South Africans Are Paying for Pollution at the Pump

Johannesburg, October 13—South African government subsidies not only result in higher fuel costs for consumers, but they also help to prop up one of the world’s biggest polluters, according to new research from the International Institute for Sustainable Development (IISD).

In their policy brief, The Role of Subsidies in South Africa’s Coal-Based Liquid Fuel Sector, IISD experts estimate that coal-based fuels produced by Sasol’s Secunda Plant received in excess of ZAR 8 billion in total government support during 2019. The Secunda plant is South Africa’s second-largest greenhouse gas emitter after Eskom and the single-biggest point source of greenhouse gases in the world.

Of this support, Sasol received approximately ZAR 1.55 billion in direct subsidies through the Basic Fuel Price, a regulated price paid to producers of petroleum and synthetic fuels. This subsidy is responsible for 3.7% of Sasol’s total revenue from energy operations.

On top of this, the company received a further subsidy of over ZAR 6.5 billion due to exemptions from the Carbon Tax Act 15 of 2019 that permits Sasol to emit 302 Mt of carbon dioxide equivalent between 2016 and 2020. Under these exemptions, Sasol pays no tax on more than 90% of its emissions.

Richard Bridle, Senior Policy Advisor at IISD, says that this subsidy would provide much greater benefits to the public if it were spent on policies that are aligned with social or economic priorities, such as improving public transport, targeting support at vulnerable groups, or simply reducing the price of fuel.

“Because of the way fuels are priced in South Africa, consumers are forced to prop up Sasol every time they fill up their tank,” says Bridle. “It doesn’t matter if you take a taxi, a bus, or drive your own car, for every ZAR 100.00 that you spend on synfuel, ZAR 5.00 goes to Sasol. Synfuels make up around 30% of all gasoline sold in South Africa.”

These subsidies distort the market and lock in coal consumption in the transportation sector, the report shows.

“South Africa’s reliance on coal is already badly polluting local air in several cities. Subsidising Sasol adds to the pollution burden and hurts consumers,” says Mostafa Mostafa, Policy Advisor, IISD.

Sasol faces an uncertain future as a result of rising costs, falling share price, and a debt crunch that resulted in the company being downgraded to “junk” status by Moody’s Investor Service earlier this year.

Sasol has applied for various postponements to meet new plant environmental standards by 2025. According to The Life After Coal Campaign , the South African government proposed doubling the new emission limits on sulphur. And Sasol is a greenhouse gas emissions giant in South Africa—in 2018, its greenhouse emissions were more than the Johannesburg Stock Exchange’s next 30 biggest emitters combined.

“In some cases, well-designed subsidies may be justified if they are put in place for good reasons, like increasing energy access or reducing pollution,” says Mostafa. “But here, subsidies are having the opposite effect on both fronts: they lessen the incentive for Sasol and other major polluters to reduce carbon emissions while increasing prices for consumers.”

The experts recommend that:

The Ministry of Transport in South Africa focus on aligning energy policy with social and environmental objectives. This will promote a shift to cleaner energy sources and gradually reform pricing policies to stop subsidies to domestic petroleum refining at the expense of South African consumers.

The Carbon Tax Act 15 of 2019 be enforced by 2020 to adhere to the “polluter pays” principle. This should apply fairly to all companies operating in the liquid fuel industry that have previously been exempted from a carbon tax, including Sasol.

Data behind all figures published by Sasol be made publicly available so they can be critically reviewed. In the absence of transparency, IISD’s experts estimated market price support based on the cost of procuring equivalent fuels via imports.

Media contact:

Paulina Resich, Media & Communications Officer
International Institute for Sustainable Development (IISD)
email: presich@iisd.org
phone: +33620571517