Eskom a burden for exporters facing carbon barriers

For most businesses, the financial implications of climate change remain unclear. Part of the reason is that most of the economic impact assessments conducted so far have focused on “transition” risks, which are a narrow range of market impacts limited to coal exports, oil markets, metals and minerals, domestic power supply and coal to liquids.

What these have not included are the implications of natural disasters or the effect of “carbon barriers” such as emission trading systems, carbon taxes or internal carbon pricing.

In the case of the products we export, carbon barriers result in an increased total cost of the product for buyers, due to costs added in the form of carbon taxes and fees.

This is a problem for SA in light of our balance of payments problems. We rely on our exports to bring in muchneeded foreign exchange, without which our economy would grind to a halt. But our exports are drowning in carbon.

The World Bank calculates that in dollar terms, SA is the fifth-highest carbon emitter per unit of GDP in the world, behind Curacao, Trinidad, Palau and Turkmenistan.

Not only are our major trading partner countries setting up national carbon barriers on imports at pace, but individual companies are beginning to add in carbon-based costs on products, in the form of integrated carbon programmes (ICPs), along their supply chains, which adds on even more carbon costs. More than 750 large European, American and Chinese companies alone have started implementing ICPs over the past two years, with many more in the pipeline.

This rapid uptake in company-level ICPs is for good reason. The new reporting framework most large domestic and international investors will be starting to implement in 2020 — the task force for climate-related financial disclosures — recommends that supply chain emissions be reported where they are deemed material. In addition, the carbon disclosure project calculates that the average ratio of supply chain to direct carbon emissions is 5.5:1, meaning the fastest route to lowering a company’s carbon footprint is through its supply chain.

Eskom pumps out twice the global average of carbon emissions for ev ery kilowatthour it produces, giving many of SA’s products an abnormally high carbon output relative to similar products from elsewhere. Energy-intensive industries such as iron and steel, ferroalloys, cement, coalto-liquid, gas-to-liquid, chemicals, pulp and paper, and sugar, as well as their related products, can all expect to feel pressure to decarbonise their outputs. But it doesn’t end there.

In reality, any business that uses Eskom electricity in its processes suffers from a major carbon handicap. When this ties into an international supply chain, a whole new set of risks emerges, around affordability, access to markets and consumer trends, that we are only just beginning to wrap our heads around.

It’s not all doom and gloom, though. For once, load-shedding has given us something to be thankful for. The president’s response to load-shedding in the state of the nation address included enabling own use of self-generated electricity by commercial and industrial users. The benefit of reliable power is obvious, but with Eskom’s average cost of generation now sitting at over 90c/kWh, own generation from renewables will not only be cheaper but will mitigate the treacherous terrain of rapidly emerging carbon barriers to our export goods.

Companies that are well integrated into international supply chains should be quick off the bat and take up the opportunity of sourcing power from renewable energy for their operations as soon as possible.

They will have more appeal to financiers, have more reliable power supply and insulate their markets from national and corporate carbon barriers.

Maguire holds a master’s degree in global change studies from Wits and has developed green-economy solutions for the private sector, NGOs and the state for more than a decade.