Embed Size (px)
Citation preview
Carbon Pricing for South AfricaImpact on the economyImpact on the economy
Thought Leadership03 November 2011
1
AGENDA
The ITTCC
Carbon pricing - Key design considerations
Job creation and protection
Carbon abatement
Practical and fact based policy
2
The ITTCC are..Supportive of a suite of integrated climate policy instrumentsSupportive of a suite of integrated climate policy instruments
▪ Committed to:– Strong jobs growth– An attractive investment environment– Equity and social cohesion– Climate resilience
▪ Acknowledge: The high potential for climate change to extensively and adversely impact our quality of life in South Africa and fully support national efforts to manage the required adaptation and proportionately contribute to reducing global carbon emissions
▪ Support:Governments efforts to implement practical climate change policy which would
33
include carbon pricing as part of an integrated suite of policy instruments founded on robust fact and rigorous analysis
Our principles for designing a carbon policy
D l f dOur starting position … … is based on the ITTCC principles
▪ Development focused
▪ Revenue neutral Job protection & creation
B d b d
▪ Trade competitive
▪ Broad based
▪ Sending a clear price signalEmissions reduction
▪ Supportive of technology
▪ Predictable and gradual
▪ Simple and effectivePractical & fact-based policy
4SOURCE: Team Analysis
These ITTCC principles are largely in line with the recently published White Paper
White paperITTCC principles
▪ Reinforce local development ▪ Adapt to climate change through▪ Reinforce local development priorities: create work, economic/social uplift
▪ Ensure local industries retain their
▪ Adapt to climate change through sustainable development, job creation, poverty eradication
▪ SA may be vulnerable to GHG
Job protection & creation
international competitiveness reduction measures – especially those industries which are emi-ssion-intensive trade-exposed
▪ Encourage investment in low carbon technologies, a sustainable energy supply and a new green sector
▪ Support green sector, finance climate R&D and knowledge building, procure sustainable technologies
Emissions reductionsecto tec o og es
▪ Policy must be planned in ▪ Overall strategic approach for SA’s▪ Policy must be planned in advance, simple to implement and integrated with a coherent set of policies
▪ Overall strategic approach for SA s climate change strategy is dynamic, evidence-based, integrated and aligned
Practical & fact-based policy
55SOURCE: ITTCC response to DEA Green Paper on Climate Change, ITTCC response to NT discussion paper “The Carbon Tax Option”; National
Climate Change Response white paper (2011)
National Treasury has a very challenging task aheadDesigning climate policy entails complex interlinked issues
▪ Interplay between climate policies, job creation policies and industrial and power sector regulationp y p , j p p g
Climate policy has a fundamental impact on SA There are limited data on emissions and abatement available
▪ Job loss due to closure of existing businesses affected by the tax
▪ Green jobs may not materialise soon enough
▪ Conceptual abatement curve for SA
▪ Not sufficient data from SA companies on their emissionsGreen jobs may not materialise soon enough
▪ Cost pass-through and resulting inflation in the wider economy
emissions
▪ Available data can be inconsistent (IEA, CDP, PPD)
All these factors (and more) will i fl th d i f i i
Well designed international examples are limited
There is little clarity on likely action in other countries
influence the design of a pricing mechanism
▪ Few international examples of well designed and functioning carbon policy
▪ Countries that have implemented carbon
▪ Potential retaliation from trade partners on border adjustment efforts
▪ Uncertainty about domestic carbon pricing
6
ppricing have different characteristics (economic, political, fuel mix, etc)
y p gapproach of competitor countries
AGENDA
The ITTCC
Carbon pricing - Key design considerations
Job creation and protection
Carbon abatement
Practical and fact based policy
7
Carbon pricing - Key design considerationsp g y gWhat we can in this meeting: Carbon abatementJob creation and protection
