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Why transformation of the energy-industrial complex is crucial for a low-carbon economy

19th March 2010

By: Saliem Fakir

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Everything new has to start somewhere – so the saying goes. If truth be told, there are more than just climate change reasons why we need to shift our energy-industrial complex to a low-carbon trajectory.

The key driver of this change, though, depends on the conceptualisation of the energy complex and how we plan its future.

It will not be beneficial for us to stick to old ways. The implications of rigidity within the energy complex, given changing future resource scarcity scenarios, will transfer more risk to the economy.

The effects of the rigidity itself will not be isolated – they will encumber the creation of new opportunities within the industrial complex and its own performance as an export sector in the future.

But, if you want to stabilise the economy and lower its risks and vulnerabilities, it is always better to hedge on diversification than not to do so. It is always better to have the weapon of flexibility than not to have it.

Uncertainty should nag the sensitivity towards agility. This requires both a cognitive and a leap in practice.

It is myopic to reduce the equation to one solution when we are pretty sure that the degree of uncertainty around fossil dependence in terms of price volatility, resource availability and pressures to impose a more carbon-constrained world changes the nature of the game.

Never mind the growing intolerance towards externalities. Cleaner options will have to release the pressure, but this has to be done with a clear strategy and affordability in mind.

This strategy must involve the total economic value of an energy carrier that is realisable if every part of its value chain is taken into account and localised as much as possible.

Embeddedness, solely in the coal paradigm, makes us too locked into a system that simultaneously, when looking long into the future, locks us out of many other new opportunities.

And, while everywhere else around the globe countries are opening themselves to new ideas, we seem to want to go deeper into the old.

The energy complex and the economy are interlinked or, shall we say, so bound together that they have been inseparable for a long time and will continue to be so.

It is for this reason that the debate about the energy mix solutions also involves, fundamentally, a debate about its connection with the industrial mix.

The essence of some of this is captured in the new Industrial Policy Action Plan, or Ipap, which was released a few weeks ago. Many of the proposals in Ipap are tied to how we resolve the energy-mix debate. This connection needs to be made more explicit.

The new mix of energy carriers will unlock different industrial complexes or pathways in nuclear, automotive, biofuels and renewables sectors.

We do not have the luxury to squander limited resources – we are in a crucial critical pathway moment in South Africa's history: the nexus of energy choices and economic choices is converging. The trade-offs are not many, but they require the sharpest of minds and the most difficult of decisions.

This situation forces us to think of the energy complex as an opportunity to drive growth and create new industrial opportunity. If we cannot use the energy complex as a lever for stimulating new growth and shifting us to new industrial sectors, we will not have taken advantage of a crucial investment.

Everything tells us that we have no option but to think of the energy complex and the economic nexus as intrinsic to each other. That is why the debate on just the question of electricity supply is an insufficient debate, just like the debate on climate change is insufficient if we just talk about the requirements of science. They have to be paired up with an economic development plan.

We need to avoid the compartmentalisation of energy policy on one hand and economic policy on the other. This continues to be fostered by the fractured nature in which energy policy and economic policy are being formulated in this country.

This is the first time that the inter-relation between the energy complex and the economic roadmap we have to craft is so starkly obvious but yet immersed in policy indecision and obscurity from which potentially pregnant opportunities in both pathways cannot be given birth.

 

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