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Oct 19, 2007

SA business still hasn't fully woken up to the real opportunities in greenhouse-gas abatement

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Johannesburg|Kyoto|Washington DC|Eskom|McKinsey & Company|Spier Holdings|Toyota|Woolworths|Africa|China|India|South Africa|United Kingdom|Electricity|Electricity Utility|Energy|Energy Efficiency|Energy Savings|Food Security|Greenhouse-gas|Renew-able Energy|Sustainable Products|Transport|UK Government|David King|Jed Jones|John Stuttard|Marthinus Van Schalkwyk|Simon Susman|Tanner Methvin|(CCs|Sub-Saharan Africa|BIOFUELS|Empowering Technology|Financial Protocol|Selected Key Technologies
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Whether you believe that carbon dioxide-induced climate change is a real threat or not is irrelevant. The fact is that the issue is high on the agenda of politicians and those responsible for drawing up regulation, which means the drive to reduce emissions will affect you and your business.

Proposed regulation comes from the increasingly accepted scientific point of departure which states that the earth is definitely warming as a result of increasing carbon dioxide flows and stocks arising directly from human activity.

These scientists warn that more extreme weather events, such as droughts and floods, are inevitable because of this temperature shift, and that these, in turn, threaten food security, which will directly affect the stability of a region such as sub-Saharan Africa. This science is now increasingly aligned to popular opinion, which insists that greenhouse-gas (GHG) emissions must be curbed so as to stop the average global temperature increasing.

As environmental concerns become increasingly publicised and politicised, emission abatement policy will need to play an increasingly important role in business decision-making. Investment decisions taken today have long-term impacts on emissions for decades to come.

And, although legally binding, emission targets may be viewed unfavourably and even as unfair by business and government in South Africa. Given its potential to constrain growth, there is a growing awareness that it can no longer be business as usual. Some are even suggesting that by becoming an early adopter, South Africa could reap rewards.

Indeed, more and more studies show that climate-change adaptation and mitigation are not all “sticks”, and that there are, in fact, real “carrots” that could boost businesses that embrace climate-change concerns and pursue abatement strategies.

Being a so-called “Annex II” under the Kyoto Protocol, South Africa is not legally mandated to any specific emission reduction targets. But being the largest emitter in Africa, and the current custodian of the World Summit on Sustainable Development outcomes, there is growing moral pressure on the country to put in place a comprehensive climate-change response.

It has also been suggested that South Africa is not taking full advantage of the opportunities that present themselves to curb the emission of GHGs, particularly through the Clean Development Mechanism (CDM).

GROWING GREEN

A key part of the response requires a change of mindset, which shows that it is not all bad news.

Indeed, in striving to do no harm to the environ- ment, there are cost savings which can be realised by big business – implementing the use of energy- efficient equipment, which, in turn, eases strain on the national electricity utility and places less reliance on ‘dirty’ coal-generated power, is one way to realise savings.

Also, in showing a commitment to environ-mental concerns by leading from the top and becoming an agent for change, a positive reputation is built, which can do much to gain consumer trust and advance business.

Toyota is a good example of this. Its hybrid vehicle has done much to transform the company in the eyes of stakeholders. Using 100% renew-able energy, as provided by solar power or biofuels, for example, generating zero waste, and creating sustainable products are other ways in which a company can make changes

In South Africa, Woolworths has embarked on a similar policy. “The links between economic growth, transformation, poverty alleviation, the environment and climate change can either form a vicious or a virtuous circle. The launch of the Woolworths Good Business Journey marks a step change in the way we will operate going forward, ensuring that we drive that virtuous circle that will benefit all our stakeholders,” reiterates Woolworths CEO Simon Susman.

The company has identified tackling climate change as one of its four top priorities, and along this vein has committed to reducing its relative carbon footprint by 30%, focusing on energy savings and transport emissions, and opening a trial carbon neutral store.

INCENTIVE BONUSES FOR ENVIRONMENTAL GOALS

Wine and leisure industry player Spier Holdings is another South African company determined to prove its dedication to a developmental and sustainable approach towards business, and has implemented what is known as the ‘triple bottom-line’ approach.

This approach dictates that the three Ps (profits, people and the planet) hold equally important weighting in the way a company is run. This has required an organisational culture change, and the importance of each of the three Ps needs to be filtered down through all levels of staff within an organisation. Changing the mindsets of staff towards the environment is viewed as, perhaps, one of the most difficult things to do within a company.

“Incentive bonuses have been set and include financial goals as well as environmental and social goals. This ensures people understand what is expected of them as well as educates them on the developmental business approach,” explains Spier sustainability director Tanner Methvin.

Apart from showing environmental respons-ibility, a company’s corporate image can be significantly boosted, and a company implementing ecosensitivity ahead of policy and regulation could be rewarded by socially consciouss shareholders and consumers.

PERMANENT BALANCING ACT


But it is a permanent balancing act. Developing countries such as South Africa, China and India do not want to compromise their chances of achieving better standards of living for citizens. And, as development proceeds, it is necessary to generate more electricity, bolster industry and participate in activities seen as adding to the emission GHGs.

For this reason, the ethics of putting legally binding emission abatement targets on developing countries has been questioned. Many have asked why developing countries should be constrained by emission targets and suffer for the previous ‘sins’ of the developed world. Thirteen-million South Africans, for instance, are yet to gain access to modern energy resources, and ensuring universal access to basic rights remains a critical priority.