f ll f ▪ A suite of climate instruments is needed to achieve an optimum economic and environmental outcome
▪ Off t t j b d id th b t t
▪ Transitional support for SA means export exemptions, import adjustments and other domestic exemptions
▪ T t d i li ill b d d f ▪ Offsets create jobs and provide the abatement necessary to meet emission pledges
▪ Targeted, non-price policy will be needed for the power sector
▪ Full revenue recycling is needed to protect and create jobscreate jobs
Practical and fact based policy
▪ A b i b li d ith id t t▪ A carbon price can be applied either midstream or upstream▪ There are many other considerations. Chief among them is the need for better information on policy
implications. An abatement cost curve, a macroeconomic model and further analysis of policy integration and timing are all required
88
integration and timing are all required
AGENDA
The ITTCC
Carbon pricing - Key design considerations
Job creation and protection
Carbon abatement
Practical and fact based policy
9
Job creation and protectionA Just Transition to a lower carbon economyLimiting the adverse unintended consequencesLimiting the adverse unintended consequences
Transitional support+20Years
Decision for carbon pricing mechanism~5Years
Lower Carbon Economy
▪ Jobs should be protected in local industry– Export industries will be less competitive
when competing in global markets
5Years
▪ Transitional support phased out over timewhen competing in global markets,
leading to closures or lack of growth– Local manufacturers must be protected
against cheap imports which do not ▪ COP15: emission
phased out over time, taking competitor country actions into account
▪ Green industries and jobs evolve over timereflect the cost of carbon
▪ Carbon leakage / off shoring of carbon increases the risks from climate change– Energy intensive steps move offshore to
reduction pledge▪ Industry agrees with long-
term signal, but requires alignment between rate
evolve over time
Energy intensive steps move offshore to regions without carbon pricing
– Imports of high carbon-content goods increases
gof introduction and rate of re-investment
▪ Comprehensive fact base, macro- and micro-
▪ Companies should not be punished retroactively for historical investment decisions encouraged by government
▪ Transition should be gradual to avoid
economic analyses required
10
Transition should be gradual to avoid economic shock from carbon prices passing through the economy
Job creation and protectionPace of carbon pricing should match domestic re-investment cycles to allow i d k d l i i d i j bindustry to make an orderly transition and retain jobs
Asset investment cycles must be considered… …taking timing, sectors and asset characteristics into account▪ A number of options exist for enabling an
orderly transition to more carbon-efficient assets
▪ Most energy intense assets have a 20-40 year re-investment cycle
▪ Much of South Africa’s heavy industry was– Grandfathering– Phased exemption– Free permits or allocation
▪ Much of South Africa s heavy industry was encouraged by government
▪ New assets must be able to compete with old assets Free permits or allocation
▪ These can be phased out over time– Remaining asset life
old assets
– Required rate of improvement– In line with international progress
▪ Requirements are likely to vary by sector and q y y yeven individual assets / installations
▪ Similar instruments will be required for new investments
11SOURCE: Team analysis
investments
Job creation and protectionRevenue recycling is needed to compensate affected sectors and individuals and incentivise green developmentp g p
▪ Compensate affected individuals– Grants for individuals losing their jobs, or being affected by high power prices– Community services, e.g. RDP-housing projects for communities nearby abandoned
Approach
Compen-sation
y , g g p j ymines and industry facilities
– Increase threshold for free basic water and electricity
C t ff t d t▪ Compensate affected sectors– Through general tax reliefs or free emission permits for industry and mining sector– Government “soft loans” to reduce cost of adapting to carbon tax to support
transition
Incentives for d l
