Climate Change White Paper public hearings: Chamber of Mines, Eskom, Industry Task Team on Climate Change, Sasol, Association of Cementitious Material Producers

Water and Sanitation

07 November 2011
Chairperson: Mr J De Lange (ANC)
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Meeting Summary

The Federation for Sustainable Development was present but withdrew from delivering an oral submission on the basis that its written submission was sufficient. Sasol had an issue with the White Paper's presenting specific targets instead of aspirational targets as indicated in the Green Paper. Sasol maintained that the numbers in the paper needed to be subjected to conditionalities.

The Committee was quick to point out to Sasol that specific targets were in fact a suggestion from the business community and that it was important to have them in order for implementation to be successful.

Eskom and the Industry Task Team on Climate Change agreed that the White Paper had good elements but the implementation needed to be looked at carefully. Sasol and Eskom both pointed out that one of South Africa's problems was that it did not have renewable energy sources such as natural gas to replace coal, a high emitter. However, both were getting into the renewable energy sector through projects already seeded and under-way.

Members expressed concern that the Government did not have its own research report on the externalities of coal to counter a recent report published by Greenpeace.

Eskom said its independent study was under-way on the externalities of coal.

The Committee reminded delegates that the discussions on the policy had not ended and that there would be opportunities to engage on the policy in the coming year.

Meeting report

Sasol National Climate Change Response White Paper Presentation
Mr Norbert Behrens. Group General Manager: Strategy and Planning, Sasol, said that the company was giving feedback on the White Paper in the context of practical points of implementation in respect of the Integrated Resource Plan 2 (IRP2). On the global scale, six countries were responsible for sixty percent of the emissions. Only Germany was pursuing climate change policies leading to reduction of emissions. South Africa (SA) was only responsible for 1% of the emissions. Sasol understood that it was the second biggest emitter in the country. South Africa was ranked as the 18th biggest emitter in emissions per capita and 12th in terms of overall emissions. South Africa relied heavily on coal and it did not really have access to low carbon sources in comparison to countries like Australia, Canada, Russia and China which had natural gas reserves they could tap into. Sasol's concerns about the White Paper was that it was different from the Green Paper. The White Paper also had specific numbers which made implementation hard as SA was already at the peak of the numbers published.

The Chairperson interrupted the presentation telling Mr Behrens that he was stunned by his attitude because during the Green Paper hearings the committee had been told that the problem was that there were no specific targets. The figures in the White Paper were something business had asked to be put in.

Mr Behrens said tried to clarify Sasol’s view that by having numbers, the White Paper would have predetermined the outcome of efforts and some form of review needed to be done.

The Chairperson told Mr Behrens that he was wrong. He did not understand what the review would be about and told him that policy was not cast in stone. He also explained the trajectory the country had accepted was based on the international commitment and that it could only emit up to thirty mega tonnes in the next nine years. He added that the mere fact that business kept wanting to change the goal post would keep creating problems. Sasol would need to tell the Committee where the problems were as the policy had already been adopted.

Mr Behrens insisted that Sasol understood it but the difference in target numbers should be an aspirational target subject to conditionalities. Sasol believed that putting out a profile in specific numbers had implications on the practicalities.

The Chairperson said that the Government would engage with Sasol as time went by, but if targets were not set, the country would never get there.

Mr Behrens continued that part of Sasol’s proposal to the Committee was for the White Paper to take into account conditions of finance and technology.

The Chairperson said that it was a broad condition. The Government had passed the policy and it had conditions but it should not stop implementation. The Government was giving budgets to various departments to kick-start the process. He told Sasol that it was living in a dream world if it though t that implementation would not happen due to lack of technology and funds which would slow down the process. Government would do everything to get that money and technology. He pointed out strongly to Sasol that such points were not worth mentioning.

Mr Behrens continued, saying that carbon tax and budgets required alignment and effective coordination of the two policies to be successful, as in the present moment, it was not like that. He asked how the carbon budgets would be implemented as not every sector would have set emissions due to the differences.

The Chairperson said that the point was taken and that there would be a structure which would look at carbon budgets and what sectors had to do to monitor it. Expertise from Sasol would be involved in the structure.

Mr Behrens asked if two years was sufficient to come to a conclusion on the matter.

