Demand-induced transition risks: A systemic approach applied to South Africa

When trying to assess the economic consequences of a transition to a low carbon economy, it might seem reasonable to concentrate on the sectors using carbon-intensive technologies and thus emitting important amounts of Greenhouse gases. We however show in this study that non-emitting sectors might nonetheless be vulnerable to transition risks. To do so, we develop a simple methodology that combines Input-Output tables with sectoral financial data to assess the exposure and financial sensitivity of all sectors to simplified transition scenarios in the case of South Africa. We highlight how the combination of the nature of the demand shock, the position in the production structure and the characteristics of the value-chain determines the amplitude of the impacts on the different sectors of the economy and their financial balances. In the case of South Africa and for the two export shocks considered (coal and automotive industry) we find that raw material manufacturers, utilities, as well as financial service providers are exposed and sensitive to transition risks. Our results stress the importance of considering scope 3 (particularly downstream) sectors’ emissions when conducting impact assessments and call for systemic analyses of the economic consequences of the ecological transition.