The DEA commissioned DNA Economics and The Greenhouse to develop the methodology for the post-2020 climate change mitigation system.
A welcome recommendation in the methodology was that a carbon tax should be applied at the full rate, only if the organisation exceeds its carbon budget. This interface is in line with the recommendations business has made to government, however, much depends on:
- The process for setting the budgets
- How carbon offsets interplay with the other elements
- The rate of the carbon tax
- Whether implicit carbon pricing mechanisms are still in place
The report deals primarily with:
- Carbon budgets post-2020 (phase 2)
- The interface with the carbon tax
- The methodology for the setting of Sectoral Emissions Targets (SETs), previously known as “Desired Emission Reduction Outcomes (DEROs)”
There are four International Panel on Climate Change (IPCC) aligned sectors proposed:
- IPPU (Industrial Processes and Product Use)
- AFOLU (Agriculture, Forestry and Other Land Use)
These will be further divided into 10 sub-sectors. Responsibility for meeting these SETs will be allocated to specific national government departments. The document further proposes entity-level carbon budgets which will include both scope 1 (direct) and scope 2 (indirect) emissions.
A key criticism of the report was the lack of broader context of these elements with other elements included in the white paper, which makes it difficult to get a clear overall picture.
Concerns regarding the document include the lack of alignment with the National Treasury’s carbon tax; the limitation on offsets; and the capacity within the DEA to implement this work.
It was acknowledged that the report was not policy, but rather a methodology to be used to develop a legislative framework, and to this end it was commented that the process of setting carbon budgets to date has not been ideal. Additionally, it is imperative that the process of setting carbon budgets is ultimately comprehensively set out in legislation.
The final report prepared by John Ward from Vivid Economics was distributed on 22 March 2017. This report does not recommend any one method of alignment; but rather highlights the merits of multiple options for alignment. It is intended to be used as an input to the development of a government policy on how the two instruments will align.
The DEA hosted a workshop to present the report and some stakeholder presentations. Business Unity South Africa (BUSA) was invited to present.
Notwithstanding any issues business may have with the report content, business felt it was a well-written report and the methodology applied was sound. Issues raised by business include:
- Concern that there is no clear message from the government stating that the option on which the National Mitigation System has been modelled is a government position
- No roadmap for implementation of National Mitigation System
- The legislative framework needs to be in place by mid-2020 at the latest
- A policy statement about the elements of a legal framework should be published
- The carbon tax policy paper seems to have been used as the basis of this work, rather than the draft Carbon Tax Bill
- A clear separation of GHG emissions from air quality provisions must be provided for
- A policy statement on the alignment of the carbon budgets and carbon tax, as previously requested, must be issued
The Economic Development Department (EDD) and the DEA, in partnership with the Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ), are in the process of conducting a National Employment Vulnerability Assessment (NEVA) study, which includes the development of Sector Job Resilience Plans (SJRPs).
A consortium of service providers led by Stratecon Applied Economic Research was appointed in June 2016, to undertake the research and develop climate change responses by sector and location.
The inception report was circulated on 1 September 2016 for information, ahead of an EDD/DEA hosted workshop on 27 September 2016. Business stakeholders expressed several concerns about the process.
The 2017 iteration of the report did not address any of the comments or concerns raised in November 2016. Criticisms of the report were that it was still too broad to be meaningful and could not be used in its current form to progress to setting sector job resilience plans (SJRPs). The assumptions used in the report are unclear and the supporting information and reports were not provided for review.
The Economic Development Department (EDD) had undertaken to provide stakeholders with the underlying data and allow for written comments on the report and data used. However, the Department decided to rather start afresh with the process. It is understood that the Department has met with representatives from the chemicals sector to discuss the NEVA and SJRPs for this sector. No other sectors have reported being contacted by the Department yet.
DNA Economics has been appointed to undertake the development of greenhouse gas (GHG) pathways. The aim of this work is to develop three emissions pathways for South Africa – without measures (WOM), with existing measures (WEM) and with additional measures (WAM).
The report analyses projected emissions pathways for the different sectors until 2050. The emissions pathways are based on data from the Mitigation Potential Analysis (MPA) and data in the public domain. Data was requested directly from sectors where there were any gaps to be filled.
