The world is heading for Net Zero Emission Day, which is becoming more evident as each day passes. Those arguing that it is a fallacy have lost the debate. Newton’s Third law states: “For every action, there is an equal and opposite reaction." Newton published his laws of motion in 1687.
Albert Einstein added more wisdom: “With every action, there is an equal opposite reaction. With every problem, there is a solution: just a matter of taking action.”
The CO2 emission action is worldwide enormous and so is the reaction thereto.
South Africa needs close to 60 000MW of electricity to function. Coal production is responsible for just more than 48 000MW. South Africa is the 12th largest greenhouse gas emitter in the world and the worst sulphur dioxide polluter on the planet – surpassing the combined emissions of the US and China. Our emission status can be attributed to our reliance on coal to produce almost 80% of our electricity.
The problem has many interlinked multivariables that need to be solved at the same time. Take, for instance, the huge claim to become green by the protagonists for electric vehicles. In South Africa electricity is produced mainly by coal.
What is the point if an electric vehicle runs on batteries loaded with electricity coming from a coal-powered generator? It has been shown that as things stand, it is cheaper to operate an electric vehicle per kilometre of travel.
However, petrol and diesel carry a tax burden of 32% and if the consumers drive electric cars, expect the government to switch to taxing the electric vehicle recharges. This will level the playing field. At an annual consumption of 23 million litres of petrol/diesel, the tax come to more than R162 billion. Expect a hefty tax on electric vehicle charging because the government will want to retain its slice of the pie and the consumer, electric vehicle or not, will cough up.
The question arises about how the transition will play out. It reminds one of the age-old riddle of what comes first, the chicken or the egg? Energy efficiency may point to progress, but that alone cannot be the solution to get to net zero.
Eskom is seeking an average power tariff increase of just more than 32% for the fiscal year that starts on April 1, 2023.
Eskom said higher diesel and fuel oil prices, depreciation of its generation assets and greater procurement from independent power producers were some of the main reasons it was asking for a larger hike.
The amount of power being procured from independent producers is minimal compared to the overall electricity produced. It, therefore, follows that those independent producers, despite being heavily subsidised, are more expensive than the coal-powered production facilities.
Where will this end if all energy needs to come from independent producers?
The buck stops at the consumer, and it is not a pretty picture.
The world needs to pay for the sins of their fathers. On November 2, 2021, the South African government announced a historic partnership with the governments of France, Germany, the UK and the US, as well as the EU, to support a just transition to a low-carbon economy and a climate-resilient society in South Africa.
In line with the Political Declaration to establish the partnership, partner countries have offered to mobilise an initial $8.5bn (R132bn) over the next three to five years through a range of instruments, including grants and concessional finance, to support the implementation of our revised Nationally Determined Contribution.
The R131bn pledge to help finance the move to cleaner and renewable energy sources takes the form of grants, concessional loans and investment and risk-sharing instruments, including mobilising private sector funding.
Crucially, in an economy with such a high unemployment rate, the funding will be used to ensure coal communities and workers are supported as we aim to help prevent up to 1.5 gigatonnes of emissions over the next 20 years. The president got the right man for this important job.
President Cyril Ramaphosa has appointed Daniel Mminele as head of the newly established Presidential Climate Finance Task Team. Mminele will lead South Africa’s efforts to mobilise finance for a Just Transition.
He went to school in Germany, and was trained as a banker at Sparkasse Paderborn, in association with the Chamber of Commerce and Industry of East-Westphalia (Bielefeld), obtaining his banking qualification in 1987. He also later obtained various associate certificates from the Chartered Institute of Bankers of the UK, attending classes for these at City of London Polytechnic (later Guildhall University). Mminele served as chief executive of Absa from January15, 2020 until April 20, 2021 being the first person of African descent to serve in such a role.
The extremely expensive exercise will be financed mostly from even more loans. Gross loan debt has increased from R2.5 trillion in 2017/18 to R4.3 trillion in 2021/22.
The government has, therefore, borrowed an additional R1.8 trillion from domestic and international investors. Speaking at the Public Service Summit last month, Finance Minister Enoch Godongwana said the government expected its debt-servicing costs to be close to R500bn per annum by the next fiscal year.
The US announced on March 8 that the country would ban Russian oil imports, while the UK said it would phase out Russian oil over the year. This pushed the West Texas Intermediate (WTI) crude oil futures prices to $130.50 a barrel (bbl) on March 7, the highest since July 2008. The EU has proposed a plan to expedite the trading bloc’s transition to renewable energy to cut its reliance on Russian fossil fuels.
As a result, some expect demand for fossil fuels could fall in the medium-to-long-term, leading to a lower oil price in 10 years. Consequently, the oil price in 2030 is widely expected below $100/bbl.
According to Energy Information Administration’s annual energy outlook 2021 report, the agency held a conservative outlook for its oil price forecast 2030.
It expects the average Brent crude prices at $61/bbl in 2025, $73/bbl in 2030, $80/bbl in 2035, $87/bbl in 2040, $91/bbl in 2045 and $95/bbl in 2050. There are also experts predicting if the global fuel consumption falls in-line with the emission targets set to limit global warming, oil price projections in 2030 could fall as low as $40/bbl. (1 oil barrel = 42 US gallons and roughly 159 litres).
The South African consumer know they are in for a hiding as they will pay. However, not all is doom and gloom.
Two interesting reactions to the circumstances described above comes from two vastly different approaches from car manufacturers.
The first is the Chinese-produced Cherry vehicles. The vehicles come at a huge discount compared to their rivals. In addition, these petrol cars come with a 1 000 000km Engine Warranty. Should the above predictions prove to be correct it may be an exceptionally good offering to drive such a car with petrol prices coming back to levels last seen at the turn of the millennium.
Another and extremely exciting announcement come from Mercedes-Benz South Africa. The producer has announced its plan to offer a range of four new electric vehicles for the local market as well as for the export market. It intends to switch its production to 50% electric vehicles by 2026.
Consumers will have to adapt and treat their electric vehicle as they would a smartphone and charge it at every opportunity that they get because batteries deteriorate if taken down to empty. The manufacturer sees the car as the driver’s own comfort space and, at the same time, their connected office space, it gives one the feeling they have entered the Information Technology arena. Mercedes offers an eight-year guarantee on its batteries, different from an engine warranty of one million kilometres.
Carbon tax is a reality, and it is going to hurt, it will have consequences. The government sees the taxes as key to meeting its goal of producing net-zero emissions by 2050, but has faced intense lobbying from companies to make them less onerous.
Sasol, South Africa’s second-biggest greenhouse gas emitter, sees carbon taxes posing a “significant risk” to its business and warned that the proposals could cause it to curtail operations and green initiatives.
We are in for interesting and challenging times. There is a city named Sasolburg.
Corrie Kruger is an independent analyst.
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