On December 6 last year, just before President Jacob Zuma jetted off to Copenhagen to meet 110 other heads of state, his office issued a press statement: SA would reduce its greenhouse gas emissions by 34% by 2020, and by 42% by 2025.
Emissions were expected to rise until 2020, when they would peak, plateau for a decade, and then decline in absolute terms.
The statement contained a large error, which was corrected by water & environmental affairs minister Buyelwa Sonjica, once in Copenhagen. The 34% reduction would not be from 2009 levels but from where emissions would be expected to be in 2020 if no carbon mitigation were done, known as the “business as usual” trajectory. But the bigger surprise was that Zuma committed to a numerical target, which throughout the pre-Copenhagen consultation process had not been mentioned.
Most of the local delegates were already in Copenhagen when the statement was issued and were shocked that, even before the negotiations had begun, SA had committed to a numerical target. Business, involved in a pre-Copenhagen consultation process through Business Unity SA (Busa) and state utility Eskom, on which the burden to reduce emissions will fall, were the most stunned.
As the summit unfolded it became clear what must have happened: just as developing countries wanted to pressure developed countries into binding targets, the richer nations wanted the same from the emerging world. Allied with emerging powerhouses China, India and Brazil — which had all come forward and made pledges — and eager to play in the major league, SA had to commit to targets even if it did so in a rush and without a plan on how it would do it.
A government official in the negotiating team says: “SA came under huge pressure [before the summit]. It’s important to distinguish between the way you negotiate as a developing country bloc and how you set national targets. The two don’t tie up in reality.
Our commitment in Copenhagen was ambitious; but part of it was a push to say we were with the developing world.” Therein lie the problems. SA’s commitment to an ambitious target will motivate more and bigger mitigating actions, which will be good for SA’s competitiveness in the long run. But the targets are far away from commercial and macroeconomic reality.
Unlike China, India and Brazil, whose booming economies mean abundant resources are available for mitigation actions, the SA state does not have similar affluence. Harald Winkler, the scientist whose team compiled the initial scenarios on which the 34% target is based, says the plan “is very challenging” for the economy. “This means there is a great urgency to start doing things now.” Government officials say SA’s surprise commitment to a numerical target isn’t as much of a problem as it looks.
In line with the Copenhagen convention, the extent to which the action of developing countries will be implemented depends on the provision of financial resources, the transfer of technology, and capacity-building support by developed countries. Department of water & environmental affairs deputy director-general Joanne Yawitch says: “We said very clearly we could not do this without support.
We are in a situation where coal is our cheapest energy source. So to move away from it there is a premium that has to be dealt with. Finance has a major role to play in meeting the targets.” Department of energy director-general Nelisiwe Magubane says the targets are “heavily, heavily conditional”. The conditionality does provide an out-clause of sorts for SA.
The country also has the advantage in that though most other countries have set out how they plan to achieve targets in a set of Nationally Appropriate Mitigation Actions, SA hasn’t, giving it additional room to manoeuvre. The reality is a huge effort must and should be made to come as close as possible to meeting the target. Disincentives for greenhouse gas (GHG) emitters, like a carbon tax, are on the way (national treasury has promised a discussion paper in the next couple of weeks) and a green paper on climate change is expected in September.
Internationally, environmental regulations are coming thick and fast. A survey by audit firm Ernst & Young says that 250 new regulations came on stream in less than a year. In the US, there are 54 new regulations, in the European Union 106 and in China 24. (At the time of the survey last year, SA had mooted only three new regulations.) Regulatory issues aside, companies that are large emitters of GHG will face growing premiums from financial institutions, investors and consumers as reporting requirements become law and the issue grows in importance.
What will the targets mean for the economy and business?
SA has a dirty economy, given its historical dependence on cheap coal to generate electricity. On a per capita basis, GHG emissions in SA are as much as the UK’s and close to Germany’s, despite being a smaller economy.
Though the last GHG inventory in SA has the year 2000 as a baseline, it is now estimated that in terms of scale, the SA economy emits 500Mt of carbon dioxide in a year. Winkler’s unit at the University of Cape Town, the Energy Research Centre (ERC), is the group that did the technical work that informed the 34% target.
Three years ago the centre was asked by the then minister of environmental affairs & tourism, Marthinus van Schalkwyk, to develop a set of long-term mitigation scenarios. Says Winkler: “The initial modelling was done by a scenario-building team. Then there was a broader consultation process with government departments and business. In mid-2008, cabinet agreed that emissions would peak by 2020, plateau and then decline in absolute terms.
This was a major step by a developing country at the time.” Last year, the ERC reworked the scenarios, taking into account government’s decision to build the two new massive coal-fired power stations of Medupi and Kusile, each expected to emit an additional 30Mt of CO². Working back from the “business as usual” trajectory, which included all the big plans for the economy, the ERC then estimated to what extent mitigation was possible by each sector.
So, for instance, it was suggested that through energy efficiency measures alone, industry could take responsibility for 8% of the 34% reduction (23% of the total effort); electricity generation 6,6% (19% of the total effort); and the liquid fuels sector 7,9% (23% of the total effort) by 2020. (See table on page 33.)
Though the “scenarios were the thinking behind what made these emission targets possible”, Winkler acknowledges that they were just scenarios. “Now that SA has committed to them internationally, there needs to be a national discussion about how much each sector contributes. In the process of implementation, things might shift,” he says. The “internationalising” of the target based on the scenarios didn’t please business.
“We had always stressed that these were just scenarios. Scenarios make many assumptions, that is how scenarios work. You can’t use that information to set policy,” says a businessman who took part in the scenario process. As it happened, there were significant differences between what in 2007 was assumed would happen and what is believed will happen now. For example, the growth assumptions in the “business as usual trajectory” were very bullish. As the economy slowed quite unexpectedly from 2009, it’s likely that the actual emissions were not as high as expected. But the 34% target remained.
