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Carbon Tax Discussion

Carbon Tax Discussion. Agenda Item. Rationale for carbon tax Example - energy efficiency implementation – steel industry - NCPC Reality of our GHG challenge Dti suggestions/recommendations. Rationale for a Carbon Tax.

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Carbon Tax Discussion

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  1. Carbon Tax Discussion

  2. Agenda Item Rationale for carbon tax Example - energy efficiency implementation – steel industry - NCPC Reality of our GHG challenge Dti suggestions/recommendations

  3. Rationale for a Carbon Tax • National Treasury’s Point of departure: A carbon tax is being considered as a strategy to change behaviour in energy consuming sectors and not merely to raise revenues • Price signal to future investors to ensure investments are more climate resilient • Responsible global citizen • Behaviour change implies: • Reduction in energy intensity – (Total energy consumption per $ GDP) - Implement energy efficiency measures • Reduction in carbon intensity – Reduce coal consumption as a % of total energy consumption – implement clean/er energy options • Structural change – Produce goods that are less carbon intensive • Close carbon and/or energy intensive industries - smelters • The sectors that would be the hardest hit by the proposed tax could would be the ones not able to achieve behavioural change in the short to medium term • Largely due to technological and economic challenges

  4. What does behavioural change mean

  5. National Cleaner Production Centre • Energy, resource, waste and cleaner production audits • Training of energy and resource efficiency experts and create awareness • Make recommendations that include • Waste heat recovery • Identification of leaks, insulation • Automation • Temperature control, EnMS • Plant layout • Equipment optimisation • Introduction of better technology • Etc • MCEP supports implementation

  6. NCPC Case Study – Steel Manufacturer • 45% of operational cost is energy cost • 10.6 MW av. Electricity demand saved against baseline • 92.67 GWh saved in 2012 • Total 6.6% saving on baseline • Electricity Saving value : R51m (including R28m from load-shedding) • LPG Saved : 3218 t or 20% with value R39m compared to 2011. • Overall saving of 41% compared to 2010 baseline. • Reduced Energy Consumption from 25.1 to 23.7 GJ/t HRC. • Fifteen energy projects completed • EnMS ISO 50001 internal audit score 94+%. • Total Value of savings in 2012: Approximated at R127m

  7. Key Success Factors 1. There must be an Energy Strategy and Energy Management Program with : • Management commitment. • Understanding potential and opportunities and having an implementation plan. • Allocating resources to energy management. 2. WCM (World Class Manufacturing program) assisted in energy efforts • Having reliable operations made optimisation possible. • IEE Programs hosted by NCPC (UNIDO, DTI and DOE) • Affordable training from world class experts to assist and guide improvement programs and initiatives. • Sustainability can only be achieved through : • ISO 50001 • Management Infrastructure (MI) - closing the loop with control items in routine meetings.

  8. South Africa is in a difficult position 87% of primary energy supply from fossil fuels 86% of power generation capacity from coal Climate change mitigation is an imperative from both a climate and trade and industry perspective SA production and trade will become increasingly vulnerable to carbon sensitive policies and private standards, some of which are being deployed with protectionist intent. Electricity demand may reach 78000 MW with economic growth 95% of crude oil requirement is imported 2006 data, Source: DoE Demand @ 4% if GDP @ 6% Demand @ 2.3 % if GDP @ 4% Source: Eskom 2011 data, Source: Eskom

  9. Top 20 CO2 emitting countries by absolute CO2 - EIUG South Africa’s total 2020 “Copenhagen Savings” will be emitted by China in less than 68 Hours <1.2% of total global CO2emissions

  10. South Africa's Greenhouse Gas Mitigation Potential Analysis Technical Summary Draft 1.7, 12 July 2013 - DEA • The best available information at present in South Africa • Provide a reference case projection of national greenhouse gas emissions • Identified 123 mitigation measures under a balanced scenario • Project national greenhouse emissions into the future – Without Measures and base year 2000, With Existing Measures since 2000 and with additional measures) • 5 key sectors are: • Energy; • Industry; • Transport; • Waste; and • Agriculture, Forestry and Other Land Use.

