Executive Summary

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Executive Summary
The approved Response to Climate Change calls for
a range of initiatives to acquire the requisite
facts that will inform a unique and appropriate
policy choice for South Africa.
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The biggest threat inherent in the National
Climate Change Response White Paper is premature
policy choices and/or the failure of
implementation.
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AGENDA

• The ITTCC
• Job Creation and Industry
• Acts before Facts - Premature policy choices
• Ought to do vis. Can do
• Defining What South Africa CAN DO
• Purpose of Classification - Sector/Company/Facilit
  y
• Energy, Carbon Pricing, Taxes, Caps Budgets
• RSA Industry under Threat
• Solution
• The challenge of implementation
• An Execution Management Framework

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ITTCC
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AGENDA

• The ITTCC
• Job Creation and Industry
• Acts before Facts - Premature policy choices
• Ought to do vis. Can do
• Defining What South Africa CAN DO
• Purpose of Classification - Sector/Company/Facilit
  y
• Energy, Carbon Pricing, Taxes, Caps Budgets
• RSA Industry under Threat
• Solution
• The challenge of implementation
• An Execution Management Framework

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Too much non-job creating growth Too much of the
economys recent growth has been driven by credit
fuelled non-tradable/ non-job creating growth and
not enough tradable/job creating growth..
Non-tradable sectors
Tradable sectors
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South Africa still has significant geological
prospects...
South African mineral wealth
of global
Global rank
0
10
20
30
40
50
60
70
80
90
100
1
PGM's
1
Manganese
1
Chromium
1
Gold
1
Alumino
-
Silicates
2
Vermiculite
2
Vanadium
2
Zirconium Minerals
2
Titanium minerals
2
Fluorspar
4
Antimony
4
Phosphate rock
5
Nickel
5
Uranium
6
Lead
8
Coal
8
Zinc
8
Silicon
9
Iron ore
Source USGS/COM/DMR
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...but GDP contribution of the SA mining industry
has declined over the last decade
Ranking of mining countries by growth in mining
value added to GDP
Value add to GDP (2001-2008)
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SA mining is also lagging relative to other South
African industries
Value creation by Industry - SA vs. Rest of World
South Africa
Industry value add real growth
2001-2008 real CAGR,
10
Construction
Motor vehicles, trailers, and parts
Retail

motor vehicles and gasoline
8
Retail trade
2
Chemicals
Financial intermediation
Food and beverages
6
Wholesale trade
2
Transport and telecom
Social and personal services
Real estate and business activities
4
4
Agriculture
Health and social services
Electricity
2
Manufacture of basic metals
Public admin. and defence, social security
Education
0
Mining
Hotels and restaurants
-2
0
1
2
3
4
5
6
7
8
Represents size of
Rest of the World
SA industry value
add in 2008
Industry value add real growth
SOURCE Global Insight DME McKinsey Company
analysis
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Mining Industry supports jobs in the secondary
and tertiary sectors
SA Mining industry, income and expenditure 2008
Total income R364 billion, total expenditure
R383 billion
Capital expenditure,
Purchases and
R64.9 billion
operating costs,
R144.6 billion
And a is major factor in Rural Economic Growth,
Job Creation and Environment Protection
Dividends, R25.0
billion
Taxation, R32.2
billion
Depreciation and
impairments, R21.2
billion
Electricity, water
Repairs and
and rentals, R8.8
maintenance,
Labour costs, R58.6
Railage and
billion
R9.8 billion
billion
transport,
Interest Paid,
R8.8 billion
R9.2 billion
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AGENDA

• The ITTCC
• Job Creation and Industry
• Acts before Facts - Premature policy choices
• Ought to do vis. Can do
• Defining What South Africa CAN DO
• Purpose of Classification - Sector/Company/Facilit
  y
• Energy, Carbon Pricing, Taxes, Caps Budgets
• RSA Industry under Threat
• Solution
• The challenge of implementation
• An Execution Management Framework

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Australia Latest Findings Its worse than the
model predictedLets get the facts before we act