▪ Incentivise green improvement programmes in affected industries– Subsidies for energy efficiency measures, both conventional (e.g. lighting) and new
solutions– Support CCS development and renewable energy
green develop-ment ▪ Promote growth in green industries
– Promote development of less emission-intensive industries
General social d
▪ Initiatives to address social needs – Support initiatives to address social needs, such as education, health, housing
projects, free basic electricity and water, etc
1212
needsp j y
SOURCE: Team analysis
Job creation and protection For South Africa Energy, Climate Change and Carbon Pricing are HIGHLY INTERDEPENDENT
South African GHG emissions (2010)Mt CO2e, 100% = 463Mt CO2e Best Estimate
Agriculture 3
Buildings 3 Waste 3 Other
Transport 3
Power Generation 1
Industry 2
Transport 3
Coal to Fuel 1
1313
1 Company data, 20102 Carbon Disclosure Project, 2010; team analysis3 IEA, 2008 / 2005SOURCE: IEA; company reports; Carbon Disclosure Project; team analysis
Job creation and protection South Africa could out price itself!p
2011 Accumalative Sales by Increasing Average Prices RSA vs USA c/kWh ZAR
90%95%
100%
2011 Accumalative Sales by Increasing Average Prices RSA vs. USA c/kWh ZARRe
side
ntia
l
l
70%75%80%85%
es
R
Resi
dent
ial
Com
mer
cial
45%50%55%60%65%
ativ
e En
ergy
Sal
rcia
l
25%30%35%40%45%
Accu
mat
a
Indu
stria
l
Com
mer
5%10%15%20%
RSA 2011 model
RSA 2015 Pricing BAUUSA 2011
Indu
stria
l
14
0%
0 10 20 30 40 50 60 70 80 90 100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
250
260
c/kWh ZAR
Source: Eskom and The U.S. Energy Information Administration (EIA)
Job creation and protection South Africa needs a transparent Affordable Price
115
120
Average Industrial Prices (2009 REAL)
Area of Industrial Prices China and IndiaArea of Industrial Prices China and India Funding
95
100
105
110
115
South Africa’s Price Cone??
FundingPrice Path?
80
85
90
95
al)
ZAR/tCO2
IRP Includes an Implicit carbon price
129142
IRP 2010-2030
Environmental levy
60
65
70
75
/kW
h (2
009
Rea
An Affordable
115 102
129
40
45
50
55c
Even at the current actual
Price Path?
2030
27
2020
27
20
25
30
35 price of 50c/kWh South Africa is starting to exceed international industrial prices in particular the more energy intense industries.
15
15
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
Sources: IRP2010, Eskom, Frost & Sullivan, EIUG
Job creation and protection The cost to transition to a new generation mixg
Technology Non-price barriers
Levelised cost of electricityZAR/MWh
Carbon price required to
compete with coal
ESTIMATES
485Coal
Gas (Shale)1 489 7.3▪ Large environmental risks▪ Infrastructure needed
834
Nuclear3 700
Gas (LNG)2 637
233
▪ Infrastructure needed
▪ Long lead times▪ Risks of cost over-run
Solar PV 1 065
Wind 642
628
170 ▪ Intermittency
▪ Intermittency
Solar CSP 1,383
Solar PV 1,065 628
972
▪ Intermittency
▪ Low installation world-wide –slow learning curves
1616
1 Assumed gas price 7.5 USD/mmbtu2 Assumed gas price 13 USD/mmbtu3 Adjusted upwards post Fukushima
SOURCE: IRP 2010-2030; Eskom; Team analysis
AGENDA
The ITTCC
Carbon pricing - Key design considerations
Job creation and protection
Carbon abatement
Practical and fact based policy
17
Cost of Abatement – What Can we do? A Key Focus Area of the White
Science of Fossil fuel price unitBuildings
unit (EE1)
Model structureCosts (payer and receiver) by sub-industry
Abatement potential at each CO2 price
Power price and carbon industry
Electricity demand and installed generation
Fossil fuel prices
Effective carbon price in each year
Socio/Econ3rd
A Key Focus Area of the White paper
2ndanthropogenic climate change
Tax levied either on emissions or carbon content of a fuel, paid at the
i t f d ti tiCarbon tax
Menu of policy instrumentsPrinciples
Predictable and gradual1
REMIPI+ Interface
REMI’sPolicy Insight model (PI+)
GDPJobsExports, importsOutput by industryOther
Power price unit
Carbon price unit
Clean power unit
Ag, forestry, waste unit
Transport unit
International offset unit
Industrial unit (EE1)
Socio/EconImpact
Assessments
3
+
point of production or consumption
Cap of CO2e emissions and trade of emission permits on an open market
Emissions trading
Legal requirements to use specific technologies or meet efficiency standards, supported by threat of sanctions or fines
