role of the water services provider from that of the water services authority, the latter having a supervisory role. The Bill would also increase the capacity of the Department of Water and Sanitation to ensure compliance and that license conditions are being met. The Bill also has provisions allowing the Department to issue directives to municipalities that do not meet standards, including requiring the authority to contract a competent licensed provider. The National Water Resource Strategy (NWRS-3) also proposes objectives around the institutional framework and regulation, capacity and skills, financial stability and legislative and policy gaps. Implementing these reforms swiftly will be key to addressing South Africa’s water crisis. The reform to the trading services grant, adding performance incentives for metropolitan municipalities, will help establish improved institutional arrangements and drive strategic investments in water infrastructure.
Insufficient financial resources are often cited as a root cause of non-compliant water treatment works and networks. Revisions to tariffs in 2026 should support financial sustainability, with the National Treasury developing tools to help determine cost-reflective tariffs (DWS, 2023[51]). The revised Norms and Standards in respect of tariffs for water services will update the framework on how Water Service Providers can set service tariffs. The revised Pricing Strategy for raw water use charges will establish pricing that ensures cost recovery for operating, maintaining and investing in water infrastructure. The pricing strategy allows for differentiated prices for equity reasons and across geographic areas and categories of water use and users. As outlined in the National Water Resource Strategy, more action is needed to develop a credible national water and sanitation investment framework and funding model for investment. Regulation and pricing reforms will help increase private-sector involvement through public-private partnerships or performance-based contracts to support the service delivery and meet investment needs (DWS, 2023[52]).
Municipal water supply systems are also compromised by customer debt and illegal water use, largely by mining operations and farmers for irrigation (DWS, 2023[49]). Legal enforcement is often slow and weak due to limited judicial system capacity. Administrative penalty provisions are being increased in the case of a breach of a law or license. Proposed measures to help improve monitoring and enforcement and reduce water theft include a greater use of remote sensing tools, such as satellites and drones.
Municipalities also lack sufficient technical and scientific staff. In 2023, water supply systems were estimated to require at least 203 more technical staff in addition to the existing 745, and an additional 197 scientists in addition to the existing 160 (DWS, 2023[51]). Only 33% of water-treatment work (WTW) staff attended training in the two years leading up to the 2021-22 audit cycle. Coupling sufficient resources with increasing training to ensure skilled staff can help ensure efficient operating, maintenance and investment.
3.5.3. Increasing resilience to flood risks
According to the South African Insurance Association, a large share of households are underinsured against flood risk, which are becoming more frequent. Take up of flood insurance is low in many countries, implying that households, businesses and governments directly absorb losses from flooding. South Africa’s flood events can be significant: infrastructure and business losses from the 2022 floods in KwaZulu-Natal are estimated at 0.5% of GDP (Grab and Nash, 2023[53]). Central government assistance to municipalities in the event of disasters is available through the Municipal Disaster Response and Recovery Grants and the forthcoming Disaster Risk Financing Strategy aims to enhance the distribution of funds within and across spheres of government during disasters. Expanding the role of private insurance would reduce the risk to the government. One route is to increase public awareness of flood risk to encourage take up, for example through improved dissemination of information on climate-related risks and impacts and increased financial education. The implementation of South Africa’s Financial Inclusion Policy Framework could also increase awareness. The South African Reserve Bank (SARB) continues efforts to mitigate the financial stability risks associated with climate change on the insurance industry (Chapter 1).
Insurance coverage can also be strengthened through government support. Flood insurance coverage could become even lower if more frequent and/or severe climate events lead to higher premiums. A national catastrophe insurance programme targeting floods could be one way to lower the protection gap. This would also align with South Africa’s Disaster Risk Financing (DRF) strategy currently in development, which aims to increase disaster funding. Given South Africa’s low property insurance penetration, a basic direct natural disaster insurance programme might be most effective (OECD, 2021[54]). In many countries this direct insurance is provided by a public insurer. This includes Iceland (natural catastrophe perils), New Zealand (certain natural catastrophe perils) and the United States (flood and earthquake in California and various perils in many states through residual plans). In some countries, coverage is provided by a private insurer with a public mandate and/or financial backing, such as in Germany for terrorism or Türkiye for earthquakes. South Africa already has a state-owned insurance company, the South African Special Risk Insurance Association (Sasria). The Association established to manage the risk of riot and civil commotion; its role could be expanded to cover natural disasters.
Government can also help reduce flood risk and support insurance through land-use planning and flood mapping (OECD, 2016[55]). The forthcoming Disaster Risk Financing Strategy aims to enhance data collection and management to improve risk assessment. More stringent planning and restrictions can reduce the level of assets exposed to flood risk or reduce the impact of flooding through the use of natural mitigation measures, such as wetlands. Improved flood mapping can help with the emergency response and develop the flood insurance market.
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