• GDP 2 per cent lower relative to business as
  usual (BAU) by 2020, rather than by 0.3 per cent
  lower (Treasury modelling).
• Real investment 3.4 per cent lower than BAU by
  2020, rather than by 0.4 per cent lower suggested
  in the Treasury modelling.
• Impact on real wages (average household earnings)
  .9 per cent lower than BAU by 2020, rather than
  by about 1 per cent lower as suggested in the
  Treasury modelling. 
• Impact on productivity Output per worker will
  fall by 1.9 per cent relative to BAU, rather than
  0.4 per cent in the Treasury analysis. 
• Carbon price Carbon price will rise to 36.10
  (in 2010 dollars) when the flexible price phase
  commences in 2016, growing to 43 by 2020.
  Compared with a projected carbon price under
  Treasury modelling of 24.60 (in 2010 dollars)
  rising to 29.40 by 2020.
• Electricity prices Projected to rise by nearly
  30 per cent by 2020, compared with initial
  electricity price rises of about 10 per cent
  under the Treasury modelling.
• Output in durable manufacturing durable
  manufacturing output is projected to fall by 2.1
  per cent or 5.9 billion relative to BAU.
• Output in the mining sector - mining sector
  output is projected to fall by 1.9 per cent or
  18.2 billion (in 2010 dollars) relative to BAU.

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The range of major policy initiatives underway
creates uncertainty for Investors
1515

• DEA National climate change response white paper
• Develop a suite of policies to effectively manage
  inevitable climate change impacts and make a fair
  contribution to global effort to stabilise
  greenhouse gas (GHG) emissions

• Various COP15 carbon abatement pledge
• Reduce carbon emissions by 34 compared to BAU by
  2020

• National Treasury Initiative to reduce budget
  deficits
• Reduce deficits to between 3-4 of budget (budget
  deficits have reached 4-6 of GDP after the
  financial crisis)

Demands Integration coordination across many
Ministries

• Economic Development New growth path
• Integrated program to create jobs across
  industries by 2020
• Create 250,000 jobs annually until 2015 in
  infrastructure
• 1.9 million new jobs by 2020 in both existing
  and new sectors
• Measurable livelihood improvement for 500,000
  rural households

• DOE IRP 2010-2030 targets
• Reach 42 renewable share in total installed
  capacity by 2030

• Economic Development Strategy to raise income of
  poorest 20 of the population
• Initiatives, including social grants, to increase
  income of the low 20 income households (40
  house-holds with lowest income account for only
  6 of total income)

• DMR Promote beneficiation industry
• Promote the beneficiation industry in South Africa

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AGENDA

• The ITTCC
• Job Creation and Industry
• Acts before Facts - Premature policy choices
• Ought to do vis. Can do
• Defining What South Africa CAN DO
• Purpose of Classification - Sector/Company/Facilit
  y
• Energy, Carbon Pricing, Taxes, Caps Budgets
• RSA Industry under Threat
• Solution
• The challenge of implementation
• An Execution Management Framework

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For South Africa Energy, Climate Change and
Carbon PricingCannot be considered in isolation
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South African GHG emissions (2010)Mt CO2e, 100
463Mt CO2e
Best Estimate
1 Company data, 2010 2 Carbon Disclosure Project,
2010 team analysis 3 IEA, 2008 / 2005
SOURCE IEA company reports Carbon Disclosure
Project team analysis
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Growing Jobs is very important for South
AfricaFinding a balance, Jobs, growth climate
change - A very tough call
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BUT....Job growth requires more energy a
Universal RealityDistribution of wealth Job
Growth means energy growth per capita! China
knows this well!
The trials show changes over time 1995 to 2006
for the selected countries
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but in absolute terms we are small
Top 20 CO2 emitting countries by absolute CO2
0
2 000
4 000
6 000
8 000
million tons CO2
China
USA
South Africas total 2020 Copenhagen Savings
will be emitted by China in less than 68 Hours
Russia
India
Japan
Germany
Canada
UK
Iran
Korea
Italy
In the absence of a Global agreement South Africa
must tread with extreme caution!
Mexico
Australia
Saudi Arabia
Indonesia
France
Brazil
1.1 of total global CO2 emissions
South Africa
Spain
Ukraine
Source IEA - Top 20 CO2 Country emitters, 2008
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AGENDA

• The ITTCC
• Job Creation and Industry
• Acts before Facts - Premature policy choices
• Ought to do vis. Can do
• Defining What South Africa CAN DO
• Purpose of Classification - Sector/Company/Facilit
  y
• Energy, Carbon Pricing, Taxes, Caps Budgets
• RSA Industry under Threat
• Solution
• The challenge of implementation
• An Execution Management Framework

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AGENDA

• The ITTCC
• Job Creation and Industry
• Acts before Facts - Premature policy choices
• Ought to do vis. Can do
• Defining What South Africa CAN DO
• Purpose of Classification - Sector/Company/Facilit
  y
• Energy, Carbon Pricing, Taxes, Caps Budgets
• RSA Industry under Threat
• Solution
• The challenge of implementation
• An Execution Management Framework

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Taxonomy Classification of ChemistryBut each
element is still unique
Group and Classify for analysis not to
control Report and monitor by sector control at
facility level
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AGENDA

