Eskom's Pollution Exemptions and the Risks to Sustainable Energy Transition in South Africa

South Africa's energy sector stands at a crossroads, with Eskom-the state-owned power utility-playing a central role in shaping the nation's path toward a sustainable energy future. However, recent regulatory decisions, legal challenges, and a long history of environmental non-compliance underscore significant corporate accountability and regulatory risks for investors. These factors not only complicate Eskom's transition to cleaner energy but also highlight broader systemic vulnerabilities in emerging markets.

Pollution Exemptions and Legal Challenges

In 2025, South Africa granted Eskom's coal-fired power stations limited exemptions from air quality laws, allowing temporary flexibility to meet energy demands while transitioning to cleaner sources. While framed as a pragmatic measure to stabilize supply, these exemptions have sparked fierce opposition from environmental justice groups. Organizations such as the Vukani Environmental Movement and groundWork have filed court applications challenging the legality of these exemptions, arguing they violate the Minimum Emission Standards (MES) and undermine public health. The case hinges on whether Eskom's mitigation measures-such as mobile clinics and community health screenings-adequately offset the harms of continued coal reliance.

This legal battle reflects a broader tension between short-term energy security and long-term environmental accountability. According to a report by the Centre for Environmental Rights, Eskom's coal plants are a leading cause of respiratory illnesses and premature deaths in communities near its operations. The court's decision could set a precedent for how emerging markets balance industrial activity with constitutional rights to a healthy environment.

Regulatory and Financial Pressures

Eskom's financial and regulatory challenges further complicate its sustainability agenda. In 2024, the utility requested a 36% tariff hike to address a shortfall caused by earlier regulatory decisions. Simultaneously, it launched a legal challenge against the National Energy Regulator of South Africa (NERSA) for granting electricity trading licenses to five independent traders, arguing this threatens its ability to recover costs and manage subsidies. This litigation raises questions about the pace of market liberalization in South Africa. While Eskom's leadership views the Electricity Regulation Amendment Act (ERAA)-which splits the utility into specialized subsidiaries-as critical for fostering competition according to an analysis by the IOL, the ongoing legal disputes risk delaying structural reforms and eroding investor confidence.

A Legacy of Environmental Non-Compliance

Eskom's history of environmental violations underscores systemic risks for investors. Over the past decade, the utility has repeatedly exceeded air pollution limits at its coal-fired plants. A 2023 report revealed that Eskom's power stations violated emission standards for sulfur dioxide (SO2), nitrogen oxides (NOx), and particulate matter (PM) nearly 3,200 times over a 21-month period. The Kendal power station, in particular, became a symbol of regulatory neglect, with pollution levels exceeding legal limits by up to 30 times.

Despite criminal charges filed in 2020 for supplying false information to authorities and violating emissions permits, Eskom has often secured reprieves or extensions from enforcement actions. An unpublished government study estimated over 5,000 premature deaths annually in Mpumalanga due to Eskom's pollution, while health experts like Dr. Mike Holland linked the utility's operations to 2,200 premature deaths and significant healthcare costs. These figures highlight the human and economic toll of weak enforcement in emerging markets.

Judicial Interventions and Renewable Energy Alternatives

Recent judicial rulings have also reshaped the regulatory landscape. In 2025, the Supreme Court of Appeal (SCA) overturned an environmental authorization for Eskom's proposed 3,000MW gas-to-power plant in Richards Bay, citing flawed public participation and a failure to consider renewable alternatives. The court emphasized that Eskom and its consultants conducted consultations in English rather than the local isiZulu language, violating procedural fairness. This decision underscores the judiciary's growing role in enforcing environmental accountability and prioritizing community rights in emerging markets.

Implications for Investors

For investors, Eskom's trajectory illustrates the dual risks of regulatory uncertainty and corporate accountability failures. The utility's reliance on exemptions and legal challenges to navigate compliance obligations creates a volatile operating environment. Meanwhile, the push for market liberalization under the ERAA remains contingent on resolving disputes with regulators and civil society.

Investors must also weigh the long-term financial implications of Eskom's environmental liabilities. With renewable energy alternatives gaining traction and public health costs mounting, the utility's continued dependence on coal could lead to stranded assets and reputational damage. The Richards Bay case, for instance, demonstrates how courts are increasingly favoring sustainable development over short-term industrial projects according to the Natural Justice report.

Conclusion

Eskom's pollution exemptions and regulatory battles are emblematic of the challenges facing emerging markets in the transition to sustainable energy. While temporary reprieves may stabilize energy supply, they risk entrenching a cycle of non-compliance and legal conflict. For investors, the key takeaway is clear: corporate accountability and regulatory risk are inextricably linked to the success-or failure-of South Africa's energy transition. As Eskom navigates these pressures, the broader lesson is that sustainable investment in emerging markets requires not just financial prudence but a commitment to environmental and social governance.