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Climate change poses worrying threat to SA's mineral and energy complex

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Climate change poses worrying threat to SA's mineral and energy complex

28th May 2010

By: Terence Creamer
Creamer Media Editor

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A new study, which was released just days before South Africa's 'Green Economy Summit', which took place in Johannesburg last week, does a good job in highlighting that climate change has "moved from an issue of environmental concern to an issue of commercial significance".

In fact, the authors of 105-page report, entitled ‘Climate Change: Risks and Opportunities for the South African Economy', conclude that efforts to maintain short- and medium-term growth will no longer be able to ignore the implications of climate change for business and the economy more broadly.

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But the study also stresses that a number of "climate liabilities" have the ability to be reoriented into "opportunities to enhance competitiveness, access external support and deliver new products and services".

Areas of opportunity in domestic manufacturing could be found in the promotion of energy-efficient equipment and machinery, the development of renewable-energy technologies, as well as public transport infrastructure and equipment.

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There was also an opportunity for labour-intensive growth in: the upscaling of organic produce; organic cotton; managed biofuel development; enhanced fire control; the promotion of energy-efficient buildings; the construction of public transport and renewable energy infrastructure; renewable-energy manufacture; as well as recycling programmes.

"Proactive responses across the private and public sector are required to effectively address climate change in South Africa," the study asserts, adding that the successful management of this global challenge will require short-term pragmatism and longer-term planning.

The other conclusion reached is that the costs associated with a "business as usual" growth path have not been examined to the same extent as the mitigation actions, leading to superficial comparisons.

"Thus, while the transaction costs associated with the implementation of a low-carbon transition for the economy do need to be considered carefully, so too should the risks and costs associated with a failure to embark on low-carbon development."

Severe Risk
A key area of downside risk relates to South Africa's State-owned power utility Eskom, which produces about one-half of the country's greenhouse gas emissions. The study argues that the utility is a "severe regulatory risk", nationally and internationally, from climate change.

Compiled jointly by Camco and Trade and Industrial Policy Strategies (TIPS), with support from the British High Commission, the study states that the greatest risk to Eskom lies in the introduction of carbon pricing, which could prove "financially crippling" to the utility.

However, it also noted that, owing to a lack of effective competition in the electricity market, it is expected that any carbon-related costs could be passed on to consumers in the form of higher electricity prices, and remedial measures would be required to address inflationary pressures and social equity concerns.

The Carbon Disclosure Project estimates that Eskom's greenhouse gas emissions amounted to 223-million tons in 2000, or some 51% of South Africa's total emissions.

The report also warns that Eskom could also face global regulatory threats, over and above any possible national emissions cap and/or carbon-pricing mechanism.

"The potential also exists for Eskom to be placed within a global sector-based agreement in the medium- to long-term, which could include emissions caps and financial penalties," the study argues, while noting that such an activity would depend on the outcomes of future international climate negotiations and any forms of "new agreements", which may be implemented to reduce emissions.

"Very little headway on sector-based or new agreements was made at the Copenhagen Summit, however, these issues are anticipated to gather further momentum in future negotiations," the authors state.

In December 2009, South Africa announced a conditional national emission reduction target whereby the country's emissions would peak between 2020 and 2025, plateau for a decade and then decline in absolute terms from 2035 onwards. Under such a scenario, the country's carbon dioxide equivalent (CO2e) emissions would peak closer to 600 parts per million (ppm) in 2025, rather than reaching 1600 ppm by 2050.

The study also warns that regulatory costs related to the mandatory implementation of carbon capture and storage could be "substantial". Estimates include a cost of from R67/t to 72/t of CO2e sequestered for a 20-million ton capturing target by 2024.

To offset these threats, Camco and TIPS argue for a combination of commercially viable renewable energy technologies and energy-efficiency programmes, which have the potential to "reduce overall electricity prices within a decade relative to conventional practices".

"Renewable energy and energy efficiency also offer benefits for labour-intensive growth in an industry currently characterised by high capital intensity," the authors states.

Additional benefits relate to improved air quality, enhanced energy security, reduced power-station investment requirements, and opportunities to attract new forms of international investment, while supporting enhanced carbon competitiveness for a range of South African businesses.

Mining Beneficiaries?
One interesting point made in the study was also that, while the country's mining sector is at considerable risk from the secondary impacts of climate change, a number of mining-related industries also stand to benefit from a heightened national and global climate change response.

The possible beneficiaries highlighted include: platinum, uranium and copper.

"For the platinum industry, an area of significant opportunity lies in the use of platinum as an input into the manufacture of fuel cells," the authors note.

The national uranium industry could also capitalise on a sustained drive towards nuclear energy, while copper is an input into the development of energy-efficient equipment, ranging from electrical motors to power cables and transformers.

"For diversified mining companies active in areas such as uranium, copper and platinum, as well as more risk-prone areas such as coal, opportunities therefore also exist to balance commercial risk with opportunity, and to shift production emphasis with changes in global demand," the study says.

On balance, though, the sector, which produces some 59 commodities from 1 115 mines, employs about 2,7% of South Africa's economically active population and contributes nearly 7% of gross domestic product, is at "considerable risk".

The most pertinent of these risks relates to regulation, including the potential introduction of carbon taxation and the manner in which this will impact on energy-intensive mining companies.

"It is important that parity on climate change matters is maintained in relation to key competitor countries such as Canada, the US, Russia and Australia at a minimum," the authors assert.

They add that the widespread adoption of energy efficiency will be essential for the continued competitiveness of companies that face rising electricity prices from coal-based power generation, as well as expectations that oil prices will rise.

Mining companies dominate the Energy Intensive User Group, whose members consume more than 100 GWh of electricity yearly.

 

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