Understanding the Role of Subsidies in South Africa's Coal-Based Liquid Fuel Sector
This policy brief analyzes the coal-to-liquid (CTL) fuel sector in South Africa, exploring the role of subsidies in driving the consumption of coal-derived fuels. It focuses on the various support measures that have and continue to benefit the CTL industry. The CTL industry is monopolized by Sasol, a company minority-owned by the South African government. Two subsidy estimates are presented: one based on the market price support to liquid fuels produced from coal and the second based on the carbon tax exemption for Sasol. The results highlight the impact of fossil fuel subsidies on the consumers in and the environment of South Africa.
-
Sasol received ZAR 1.552 billion through the Basic Fuel Price, the price paid to producers of petroleum and synthetic fuels. On top of that, the company received an indirect subsidy of over ZAR 6.5 billion due to an exemption from the Carbon Tax Act 15 of 2019 that permits Sasol to emit 302 Mt of carbon dioxide equivalent between 2016 and 2020.
-
Every time a motorist fills up their tank, about 5% of the bill is being paid as a subsidy to Sasol because of the way fuels are priced. This money could be better spent elsewhere or returned to consumers.
-
Sasol does not meet environmental standards under South Africa's Technical Guidelines for Monitoring, Reporting and Verifying of GHGs 2017; it is expected to under-report its emissions until at least 2025.
This study finds that, in 2019, the total value of market price support (MPS) and carbon tax exemptions to Sasol was ZAR 6.6 billion (USD 380 million). The majority of these savings are from the carbon tax exemption, but MPS is responsible for around 5% of the cost of each litre of CTL gasoline sold. These support measures contribute to the high-profile role of coal in South Africa’s transport sector. It is difficult to see compatibility between the continued consumption of coal-based fuels and South Africa’s commitments under the Paris Agreement. Pricing policies also subsidize domestic petroleum refining at a cost to consumers. Subsidy reforms in the sector should focus on aligning energy policy with social and environmental objectives and promoting a shift to cleaner energy sources while employing “just transition” policies to ensure that no one is left behind.
Participating experts
You might also be interested in
COP27 diary (November 16): '$100 billion in climate finance more of gesture from rich countries'
The 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change in Sharm El-Sheikh, Egypt, began November 7, 2022. Here’s a look at what happened on day 10 of COP27 climate talks. The draft text for a cover decision is yet to be produced by the COP27 Presidency as of 7.30 am November 17, leading many to wonder how long discussions will continue to arrive at a consensus on the document once released. Just two days of the summit remain.
Governments are subsidizing the destruction of nature even as they promise to protect it
When dignitaries from 196 countries converge in Montreal next week to rub shoulders and hash out a new global agreement to save nature, money will be on the agenda.
South African Fossil Fuel Subsidies Hit Record Highs as Country's Energy Crisis Deepens
South Africa's fossil fuel subsidies tripled between 2018 and 2023, hitting USD 7.5 billion, up from USD 2.9 billion 5 years earlier, a new report by IISD reveals.
Don’t write off the Just Energy Transition Partnership just yet
When it was announced at COP26 in 2021, South Africa's Just Energy Transition Partnership seemed to offer an answer to a weighty question: how can we not only usher in large-scale renewables investment into developing countries, but also rapidly wind down their coal sectors? However, in the nearly two years since the JETP was announced, critics have taken issue with everything from the way the JETP packages are funded to the pace at which they are being rolled out.