South Africa must act in her own best in­ter­est

The Star Early Edition - - OPINION & ANALYSIS - Rob Jef­frey Rob Jef­frey is the for­mer MD of Econometrix and is an in­de­pen­dent eco­nomic risk con­sul­tant.

THE COM­MENTS emerg­ing from the re­cent G20 sum­mit make for in­ter­est­ing read­ing. Lead­ers are fol­low­ing their na­tional vested in­ter­ests; and there are many hid­den agen­das. An­gela Merkel has ex­pressed deep dis­ap­point­ment over two is­sues, namely the agree­ments on cli­mate change and trade. A closer ex­am­i­na­tion re­veals that Ger­many is it­self a ma­jor cause of world eco­nomic prob­lems.

As noted by “The Econ­o­mist” re­cently, Ger­many’s sur­plus of $300 bil­lion (R4.03 tril­lion) is dam­ag­ing the world econ­omy. There are two key causes of this sur­plus. Firstly, it is caused by in­suf­fi­cient in­vest­ment spend­ing and in­fra­struc­ture de­vel­op­ment by Ger­many it­self and sec­ondly the Ger­man econ­omy ben­e­fits mas­sively from the rel­a­tively weak euro.

The re­sult is that Ger­many earns trade sur­pluses whilst in­sist­ing that its weaker Euro­pean part­ners en­dure aus­ter­ity. Clearly, Ger­many has a stake in pro­tect­ing this trade sur­plus and must en­sure that other coun­tries re­main less com­pet­i­tive.

It there­fore has a pow­er­ful in­ter­est in main­tain­ing the po­lit­i­cal EU, with Ger­many as its leader and more rel­e­vantly main­tain­ing the un­der­val­ued euro.

It must also try to en­sure that, hav­ing al­ready se­lected the more ex­pen­sive non-com­pet­i­tive re­new­able en­ergy path; it en­cour­ages other coun­tries to fol­low the same route.

This pol­icy will help Ger­man wind tech­nol­ogy firms to ex­pand their ex­ports. Ger­many, in the mean­time, is ef­fec­tively curb­ing its own fur­ther mas­sive ex­pan­sion of re­new­ables whilst in­creas­ing its not talked about coal fired power sta­tion ex­pan­sion. Its first new coal-fired plants came on line so qui­etly that most peo­ple do not know of them.

Bjorn Lom­borg, of the Copen­hagen Busi­ness School, cal­cu­lates that the prom­ises of the Paris Ac­cord – through slower gross do­mes­tic prod­uct (GDP) growth as a re­sult of higher en­ergy costs – will re­sult in a global eco­nomic cost of $1trln to $2trln ev­ery year from 2030.

The costs for the US are likely to be $154/172bn ev­ery year in lost GDP. In ad­di­tion, there is promised sup­port to dis­ad­van­taged coun­tries of $100bn per an­num in cli­mate aid.

Trade deficit

The US there­fore has an es­ti­mated fi­nan­cial eco­nomic cost of a trade deficit of $300bn per year. Lit­tle won­der that the new US ad­min­is­tra­tion is tak­ing a long hard look at both cli­mate change sci­ence and pulling out of the Paris ac­cord.

Bjorn Lom­borg goes on to say that peer re­viewed es­ti­mates show that even if all coun­tries con­tinue their promised re­duc­tions for 2031, then from 2032 un­til 2100 it will re­duce global tem­per­a­tures by just 0.17°C. The en­tire US cli­mate prom­ises will re­duce global tem­per­a­tures by just 0.031°C by 2100.

In­dia and China are two other coun­tries present at the G20 and cut­ting back on old dirty coal-fired power sta­tions and coal min­ing ac­tiv­i­ties.

But they are ex­pand­ing their ac­tiv­i­ties in new High Ef­fi­ciency Low Emis­sions (Hele) clean coal power sta­tions. In this way they sig­nif­i­cantly re­duce their green­house gas emis­sions and in par­tic­u­larly their pro­duc­tion of other pol­lu­tants, such as mer­cury, sulphur, and of course the use of wa­ter. Both have mas­sive on­go­ing ex­pan­sion pro­grammes of nu­clear and par­tic­u­larly coal. Mean­while, In­dian busi­ness is plan­ning to in­vest in one of the big­gest coal mines in the world in Aus­tralia.