• The ITTCC
• Job Creation and Industry
• Acts before Facts - Premature policy choices
• Ought to do vis. Can do
• Defining What South Africa CAN DO
• Purpose of Classification - Sector/Company/Facilit
  y
• Energy, Carbon Pricing, Taxes, Caps Budgets
• RSA Industry under Threat
• Solution
• The challenge of implementation
• An Execution Management Framework

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Carbon intensity reduced by 34....but How and
Who will fund?
Sources of energy supply
Energy mix
Capacity installed EoY in GW1
Electric energy supplied in TWh p.a.
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Re-newable TWh's in 2030 (14)
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Carbon free TWh's in 2030 (34)
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CO2 intensity
912 g/kWh
600 g/kWh
-34
1. Pumped storage capacity of 1,4 GW in 2010 and
2,7 GW in 2030 is not included since it is a net
energy user
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The cost to transition to a new generation mix
3232
Levelised cost of electricity ZAR/MWh
Carbon price required to compete with coal
ESTIMATES
Non-price barriers
Technology
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• Large environmental risks
• Infrastructure needed

7.3
Gas (Shale)1
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637
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11/10/112

• Infrastructure needed

• Long lead times
• Risks of cost over-run

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700
170

• Intermittency

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628

• Intermittency

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• Low installation world-wide slow learning curves

972
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1 Assumed gas price 7.5 USD/mmbtu 2 Assumed gas
price 13 USD/mmbtu 3 Adjusted upwards post
Fukushima
SOURCE IRP 2010-2030 Eskom Team analysis
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AGENDA

• The ITTCC
• Job Creation and Industry
• Acts before Facts - Premature policy choices
• Ought to do vis. Can do
• Defining What South Africa CAN DO
• Purpose of Classification - Sector/Company/Facilit
  y
• Energy, Carbon Pricing, Taxes, Caps Budgets
• RSA Industry under Threat
• Solution
• The challenge of implementation
• An Execution Management Framework

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Stop adding on top.Lets first look at all the
costs/prices
Industry Jobs
Increasing Costs
Carbon Tax
Electricity
Supplies
Transport
Goods
Taxes
Climate change
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If prices rise industry demand shrinks
thenPrices soar
Residential
Residential

Commercial
Industrial
Commercial
Industrial
Source Eskom and The U.S. Energy Information
Administration (EIA)
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SA industrial electricity prices becoming among
highestSA needs to be benchmarked on a like for
like basis chart below shows global silicon
metal producers
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Runaway electricity prices..More than ever, we
need balanced and rational regulationWhilst a
revision in electricity prices is necessary,
there is an affordable price path that must be
found to sustain growth
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South African Industrial Electricity Prices
-Rising faster than elsewhere to become one of
the most expensive
Average electricity rates for selected
ferrochrome producing countries, US /MWh
Note MYPD Price increases all in real terms
2011. Other countries increases related to
inflation.
Source Independent Global Survey Eskom stated
required Price Path
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And then add the municipal mark-ups
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SA Mining Industry at a tipping point!Cost of
doing business in SA has grown at an alarming rate
SA FeCr industry
SA PGM industry 90th Percentile
CAGR 8.4
CAGR 7.1
NOT Sustainable
Source CRU, Xstrata Analysis, Company annual
reports
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Carbon tax Electricity Price impact Sample of
9 Large South African Industrial Companies
Five firms in the sample would lose 178, 238,
294 and 635 of operating profits
Source Genesis Analytics
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Direct Jobs at Risk at Different Levels of Carbon
Tax
Assumed starting electricity price of 98 cents
per KWh
Jobs at Risk 20 Profit Loss
Jobs at Risk 30 Profit Loss
Note that the effect on indirect jobs, i.e. those
in supporting industries, are not considered
here. Therefore, the loss of total jobs would be
considerably higher than indicated in this chart.
Jobs at Risk 50 Profit Loss
Even without the carbon tax, between 30 000 and
130 000 jobs are currently threatened by the
higher electricity charges. A carbon tax at the
high end of the proposed range would threaten
over 140 000 jobs within the sample of firms
4343
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Costs escalating out of controlIndustry Energy
Costs rising too fast The FeCr scenario
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South African ferrochrome industry is being
displaced by Chinese competition
World Chrome Ore resources
Market share for FeCr production
Commodity World Rank in reserves RSA share of known total global reserves
PGM's 1 88
Manganese 1 80
Chromium 1 72
Gold 1 14
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Demise of SA smelting industry will have
significant impact on jobs and GDP growth
Jobs created
GDP impact per ton ore
GDP ZAR/ton
Jobs per 000 tons of ore
17.3
9,109
200
400
5.7
1,660
Ore exports
FeCr exports
Ore exports
FeCr exports
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AGENDA