At a major economies meeting on climate change and energy security in Washington DC, in September, Environmental Affairs and Tourism Minister Marthinus van Schalkwyk affirmed that “an ambitious and equitable policy framework must work for all parties, and must balance our stabilisation and sustainable development objectives, and our mitigation and adaptation responses.”

The framework going forward, post-2012 “must be underpinned by an empowering technology and financing framework that allows developing countries to reach economic and human develop- ment goals [more quickly] and [more cleanly] than developed countries did. These are the key building blocks”, he added.

Supportive of this ambition is the strong correlation between economic growth and the ability to implement low-cost measures to reduce emissions as it is cheaper to apply clean or energy-efficient technologies when building a new power plant, house or car, than to retrofit an old one. And these opportunities should be exploited as development progresses.

With the likelihood of GHG emission regulation being intensified, it has been recommended by researchers McKinsey & Company that certain measures to restrain costs be considered: to ensure strict technical standards and rules for the energy efficiency of buildings and vehicles; to establish stable long-term incentives to encourage power producers and industrial companies to develop and deploy GHG efficient technologies; to provide incentives and support to improve the cost efficiency of selected key technologies, including carbon capture and storage (CCS), and finally, to ensure that the potential in forestry and agriculture is addressed effectively, primarily in developing countries, which would need to be closely linked to overall development agendas.

Mining and industry sectors in South Africa have called for incentives to implement energy-efficient equipment, particularly if this equipment needs to be imported and is heavily taxed. South Africa could also look at the local manufacture of energy-efficient equip- ment as a boost to development. Subsidies and incentives are seen as a sure-fire way to make GHG emission abatement targets attainable.

THE CARBON MARKET OPPORTUNITY NEEDS POST-2012 CERTAINTY


The Kyoto Protocol is essentially a financial protocol to deal with an environmental problem; it is a financially driven market arrangement and binding only up until 2012.

The sale of carbon credits and the carbon market are like any other market, which reacts to market forces. The development of carbon markets holds the potential to provide incentives for the diffusion of technologies.

“An urgent priority is to secure the global market by sending a clear market signal about the climate regime after 2012,” indicates Van Schalkwyk. He adds that ambitious targets for all developed countries are critical to create the demand required to fuel the carbon market, and to create meaningful financial flows to stimulate investment in low-carbon economic growth in developing countries.

There is concern that if the Kyoto Protocol is not renewed post-2012, there will not be an organisation to ratify the sale of carbon credits and to ensure that a company’s certified emission reductions (CERs) are verified and saleable.

“Discussions in the UK government seem to indicate that there will be a post-2012 market. If there is nothing post 2012, we effectively go back 20 years, and I don’t think we can afford to do that. I think Kyoto will change, but it will continue, and the CDM is an important part of that. I do believe there will be a CDM, and a body to ratify credits. I wouldn’t lose any sleep thinking there won’t be any system in place post 2012,” maintained UK government principal projects adviser Jed Jones, at a carbon abatement technology seminar in Johannesburg, earlier this month.

Lord Mayor of the City of London Alderman John Stuttard also indicated at the same meeting that “individuals and companies are keen to work with South Africans to implement and fund CDM projects, as these represent easy, quick, win-win solutions, whereby emissions can be lowered, First World targets can be met, and skills can be advanced in the developing world”.

SLOW ON THE UPTAKE

It has been said that South Africa is slow on the uptake, and has not taken advantage of the opportunities presented by the CDM for developing countries. Of the 806 registered CDM projects, in over 40 developing countries, only ten are located in South Africa.

The CDM allows industrialised countries with emission reduction commitments under the Kyoto Protocol to meet part of their commitments by investing in projects in developing countries that reduce GHG emissions, while contributing to the local sustainable development needs of the host country. In return, an investor country receives carbon credits, or CERs; each CER is equivalent to saving one ton of carbon dioxide.

POWERFUL POTENTIAL

“In a ‘business as usual’ scenario, the majority of the approximately $20-trillion spent on energy investment before 2030 will be spent on carbon-intensive technology. We must regear our thinking in this regard, we need the right signals to redirect this investment towards clean energy, and for this, policy regulation and new forms of investment are needed,” states chief scientific adviser to the UK government Sir David King.

He is adamant that a zero-emission strategy will not slow economic growth in the UK – in fact, it may boost growth because tech- nological advance for export will be available. “We can manage this; it doesn’t mean we are going to hammer the economy – in fact, it presents a possibility of growing it.”

Five key groups of abatement measures, at relatively low cost, are relevant to the power sector, and these are reducing demand, CCS, renewables, nuclear power, and improving the GHG efficiency of fossil-fuel plants.

South Africa is certainly working hard to reduce demand, particularly since the country faces constrained security of supply for the next four years at least. The fact that two new coal power stations are currently under construction indicates that coal will continue to dominate the energy mix for some time, and for this reason, emission abatement technologies and clean-coal technologies should play an important role in business decisions.

Should legal emission targets be set, this could have a huge impact on the economic viability of a project, particularly for large emitters such as Eskom and Sasol.

Although South Africa is a developing country and has pressing social and economic concerns to address, the issue of climate change need not be all doom and gloom. GHG emission reduction presents significant opportunities for increased sustainable development in the country.

Areas where South Africa could make signifi-cant contributions are in energy efficiency, the biofuels industry, clean-coal technology develop- ment, and increased involvement in the CDM, where projects can directly benefit people at grassroots level.

But unless climate-change abatement is embraced as a business opportunity, no matter how unusual, the issue will remain nothing more than a permanent threat.

Edited by: Martin Zhuwakinyu
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