South African industry, whether mining, manufacturing or retail, is cringing at the thought of rising energy tariffs and the impending implementation of a carbon tax. The proverbial axe is falling on “business as usual” in South Africa – but what can be done to mitigate these changes?

Rising electricity costs - shaking up the status quo

News headlines have painted an ominous global economy for some time and the yearly increases to the cost of electricity adding to our worries. In South Africa, the outlook is no different with Eskom managing the balancing act between supply and demand by proposing a five-year increase plan. The proposal to the National Energy Regulator of South Africa (Nersa) to increase tariffs by 16% every year for the five years between April 2013 and March 2018 has, however, shaken more than just the status quo. 

Nersa has since approved electricity tariff increases of 8% a year between 2013 and 2018.

Is carbon tax on your plate?

Minister Pravin Gordon’s Budget speech on February 27 announced that South Africa will see the implementation of a carbon tax from January 1, 2015.  This tax, part of South Africa’s commitment to reducing harmful greenhouse-gas emissions, is part of a two pronged ‘carrot and stick’ approach, setting out incentives for companies to encourage behavioural change, but also legislating punishment for those who fail to do so.

According to Prof Harald Winkler of the University of Cape Town, fears that the carbon tax will cripple South African businesses are unfounded. He states that, after deductions, the actual tax amount would work out to 3.6c/kWh of electricity. This will replace the levy of 3.5c/kWh that currently stands on nonrenewable sources of electricity. This appears to be supported by Gordhan, who spoke of phasing out the electricity levy while the carbon tax is being introduced.

Winkler continues that, “a carbon tax is the single most important step to address climate change.” In many countries around the world, variations of the carrot and stick approach have proven successful to encourage emissions reductions.

Treasury has a 60% tax-free threshold on yearly emissions for all sectors, including electricity, petroleum, iron, steel and aluminium, like “additional allowances for emissions-intensive and trade-exposed industries" according to Gordhan. The future for industry could hold a carbon tax of R120/t of CO2e (carbon dioxide equivalent) for emissions above the threshold. The levy, which is vetted to come into effect in 2013/14, has a proposed increase of 10% a year until 2020.

According to an article published in the Mail and Guardian, “The hardest-hit companies will be Eskom and Sasol, based on their emissions supplied to the JSE’s voluntary disclosure project. At 230-million tons, Eskom will pay about R11-billion a year. Sasol, at 61-million tons, will pay R2.2-billion.”

When all that is said and done

On July 1, 2012, Australia saw the implementation of a carbon tax and similar to South Africa, newspapers were filled with reports of impending economic collapse, uncompetitive pricing for Australian business and price increases for consumers.

According to a report published by Australian Industry Group in January 2013, energy costs for businesses increased by an average of 14.5%. The introduction of the carbon tax on July 1, 2012, combined with the continuing rise in network-related costs, resulted in the single largest price increase recorded in Australia for household electricity and gas prices in the third quarter of 2012 since the early 1980s, with consumer prices rising by more than 18% in the third quarter of 2012 for both electricity and gas.

Will this be the impact on South African consumers?

Carbon intensive operations may find it hard to compete in a world that is becoming more and more carbon conscious. However, increased pressure on resources and profitability can lead to resourcefulness and innovation across these industries.

According to Liesel Van Ast, research editor at Trucost, “Companies may be able to install on-site renewable energy technologies and build design improvements to reduce dependence on the carbon-intensive grid. For example, retailer Pick n Pay introduced daylight harvesting with natural lighting and solar power at its new distribution centre.”

Implementation of energy efficiency initiatives, too, will have a direct impact on business, with an added benefit of tax incentives from the government such as those provided for by the Taxation Laws Amendment Act of 2009, which makes provision for a tax incentive granted for corporate energy efficiency savings.

Given the news from the 2013 Budget Speech, however, it would appear that carbon intensive users have until 2015 to start shifting to more energy efficient processes and considering the cost benefit of paying the tax versus implementing new technologies – this benefit, of course, is not just measured in terms of rands and cents, but also in terms of socioeconomic impacts and consumer perceptions.

Whatever the outcome, one thing seems clear – there is no such thing as “business as usual”.

Pressing topics like carbon tax, increasing electricity tariffs and the ISO 50001 Energy Management Standard will be discussed at the thirteenth annual African Utility Week conference and exhibition, co-located with Clean Power Africa, which will take place in Cape Town, South Africa from May 14 to 15, 2013.

The African Utility Week exhibition will feature the latest clean power and energy efficiency solutions for Large Power Users. Don’t miss this unique opportunity to source the latest technology to revitalise your company’s energy efficiency strategy, reduce electricity consumption and save costs.

Our unique post-event site visit will give you exclusive access to some of South Africa’s largest plants, like the ArcelorMittal – Saldanha Steel Plant and the SABMiller Newlands Brewery. Book your pass to see how they deal with increasing electricity tariffs and their extensive use of water resources.

Have you booked your seat to continue the debate?

Access to the exhibition is free of charge if you pre-register at www.african-utility-week.com. Early bird conference passes are available until April 14, 2013.