Implementing Paris Agreement; Carbon Tax and Carbon Budgets: DEFF briefing; with Minister

Meeting report

The Chairperson welcomed the Minister, Committee Members, guests, Parliamentary staff and officials of the Department of the Environment, Forestry and Fisheries (DEFF). The Chairperson asked if there were any apologies, and Ms T Mchunu (ANC) asked to be excused at 12:00 pm for another commitment.

Committee matters

The Chairperson asked for a proposal for the adoption, corrections, and comments of the minutes from the previous meeting.

On page seven of the minutes, Ms A Weber (DA) asked for the number of rhinos to be changed from 60 to 267 black rhinos at Kruger National Park (KNP).
The Chairperson and the Secretary noted the change.
Adoption of the agenda was moved by Mr D Bryant (DA), and seconded by Ms Mchunu.
Mr Bryant asked if there was an update on the KNP oversight visit, a response from South African National Parks (SANParks) to questions rendered last week in written form, and a report from the High-Level Panel (HLP).

On the KNP issue, the Chairperson said they expected some action from the Parliament, and he did not expect the Department to respond to this issue.

The Secretary said they would check the Committee’s programme to see if there was a period to conduct oversight visits. She would follow up with the DEFF and ask for a response from SANParks.

The Chairperson asked the Minister to introduce the presenting team for today’s agenda.

Ms Barbara Creecy, Minister of Environmental Affairs, Forestry and Fisheries, greeted everyone, and said she had been given the HLP Report in December, and was still applying her mind to its recommendations. She would revert to the Committee and the public in due course after all the processes were complete.

She said the first presentation provided an overview of the state of the Paris Agreement, which dealt with three issues:

Mitigation of greenhouse gases (GHG) emissions;
Adaptation to climate change; and
Provision of financing.

The second presentation was on the relationship between the carbon tax and the carbon budget. She stressed that the reporting was very technical and there would be issues in the presentation that did not fall within the DEFF domain, but were within Treasury.

 SA’s progress in implementing the Paris Agreement
Dr Thuli Khumalo, South Africa’s National Air Quality Officer, DEFF, provided a timeline of the country’s commitment to the Paris agreement:

1997: South Africa joined the United Nations Convention on Climate Change (UNFCCC) and established a National Climate Change Committee.

2010 - 2011: South Africa had pledged to reduce its emissions by 34 % by 2020 and 42 % below the business as usual (BAU) emission trajectory by 2025. The National Climate Change Response Policy (NCCRP) was approved by the Cabinet, and the national greenhouse gas (GHG) emissions trajectory range called Peak, Plateau and Decline (PPD) was defined.

2012 - 2014: Long Term Adaptation Scenarios (LTAS) phases 1 and 2 were finalised.

2015 - 2018: Paris Agreement was ratified, the National Framework for Climate Services (NFCS) was finalised, while the Climate Change bill was drafted.

2019 - 2020: The National Climate Change information system was developed, and the Cabinet had approved the National Climate Change Adaptation Strategy (NCCAS), the Low Emissions Development Strategy (LEDS) and the Presidential Climate Change Coordinating Commission (P4C).

Progress and commitment to Paris Agreement

In order for the country to remain committed to the Paris Agreement, it needed to:

Update the nationally determined contribution(NDC) and communicate to the UNFCCC before the Conference of the Parties (COP) 26 in 2021. The NDC update would include consultations with the government and broader stakeholders, completion of the technical analysis, provincial workshops scheduled for February and April 2021, and government clusters and Cabinet meetings scheduled towards June 2021.
Implement the domestic mitigation system.
Table the Climate Change Bill in Parliament.
Communicate mid-century long-term LEDS to UNFCCC by 2020.
Implement National Adaptation Strategy (NAS)
Set up a P4C. The inaugural meeting of P4C was held on the 19th of February 2021. The objective of the Commission was to advise on South Africa’s climate change response to ensure the realisation of the vision for a fair and long - term transition to a climate-resilient and low carbon economy and society.

South Africa’s GHG emissions profile

Dr Khumalo highlighted that the range of the country’s PPD from 2000 to 2017 had been below the PPD upper range. The upper and lower PPD ranges were 600 and 400 Mt CO2e (Metric tons of carbon dioxide equivalent) respectively. As of 2017, the country’s emissions measured 500 Mt CO2.

The energy sector was the highest GHG emitter. Fuel combustion contributed about 68% of the total emissions in the energy sector, with energy industries contributing 48 % of this total, while the fugitive emissions in terms of solid fuels, oil and natural gas contributed 9% and 7 % of the total emissions respectively.