Ja­pan is set to build 45 mod­ern Hele coal plants, to­talling ap­prox­i­mately 45GW. The In­ter­na­tional En­ergy Agency has fore­cast that 730GW of these highly ef­fi­cient plants will be built by 2040. Asean coun­tries are ex­pand­ing their coal fleets at more than 4 per­cent per an­num.

Based on the Lom­borg fig­ures above, South Africa’s GDP in re­la­tion­ship to the global GDP and South African emis­sions of 1.1 per­cent of global emis­sions, means that firstly car­bon tax and re­new­ables would cost South Africa be­tween R35bn to R51bn per an­num and sec­ondly that South Africa’s sac­ri­fices will re­duce tem­per­a­ture in­creases by only about 0.0026°C by 2100.

This is less than mea­sur­able. This is a mea­sure of the fu­til­ity of South Africa’s ef­forts to cur­tail pro­duc­tion of coal-fired power sta­tion gen­er­a­tion in a coun­try with a trea­sure chest of coal re­sources.

An anal­y­sis of do­mes­tic eco­nomic data re­veals that be­cause of the pro­posed In­te­grated Re­source Plan (IRP) 2016, Eskom’s de­mand for coal will de­cline by 37 per­cent be­cause of clos­ing coal plants.

The over­all eco­nomic im­pact will prob­a­bly in­volve more than 300 000 peo­ple los­ing their jobs, af­fect­ing over one mil­lion de­pen­dents. In ad­di­tion, it is likely that ex­port sales of coal could be re­duced by more than R10bn per an­num.

It is es­ti­mated that by 2035, be­cause of the planned IRP 2016 and the planned car­bon tax, South Africa’s GDP growth po­ten­tial will have been re­duced by al­most R1trln and em­ploy­ment would be al­most 5 mil­lion less than what could have been achieved. The cur­rent IRP 2016 base case and un­con­strained re­new­ables sce­nario and the new min­ing char­ter are more than likely go­ing to be the fi­nal nail in the cof­fin for the min­ing in­dus­try.

These poli­cies will cer­tainly de­stroy the as­pi­ra­tions of emerg­ing min­ers, trans­port drivers and em­ploy­ment in the coal min­ing in­dus­try, if not in the whole min­ing in­dus­try. Coun­tries should use the most eco­nomic en­ergy sys­tems do­mes­ti­cally avail­able. In South Africa’s case, these are nu­clear, coal and po­ten­tially gas.

The dis­counted value of coal re­serves is more than a tril­lion rand. The value of ura­nium re­serves is prob­a­bly equal to this. The IRP 2016 ef­fec­tively throws these ben­e­fits away and de­nies South Africa’s fu­ture gen­er­a­tions their nat­u­ral in­her­i­tance.

Re­search pro­grammes

An in­sti­tu­tion that should be po­si­tioned to an­a­lyse and ad­vise the coun­try on the best en­ergy and elect ric­ity gen­er­a­tion path for the coun­try is the CSIR, and clearly Eskom it­self. Sadly, the CSIR re­search seems to be based on a one sided re­new­ables view­point.

These ef­forts should be matched by equal techno/eco­nomic re­search pro­grammes in other tech­nolo­gies, pri­mar­ily nu­clear and fos­sil fu­els, in­clud­ing coal and gas.

The en­ergy po­ten­tial of the coun­try lies in those ef­fi­cient proven tech­nolo­gies of nu­clear and new mod­ern Hele coal plants that will give South Africa a com­pet­i­tive edge and a sub­stan­tial trade ad­van­tage.

These in turn can be re­in­forced by ap­pli­ca­ble so­lar for do­mes­tic and gen­eral busi­ness use, sup­ported by a sig­nif­i­cant ex­pan­sion of gas, but only if South Africa can find gas in eco­nomic quan­ti­ties.

Re­new­ables, par­tic­u­larly wind, in­volve in­creased prices and in­creased sub­si­dies.

The fact is that the Paris Ac­cord did not bind coun­tries to the agree­ment. Its ob­jec­tives were sound tar­gets. How­ever, coun­tries were left to act in their own best in­ter­est. Other coun­tries in the world are do­ing pre­cisely this. South Africa should also now act in its own best in­ter­ests.


The Copen­hagen Busi­ness School’s Bjorn Lom­borg cal­cu­lates the Paris Ac­cord’s eco­nomic cost at $1trln to $2trln.

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