Government subsidies are not only causing higher fuel prices for consumers, they are also helping to “prop up” Sasol, one of the world’s biggest polluters, new research shows.
In a policy brief, the International Institute for Sustainable Development (IISD) estimates that coal-based fuels produced by Sasol’s Secunda plant, South Africa’s second-largest greenhouse gas emitter and the single-biggest point source of greenhouse gases in the world, received more than R8-billion in government support last year.
Of this support, Sasol got about R1.55-billion in direct subsidies through the Basic Fuel Price, a regulated price paid to producers of petroleum and synthetic fuels.
This subsidy is responsible for 3.7% of Sasol’s total revenue from energy operations, according to the policy brief, titled The Role of Subsidies in South Africa’s Coal-based Liquid Fuel Sector.
Sasol received a R6.5-billion boost in profits last year as a result of its exemption from a carbon tax that permits it to emit 302 Mt of carbon dioxide equivalent between 2016 and 2020. Under these exemptions, Sasol pays no tax on more than 90% of its emissions, the IISD says.
“Because of the way fuels are priced in South Africa, consumers are forced to prop up Sasol every time they fill up their tank,” Richard Bridle, senior policy adviser at IISD, said in a statement. “It doesn’t matter if you take a taxi, a bus, or drive your car, for every R100 that you spend on synfuel, R5 goes to Sasol. Synfuels make up around 30% of all gasoline sold in South Africa.”
These subsidies “distort the market and lock in coal consumption” in the transportation sector, according to the policy brief.
The oil gas company’s “operations are supported by mining coal and converting it into synthetic fuels and chemicals”, according to the department of energy.
“We are talking about one of the biggest emitters of carbon in the whole of Africa, it’s got this rampant non-compliance with air quality laws, regularly chooses not to comply with the law and proudly talks in its climate change report about how much it has saved in relation to its carbon tax liability,” says attorney Robyn Hugo, director of climate change engagement at Just Share.
Hugo goes further to say that instead of being penalised for non-compliance, Sasol has been rewarded with subsidies.
“Sasol likes to talk about how much the carbon tax will cost it and how damaging that will be to business, which is what a lot of high emitters say, but these companies are already imposing significant costs on society through their pollution and their carbon emissions and the rest of society is already paying the costs of those impacts. Now on top of that, we’re already paying them straight cash through government subsidies.”
It’s crucial, Hugo says, to remember the role that organised business plays in lobbying the government to weaken the carbon tax.
“It took a decade for them to implement it at all. Now that it’s implemented, it’s incredibly weak with lots and lots of rebates. What this report does well is it shows how much it is costing us in giving these rebates.”
The purpose of a carbon tax is to impose a cost on high emitters to force them to change, Hugo says. “When that cost is negligible, like it is here, then, of course, you are holding back the change and there’s no point in having the tax at all,” she says.
South Africa’s reliance on coal is polluting the air in several cities and government subsidies add “to the pollution burden” and hurts consumers, says IISD policy adviser Mostafa Mostafa.
The policy brief states that subsidy reforms in the sector should focus on aligning energy policy with social and environmental objectives and promoting a shift to cleaner energy sources while employing “just transition” policies to ensure no one is left out.
“Big polluters profit even when they pollute,” Greenpeace Africa’s climate and energy campaigner Thandile Chinyavanhu said a statement. “What’s worse, they dodge accountability at every turn.”
Sasol says it takes note of the report and will study it further.
“We wish to emphasise that we have published our second Climate Change Report on 24 August 2020, which details our position on all matters pertaining to climate change for Sasol,” says Alex Anderson, senior manager: group external communication.
Anderson says the government regulates the liquid fuels industry pricing through the Basic Fuel Price.
On the carbon tax, he says the government promulgated a carbon tax effective from 1 June 2019. “The first phase runs from 2019 to 2022, at which point the tax will be aligned with the carbon budget. The carbon tax is structured with several transitional tax-free allowances applicable to all tax paying entities to ease the tax into the economy.
“The headline carbon tax is R120/ton of CO2 equivalent for emissions above the tax-free thresholds, starting in 2019 and escalating at consumer price index (CPI) +2 percentage points until 2022. The various tax free allowances that Sasol qualifies for and applied in determination of our carbon tax liability for the period 1 June 2019 to 31 December 2019 is contained in the Carbon Tax Act and its associated regulations.
“Our tax liability, excluding Natref, equates to ~R308 million for the seven-month period, after allowances, carbon offsets and electricity levies are taken into account. A full year’s carbon tax liability ranges from ~R700 million to R1.1 billion starting in 2020, depending on how much we emit.
Anderson says through section 12L of the Income Tax Act and the company’s energy efficiency programme, “which has no bearing on our carbon tax liability”, Sasol may qualify for a tax incentive until December 2022.
“This benefit is not taken into account when determining the annual carbon tax liability. Sasol has to date claimed section 12L allowances in excess of R16.3 billion,” says Anderson.
*This article was updated to reflect comment from Sasol