Climate change mitigation

For the past five years, South Africa had worked on developing approaches for the allocation of sectoral emissions targets (SETs) and carbon budgets to high emitting entities. The SETs and voluntary carbon budget for selected companies (Phase I) were developed in parallel to a carbon tax. The SETs’ frameworks were to be finalised in the 2021/22 financial year, while a mandatory carbon budget would be implemented in 2023, with carbon tax phase 2 implementation. This alignment between the carbon budget and tax would ensure that the carbon tax enforced the carbon budget (i.e. a higher tax rate applied to emissions above the carbon budget).

Climate change adaptation

The climate change sectoral adaptation plans had been developed at the national level under the Disaster Management Act. The sectors involved include water, agriculture, forestry, fisheries, biodiversity and the climate change policy framework for state-owned companies (SOCs) and rural human settlements.  All 44 district municipalities and metros in nine provinces had been capacitated to mainstream climate change into their Integrated Development Plans (IDPs).

Early warning systems had been developed by the South Africa Weather Services (SAWS) and the National Disaster Management Sector (NDMC). The National Framework on Climate Service (NFCS) had also been developed to be user-driven, and to address the entire value chain for the production and application of climate services. The focus of the NFCS was on the following climate-sensitive sectors: disaster risk reduction, health, water resource management, agriculture and food security, human settlements, infrastructure, transport, biodiversity, energy and ocean and coasts.

The Climate Change Bill would be a specific environmental management act, as defined in the National Environmental Management Act 107 of 1998. The Bill would provide the necessary cross-cutting policy certainty to the business and industry sector, to make investment decisions that result in GHG emission reductions and climate resilience. The draft bill would first be submitted to the State Law Advisor for vetting, and would then be submitted to the Cabinet for approval, to be tabled to Parliament in 2021.

Operationalisation of carbon tax; carbon budget; Mitigation System Phase II (2023-2027)

Carbon budget

Mr Jongikhaya Witi, Chief Directorate: Climate Change Monitoring and Evaluation, DEFF, said that the South African mitigation system consisted of measures such as SETs, the carbon tax and the carbon budget. The carbon budgets and SETs had been approved by the Cabinet in September 2020, and were proposed to assist South Africa in meeting its absolute reduction targets in terms of LEDs. Thus, carbon budgets could be defined as a GHG emissions allowance allocated to a company over a defined time period.

Mr Witi said that the term “carbon” was a shorthand for all GHGs accounted for in the latest South African national GHG inventory.

The carbon budget implementation timeline was divided into two phases:

Phase one -- from Jan 2016 to 2020. This phase had no prescriptive budget methodology. The submissions were voluntary and a 5 % tax allowance was granted upon submission. The due date for submission was the 31st of December 2020.

Transitional Phase: The country was currently in this phase, which had been agreed upon and gazetted on 22 October 2020. It would run from Jan 2021 to December 2020. The primary objectives of this two-year period were to extend the submission of voluntary carbon budgets and to pilot the carbon budget methodology through an extensive process of engagement in preparation for phase two.

Phase two -- from January 2023 to December 2027. Mandatory submissions would be enforced in terms of the Climate Change Act for those entities meeting the legislated threshold.

The three proposed budget allocation methodologies were approaches. The preferred order of priority decreased from option 1 to 3 below:

Fixed reduction. Budgets were sector-wide fixed reductions.
Mitigation potential. Mitigation potential analysis (MPA) in a mitigation model was used as a guide to set carbon budgets. The MPA was last updated by the DEFF in 2019.
Benchmarking. The budget was a benchmark intensity determined at a company level, but underpinned by performance data at the facility level.

Integration with Carbon Tax

The Carbon Tax Bill gave effect to the polluter-pays principle, and ensured that firms and consumers took these costs into account in their future production, consumption and investment decisions. The alignment of the carbon tax policy with the carbon budgeting systems was composed of two phases. Phase one included the introduction of the 5 % carbon budget allowance for the first carbon budget commitment period (2016 - 2020). Phase two encompassed an alignment and integration of the carbon tax and carbon budget instruments by the Department of Environment Affairs (DEA) and National Treasury. Phase one would be extended until 2022, while there were no double penalties in phase two.