A second difference was that much of what businesses like Eskom and Sasol believed was possible was based on the assumption that technology to do carbon capture and sequestration (CCS) — which amounts to capturing emissions, turning them into solid form and then burying them in the ground or in sludge dams — would be well-developed. But though CCS pilot projects have begun, the technology is a long way from being established.
“It’s highly unlikely that we will have anything near the amount of carbon captured and stored, as the scenarios had assumed,” says the business representative. In short, how SA will reach its 34% mitigation target from “business as usual” by 2020 is vague. Steve Lennon, Eskom’s divisional executive for corporate services, says: “The key point is that these are just estimates.
They have not been developed in consultation with the key stakeholders, so it is not possible to say whether they are right or not.” Two processes are under way in government that will begin to tackle this in more accurate terms. The first is to compile the climate change green paper, and then the white paper that will lead to legislation.
“A green paper on climate change is being produced; we are in the process of talking to industry about what it needs. We are looking for the easy wins, but it’s not a public conversation yet,” says Yawitch. The second is the compilation of the second Integrated Resource Plan (IRP2) by the department of energy, which will determine what SA’s energy mix will be for the next 25 years.
The problem is the two policies are not compatible. Take Eskom: it emits 45% of all SA’s emissions — 225Mt/year — through the production of electricity, 95% of which is produced by coal. To take its share of the mitigation effort as suggested by the scenarios — 20% of the total effort — Eskom would need to dramatically alter its energy mix, introducing renewable (wind and solar) and nuclear power.
“The IRP2 will determine whether SA can reach the mitigation targets. It is possible to come close to 34% if you have substantial renewables and nuclear, but this will happen only if we are able to secure funding,” says Lennon. While there will be billions to assist countries, accessing international funding pools can be extremely difficult.
Though Eskom has begun to develop renewable energy projects, in the near future they will be a drop in the ocean. For instance, Eskom is developing a wind farm and a solar thermal plant, partly out of funds from the World Bank which linked its loan for Medupi to an increase in renewable energy. But both are planned to produce only 100MW, while Eskom’s total installed capacity is 42000MW. By contrast, the new Medupi power station will generate 4800MW.
Because wind power is unpredictable and cannot be stored, it holds less potential than solar thermal, which could be significantly grown, both by Eskom and other producers. Lennon estimates that if the development of the solar thermal plant goes well, 5000MW-10000MW of Eskom’s generation capacity could be provided by renewables by 2030.
What this means, he adds, is that without significant nuclear power, SA will never make a step change in its energy mix. The Chinese are reported to be interested in building a nuclear plant in SA. Inevitably, the introduction of more renewables as well as nuclear — both more expensive than coal — will have an impact on the price. Right now, renewables are significantly more expensive: to produce 1kW/hour of electricity using coal costs 60c; using wind or solar costs R2.
Lennon expects these costs will “converge” as technology develops and disincentives, such as carbon taxes, make coal more expensive, but at a far higher price than before. “The unfortunate reality is that society needs to pay the true cost of energy. Globally, we are an inefficient society. This debate raises the question of how precious energy is as a resource,” says Lennon.
Though he won’t be drawn on any predictions, the subtext is that the high energy price increases of 25% for this and the next two years will continue. The price of energy, says Magubane who is in charge of the IRP2 process, is one of the factors that will inform the ultimate mix that SA chooses. (See story on page 36.) “We’ll have to balance our responsibilities to future generations with current needs.
Service delivery protests, for example, are very much linked to the provision of electricity. We will have to decide what kind of balancing act we will perform,” says Magubane. Jobs, energy security and the fiscal impact will have to be weighed, says Fred Goede, manager of health & environment at Sasol, when the country details the nationally appropriate mitigation action that it will take to reach the 34% target. “It will be essential that these actions are sustainable and consider the broader economic impact on the development of the country,” says Goede.
Though Sasol, which is responsible for 12% of SA’s GHGs, is exploring new technologies to reduce its emissions, Goede says it is “a challenge to develop sound business cases to realise further opportunities which support both the IRP2 and climate-change ambitions of the country, and which are commercially economic at current energy prices”. For instance, no final decision has been made on the development of Sasol’s Mafutha coal-to-liquid gas project, which “is conditional on the development of financially and technically feasible carbon capture and sequestration options”, says Goede. Trade & industry minister Rob Davies is looking to new green industries as job creators.
The problem is that SA’s industrial policy aims to put SA on a path on which it beneficiates its mineral resources. Beneficiation is not compatible with a low-carbon future. Busa representative Laurraine Lotter says SA will have to weigh its climate change ambitions against its industrial policy objectives. “Our industrial policy objectives say we have to take our minerals out the ground and beneficiate. That is highly energy-intensive. So we have to look at that against a low-carbon trajectory,” she says.
Busa has responded to a discussion paper sent out by the department of the environment with a variety of concerns, which it hopes will feed into the green paper. But, says Lotter: “Business is trying to get a better understanding from government on what the Copenhagen commitment actually is. You have to have a situation today where you say what individual sectors must do, but we are quite far away from that.”
It’s clear that for sectors that are high energy users or GHG emitters, and for the economy across the board, the 34% target will be challenging. That large energy investments in solar, wind and nuclear energy will have to be made is a given, as is higher energy prices, more environmental regulation and global consumer pressure. For SA policy makers pressured to put the economy onto a stronger job growth trajectory and speed up the delivery of social services, meeting ambitious climate-change goals will add to an already tricky balancing act.
WHAT IT MEANS
SA emissions targets chosen in a rush Heavy cost burden for economy