  11. National GHG emissions under the reference case (WEM) projection, showing a breakdown per sector (2000-2050)

  12. National GHG emissions under the reference case (WEM) projection, showing a breakdown per sector (2000-2050). Electricity emissions are allocated to end use sectors.

  13. Contribution of electricity intensive sectors to export Source: the dti, Genesis workings

  14. Desired South African Mitigation Outcome

  15. National-scale GHG emission reductions under the Balanced Weighting scenario, per sector, showing the reference “With Existing Measures” (WEM) and “With Additional Measures” (WAM) curves.

  16. All Mitigation OptionsSavings in ktCO2eq

  17. Policy Adjusted Scenario

  18. Adapt to climate change • Adapting to climate change requires a massive technological shift in the SA economy from a capital intensive resource dominated economy to a relatively more value-adding, labour intensive and less carbon-intensive economy. • It is a transition that will not happen automatically with the introduction of 'one size fits all' instruments across the economy. • It will requiremore instruments than a carbon tax and carbon budgeting with a need to 'front-load' measures to promote relatively value-adding, labour intensive and lower carbon-intensity manufacturing. • It will also require measures to manage the transition of our traditional resource-processing sectors so that they do not collapse under increasing electricity prices and a carbon tax.

  19. Suggested approach • Focus on the electricity generation sector and increase the non coal - base load energy generation after 2030 • Promote a move from road freight to rail freight – this will improve our logistics cost challenge as well • Finalise GHG mitigation analysis - DEA • Based on GHG mitigation options, affordability and implementability determine desired emission reductions for energy intensive industries (MEC) • Use carbon tax to penalise companies that exceed the emissions cap but allow rebates or credits for: •  introduce globally leading mitigation technology and processes • support downstream sectors shifting relative prices in favour of less carbon intensive sectors which are more labour intensive and value adding, in particular a shift to the pricing of intermediate inputs such as steel, polymers and aluminium at considerably below import parity levels. •  invest themselves in diversification into green technologies and sectors

  20. Suggested approach • Introduce fiscal support measures that promotes expansion and growth of higher value-adding, labour-intensive and less energy-intensive sectors (e.g. clothing, footwear, textiles: agro processing; plastics fabrication, metal fabrication;  capital equipment; transport equipment; furniture) • Manufacturing is required as the growth engine for the economy, creating millions of jobs and reducing massive inequality • Fiscal and other mechanisms to promote rapid growth of new industries: •  Investment in green energy, industrial energy efficiency and demand side management linked to localisation • Componentry into green electrical generation, and demand side management equipment •  Goods and services related to industrial, commercial property and household energy efficiency. (e.g. SWH's) •  Support R&D and commercialisationof green products and materials such as organic food, bio-composites etc. • Expand fiscal support measures to incentivise companies to reduce emissions and/or improve efficiency – NCPC already has a number of great success stories – MCEP already caters for this

  21. Summary • A carbon tax regime needs to take into account key structural features of the economy if it is to avoid the real risk of shrinking or even closing existing energy intensive sectors. • This requires concurrent support measures linked to the carbon tax which purposively promotes structural change. • A carbon tax should be levied in such a way that it allows for offsetting allowances or deductions that recognise: • Investments in plant and equipment that mitigates carbon emissions. • Shifting relative prices in favour of less carbon intensive sectors which are more labour intensive and value adding, in particular a shift to the pricing of intermediate inputs such as steel, polymers and aluminium at considerably below import parity levels. • Investments in R&D, innovation and commercialisation of green technologies, products and services to be undertaken in South Africa.

  22. Thank you Gerhard Fourie Chief Director Green Industries Gfourie@thedti.gov.za

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