SA business can expect stricter regulation and green taxes as government increases efforts to curb the emission of greenhouse gases.
Last week, the first carbon disclosure project report into SA's top 40 listed companies showed that SA's carbon emissions were dominated by a few large players. About 83% of disclosed emissions were from three listed companies: Sasol, BHP Billiton and Anglo American. (See graph.)
State-owned power utility Eskom, which participated voluntarily in the project, emitted 208 Mt of methane and carbon dioxide (COČ) last year, 2,8 times more than Sasol's 71 Mt emissions. Companies such as ArcelorMittal, Barloworld, Exxaro Resources and Kumba Iron Ore did not disclose their emissions.
"Business can assume that government will increasingly assess, monitor and regulate greenhouse gas emissions," says environmental affairs & tourism minister Marthinus van Schalkwyk. "[It] can also assume that there will in future be a much stricter regulatory framework and a hefty price on carbon."
Next week Van Schalkwyk heads to Bali for the UN Climate Change Conference 2007, where SA is likely to come under pressure to reduce its emissions - at more than 440 Mt of COČ/year, it is the largest polluter in Africa and the 14th-largest greenhouse gas emitter in the world, mainly because of Eskom's almost exclusive use of coal for power generation.
All developing countries have been exempt from taking on commitments to reduce emissions under the Kyoto protocol up to 2012. But it was this concession that led the US, the globe's biggest emitter, from joining the treaty.
As a result the major greenhouse gas emitters in the developing world - China, India, Brazil and SA - are being pressured to take on comparable legally binding commitments after 2012. "After 2012 it can be expected that SA will have greater commitments under Kyoto," says Van Schalkwyk.
Sasol's safety, health & environmental centre GM Kim Fraser says the Bali discussions are expected to impose new pressures on business. "How we will meet the desired targets will require close co-operation between us and government," he says.
Van Schalkwyk is briefing business leaders this week on the outcome of a study on the long-term mitigation scenarios for climate change. This will be used as preparation for a debate on the way forward to take place between business and government early next year. Government also plans to publish a long-term climate policy in 2008/2009.
"Business recognises that some form of green tax or cap-and-trade framework is likely to be put in place to reduce emissions," says Fraser. "Both have merits but we hope business will be involved in the process to decide which will work best."
The policy will be informed by an updated greenhouse gas inventory as well as by plans from various national departments, provinces and cities. At the heart of the matter is reliance on Eskom's coal-based electricity.
"Business needs to build competitiveness on a basis other than the cheapest electricity," says Van Schalkwyk. At present SA companies pay about 12c/kWh of coal-generated electricity - the cheapest in the world. Power from wind costs 46c/kWh and solar-generated power 57c/kWh. "SA has some tough decisions to make, but ignoring the need to reduce emissions is a high-risk approach. Carbon constraints could be used as trade barriers soon," Van Schalkwyk says.
Despite the focus on climate change, there has been little reaction from business since the release by the national treasury in April this year of a 139-page discussion paper that looks at whether SA should introduce a green tax.
"Green taxes could be an effective way of ensuring compliance," says Werksmans director Neil Kirby.
Until now, government's approach to environmental issues has been based solely on regulatory mechanisms, which include liability payments and the setting of manufacturing standards.
The treasury estimates that existing green taxes, such as those taxing transport fuel as well as water supply taxes and electricity-related levies, constitute about 2% of SA's GDP and just under 10% of total tax revenue.
"Unfortunately, these taxes are used solely to increase tax revenue with minimal benefits to the environment," says Kirby. He says the current tax regime may even promote environmental degradation, for example by not charging Vat on pesticides and fertilisers.
Other incentives under consideration by the treasury include the creation of environmental funds, the introduction of rehabilitation funds, accelerated depreciation allowances and a review of specific tax provisions.
