A South African future assuming net zero emissions
This blog is the first of a three part series of articles looking into the implications of a net zero emissions future on South Africa and the role that the investment community can play to help or hinder that transition. Written by Blaise Dobson with the acknowledgment of inputs from Ameil Harikishun, Lowell Scarr, Adhila Mayet & others along the way.
Assumption: A carbon-constrained world
On the 5th of October 2016 the Paris Agreement on Climate Change came into effect. Whilst the Trump Administration has made statements flagging his administration’s intention to withdraw the US from the Paris agreement, China, India, Canada, France, Italy, Japan, Germany, the United Kingdom and the European Union have all noted that they intend to stick by the agreement as it reflects their environmental, economic and political interests. Likewise, South Africa has stated its support for the Agreement regardless of the Trump Administration’s political statements. Assuming that a rational South African actor heeds the various international, regional and national compacts that influence South Africa’s development (e.g. the United Nation’s Sustainable Development Goals, the Paris Agreement, Addis Ababa Action Agenda, the African Union’s Agenda 2063 and the South African National Development Plan: Vision 2030), then a key signal is sent: effectively addressing climate change is a core, cross-cutting, development priority.
However, a glimpse into the technocrats’ tool kit will tell us that we have a perilous path to walk to address climate change at the scale required. The Intergovernmental Panel on Climate Change is the world’s preeminent collation of published literature on climate change. Their Fifth Assessment Report reaffirmed that climate change was occurring at a frighteningly rapid pace with substantial impacts already being experienced by the African continent. Furthermore, according to the United Nations Environment Programme, if the world is to limit global warming to no more than an increase of 2-degree centigrade, it requires the global community peaks greenhouse gas (GHG) emissions by 2025, halve them by 2050, and achieve net zero emissions by 2100. Scientists and researchers have even gone to the lengths of outlining how this is technically feasible (with energy efficiency and renewable energy being the low-hanging fruit). Governments are actively considering the implications these scientific limits will have on their current economic strategies. A number of countries (e.g. including China and Germany) are proactively looking to position themselves on the “upside” of the wave of innovation required to deliver the technological changes.
What does a carbon-constrained future mean for South Africa?
South Africa has made a number of commitments under the Paris Agreement including an emissions trajectory that will “peak, plateau and decline” between 2025 & 2030 within a range of between 398 and 614 Mt CO2-eq. In making these commitments, the Government of South Africa has noted that “…as a result of the historical development pathway of its energy sector, South Africa is currently heavily dependent on coal, with a fleet of old and inefficient coal-fired power plants that are nearing, but not yet at, the end of their design life-cycles as well as being reliant on a significant proportion of its liquid fuels being generated from coal. Therefore, in the short-term (up to 2025), South Africa faces significant rigidity in its economy and any policy-driven transition to a low carbon and climate resilient society must take into account and emphasise its overriding priority to address poverty and inequality.”
Sandwiched in this statement lies a predicament that South Africa faces. South Africa’s position on climate change as articulated in the Paris Agreement requires that the country undertakes an extraordinary technical and social endeavor to re-design nearly every productive system created since the advent of South Africa’s industrial development. Reliant on historically cheap fossil fuel-energy, South Africa is the world’s seventh largest coal producer and accounts for 94 per cent of Africa’s coal production. However, South Africa’s continued coal reliance should be put into context of a number of emerging economies (i.e. China and India) looking to reduce their reliance on the mineral over the medium to long term.
South Africa’s climate change commitment to Paris undertaking reminds the reader to “be mindful that an inclusive and just transition requires time and well planned low-carbon and climate resilient development”. What exactly does a “just transition” look like within the South African context? Is a “just transition” one that addresses social justice and poverty alleviation by decoupling economic growth from catastrophic climate change? Or is it more than that? Who is ultimately responsible to take leadership on delivering a just transition?
From one perspective, it could be argued that the transition is already well underway – BP’s 2016 energy statistics show global coal consumption recording a 1.7% decline (the second successive annual decline) whilst renewable power (excluding hydro) grew by 14.1%. The competitiveness of renewable energy will continue with Chinese technology leading the way under the country’s “Ecological Civilisation” focus embedded in their 13th Five Year Plan (2016 – 2020). Even Saudi Arabia have seen the writing on the wall. Whilst coal, oil and gas are far from being declared obsolete within the global energy mix, the move towards a net zero emissions future and the attempt to realise the first South African commitments under the Paris agreement is well under way. However, from a South African perspective, what implications does this transition have for our economy & who is championing discussions about how inclusive & just it might be?
The failure to have these discussions in a timely manner will likely see a dis-coordinated transition from the history minerals-energy complex that dominates the local economy with nothing to replace those jobs being left in the wake of the change. The shifts in the current heartland of South Africa will likely trigger a significant socio-economic fallout for those whose livelihoods depend on extractive industries. The determination of how “just” this transition will be is likely to be a function of the ability for economic partners to signal their interests and work cooperatively to ensure as many livelihoods are safeguarded through the transition. The conversations will be difficult and will need to be nuanced to account for the complexity of impacts of climate change.
But what of the implications of this conversation on South Africa’s development pathway and what is the role of investors within this conversation? Forthcoming blogs will explore this in a little more context and depth.
[To be continued]