The Chairperson said that he hoped it would not take that long. According to the IRP2, the current position would imply that the proportion of energy used for electricity generation would grow.

The Chairperson explained the trajectory diagram saying that the percentage of electricity carbon emissions was part of total country emissions and this was noted in the Long-term Mitigation Scenarios (LTMS) study. The trajectory was favouring people giving the small portion to those who generated electricity. He said to Sasol that their point was received and the point would be assessed.

Mr Behren concluded his presentation saying that adaptation needed to get greater emphasis and that industry had a part to play. The peak, plateau decline (PPD) trajectory published in fixed numbers created practical concerns as far as implementation would go. The socio-economic consequences also needed to be understood. Sasol supported South Africa's moving to a lower carbon economy but the balance was needed across the country especially the socio economic consequences on jobs. South Africa had a fly wheel centred around the mining and energy sector. Its competitiveness with other countries needed to be taken into account.

The Chairperson told Sasol that it needed to think like the Chinese, to hold on to what it had and to be good at it, and to become a new monopoly by taking over renewable energy. He said that South Africa had to move and to think about issues in terms of sustainability as that was the true issues not climate change. He referred to Professor Mark Swilling, Programme Coordinator: Sustainable Development, School of Public Leadership, University of Stellenbosch, who had explained all the things SA wanted to do without ever mentioning climate change. Climate change was not the issue but sustainability and the right development path were. He urged Sasol and Eskom, companies in prime positions, to really take the bull by the horns and run with it.

Mr G Morgan (DA) ask for clarification on what risks Sasol faced in the next 10-20 years time in terms of implementing the carbon tax and the White Paper. He asked Mr Behrens on his views on the pricing of carbon in general and his view on the carbon tax, if Sasol opposed it, and how might carbon be alternatively priced in South Africa. He also wanted to know about Sasol’s current investments beyond shares, their nature and location. He asked Sasol for its opinion if the trajectory as it was discussed was achievable in the time given, and, granted that it could be achieved, what the costs would be. He was also interested in what interactions Sasol had with the state during the drafting of Green and White Papers. He also asked about Sasol’s business perspective on the greenhouse gas inventory and how accurate it was and how long it will take to get it to a point that it could an active informer of SA policy.

Ms H Ndude (COPE) said that it was clear that Government and business had different interests and it was important to understand that each had a role to play. She asked for clarification on the claims that White Paper had elements that were not in the Green Paper nor in the draft. She asked him to clarify the statements that ambitions needed to be based on accurate greenhouse gas inventories. She was also quite worried that the Paper had become policy and Sasol was saying it was not consulted properly.

The Chairperson explained the Government position to Sasol using the trajectory diagram and the position the Government had adopted taking into account the various positions made in the past two years. He did not understand the debate whether SA should or not have carbon budgets as the country had already agreed to the 2%. He asked for explanation of the Sasol new energy initiative.

Mr Behrens responded that Sasol employed 34 000 people and indirect employment amounted to 200 000, most of them in SA. Hence the consequences of the policy would be far reaching. Prioritisation of some sectors needed to be taken into account. Sasol did support the country in moving to lower carbon emissions and it had started a new business, Sasol New Energy, which looked at low carbon energy and solar energy and the two proposals were with the board. Sasol was actively engaged in that area.

The Chairperson asked what the investment was and how much change of direction would cost Sasol.

Sasol did not support the carbon tax as it did not take into account socio-economic factors.

The Chairperson asked Mr Behrens if Sasol's shareholders shared his views. He replied in the affirmative and that National Treasury had accepted Sasol’s point. Investment beyond SA included gas fields in Canada which were driven by opportunity in North America. South Africa had technology that was suited to the opportunities.

On the PPD trajectory. Mr Behrens said that Sasol’s views were generally accepted in negotiations, in that PPD had not taken into account development growth and aspirations. The SA trajectory had not taken economic growth into account. Sasol had stepped up exploration in Mozambique for natural gas which would help lower emissions. There was potential in Mozambique and Tanazania. However, drilling was not cheap and Sasol was looking at syndication of business. Part of the new energy business was the carbon capture and storage, something Sasol had been active in, in and outside of SA and that would go beyond 2020. Sasol, like all other industries, had been given an opportunity to interact with Government and had been able to make its point clear. At no stage during preparation and engagement did Sasol anticipate that a specific trajectory would be published in the paper but just an aspiration.

