COAL IS DYING – WHAT NOW FOR SA?

A look across the globe shows that the last embers of the coal industry are about to burn out. There will be the odd hold-out (President Donald Trump rode to power promising to ‘revive’ the dying American coal-mining industry), but in the main, coal is dead. While many believe it’s due to a greater global push against climate change, in a number of countries it’s
simple economics – renewable energy has become cheaper than coal.

An in-depth report says a just energy transition that will have a positive impact on South Africa’s structural unemployment and entrenched inequality is doable. We need to look at various financial options

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Politicians and business will argue that no matter the reason, the end result is the same – the greening of the economy. However, Project 90 by 2030, which is a social and environmental justice organisation, believes that the way South Africa moves from coal to renewable energy cannot only be determined by the bottom line. The country needs a just energy transition that does not perpetuate its current inequality and poverty levels. The non-profit organisation has released a study titled: Remaking Our Energy Future: Towards a Just Energy Transition (JET) in South Africa. It makes suggestions on financing, the protection of workers, community -upliftment, sustainability, modes of production and policy.

“South Africa’s triple challenges of entrenched poverty, very high structural unemployment and growing inequality show that something is deeply wrong with the way that society is organised. The need to transition from fossil fuels to RE (renewable energy) could provide South Africa with an ideal opportunity to think creatively and compassionately about new ways of ordering society,” the report reads.

CONSULTATION, OVERSIGHT AND PLANNING

The researchers say that early informed planning results in energy transitions with more equitable outcomes.

South Africa was the first country in the world to commit itself to a just transition in its Nationally Determined Contribution to the United Nations Framework Convention on Climate Change. But according to the World Economic Forum, the country ranks 114th out of 115 in terms of its readiness for what the WEF describes as “an effective energy transition”.

“This perilous position is largely the result of the government’s failure, through its ownership and management of Eskom, to prepare for the transition away from coal,” the document reads. This includes job losses that will result from the decommissioning of power stations.

It says that given that the transition is already under way in South Africa, it’s urgent that the government draws up a comprehensive national plan for managing a JET. But this can only be achieved through inclusive and meaningful dialogue with all concerned parties via a purpose-built institution. While the National Economic, Development and Labour Council should in theory be the body for meaningful dialogue, there have concerns for years, especially from its labour and community constituency, that they’re often ignored, and policy is railroaded.

Therefore, the researchers call for a national Just Transition Task Team to be set up as a progression from the work already done by the government’s National Planning Commission. It should be housed in a relevant lead ministry like the Department of Planning, Monitoring and Evaluation. Its key functions should be to provide oversight and a consultation platform. The planning role of the team must acknowledge the links of energy to other sectors during the transition. And from the outset, the government should accept responsibility for acting on recommendations to indicate that political will is in place.

All interested and affected parties must be represented and have a voice, including the state, unions, communities, Eskom, industry, civil society and academia. These representatives should regularly report on their mandates and be held accountable for delivering on these mandates. Sessions should be properly facilitated and democratic to ensure that collective decision-making takes place.

It also advises that a regional assessment is done in areas negatively affected by the transition away from coal before specific regional support is considered. Local task teams should also be established, with at least one local branch in Mpumalanga, to work at a grassroot level in affected communities.

South Africa’s Integrated Resource Plan (IRP) is still being reviewed. Researchers say this presents an opportunity to reimagine how energy planning takes place. It could be redrafted to focus not only on economic and technology choices, but also consider issues of energy justice which prioritise genuine and realisable equality of access and the inter-generational sustainability of energy choices. Often energy documents are penned by economists and engineers who focus on technology choices and costs.

FINANCING

One of the main oppositions to a speedier transition to renewable energy is costs. But the study warns of dire socioeconomic consequences if the country sits on its hands. It was recently calculated that it could cost as much as R2-trillion between 2013 and 2035 if South Africa fails to transition from fossil fuels. This is predominantly because of lost coal sales due to market changes precipitated by climate change mitigation strategies, and stranded fossil fuel assets abandoned due to uncompetitive costs and mitigation strategies.

An additional R20-billion can be added by 2052 if the government allows the building of two independent coal power plants, Thabametsi and Khanyisa. Currently public health costs such as the chronic occurrence of bronchitis and asthma in the vicinity of coal power stations and mines is estimated to be around R33-billion a year in hospital admissions and lost workdays. Also mining and generating power from coal is water intensive – around seven percent water is used in the coal industry, with regional figures far in excess of this amount. The document says a JET is likely to tens, if not hundreds, of billions of Rand. It suggests a combination of options to source funds.

They include a change in the current carbon tax which it says is too low. Also, there are too many exclusions and discounts to make a meaningful financial contribution to a JET. The tax is currently set at R120 per tonne of carbon dioxide, but allowances can lead to up to a 95% reduction in this standard rate. This means companies can pay as little as R6 a tonne. It has been argued that the tax should be at least R750 per tonne to have any meaningful impact on emissions in South Africa. The rate of taxation is expected to increase significantly, and exclusions to fall away, by 2023.

“Eskom has recently expressed its alarm at these proposed changes, claiming that by 2023 the tax could cost it in the region of R11.5 billion a year. The obvious solution to this predicament is for Eskom to implement a JET as soon as possible. The carbon tax should be increased to a rate that promotes meaningful emissions reduction and a proportion of the funds ring-fenced for JET work,” it says.

Fossil fuel subsidies cost South Africa USD 45 billion in 2015, according to the International Monetary Fund In terms of coal specifically, it’s estimated that the coal sector received R56 billion in subsidy support in 2016/17.
It says like other countries, these subsidies should be gradually shifted towards funding a JET in South Africa. A coal transition tax should be investigated, it says.

“A number of significant international and national mining companies mine coal in South Africa… These companies have diversified mining portfolios in South Africa and have benefited, and continue to benefit, from fossil fuel subsidies. A coal transition tax should be investigated as way to get coal companies to contribute to JET financing.”

On international financing, the Eskom sustainability task team and advisory group, Meridian Economics, are developing a model that could raise finances for a JT. This is “just transition transaction” is a new idea that could raise up to R200-billion. But it’s only possible if the utility accelerates its transition away from coal-fired electricity generation relative to the current draft IRP.

“Essentially, by lowering emissions faster than the current electricity plan dictates, through the increased addition of RE and reduction in coal use, climate finance institutions would ‘pay’ for that faster decarbonisation by providing lower zero-interest loans to Eskom,” the document reads.

It’s also essential that the government clamps down on the billions of dollars of illicit financial outflows from the country. Another option is the Public Investment Corporation which at the end of March 2018, had a value in excess of R1.8-trillion. An argument has been made that as the fund has more than enough liquidity to meet its pension payment obligations and help Eskom fund a JET. This would avoid the utility having to raise funds on global markets or plunge the South African government into further debt.

But the document says that this needs further investigation considering that the PIC is in hot water for corrupt deals and it may not be a responsible vehicle for a just energy transition.

By: Amy Musgrave