Minister Creecy stressed that the only person who could make a statement regarding carbon taxing was the Minister of Finance. She said Mr Witi had tried to explain the ways in which the carbon tax and the budget could work together. The Committee should understand that explaining the interface was a complex issue, and the UNFCCC worked on a carbon budget model. Therefore, the country had to set up a system where all GHG gas emitters would be assigned the budget. The carbon tax was already in place, and more efforts would be put into strengthening the interface between a carbon tax and a carbon budget.
Discussion
Mr Bryant asked if there was any investigation into the increased burning of diesel (carbon was a by-product) during load shedding, and its impact on the country’s carbon target. Had the meetings of the 4PC on 19 February 2021 been open to the public? If not, were the minutes of that meeting available? He apologised that he was not a scientist and would therefore appreciate if Mr Witi would re-explain the PPD graph. He asked how the country was doing in terms of the 34% reduction by 2020 and meeting the 42% BAU reduction by 2025 target. Were they following the Climate Action Tracker (CAT)? If so, did they realise that South Africa was currently rated as insufficient? The website reflected that SA’s current policies were rated as one of the least stringent. When and how long would it take for the Climate Change bill to be tabled? Was carbon trading being actively pursued by some companies, and what impact would it pose on these companies in terms of emissions?

Ms C Phillips (DA) asked if the report to the UNFCCC had been submitted at the end of 2020, as scheduled. What percentage of the 2020 targets had been achieved by companies regarding the voluntary reporting period? How many companies had applied for exemptions and extensions from this voluntary commitment period? Was there any research or modelling to show the difference between the decline in the cost of health and the carbon tax effect on inflation?

Mr N Paulsen (EFF) asked about the intermediate monitoring of the targets and interventions applied by the companies besides these targets, such as fines. How did one get these companies to reduce the emissions? Why was the Committee not included in the P4C, beside Dr B Holomisa (UDM). He also asked how the emission reports were audited.

Ms Weber asked how people were being protected from being intoxicated by the emissions from the power stations while they were being refurbished.

The Minister said that the P4C had been an inaugural meeting. The first issue covered at this meeting had been the terms of reference of the UNFCCC, which were publicly available. The second issue covered was the presentation on the Paris Agreement which had just been given to the Committee. The third issue discussed was the just transition to a low climate-resilient society and economy. There had been an agreement from the concerned stakeholders in the P4C meeting to include the public in the future. This inclusion would be virtual and physical (post-c0VID-19), and the public would be allowed only to observe. A website would be created, and all the documents would be uploaded there. The Minister stressed that these meetings were not a secret and the parties involved in the first inaugural meeting were government representatives, labour and civil society. Regarding the inclusion of this Committee in P4C, the Minister reminded the Committee that no one would take their function from them, but the purpose of the first meeting was to give a voice to civil society, which did not have the privilege of sitting on the Committee.

The intended nationally determined contributions (INDCs) were under review and would make their way to the Cabinet. They would then be put out for public comment, and ultimately would be submitted to the UNFCCC before COP26.

The Minister told Ms Phillips that the UNFCCC report had not been submitted last year -- it had been shifted to November 2021. She said that due to lockdown restrictions last year, the DEFF had not been in a position to conduct public consultations.

She said that the Climate Change bill was currently with the State Law Advisor. It would be submitted to the Cabinet and would then be available for public comment for a month before it came to this Committee. It was the intention of the DEFF to bring the bill this year because it was important to pass it after conducting the necessary public scrutiny.

On carbon trading, the Minister responded to Mr Bryant that the outstanding clause (clause 6) of the Paris Agreement had not been agreed to in multi-lateral negotiations. The clause was thoroughly discussed in Spain in 2019, but no conclusions were reached.

Regarding the impact of diesel burnt during load shedding, she advised Mr Bryant to contact ESKOM for further details.

The Minister said there had been confusion between the issue of air quality and emissions, and referred this question to Dr Khumalo.

Dr Khumalo said that in terms of air quality legislation which was enacted in 2010, the legislation had come with a transitional arrangement because the power plants needed to retrofit in order to achieve compliance with the air quality laws. Regarding the air pollution that directly affected human health, she highlighted that they were currently working with ESKOM on a legal framework to invest for compliance by those stations that would be operating post-2030.

Mr Maesela Kekana, Chief Directorate: International Climate Change Relations and Negotiations, DEFF, said when the Paris Agreement was concluded in 2015, all countries had submitted their INDCs, and South Africa’s had indicated a clear change in approach. The first agreement made by South Africa in Copenhagen was to reduce emissions by 34% in 2020 and 42% by 2025 below the BAU approach. The INDC had moved to a PPD trajectory range, indicating that in the first half South Africa would peak its emission, stabilise them around 2020 – 2025, and decline. However, South African’s emissions had not followed the PPD trajectory that the models had anticipated. The dotted line showed that SA’s emissions had steadily been decreasing until 2017, and were nowhere near the predicted upper PPD range. They were much lower that the predicted level.

