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Key questions remain on journey to a just transition in the liquid fuels industry – Crompton

10th June 2022

By: Schalk Burger

Creamer Media Senior Deputy Editor


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Key considerations and challenges to support a just transition in the liquid fuels industry to a low- and zero-carbon industry include the need for financing, the need to ensure financial viability of technologies proposed for the transition, the impact on the automotive manufacturing industry and the risks that changes in behaviour owing to rapidly evolving technologies can pose to the future of the liquid fuels industry.

University of the Witwatersrand Business School visiting professor and energy industry stalwart Rod Crompton illustrated the challenges by highlighting that most South African-made cars are sold in other markets, mainly Europe.

Therefore, changes in mobility and demand for cars in Europe will dictate what cars automotive manufacturers in South Africa will make, as South Africa is a small portion of their overall sales.

"Money is also important to ensure a just energy transition. If we look at the value of the sales of petrol products in South Africa, it is 60% larger than the value of electricity sold, although there are far fewer jobs in the liquid fuels industry than in the electricity industry," he said.

On the demand side, new transportation patterns are evolving all the time, such as Uber and Rideshare, that change demand patterns for fuels, although little research has been done on the impact of technologies and behaviour changes on fuel demand, highlighted Crompton.

Further, there has been limited consideration about what the impact of the loss of petrochemicals and plastics would be if the production of liquid fuels is curtailed to meet climate change objectives, he noted during a webinar hosted by Trade & Industrial Policy Strategies earlier this week.

Meanwhile, he highlighted that a 2002 study identified the cost of transport as a key problem to collect and transport biomass from a dispersed geographic area, and that transport costs most often kill biofuels initiatives in terms of costs to produce the fuel.

"The energy intensity of biomass is very low. Many biofuels use more energy to manufacture than is gained from their use. With our planet in such a crisis, we cannot do this. Our calculations must look at price, as well as energy return on energy invested," Crompton emphasised.

Similarly, electric vehicles (EVs) are easier to assemble than internal combustion engine vehicles, which is a key part of the automotive manufacturing operations in South Africa, and easier to service, which means there will be fewer jobs in manufacturing and maintenance.

"The job market is threatened by EVs. Similarly, the significant investments in infrastructure, namely fuel stations, are threatened by a move to EVs, as they will most likely be charged at homes and places of work. [Financial services firm] Standard Bank is already enabling employees to charge EVs at its offices.

"However, the potential for jobs is not only in building and maintaining charging stations at homes and businesses, but also in the building of power stations. New power stations can be of almost any size, from matchbox to industrial scale, and there is a lot of infrastructure that needs to be installed at residences and businesses.

"This large-scale construction requirement can provide a large amount of construction jobs for the next 20 years, and service and maintenance jobs," Crompton said.

South Africa must carefully consider the broader impact on the macro-economy from these macro shifts in energy and mobility, as energy is the engine of the economy, he emphasised.

However, an enabling policy environment would mean equal subsidies. The liquid fuels industry is heavily subsidised, and what is needed is for government to remove itself from interfering in the industry and let the various energy carriers compete on a level playing field, he averred.

"In this uncertain and changing environment, it is difficult to pick winners. The best policy is to create a level playing field in the industry and letting things unfold."

Additionally, the sustainability of alternative energy carriers must also be considered on the basis of their costs. Green hydrogen’s equivalent to a barrel of oil will cost $800, which is about eight times the cost of a barrel of oil.

"How financially sustainable is this and what will be the economic impact on people if the energy carriers they use are eight times higher than now?" Crompton asked.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online




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