Third coal power station on cards

As debate on introducing a carbon tax to reduce carbon emissions starts to hot up, the cabinet has announced that it plans to push ahead with building Coal 3, another coal-fired power station.

But Eskom says any carbon taxes generated will have to be passed on to the consumer.

Minister of Trade and Industry Rob Davies made the announcement this week , following a three-day cabinet lekgotla in which discussions focused on improving the economic outlook. He said the cabinet would act immediately to resolve the energy shortage by pursuing steps towards shale gas exploration, hydro-electric power, and by starting the process of building Coal 3.

Two other major coal stations, Medupi and Kusile are under construction. Davies said no timeline for Coal 3 was available yet, as they were still looking at ways to finance it.

This is despite a commitment by South Africa at the COP17 conference to reduce carbon emissions by 34 percent by 2020, and discussions in Parliament this week on the introduction in 2015 of a carbon tax in a bid to reduce emissions.

The policy paper on the reduction of greenhouse gas emissions indicates a cost of R120 per ton of emissions, but every sector will be exempt from paying for the first 60 percent.

The Treasury has said “the primary objective of implementing carbon taxes is to change future behaviour, rather than to raise revenue”.

“It therefore starts with a relatively low carbon price, and then progressively rises significantly after five to 10 years, and beyond. This approach provides industry and other major emitters sufficient time to innovate and invest in greener technologies for the future.”

Davies said: “If you look at our integrated resource plan, we never said we’re not going to use coal. The coal-fired power stations we’re considering are much more environmentally friendly than what we currently have.”

Eskom is the biggest producer of carbon emissions in South Africa, producing 228 million tons last year.

“Due to the existing generating mix and constrained electricity supply, there is little room for the electricity sector to respond to an explicit carbon price in the short term,” Eskom told Weekend Argus.

“Using Eskom’s 2012 annual CO2 emissions as a benchmark, the quantum of the proposed tax amounts to approximately R10.9 billion in the first full financial year of implementation. Under the cost-recovery rules of the electricity pricing policy, it is considered that the cost of a carbon tax would be recovered through the electricity tariff,” Eskom said.

Electricity prices have already tripled over the past five years, and earlier this year Eskom was given the go-ahead to increase prices by 8 percent annually for the next five years.

This week Business Unity South Africa told Parliament its calculations showed that the tax could result in an additional 8 percent increase in the price of electricity.

Despite this, Eskom said it supports the government bid to reduce greenhouse gas emissions, and will continue to speak to the government.

“Eskom supports an approach to equalise carbon prices across all sectors. A carbon tax is one such instrument. A carbon tax could work together with a suite of instruments if it is designed correctly, implemented in a practical manner – taking into account the macro-economic impacts. and if there is certainty that the revenue would be used to support the lower carbon growth path,” Eskom said.

Gavin Kelly, technical operations manager of the Road Freight Association, said the association had outlined three major issues in its submission to the Treasury. The first was that revenue from the taxes would go into the general fiscus and not be ring-fenced for greening or environmental issues.

The second was that there were a host of factors that contributed to a vehicle’s emissions – including the type of fuel used.

“When you use so-called dirty fuels, the level of toxicity is higher. In South Africa, that is not something we have control over, and we can’t change the fact that we use relatively dirty fuel here,” he said.

The third issue was that the cost of transport would go up if companies were forced to pay the tax, or look to more expensive alternatives such as bio-fuels and newer engine technologies.

“The operator won’t sit with that cost. One of these new cleaner engines can cost up to R100 000 more, and the operator can’t carry or absorb that cost,” he said, adding that consumers would end up footing the bill of higher transport costs.

Other submissions on the carbon tax proposal have also highlighted its potential impact on competitiveness and job creation in already tight market conditions.

The SA Chamber of Commerce and Industry chief executive Neren Rau said in a statement earlier this month: “The impact of such a tax will be significant on the South African economy, and may have severe effects on international competitiveness and job creation. SACCI is supportive of measures to reduce carbon emissions in principle, so long as those measures remain tax neutral.”

In its submission to the Treasury, WWF South Africa welcomed the introduction of a carbon tax, saying that without it “the country will become increasingly reliant on fossil fuels, with adverse consequences for economic, social and human development plans”.

However, energy economist for the organisation, Manisha Gulati, said: “In its current form and in the current market and policy environment of the country, the tax may have limited effects on intended outcomes, may not be sufficient to incentivise the much-needed behavioural and technological shifts toward a low-carbon future, and could lead to unintended consequences of an unfair cost burden to the consumer.”

Weekend Argus