• The ITTCC
• Job Creation and Industry
• Acts before Facts - Premature policy choices
• Ought to do vis. Can do
• Defining What South Africa CAN DO
• Purpose of Classification - Sector/Company/Facilit
  y
• Energy, Carbon Pricing, Taxes, Caps Budgets
• RSA Industry under Threat
• Solution
• The challenge of implementation
• An Execution Management Framework

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Majority of initiatives and programmes to be in
drawn up and adopted within 2 years
4848
Design and publish draft Climate Change Response
Monitoring and Evaluation System to monitor cost,
outcome and impact of responses to climate change
Identify and prioritise ST and MT adaptation
interventions must be addressed in sector plans
Identify adaptation responses that require
coordination between sectors
Develop a mechanism and process to translate CBs
for sector/sub-sector level into a company level
(updated on a 2-year cycle)
Mainstream Climate Change into fiscal budgetary
process and develop climate finance strategy
1 yr
Within 3 yrs
5 yrs
Within 2 yrs
Drafting of Bills or amendments to NEMA so that
legislation supports institutional and regulatory
frameworks of White Paper
Define desired emission reduction outcomes for
each sector/ subsector looking at mitigation
potential, options, costs and benefits (updated
on a 2-year cycle)
All government departments and state owned
enterprises to review policies, strategies,
regulations and plans falling within their
jurisdictions to ensure full alignment with NCCR
National Climate Change Response reviewed every 5
years
Finalise, publish and start implementing 10-year
Global Change Research Plan for SA (increasing
SAs modelling capacity for climate impact
projects and vulnerability assessments)
Initial CB budgets will be drawn up and adopted
for significant GHG emitting sectors
Web-based GHG Emissions Reporting System to be
developed, tested and commissioned
SOURCE National Climate Change Response white
paper
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Business requires a clear step-wise process to be
able to respond to policy
5050
Implement low carbon growth plan

• Introduce standards and targets as appropriate
  (e.g., energy efficiency, changes to the IRP)
• Introduce price signals if appropriate
• Initiate direct action and large-scale projects
  (e.g., energy mix)
• Build supporting infrastructure
• High voltage, long-distance transmission for
  large-scale renewables
• Ability to bring online distributed renewables
  (solar PV, hydro)

Put policy foundations in place

• Strengthen regulatory framework
• Independent Power Producers (IPPs)
• Power Purchase Agreements (PPAs)
• Independent buyer with a robust balance sheet
• Source international funding
• Invest in RD into low carbon technologies
• Introduce subsidies public investment to
  develop use low carbon technologies

Align trade-offs across government

• Identify trade-offs between environmental
  objectives and national development agenda
• Investigate price signals and their impact
• Develop country approach to low carbon
  development
• Obtain cross-ministerial support

Develop fact-base

• Build robust fact base
• Emissions inventory and projections
• Abatement opportunities
• Policy instruments and principles
• Economic implications

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Lets protect jobs in transitioning to a lower
carbon economyLimit the adverse unintended
consequences
Decision for carbon pricing mechanism 5Years
Lower Carbon Economy
Transitional support 20Years

• Jobs should be protected in local industry
• Export industries will be less competitive when
  competing in global markets, leading to closures
  or lack of growth
• Local manufacturers must be protected against
  cheap imports which do not reflect the cost of
  carbon
• Carbon leakage / off shoring of carbon increases
  the risks from climate change
• Energy intensive steps move offshore to regions
  without carbon pricing
• Imports of high carbon-content goods increases
• Companies should not be punished retroactively
  for historical investment decisions encouraged by
  government
• Transition should be gradual to avoid economic
  shock from carbon prices passing through the
  economy

• Transitional support phased out over time,
  taking competitor country actions into account
• Green industries and jobs evolve over time

Sustainable TRANSITION

• COP15 emission reduction pledge
• Industry agrees with long-term signal, but
  requires alignment between rate of introduction
  and rate of re-investment
• Comprehensive fact base, macro- and micro-
  economic analyses required

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AGENDA

• The ITTCC
• Job Creation and Industry
• Acts before Facts - Premature policy choices
• Ought to do vis. Can do
• Defining What South Africa CAN DO
• Purpose of Classification - Sector/Company/Facilit
  y
• Energy, Carbon Pricing, Taxes, Caps Budgets
• RSA Industry under Threat
• Solution
• The challenge of implementation
• An Execution Management Framework

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More than ever before We must communicate work
asOne TeamSA Inc
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Thank you