Standards and targets
Unilateral government action to reduce emissions (may include compensation for those negatively effected)
Direct action
Information provided to consumers to make informed decisions and change consumer habits
Education
Tax incentives, breaks or direct subsidies for specific clean technologies or energy efficiency measures
Subsidies/other taxes
Reduce CO2e liability (e.g. permits required or tax bill) by reducing emissions elsewhere
Offsets
Pric
e si
gnal
Non
-pric
e si
gnal
and gradual
Development focused2
Sending a clear price signal
4
Revenue neutral5
Broad based3
Trade competitive 6
Simple and effective7
Supportive of technology8
Climate ready9
Policy Options
Ab t t
South Africa'sAbatement Fact base
Industrial Processes & Product Use
6%
Agriculture8%
Coal to Liquid7%
Other3%
EmissionInventory
n
Country
AbatementFact Bases
Waste2%
Fuel combustionManufacturing &
Construction7%
Fuel combustion Transport
7%
Fuel combustionCommercial, Institutional, Agriculture,
Forestry, Fishing and Other
2%
Fugitive EmmisionsSolid Fuels
Coal-fired power Stations37%
1st
Top
Dow
n
CountryAbatementOpportunitiesSector
AbatementOpportunitiesActivity
Abatement
Key Sources of GHGC emissions 2000100% = 461 Million tons CO2e
14%
Industrial Processes &
Product Use, 32, 7%
Agriculture, 39, 8% Waste, 9, 2%
F ilit
Solid Fuels7%
Fugitive EmmisionsOil & Natural Gas
5%
Lessons learnt
Bottom
D
18
Opportunities78%
Energy, 381, 83%
FacilityAbatement
Opportunities
essons learntand leading
practices from other countries
Dow
n
Fact Base…Maximum Abatement Potential Detailed fact bases in order to better understand the abatement opportunities, costs and investments required of the opportunities with costs to inform policy choicesof the opportunities with costs to inform policy choices
One Option & itsContribution
ost t
o SA
ving
s or +
Co
Fact base allows policy to be designed and sequenced to minimise cost to the country
-Sav
19
Sum of Total MAXIMUM Potential Reduction
We have been working hard for a long time& will continue to do so& will continue to do so
0.17490 000
RSA MWh net sentout
0.15
0.16
390 000
440 000 Electricity Intensity (MWh/Rm GDP)
0.13
0.14
340 000
ns
0.11
0.12
240 000
290 000
MW
h/GD
P R
mill
ion
MW
h
0.09
0.1
190 000 Inte
nsity
M
0 07
0.08
90 000
140 000
20
0.06
0.07
40 000
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
AGENDA
The ITTCC
Carbon pricing - Key design considerations
Job creation and protection
b b Carbon abatement
Practical and fact based policy
21
Each part of the abatement cost curve has different obstacles to realisation and therefore needs to be addressed differentlyConceptual SA carbon emission abatement cost curve1
Abatement real costZAR/tCO2e
Conceptual SA carbon emission abatement cost curve1
Abatement potential
CCSTransportLand use
Industry
Power sector
potentialCO2e MtpaBuilding
efficiency
efficiency
A Net savings opportunities (non price market failures)
B Moderate cost opportunities (can be addressed by carbon price)
C High cost opportunities (not accelerated by carbon price)
▪ Negative NPV▪ Technical feasibility
▪ Negative NPV▪ Very high capital cost, including
imported technologyL k f l t f k
▪ Agency issues▪ Lack of awareness▪ Fragmented opportunities
▪ Lack of regulatory framework▪ Political uncertainty risk▪ Technical feasibility (CCS)
Obstacles ▪ Lack of capacity
2222SOURCE: McKinsey Global GHG Abatement Cost Curve v2.1; Abatement cost curves from Australia, India, Mexico etc.; team
analysis
1 Estimated based on Global GHG Abatement Cost Curve v2.1 and other country cost curves, with transport adjusted for petroleum CCS2 SA proposed carbon tax of ZAR75 – ZAR200/tCO2e in 2005 terms (~ZAR100-300 today); EU carbon price EUR13/tCO2e
A carbon price only influences ~1/3 of the total abatement potential in other countries Potentially incentivised
by carbon price
Total potential abatement in country based on technical potential in 2020 vs BAU
Moderate cost opportunities1 High costNet savings
9% 13%Australia 36%14%
Moderate cost opportunities High cost opportunities1
Net savings opportunities
13%
10%
7%
4%11%
29%10%
India
Mexico
26%
13% 5%8%5%
5%
Russia 26%
12% 5%
South Africa????
