South Africa’s economic growth hinges on energy efficiency, not just consumption

A newly published reveals that energy efficiency plays a crucial role in driving economic growth in South Africa, with non-renewable energy consumption also emerging as a key factor. The peer-reviewed research, titled “Energy Efficiency, Consumption, and Economic Growth: A Causal Analysis in the South African Economy”, appeared in the May 2025 issue of Economies and provides the first country-specific causal assessment that integrates energy efficiency, consumption, and environmental factors within the South African context.

Conducted by researchers from the University of Mpumalanga, the study utilized data spanning 1985 to 2021 and adopted the Johansen cointegration test and Toda–Yamamoto Granger causality methodology. The findings mark a pivotal step forward in understanding the dynamic interactions between energy policies and sustainable economic development in an emerging economy dependent on fossil fuels.

Does energy efficiency actually spur economic growth?

The study’s core objective was to determine whether a long-run and causal relationship exists between energy efficiency and economic growth. By introducing energy efficiency into the causality model, alongside variables such as energy security, renewable and non-renewable energy use, and energy depletion, the researchers filled a critical gap in the South African energy policy literature.

Statistical testing confirmed a long-run relationship among economic growth, energy efficiency, non-renewable energy consumption, renewable energy consumption, energy depletion, and energy security. Most significantly, the study revealed a unidirectional causality from energy efficiency to economic growth. This implies that policies aimed at improving energy efficiency, such as reducing primary energy use per unit of GDP, can directly stimulate economic output without sacrificing growth.

These findings support the growth hypothesis, which posits that energy consumption fuels economic development. In this case, however, the data go further: energy efficiency enhances productivity by reducing waste and lowering costs, making it an independent driver of economic expansion. Policymakers are urged to focus on improving the regulatory framework, especially regarding energy-saving technologies and infrastructure investment to unlock the full benefits of efficiency-enhancing measures.

How do renewable and non-renewable sources affect the growth trajectory?

While energy efficiency showed a clear causal link to economic growth, the role of different energy types was more nuanced. The results revealed a strong unidirectional causality from non-renewable energy consumption, particularly coal, to GDP per capita, reinforcing South Africa’s long-standing dependence on fossil fuels for economic activity. As of 2023, coal still accounted for 82% of the country’s primary energy supply.

In contrast, renewable energy consumption showed no statistically significant causal relationship with economic growth. This outcome reflects South Africa's historically low penetration of renewables in its energy mix, despite various policy efforts in recent years. The study reinforces the neutrality hypothesis in this context, suggesting that changes in renewable energy consumption currently have no impact, either positive or negative, on GDP growth.

Interestingly, the analysis also found no causal link between energy security and economic growth. This may seem counterintuitive given South Africa’s well-documented energy crisis, including frequent blackouts. However, the researchers note that while energy security is clearly important for development, its measurable statistical relationship with growth may be masked by data limitations or lagged policy impacts.

What are the broader implications for South Africa’s energy and climate policies?

The study’s broader implications are both urgent and complex. It found that energy depletion, the unsustainable extraction of fossil fuels, causes both economic growth and shifts in energy policy. In fact, energy depletion emerged as a causal driver for increasing energy efficiency and expanding renewable energy efforts. This suggests that scarcity and supply insecurity are beginning to reshape the national energy landscape, forcing adaptation.

The authors argue that the country's energy strategy must embrace this reality and expedite its transition toward a diversified and resilient mix. South Africa’s post-2015 Energy Efficiency Strategy already outlines the economic, environmental, and social benefits of improving efficiency, yet progress has been patchy. Mandated energy efficiency standards cover only a fraction of national energy use.

Given that energy efficiency has now been statistically proven to enhance GDP growth directly, policymakers are advised to revisit regulatory tools such as the Integrated Resource Plan, the Gas Utilisation Master Plan, and the Integrated Energy Plan. These strategies must be updated and aligned to reduce investor uncertainty and strengthen institutional capacity for enforcing energy-saving targets.

Moreover, the study warns that replacing coal with renewables remains an uphill battle. The absence of causality between non-renewable and renewable energy use highlights a gap in substitution dynamics, suggesting that technological or market conditions are not yet conducive to seamless transitions. Coordinated investment in grid infrastructure, battery storage, and green technologies will be essential to create the conditions where renewables can support economic growth robustly.