In a decade and a half, half of South Africa’s coal-fired power plants will be retired, says writer. File photo.
According to Wikipedia. “Just transition is a framework developed by the trade union movement to encompass a range of social interventions needed to secure workers' rights and livelihoods when economies are shifting to sustainable production, primarily combating climate change and protecting biodiversity.”
The word “just” is not as well-known as its opposite, being unjust. It is not clear who should be included as affected in the transition process. Could it be that not only are there workers and their families, but it should also extend to companies as juristic entities and then even wider to include communities and or a region and ultimately a sovereign country as well.
1. South Africa is well known for its large coal reserves. In the year 2 000 we had the fourth largest reserves in the world, with China heading the list. Currently we are sitting in seventh position with approximately two hundred years of production potential. South Africa's coal mining industry employed nearly 91 000 people as of 2022. In total, coal mining personnel earned some 31.7 million rand that year. Not only are the livelihoods in danger over the next decade but the loss to the fiscus will be substantial from the loss of tax from the mining sector, the personal income tax, and the export duties collected. Exports of this magnitude are a great buffer for the strength of the Rand.
Driven by both endogenous forces – natural closure of coal-fired power plants – and exogenous forces – regulatory policy shifting energy production toward renewables – the transition is set to continue, and likely accelerate.
South Africa stands out as a larger CO2 emitter than the global average, with 86% of its primary energy supply and 85% of its CO2 emissions attributed to coal.
The EU is effectively using the carrot-or-stick approach. It is offering conditional access to its massive trading bloc while threatening to make South Africa’s exports uncompetitive with increased tariffs if they remain carbon-intensive. The implications for our coal industries dire and that include the downstream activities such as power generation. Another industry that is facing an existential threat is the motor manufacturing as electric vehicle manufacturing will demand major adjustments in skill levels and green energy inputs. The main issue is Eskom, which generates over 80% of its electricity from burning coal which effectively renders all major industries in South Africa carbon intensive.
The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) poses a significant threat to South Africa’s economy. If other nations follow suit, the country could lose 350,000 jobs and 10% of its GDP. The policy has been highly controversial, with South Africa even threatening to take the bloc to the World Trade Organisation (WTO). South Africa argues that it shifts the burden for climate action to poorer countries that have not contributed as much as developed nations to global warming. However, although South Africa contributes only 1% to global greenhouse gas emissions, the carbon intensity of its economy is the highest among the G20.
2. The cause of global emissions of GHG’s lays at the door of the USA, Russia, UK, Japan, and India mostly. South Africa has contributed on a relatively low level. These countries had the benefit of building advanced economies with fossil fuels and now they want to include South Africa to pay for the damage done. It reminds one of the insistence that South Africa dismantled its nuclear capabilities whilst the major nuclear capabilities remained in the USA, Russia, China, France, and various other countries. In order of acquisition of nuclear weapons, these are the United States, Russia (the successor of the former Soviet Union), the United Kingdom, France, and China. Of these, the three NATO members, the United Kingdom, the United States, and France, are sometimes termed the P3. States formerly possessing nuclear weapons (Kazakhstan, South Africa, Ukraine) Africa does not stand up for its rights.
The northern hemisphere countries have been the cause of the current CO2 emission crises. It is interesting to note that 95% of the world's population is concentrated on just 10% of the world's land.
In a worst-case scenario research from the Reserve Bank shows that if carbon taxes are widely imposed on South Africa’s exports, the country could lose 10% of its GDP by 2050.
3.The problem has a long history.
Yellow Tree is a team of Chemical Engineers that specialise in Carbon Accounting, Air Quality Compliance, and Emissions Measurement. They explain the tax regime that affects carbon emissions below.
One hundred and thirty of the 196 countries that signed the Paris Agreement, accounting for 90% of global GHG emissions, have committed to achieving carbon neutrality by mid-century.
4. Government intervention. Adding insult to injury.
On the 5th of January 2023, the Ministry of Finance announced South Africa’s amended carbon tax rates spanning 2023 to 2030. Prior to this, the carbon tax rate was set to only increase by the Consumer Price Index (CPI) plus 2% until the end of 2022, and by CPI thereafter.
In addition to significant increases in the rate of tax, the government has indicated that the tax allowances, which have provided respite in the first phase of carbon tax, may fall away when Phase 1 ends on the December 31 2025. At this time, it is not known whether these allowances will cease to apply immediately, or whether they will be phased out gradually.
These allowances have enabled taxpayers to reduce their carbon tax payments by up to a maximum of 95%. Most manufacturing businesses that burn fossil fuels have not been able to claim the maximum of 95% but will have enjoyed a 60% basic tax-free allowance, along with a 10% trade exposure allowance. Because of these allowances, the effective rate of tax from 2019 to 2025 has been significantly lower than the rates shown in the table above. Thus, the effective increase in the rate of tax after 2025 will be much higher than indicated above if these allowances do fall away.
5. The damage rests where it falls.
The South African coal mining landscape is characterised by the regional concentration. Of the 78 operating coal mines in South Africa, 65 (or 83%) are in Mpumalanga, which accounts for 80% of national coal production.
In a decade and a half, half of South Africa’s coal-fired power plants will be retired. This has implications in terms of the need for alternative energy sources, and for employment in the coal mining and electrical utility industries. However, coal mining provides an important source of export revenue in South Africa and has important downstream linkages to other industries, such as transport, petrochemicals, and electricity production. The sector is a critical employer in the Mpumalanga province, where there are few other employment opportunities.
The coal industry is further characterised by firm concentration, with 5 mining companies – Seriti, Sasol, Exxaro, Thungela, and Glencore – together accounting for 77% of all coal production. Similarly, coal-fired power production is also concentrated within Mpumalanga, with 11 of the national utility’s (Eskom) 14 coal-fired power plants located in the province.
The Just Transition does no justice to the population of Mpumalanga. Nor does it offer a fair dispensation to South Africa in the context of historic emissions caused by northern hemisphere countries. We should not accept the status quo and fight back at every opportunity to get a better deal for our people.
* Kruger is an independent analyst.
** The views expressed herein are not necessarily those of Personal Finance or Independent Newspapers.
PERSONAL FINANCE