6%5%
China 20%
2323SOURCE: McKinsey Global GHG Abatement Cost Curve v2.1, McKinsey country level abatement cost curves
1 Levers with cost ZAR 0-200/tonne2 Levers with cost ZAR 200-900/tonne
There are 7 broad categories of climate policy instruments&
Description
Trading & crediting1▪ Capping of CO2 emissions and trading of the emission
permits on the open market▪ Industry players required to provide permits that y p y q p p
match their actual annual emissions
Carbon tax2▪ Carbon tax that is charged either
– To the consumer at the point of emissions or point of final sale of fuels (e.g. at the gas tank), or
Explicit carbon price
Climate
– To the producer as a direct tax on carbon-intensive fuels paid at the point of production (e.g. by coal mining/oil production company)
Capital provision3▪ Provision of capital to support abatement opportunities
( ith di tl i di tl )policy instruments
Standards and regulation4
▪ Targeted legal restrictions / requirements to use specific low-carbon technologies or to achieve a well-defined efficiency standard
Capital provision3 (either directly or indirectly)
defined efficiency standard▪ Supported by threat of sanctions or fines
Education/ information5
▪ Provision of information thereby removing transaction costs▪ Promotion of education to change consumer habits
Implicit carbon priceg
Direct action6▪ Government takes unilateral action to reduce
emissions including compensation for those impacted
Tax incentive/ co investment7
▪ Tax incentives, tax breaks for specific clean technologies or energy efficiency measures
2424SOURCE: Team analysis
investment technologies or energy efficiency measures▪ Could be as part of a co-investment scheme to use
market efficiency
Collaboration is key and..We are committed to support a positive outcome for South AfricaWe are committed to support a positive outcome for South Africa
i
Contribution
▪ Designing MRV protocols
How the ITTCC could assist
Drive abatement
▪ Developing fact base, specific relevant policy pieces (MACC)▪ Piloting low carbon technologies in SA & share learning’s▪ Continuing with
– energy efficiency initiatives & share learnings
Develop
gy y g– piloting CCS & solar thermal & possible transfer to SA
▪ Assisting host communities to adopt energy efficient technologies
▪ Improving understanding of local climate change impactsDevelop adaptation opportunities
p g g g p▪ Identifying adaptation challenges on a regional/location basis
(infrastructure, operational and community)▪ Assisting host communities to practically adapt to climate change▪ Assisting regions to understand water balanceAssisting regions to understand water balance
– developing and implementing comprehensive management plans▪ Treating and distributing excess U/G mine water to adjacent
municipalities for domestic and agricultural use
Improve Energy Security
▪ Exploring self-generation and the feeding of excess generation capacity into the national grid
▪ Moving truck fleets to Liquid Natural Gas (LNG) or clean electricity▪ Exploiting renewable power where economically feasible
2525
▪ Exploiting renewable power where economically feasible
END
26