Mr Kekana said that the updated INDC would factor in the projected national growth and more realistic targets, as outlined by the Treasury and the Reserve Bank. He agreed with Mr Bryant that the CAT had indeed rated the country’s numbers as ambitious. He pointed out that the CAT did not factor in developmental goals and country references, so they had developed their own climate equity calculator, which still used the CAT as a reference.

Mr Witi said South Africa’s tough economic situation, together with COVID-19, had affected productivity in many sectors. They anticipated that the emissions would be lower than 2017. He stressed that the dotted line was two years behind, because the data had to undergo quality control and assurance. The recorded emissions data for 2019 was around 480 MtC02, indicating a decline from 500 MtC02 in 2017. The information for 2020 and 2021 GHG emissions would be available next year.

In terms of the voluntary phase, the companies subject to this extension would be all the companies that currently had carbon budgets. About 50 to 60 companies would meet the threshold of 100 thousand tonnes, with more than 500 facilities.

Mr Witi said that the Treasury would be able to answer questions on the modelling of the carbon tax.

In response to Mr Paulsen on audits, he said that they had had a mature monitoring system since 2017. The reporting was done manually up to last year. Now, the companies go online and file their reports in an automated manner within a period of three months.

On the alternatives to reducing the GHG emissions, Mr Witi said that apart from the carbon budget, the companies had a mandatory instrument in terms of the mitigation plans. Companies were expected to submit their mitigation plans indicating how much emissions they would be reducing. The DEFF was finalising the guidelines and verification process. The DEFF also applied first-level quality checks, depending on the nature of the submission and validation of the emissions. The finalisation of the verification guidelines was anticipated at the end of this year.

Regarding the sequestration of carbon, Mr Witi said there was an offset scheme which allowed the Department to work closely with the forestry sector, such as in land rehabilitation through afforestation. There were also guidelines in place for the paper industry to deal with the sequestration of carbon from plantations.

On the carbon tax, carbon budget and alignment, he said that the role of the DEFF was only to provide the methodology for the allocation of the budget, and the Treasury came with the carbon tax designs that allowed for penalties when the budget was overestimated. The Treasury team had met with the industries last August to explain to them on the details of the carbon budget and carbon tax alignment.

Ms S Mbatha (ANC) asked if there were still penalties for “smokey” cars within a municipality. If so, how often were these cars checked? Where would one report such incidences that contribute to air pollution? Also, what was the impact of industrial pollution on communities, especially at schools? How could one best hold these industries accountable?

Mr Bryant asked for details of the next P4C, and asked the Committee to invite ESKOM to come and report on their carbon emissions targets at their convenience.

Mr Paulsen asked how the DEFF promoting was alternatives to carbon-intensive processes and activities, such as the introduction of electric cars.

The Minister said that last year they had welcomed the announcement by Toyota that it would introduce the manufacture of hybrid vehicles for Africa at their Durban plant. She said that there were five sectors that were vulnerable to climate change, including the transport, mining, agricultural, energy sector and so on. It was not enough simply to identify the risks posted by climate change --economic opportunities needed to be identified in introducing new production technologies and industries in the country.

The role of the climate facility was to identify projects and programmes that could receive financing from green sources. The DEFF was also working on the waste industries to introduce alternatives to curb the GHG emissions.

The Minister also urged the Committee Members to pose these kinds of questions to other sectors and Committees of which they were part . They need to ask how other sectors were contributing to a reduction of GHG emissions.

Dr Khumalo said that the complaints could be laid at the Air Quality website, which was at www.saaqis.environment.gov.za. The application was SAAQIS, and it was available on both iOS and Android platforms. These were both to view the state of air quality, as reported by the monitoring stations, and to report complaints.

Mr Bryant asked if there was an objection to ESKOM being invited.

The Chairperson said that there were no objections.

Ms Mbatha asked for a Portfolio Committee meeting with other relevant departments, such as agriculture, energy and labour.

The Chairperson noted her request.

Mr Paulsen reminded the Committee about the Parliamentary EXPO agreed upon in Madrid in 2019. where civil society would be encouraged to showcase their sustainable climate-smart projects.

The Chairperson noted this, and asked the secretariat to follow up, formalise and establish the timeframes for these matters.

The meeting was adjourned.