The Chairperson asked Mr Behrens if he was sure about his comment about Government having only an aspirational target. The Committee had been pushing for specific targets and numbers.

Mr Behrens replied that in all engagements Government still had the final call on how to implement, but Sasol understood it would be aspirational.

With regards to the greenhouse gas inventory, Sasol was concerned about how accurate it was as it went back to 2004 where it was drawn up as part of Long-term Mitigation Scenarios (LTMS). SA was not on the optimum growth path as the peak was the present and the country needed to cut back already.

In terms of international negotiations, and the trajectory, it needed to be understood that it ultimately came down to economic growth and Sasol supported SA’s efforts. It was important for SA to think about what it was starting off with and how it rated itself in relation to other countries. Climate change was an international issue and if SA acted on its own with 1% emissions it would not make a contribution.

The Chairperson said that Sasol was to be commended for cutting back on its emissions.

Industry Task Team on Climate Change (ITTCC) Presentation
Mr Mike Russouw, Director: Xstrata Alloys, and member of the Industry Task Team on Climate Change (ITTCC), said that the real work was only starting and that the challenges of implementation of the White Paper must not be underestimated. He was making the presentation on behalf of the members of his entity which included Anglo American, Anglo Gold Ashanti, Exxaro, Xstrata and other large corporations represented all over the world and in South Africa. The members were significant contributors to the gross domestic product (GDP) of the country and were major investors in economic growth. ITTCC was fully committed to South Africa and wanted SA to win but the country needed to make itself an attractive investment for foreign direct investment. The ITTCC acknowledged the mainstream science of climate change and the upcoming COP17 meeting, taking into account that SA could not really move far ahead from the rest of the world.

In terms of GDP, one the first things to speak about was job creation and ITTCC welcomed the New Growth Path. SA had significant geological prospects. All major countries had grown positively in their mining sectors but SA had declined by 1%.

ITTCC was concerned about the implementation of the White Paper. He referred to a report from Australia that the Australian government had significantly underestimated the impact on GDP. South Africa needed to tread with caution and it needed to get its information right as National Treasury was still running its model on carbon tax. In terms of the carbon budget issue, there was misalignment of many policies which included IRP 2010, beneficiation policy, the national climate change White Paper, economic development, the New Growth Path, and strategies to focus on the poor. All were commendable but, in many cases, misaligned.

The biggest question for SA was to focus on what it ought to do. SA needed to define what it could do. SA needed to pace itself and not run away. The trajectory had been defined, the science had been consulted, but the can-do line for SA needed to be defined. The typical abatement curve for the country also needed to be defined. Sector budgets and sector policies needed to be determined from the bottom up. The IRP was a good document but who would pay for it, and how? The soaring electricity prices needed to be affordable. As sales increased, prices would also go up. Nearly 70% of electricity consumption was by industry. If demand went up, prices would also go up. The carbon and electricity price and their direct impact on jobs needed to be considered. ITTCC proposed that the problems in the White Paper could not be solved using structures and urged the Government to stop creating committees. Project management was needed. The transition to low carbon economy would be hard but slow. ITTCC recommended that Government needed to do policy management and add project management, systems and processes and most importantly define clear roles and accountabilities

The Chairperson remarked that he appreciated the effort in putting the information together. He agreed with ITTCC on the issues of systems and processes as one of biggest problems was that of coordinating cross- cutting issues worsened by fragmentation.

Mr Morgan asked for Mr Russouw’s expert opinion on how viable time-frames were and the sequencing of the interventions in the White Paper. In terms of transversal implementation, he understood the problem and was interested in Mr Russouw's explaining some solutions towards achieving the type of project management that he sought. He also asked for his view on where the coordination of responses should be housed. The question had been put to Department of Environmental Affairs (DEA) and it did not have an answer yet.

Mr J Skosana (ANC) asked for clarification on the issue ITTCC had raised about structures not being used to solve problems.

Mr Russouw replied that ITTCC had suggested a time-line in its written submission. In terms of sequencing, there were a number of policies that were interdependent and needed to be aligned by proper project management to show their interdependencies. There was an expectation that a policy should be completed but it could be resolved by sequencing. In terms of transversal or cross-functional management, what was complicating management was the fact that people were not doing their part because they were not accountable and there was no way to make them accountable. A transversal management unit was needed as he did not believe, that such tasks could sit in one ministry. There was need for an agent who would not have vested interest who could pull things together and hold people to account.

In response to Mr Skosana, Mr Russouw indicated that, in a company, operations and management were about three things - structure, processes, and systems (policies and procedures), none of which existed in relation to the White Paper, except for structure.

The Chairperson said that structure was important and indicated that the Government struggled to coordinate and manage such tasks because of the structure. He asked Mr Russouw if he knew of examples of countries which had worked out a mechanism to work on such issues.

Mr Russouw replied that Brazil and China were two countries that he knew about. Brazil had done it. Brazil’s president's office had created a programme management office which oversaw implementation. Its role was instruct as to how to sequence and implement. The problem with the National Planning Commission was that it asked who owned policy when it should be asking how policy should be implemented.

The Chairperson said that the problem with the Cabinet was that if one wanted to know more, one had to depend on the minister concerned to give the information. Perhaps the National Planning Commission could play such a role.

Mr Russouw had a document which he could send to the Committee on how implementation could work in South Africa, once the problem of who owned the policy was solved.

Chamber of Mines National Policy on Climate Change Mining Industry Response Presentation
Mr Nikisi Lesufi, Senior Executive: Health and Environment, Chamber of Mines, submitted that though the Chamber supported the White Paper and the process of preparing for the Conference of the Parties (COP) 17, it still had concerns in terms of the process followed in the White Paper. There was a significant departure from the previous Green Paper in structure and in content. It still maintained that the policy was very ambitious even for a developing country like South Africa. The Chamber hoped that the constraints, which included the increasing costs of doing business, while sustaining the developmental objectives of SA, would take priority in the implementation of the policy. The Chamber was concerned that numbers were included in the White Paper that were still in discussion for the National Greenhouse Gas Inventory. In relation to the carbon budget and the carbon tax, the Chamber felt that there had not been much discussion between National Treasury and the the Department of Environmental Affairs (DEA)on the modalities and the synergy between the two initiatives and expressed concerns over how the respective thresholds would be set in relation to the ongoing discussions with the DEA on the Peak, Plateau, Decline (PPD) trajectory. The Chamber called on Government to develop a common and coherent message to stakeholders.

The Chairperson thanked the Chamber for a balanced input.

Mr Skosana remarked that every one would be engaged in climate change.

Mr Morgan said that there was a need to get the order of policies right to ensure a sustainable transition. He asked if sustainable mining was possible at all though it was extractive industry. Could it be sustainable? Given the contradiction between the New Growth Path Plan which put a heavy burden on the mining sector to create jobs and the White Paper, he asked Mr Lesufi if he could say more about the risk of job losses in the sector, for example for the carbon tax. What was the mining sector doing, through training and re-skilling of workers, to address the risk of job losses? He asked if the Chamber had done any modelling on the White Paper as it stood and, if not, was the Chamber looking at doing something like that? Lastly, he asked what the mining sector's views were on the carbon budget, the new path that was not in the Green Paper.

Mr Lesufi said that there was no geological problem regarding climate change as the debate was around how to be efficient. Industry had to identify opportunities. Mining in itself was unsustainable because it was taking a finite resource from the environment, but what was important was converting natural resources into other capital or other resources. It was seed of creation for a sustainable economy.

In terms of re-skilling, the skill set required for mining was different from the ones for the green economy. The industry had the the responsibility to retain and protect jobs, but it needed to plan ahead and create a pool of talent for the future. The share price of the mining company was also determined by the share price of the country. The Chamber decided that in order to maintain the share price of companies and put SA first, it was committed to playing a role in re-skilling the workforce.

The Chairperson thanked Mr Lesufi for the great explanation.

Mr Morgan commented that one of the arguments on why there should be a carbon tax was that if SA did itself do it, the export goods would be penalized by the countries who were importing them such as most European Union countries. He wanted to know the thoughts on that issue as SA exported a lot of minerals and there was a possibility that other countries could just tax SA goods and capture the market for themselves. He wanted to know what the potential was in the mining sector for becoming more alternative energy intensive, and if the work the sector was doing in alternative supplies of energy was enough with respect to extractive practices while some of the SA mines were quite deep and therefore energy intensive.

Mr Russow was asked by the Chamber to provide some of the answers for the questions from the Members.

Mr Russow said that in relation to the border adjustment tax, it was important to keep the prices transparent to keep other countries from doing the same. The ITTCC was cautious to avoid lobbying work but wanted to focus on the technical principles. Much of the information ITTCC dealt with came from jurisdictions around the world. The process always started by asking the wrong questions. He said that stakeholders should be talking of carbon price and not tax as it was one way of pricing. The ITTCC was sharing its information with National Treasury.

The Chairperson said that the only way to make it work was to have a general standard, so that once a country had a carbon tax it could not then charge more.

Eskom Presentation
Ms Mandy Rambharos, Senior Manager: Climate Change and Sustainability, Eskom, delivered the company’s response to the White Paper. Eskom was committed to White Paper but wanted to have a balance in pricing and affordability. The funders' requirements were becoming more and more onerous when it came to environmental requirements. Eskom had a six step approach towards its response. It included diversifying generation mix, energy efficiency, adaptation to the impacts, innovation through research and development (R&D), carbon financing and opportunities for trading, advocacy partnership, and collaboration with national and international stakeholders.

In reference to the PPD trajectory, some of the issues still needed to be further defined. Eskom also agreed with the Chamber of Mines that the Paper had good elements but needed attention to implementation. Eskom argued that the number the IRP had was wrong. IRP 2010 had a price tag of R856 billion. Well- researched detail and financing were crucial and needed to be included. Carbon tax would not work in all sectors of the economy. The electricity sector was very vulnerable to climate change and it was important to plan in order to important to increase its resilience to climate change.

In terms of mitigation, there would be separate consultation on each element with stakeholders. Eskom welcomed the approach of benchmarking used by the PPD. Given the wide range of the business as usual (BAU) section, Eskom had done some calculations, showing that SA could reach the lower bound of the business as usual line but would not make the upper. It was important to consider that the electricity sector was not just Eskom. It would be important to make sure that numbers were pragmatic, taking into account country circumstances.

The National Carbon Budget was a good idea as SA could not have mitigation if it had nothing to work towards. A cost abatement curve also needed to be developed for SA - what the options were to reduce emissions, how much by, and what would it cost the country. Opportunities abounded in building efficiency, industry efficiency, land use and agricultural management. Eskom’s key message was that it needed to deal with emissions. Climate Change provided an opportunity for innovation and Eskom could become the world leader in solar energy.

Mr L Greyling (ID) said that he had attended the energy meeting the week before and a lot of things mentioned in the meeting had been captured by the SA Renewable Initiative (SARI). He asked if Eskom had been engaging with SARI and had looked at possibilities about what it meant for the energy mix in the next 10 years, and what might give way, such as coal.

Mr Skosana said that he was impressed with Ms Rambharos as she was always positive towards what the Government wanted. He asked her to clarify a statement made by Eskom in the press the day before saying that Eskom was committed to carbon emissions reductions but would continue to use coal. He also asked for clarification on the blanket emissions.

Ms Rambharos said that Eskom had been engaging with SARI and that SARI would take up a huge chunk of renewable energy proportion which had been determined by the Department of Energy to be 17 gigawatts of renewable energy. The statement made in the news the day before referred to Kusile and Medupi being built to meet demand and supply, but a decision had been made not to build but to investigate a clean coal option and how it could be used sustainably.

The Chairperson told the Members that China had become a huge exporter of renewable energy.

Ms Rambharos said that Eskom had an issue with coal and mining and job losses.

The Chairperson replied that if Eskom became a leader in the area, it would have no job losses.

Ms Rambharos explained that Eskom had set up a unit for renewable energy. Eskom was accountable to two departments and this caused a loss of focus. There needed to be clear direction in both departments. With reference to the blanket carbon tax, she meant that the way carbon might be priced might work for one sector but not others, therefore a blanket tax might not work.

Mr Skosana said that the businesses needed to give hope to society and that Eskom needed to be serious when it made statements about reducing emissions while still using coal. He asked how Eskom would cover job losses.

Eskom indicated that it was looking at the move to energy mix diversification with consideration of what the impact would be for job losses and job creation, while assessing the transition and what it meant if it had to train or retrain people.

The Chairperson said that Eskom must not over emphasise, as what might happen over time was that that older plants would go from 80% to 50% until they stopped. It would be a gradual and natural process. Hence Eskom was to be advised to be careful how to project job losses. It was difficult, for example, to think about Eskom losing jobs as Kusina had a 60 year lifespan.

Mr Greyling said that if Eskom claimed to be the champion of renewable energy, he would not believe it as he had seen the discord. Eskom’s only renewable energy initiative was a 100MW solar plant. Most was done by the private sector. He had read the Greenpeace report on externalities of coal. The problem was that the Government did not have its own paper on the externalities of energy. He had been asking but there was not one. He suggested that there needed to be one in order to counter the other authorities' reports.

Mr S Huang (ANC) said that Eskom was playing a double game and it was winning on both the left and right side and that it would always win and no one could oppose it. He asked about point five of its six step approach to funding, if Eskom was getting the green fund and what its responsibility was in reducing its carbon footprint. Every year, Eskom increased its tariffs and it ate up all the resources. He would like to know what Eskom’s feedback to society was and urged Eskom to take more responsibility. It was now taking up renewable energy - 16% of the new plan - and its price still had not come down.

Mr Morgan said that Eskom had made a number of commitments to the future. He wanted to know if all the mines from which it procured coal had water licences and, if not, why not.

Ms Rambharos replied to Mr Greyling that Eskom had been talking to the Department of Public Enterprises and the Department of Energy and it would like a bigger allocation of renewable energy even though it did not want to play out other parties. Eskom had started its research on externalities but it struggled to get the numbers. An independent study was under way and it was engaging with the Department of Energy.

In response to Mr Huang, Eskom indicated that its funding was actually in forms of loans to be paid back and it was currently sitting with a R90 billion debt. It was looking at the green financing strategy and assessing how to tap into the money available. An application was made to Government, and it presented it to the World Bank and it obtained the funding from the green technology fund which was funding the wind farms. Eskom was looking at all opportunities for finance. The electricity pricing did not reflect the full cost price. The pricing for which Eskom had applied to the regulator had not been granted and it had a cumulative effect. SA did not value electricity which was why there was a problem in the country. Funding of Eskom was something that needed to be explained to the public.

In terms of the supply chain and the mines, all mines had water licences. When Eskom looked at its supply chain it ensured that mines had in their contracts environmental impact assessments (EIAs) and water use licences.

The Chairperson said that it should not be a problem as Eskom had to make a policy to ensure that the suppliers worked with other suppliers who had licences and EIAs as well.

The Chairperson said that Eskom and Sasol, because of their monopoly status, needed to follow the direction of the country which was the direction of the White Paper.

Association of Cementitious Material Producers Presentation
Dr Dhiraj Rama, Executive Director, Association of Cementitious Material Producers (ACMP), presented the Association’s submission to the Committee. The White Paper needed to support enabling mechanisms. In the carbon budgets, the question was where the line would be drawn. The level or reduction needed to be carefully developed. The Association had four key levers which were thermal electric efficiency, alternative fuels, clinker substitution, and carbon capture and storage.

The externality was transport and such a footprint needed to be addressed. It was a reduction opportunity but carbon dioxide would always be emitted as long as SA had cement in the country. The key opportunity to further reduce would be to substitute coal. The key idea was that some of the waste that would otherwise go into the incinerator could be used as a substitute to replace coal. Dr Rama presented recommendations from the ACMP to reduce its carbon footprint. These included the use of alternative fuel, review of waste legislation and redefinition of what constituted waste and other items mentioned in the detailed submission. The process, however, needed to look at including the recovery of energy from waste. Because the Association had links to an international network, it had started work on producing eco-cements earlier and had requested the Government to take note of its contribution while acknowledging that the industry only contributed one percent of green house gasses in the country. He concluded that some of ACMP's members were already producing eco-cements and that demonstrated their commitment to managing their greenhouse gas emissions.

The Chairperson thanked the Association for its contribution. Its presentation was clear, as no questions were asked by Members.

The public hearings would continue the next day.

The meeting was adjourned.

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