Carbon Tax Discussion

1
Carbon Tax Discussion
2
Agenda Item

• Rationale for carbon tax
• Example - energy efficiency implementation
  steel industry - NCPC
• Reality of our GHG challenge
• Dti suggestions/recommendations

3
Rationale for a Carbon Tax

• National Treasurys Point of departure A carbon
  tax is being considered as a strategy to change
  behaviour in energy consuming sectors and not
  merely to raise revenues
• Price signal to future investors to ensure
  investments are more climate resilient
• Responsible global citizen
• Behaviour change implies
• Reduction in energy intensity (Total energy
  consumption per GDP) - Implement energy
  efficiency measures
• Reduction in carbon intensity Reduce coal
  consumption as a of total energy consumption
  implement clean/er energy options
• Structural change Produce goods that are less
  carbon intensive
• Close carbon and/or energy intensive industries -
  smelters
• The sectors that would be the hardest hit by the
  proposed tax could would be the ones not able to
  achieve behavioural change in the short to medium
  term
• Largely due to technological and economic
  challenges

4
What does behavioural change mean
Behavioural Change
Reduction in energy intensity Electricity price already a strong motivator South Africa ranks as one of the highest in the world
Reduce carbon intensity South Africa ranks as one of the highest in the world IRP - The proposed carbon tax will mean that Eskom faces higher costs in its operations
Structural change Promote value adding, labour intensive and less energy intensive sectors Promote new Green Industries How long does structural change take realistically
Close carbon/energy intensive industries Can the SA economy afford to lose these industries in the medium term? The regret factor
5
National Cleaner Production Centre

• Energy, resource, waste and cleaner production
  audits
• Training of energy and resource efficiency
  experts and create awareness
• Make recommendations that include
• Waste heat recovery
• Identification of leaks, insulation
• Automation
• Temperature control, EnMS
• Plant layout
• Equipment optimisation
• Introduction of better technology
• Etc
• MCEP supports implementation

6
NCPC Case Study Steel Manufacturer

• 45 of operational cost is energy cost
• 10.6 MW av. Electricity demand saved against
  baseline
• 92.67 GWh saved in 2012
• Total 6.6 saving on baseline
• Electricity Saving value R51m (including R28m
  from load-shedding)
• LPG Saved 3218 t or 20 with value R39m
  compared to 2011.
• Overall saving of 41 compared to 2010 baseline.
• Reduced Energy Consumption from 25.1 to 23.7 GJ/t
  HRC.
• Fifteen energy projects completed
• EnMS ISO 50001 internal audit score 94.
• Total Value of savings in 2012 Approximated at
  R127m

7
Key Success Factors

• 1. There must be an Energy Strategy and Energy
  Management Program with
• Management commitment.
• Understanding potential and opportunities and
  having an implementation plan.
• Allocating resources to energy management.
• 2. WCM (World Class Manufacturing program)
  assisted in energy efforts
• Having reliable operations made optimisation
  possible.
• IEE Programs hosted by NCPC (UNIDO, DTI and DOE)
• Affordable training from world class experts to
  assist and guide improvement programs and
  initiatives.
• Sustainability can only be achieved through
• ISO 50001
• Management Infrastructure (MI) - closing the
  loop with control items in routine meetings.

8
South Africa is in a difficult position
Climate change mitigation is an imperative from
both a climate and trade and industry
perspective SA production and trade will become
increasingly vulnerable to carbon sensitive
policies and private standards, some of which are
being deployed with protectionist intent.
9
Top 20 CO2 emitting countries by absolute CO2 -
EIUG
South Africas total 2020 Copenhagen Savings
will be emitted by China in less than 68 Hours
lt1.2 of total global CO2 emissions
10
South Africa's Greenhouse Gas Mitigation
Potential Analysis Technical Summary Draft 1.7,
12 July 2013 - DEA

• The best available information at present in
  South Africa
• Provide a reference case projection of national
  greenhouse gas emissions
• Identified 123 mitigation measures under a
  balanced scenario
• Project national greenhouse emissions into the
  future Without Measures and base year 2000,
  With Existing Measures since 2000 and with
  additional measures)
• 5 key sectors are
• Energy
• Industry
• Transport
• Waste and
• Agriculture, Forestry and Other Land Use.

