Carbon Tax Bill, draft IRP 2018 not aligned

19th October 2018

     

Font size: - +

By: Gerhard Bolt

South Africa is in the process of developing policy instruments to mitigate climate change and ensure the least cost to the economy for future energy requirements. At the core of these environmental and economic objectives are the draft Carbon Tax Bill and the draft Integrated Resource Plan 2018 (IRP 2018). However, these instruments have competing objectives and are not aligned.

South Africa has agreed to cut greenhouse-gas (GHG) emissions by 34% and 42% below the business-as-usual emissions growth trajectory by 2020 and 2025 respectively. The proposed carbon tax at R120/t carbon dioxide equivalent (tCO2e) has been simulated by the World Bank’s Partnership for Marked Readiness to decrease emissions by 13% to 14.5% by 2025 and by 26% to 33% by 2035 with a marginal reduction, compared with business as usual, in economic growth of 0.05% to 0.15%.

It is important to consider these objectives within the context of South Africa’s emissions profile. Based on the latest published GHG Inventory for South Africa (2000 – 2010), the country’s national GHG emissions amounted to 544 MtCO2e, of which 236 MtCO2e relates to electricity generation or 43% of total GHG emissions. Agriculture and waste are responsible for a further 10% and 4% respectively of total GHG emissions, but are exempt from the carbon tax. In reality, only 43% of the country’s emissions will be subject to the carbon tax, of which a further 8% relates to product and process use which is unlikely to change.

To achieve the estimated decrease in emissions of 13% to 14.5% by 2025, compared with business as usual, producers of GHGs which are subject to the carbon tax will need to reduce their emissions by between 29% and 32%. More worrying is that electricity producers continue to be deemed revenue neutral for carbon tax purposes after 2025, emissions by other industries such as steel, cement and chemicals will need to decrease by 57% to 72%. Reduction at such a scale is not feasible and will result in deindustrialisation unless the IRP 2018 dictates a very low electricity generation emissions factor.

The National Development Plan envisages that, by 2030, South Africa will have an energy sector that provides reliable and efficient energy service at competitive rates, is socially equitable through expanded access to energy at affordable tariffs and environmentally sustainable through reduced pollution.

The draft IRP 2018 aims to ensure security of supply, minimise cost of electricity and minimise negative environmental impacts and water use. In its current format, the document effectively prescribes to electricity producers the required capacity and technological preference of new build generation. This also means that the IRP 2018, which controls over 43% of South Africa’s total emissions, is the single most influential mitigation instrument.

The draft IRP 2018 recognises unambiguously that the least-cost electricity would be produced from a mix of solar photovoltaic (PV), wind and flexible gas-fired power. Any constraint that is placed on the optimisation model will result in a compromise of cost or the environment and, hence, would impact on the economy negatively. Considering that wind and solar PV are currently the cheapest technologies for electricity production at R0.62/kWh, one can also derive that any constraint that impacts on the cost will by default have a negative environmental impact.

Deviations from a least-cost IRP directly influences the carbon tax. For example, the 1 000 MW of coal that is allocated between 2023 and 2024 not only adds R23-billion in cost to the economy, but also shifts the burden of the carbon tax from burning coal down to the electricity purchaser.

Although it is understood that the carbon budget in the draft IRP 2018 is based on inputs from the Department of Environmental Affairs (DEA), the document’s modelling did not take the carbon tax into account. It is alarming to conclude that these two policy documents with the same underlying economic and environmental objectives are modelled independently from one another. The implication is that none of the social economic impact assessments for the carbon tax and the IRP are comprehensively modelled and both are therefore inaccurate.

A carbon budget, such as the one that the DEA is planning to introduce in the draft Climate Change Bill, with input from an unconstrained IRP, is the only way to meet our climate change objectives in a cost-effective manner.

Bolt is Deloitte's senior manager for global investment and innovation incentives - gbolt@deloitte.co.za

Edited by Creamer Media Reporter

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION