State of the Environment - South Africa: Economic Environment: Outcomes


National State of the Environment Report - South Africa
Main Issues:	Climate	Terrestrial	Water	Marine	Social	Economic	Political	Home page

This part of the report contains the following sub-sections:
Overview	Introduction	Driving forces	Pressure	State	Impact	Response
Outcome	Linkages	Data issues	Conclusions	References	Indicators	Links

Outcomes of Economic Policy

Macroeconomic goals and sustainable development can often be in conflict, but this need not be the case. Complementary measures that promote allocative and productive efficiency should be adopted to enhance a stable macroeconomy and a sustainable environment (McMorran & Wallace 1995:49). In general, three steps are needed:

Remove distortions in the economy. An example is the removal of water and energy subsidies.
Getting the prices right to reflect true social costs. An example is to include the costs of pollution in the process of manufacturing.
Macroeconomic structural reform. An example is fiscal reform; from taxing outputs, such as income and labour, to taxing inputs, such as the use of natural resources, and impacts, such as pollution and waste.

In Table 6.3 below the status quo in South Africa is compared to this idealised future outcome. However, the timing and overall desirability of these steps in a developing country, such as South Africa, need careful analysis. Understanding the political and institutional context wherein these policy reforms take place is key to its eventual success.

Table 6.3 Accounting for the natural environment

Status Quo	Future outcomes
Some macroeconomic policies (e.g subsidies) encouraging the depletion natural resources and the degradation of the environment	Optimal use of exhaustible resources and mechanisms for savings and investment in future times of depletion¹
Market prices reflect an artificially low cost of energy, water, air and other environmental media²	Market prices need to reflect true social cost of energy, water, air and other environmental media³
Fiscal base on income and labour taxing	Fiscal base on degradation and pollution taxing⁴

1. See McMorran & Wallace 1995.
2. See Van Horen 1996 for discussion on social costs of electricity in SA.
3. In SA there is a relatively high tax on fuel, partly in recognition of external costs associated with fossil fuel consumption, but the environment does not benefit directly as a result (CSD 1998:47).
4. See Norgaard (1997) for a discussion on environmental tax reform.

The achievement of these three steps suggests some supportive underlying activities (see Table 6.4 below). Internationally, there is increasing recognition for true cost pricing, environmental auditing and the compilation of national resource accounts (Pearce & Turner 1990; Gray, Owen & Adams 1996; Repetto et al. 1989)

Table 6.4 highlights some of the most important activities from an environmental economic, ecological, technological and institutional point of view.

Table 6.4 Supporting activities to reach sustainable development

Economic analysis¹	Environmental analysis	Environmental economic policy²	Technologies	Institutions and processes
Valuation of changes in environmental and socio-cultural quality Choice of an assessment framework (e.g CBA, MCA, CEA) Natural resource accounting True cost pricing	Indicators for ecological sustainability	Subsidy reduction Environmental taxes User fees Deposit-refund systems Targeted subsidies Standards Bans Permits and quotas Property rights analysis Tradeable permits/rights International offset systems	Waste minimisation Pollution prevention Cleaner production Recycling	Environmental Assessment (EA) Environmental Management (e.g ISO14001) Eco-efficiency processes Public participation Information disclosure

1. For an overview of environmental economic analysis on micro-level see Baumol & Oates 1988.
2. World Bank 1997.

Some of these underlying activities are attempted in South Africa. The following trends are highlighted:

Environmental economic theory and policy are in the early stages of development. The Department of Environmental Affairs and Tourism have published a series of discussion papers and research reports on the added value of environmental and resource economics to policy, but so far without tangible support from macroeconomic policy makers (e.g DEAT 1993, 1996).
Macroeconomic policy makers, Department of Finance and South African Reserve Bank, do not perceive the linkages between economics and the environment to be part of their immediate concerns. Socio-economic issues such as education, unemployment and price stability are considered a higher priority.
The Department of Trade and Industry has embarked on pioneering investigations as to the link between industry, trade and the environment.
Scientific research on environmental indicators is continuing. These results, however, are not always placed in the broader context of economy-environment-social development relationships.
There is no evidence of a wide-scale application of mitigative technologies.
Institutional processes such as environmental assessment are compulsory, but there are concerns about the institutional capacity to process applications and monitor policies.

> Economic Environment: Linkages

There is also information about the Economic Environment in the following reports:
Metropolitan reports:
	Cape Metropolitan Council (1998 edition)	Durban Pilot Study
	Greater Johannesburg Metropolitan Council (1999 edition)	Greater Pretoria Metropolitan Council (1999 edition)