Build windmills in the calm

Just before Christmas 2006, the Independent reported that “global warming had claimed its first victim”: Lohachara island in India was swallowed by the rising sea. On February 2, the International Panel on Climate Change, a gathering of scientists from around the world, published its latest report on the overwhelming evidence for human-induced climate change and the dire prospects for life on Earth.

In October 2006, the respected British economist, Sir Nick Stern, published a report that showed that although stopping climate change will cost 1% of world GDP, allowing it to happen will cost between five and 20 times as much. He also reiterated that the region set to suffer the worst effects—droughts, floods and malaria—will be Southern Africa.

On the surface, it appears that South Africa has moved past the denialism that characterises some of the world’s leading nations.
Environment Minister Marthinus van Schalkwyk announced at the country’s first ever climate change conference in 2005 that our government considers climate change sceptics as “fringe scientists”.

And yet, financial papers in South Africa continue to publish the preconceived and ill-informed views of such sceptics. The word “environment” has not appeared in a State of the Nation address in the five years up to 2006, including 2002 when the World Summit on Sustainable Development was held in South Africa.

While South Africa is a Kyoto signatory, it does not (yet) have any specified reduction obligations. The average South African earns twice as much as the average Chinese, but we produce three times as much greenhouse gas.

We have national strategies for renewable energy and energy efficiency, but the efficiency strategy (like the initiative anounced by President George W Bush in January) is couched in language that hides the fact that we intend to increase our energy consumption by 17% in the next 10 years.

The national renewable energy strategy calls for only 3% to 4% of our energy to come from renewable sources in 10 years’ time, but with 75% of that coming from biofuels like maize-based bioethanol, which produce only about a 20% greenhouse gas saving, the greenhouse gas savings will be no more than 1,2%. So, while scientists tell us that preventing dangerous climate change will require a reduction of greenhouse gas emissions of 30% to 50% by 2050, South Africa is aiming at an increase of 17% by 2015.

The risk of failing to transform our energy regime—both in terms of climate change and energy security—is very real. But so are the opportunities presented by energy transformation: new electricity generating capacity costs R10 per kilowatt (with 70% of the capital for a power station being imported) while saving the same amount costs R3 or less. The recent savings in the Western Cape cost less than R1 per kilowatt.

The aluminium smelter at Coega will consume 3% of the country’s electricity, but provide only 1 000 jobs. In contrast, a flourishing solar water-heater industry could save double as much energy and directly create 120 000 jobs, according to a study by Agama Energy. This is double the number of people employed by Eskom’s power stations (10 000 jobs) and the nation’s coal mines (50 000 jobs) combined.

It is a policy of cheap and dirty energy, inherited from the apartheid government, that led both to the flourishing of energy-hungry industries and the collapse of the South African solar water-heater industry in the Eighties.

While our coal-based electricity is the cheapest in the world, like cigarettes and alcohol, there are social costs associated with its use that are not being “priced in”. A recent document by the national treasury offers a glimmer of hope: in its Framework for Environmental Fiscal Reform, the possibility of a carbon tax for South Africa is mooted.

A carbon tax would allow the social cost of using fossil fuels to be recouped. It is the treasury’s position that it should not raise the overall level of taxation, but that the additional revenues raised from a carbon tax should be “recycled” by a corresponding reduction in taxes on food and wages. A 2005 study by the Dutch Institute for Environmental Studies (IVM) has shown that, in South Africa, such a tax “shift” would be beneficial for the environment, the poor and the economy alike.

As in the case of the Skills Levy, companies could even be allowed to claim back from their carbon tax contributions to spend on energy efficiency projects. This would help address the lack of finance available for efficiency projects.

Yesterday’s IT entrepreneurs are today’s renewable energy entrepreneurs and include the likes of Larry Page and Sergey Brynn of Google and venture capitalist Vinod Khosla. Page, Brynn and Khosla are among those calling for US government support for renewables in the form of subsidies that would “level the playing field” for such technologies and provide investors with the assurance they need to pour money into it.

South African Professor Vivien Alberts is responsible for a pioneering innovation in the same “thin-film” solar-electric technology that Page and Brynn are investing in, but because of a lack of local support, he has sold this technology to a German firm.

For Africa as a whole, renewables represent a huge opportunity: bio-fuels may help provide ailing farmers all over the continent with new markets. In the Democratic Republic of Congo, the proposed Grand Inga hydro-project could provide as much electricity as all of Eskom’s capacity combined, and proposals are being advanced for solar installations in the Sahara to provide electricity for Europe.

Because of the difference in the size of the two industries in South Africa, a 1% tax on carbon could provide a 20% subsidy for renewables. A carbon tax that reflects the social cost of fossil fuels might raise the cost of coal by 50%, which would raise the cost of electricity by about 16%. If only a small portion of that is spent on subsidies for job-intensive renewable energy, renewables would be able to compete with fossil fuels on a level footing, setting the stage for a boom of the entire industry.

While the national strategy on climate change deliberately excludes consideration of the role of economic policy instruments such as a carbon tax or subsidies for renewables, slow action on a carbon tax is noted as one of the major “policy gaps” in the draft National Framework on Sustainable Development.

Stern’s report shows that a carbon tax is, in the short term, a more economically efficient mechanism for addressing greenhouse gas than the cap-and-trade regime that is provided for under the Kyoto Protocol and, because of its ease of administration, also more practical to implement in developing nations. In developed nations, it would complement cap-and-trade. A carbon tax would, to some extent, affect the competitiveness of local energy-intensive industries if South Africa were the only country to adopt it.

While it is fitting for South Africa—as both a major contributor and at highest risk from climate change—to lead by example, this country should also call for the adoption of a universal tax on carbon.

On assuming the chairmanship of the G20 Finance grouping, Finance Minister Trevor Manuel called on nations that have their debt under control and are over-collecting on tax revenues to use this “fiscal space” to “build windmills in the calm”.

Energy and climate concerns look set to disturb the calm on a planetary scale for decades, to come. While it is unlikely that Manuel’s remarks were made with reference to renewable energy, the work of his department on environmental fiscal reform and the policy option of a carbon tax presents us with a clear path through the gathering storm.

In transforming the South African energy landscape with economic policy that supports energy efficiency and renewable energy, we stand not only to relieve the ever-mounting strain on our present electrical infrastructure, save billions of rands on mostly imported power stations and create many thousands of jobs, but also to help save the world—and our region most of all—from the ravages of runaway climate change.

Peet du Plooy is trade and investment adviser (South Africa) at the Worldwide Fund for Nature and author of the WWF’s SA Companies in the 21st Century report

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