11
National GHG emissions under the reference case
(WEM) projection, showing a breakdown per sector
(2000-2050)
12
National GHG emissions under the reference case
(WEM) projection, showing a breakdown per sector
(2000-2050). Electricity emissions are allocated
to end use sectors.
13
Contribution of electricity intensive sectors to
export
Source the dti, Genesis workings
14
Desired South African Mitigation Outcome
15
National-scale GHG emission reductions under the
Balanced Weighting scenario, per sector, showing
the reference With Existing Measures (WEM) and
With Additional Measures (WAM) curves.
16
All Mitigation OptionsSavings in ktCO2eq
2020 2030 2050
Non-power Energy sector 13,230 23,484 52,290
Power Sector 28,819 140,617 406,527
Industry 21,095 33,393 63,516
Transport 11,823 44,199 153,993
Agriculture, Forestry and Other Land Use Sector Results
Waste and Agriculture 10,033 22,204 39,773
17
Policy Adjusted Scenario
18
Adapt to climate change

• Adapting to climate change requires a massive
  technological shift in the SA economy from a
  capital intensive resource dominated economy to a
  relatively more value-adding, labour intensive
  and less carbon-intensive economy.
• It is a transition that will not happen
  automatically with the introduction of 'one size
  fits all' instruments across the economy.
• It will require more instruments than a carbon
  tax and carbon budgeting with a need to
  'front-load' measures to promote relatively
  value-adding, labour intensive and lower
  carbon-intensity manufacturing.
• It will also require measures to manage the
  transition of our traditional resource-processing
  sectors so that they do not collapse under
  increasing electricity prices and a carbon tax.

19
Suggested approach

• Focus on the electricity generation sector and
  increase the non coal - base load energy
  generation after 2030
• Promote a move from road freight to rail freight
  this will improve our logistics cost challenge
  as well
• Finalise GHG mitigation analysis - DEA
• Based on GHG mitigation options, affordability
  and implementability determine desired emission
  reductions for energy intensive industries (MEC)
• Use carbon tax to penalise companies that exceed
  the emissions cap but allow rebates or credits
  for
•  introduce globally leading mitigation technology
  and processes
• support downstream sectors shifting relative
  prices in favour of less carbon intensive sectors
  which are more labour intensive and value adding,
  in particular a shift to the pricing of
  intermediate inputs such as steel, polymers and
  aluminium at considerably below import parity
  levels.
•  invest themselves in diversification into green
  technologies and sectors

20
Suggested approach

• Introduce fiscal support measures that promotes
  expansion and growth of higher value-adding,
  labour-intensive and less energy-intensive
  sectors (e.g. clothing, footwear, textiles agro
  processing plastics fabrication, metal
  fabrication  capital equipment transport
  equipment furniture)
• Manufacturing is required as the growth engine
  for the economy, creating millions of jobs and
  reducing massive inequality
• Fiscal and other mechanisms to promote rapid
  growth of new industries
•  Investment in green energy, industrial energy
  efficiency and demand side management linked to
  localisation
•  Componentry into green electrical generation,
  and demand side management equipment
•  Goods and services related to industrial,
  commercial property and household energy
  efficiency. (e.g. SWH's)
•  Support RD and commercialisation of green
  products and materials such as organic food,
  bio-composites etc.
• Expand fiscal support measures to incentivise
  companies to reduce emissions and/or improve
  efficiency NCPC already has a number of great
  success stories MCEP already caters for this

21
Summary

• A carbon tax regime needs to take into account
  key structural features of the economy if it is
  to avoid the real risk of shrinking or even
  closing existing energy intensive sectors.
• This requires concurrent support measures linked
  to the carbon tax which purposively promotes
  structural change.
• A carbon tax should be levied in such a way that
  it allows for offsetting allowances or deductions
  that recognise
• Investments in plant and equipment that mitigates
  carbon emissions.
• Shifting relative prices in favour of less carbon
  intensive sectors which are more labour intensive
  and value adding, in particular a shift to the
  pricing of intermediate inputs such as steel,
  polymers and aluminium at considerably below
  import parity levels.
• Investments in RD, innovation and
  commercialisation of green technologies, products
  and services to be undertaken in South Africa.

22
Thank you

• Gerhard Fourie
• Chief Director
• Green Industries
• Gfourie_at_thedti.gov.za