It was confirmed that this will not be used to update the peak, plateau and decline (PPD) trajectory, but rather to give multiple trajectories for cabinet approval, showing the delay in the “peak” given current information. There is a caveat in South Africa’s Internationally Determined Contribution (NDC) that allows for adjustment within the PPD.
The DEA has appointed consultants to estimate the individual and the total effect of Policies and Measures to Reduce Greenhouse Gas Emissions and the socio-economic impact of the Response Measures for South Africa.
It has since been communicated that the DEA will be updating the Mitigation Potential Analysis (MPA) work in a process separate to the GHG Pathways work and the PAMS work. Business has stressed that it is imperative that there is no duplication of work across these projects.
The inception report was circulated and workshopped in July 2017. Business submitted written comments and expected to receive a revised inception report to ensure that there was common understanding of how this work would be pursued. However, in November 2017, the document circulated was not a revised report, but a methodology, and none of the concerns were considered.
The key concerns have been communicated again to DEA and are included below:
The failure to include carbon budgeting in the list of measures and the absence of reference to the potential for clean fuel production of increase greenhouse gas emissions.
Business has requested that the GHG Pathways work be taken as the definitive set of emissions pathways; the PAMs work should not remodel this work. In addition to the GHG Pathways, other emission pathways projects are being undertaken by DEA to address proposals in the Paris Agreement for countries to develop low emissions pathways (see below), and the National Planning Commission (NPC) is also undertaking work on the energy transition that includes emissions pathways work.
There is also a duplication of work in respect of energy efficiency (EE), given that the Energy Research Centre (ERC) at the University of Cape Town (UCT) is undertaking a study on industrial EE for the Department of Energy (DoE) and another one as part of their work for the NPC. The Department of Science and Technology (DST) and the DEA, in partnership with GIZ have commissioned a study to understand the type of low carbon technologies deployed to support the reduction of GHG emissions; EE technologies are included in this work as well.
Business has expressed concern to all parties regarding the multitude of studies on the same topic being undertaken with no apparent attempt to link or align them.
The most important policy measures in the energy sector are the Integrated Resource Plan (IRP) for Electricity and the Integrated Energy Plan (IEP), both of which are currently being finalised. However, the IEP is not included in the list of measures. These plans are areas of significant contestation and development of what essentially appears to be alternatives to these plans (which has also been done already by both the Centre for Scientific Research (CSIR) and ERC), rather than modelling the impact of implementation of these plans on national emissions is concerning. Business proposes that the IRP and IEP are taken as the given policy measures in the energy sector, once finalised, rather than modelling alternatives.
Business has reiterated the need for an overarching framework on mitigation on numerous occasions and is disappointed to note that despite these numerous requests, studies on the same topic have now proliferated to the extent that a high risk of stakeholder fatigue now exists.
The DEA, with the support of the GIZ has contracted EcoMetrix Africa to develop South Africa’s Low Emission Development Strategy (LEDS). The LEDS will be based on existing work and studies conducted by government, in which the Peak, Plateau and Decline (PPD) currently defines the national emission reduction trajectory/objective.
It is also important to note that implementation of the LEDS will be largely aimed at fulfilling this national objective as well as the international pledges South Africa has made. As a result, it would largely depend on international support and assistance received – in the form of finance, technology and capacity building.
No new policy work will be conducted as part of developing this strategy. The work would rather focus on how South Africa would put into action what has already been defined, as it transits to its low emission development.
The scope of work and draft inception report for this work was circulated at the end of October 2017. Business has submitted comments and is awaiting the revised inception report.
The Technical Guidelines for Reporting and the overarching guidelines for reporting are problematic in their current form, despite comments being submitted to the DEA on multiple occasions. It is acknowledged that the DEA currently has capacity constraints in this area due to changes in the unit that drives this work within the department. These are currently being addressed.
Business raised some concerns with the regulations to the DEA. The DEA acknowledged the concerns around regulation 5(3)(b) and undertook to publish a notice in the Gazette to inform data providers on reporting procedures (i.e. the use of Annexure 2 for registration and Annexure 3 for reporting).
The notice would:
- Provide instruction on how registration and reporting must be done
- Extend the registration period with an additional 30 calendar days
- Exclude 4A – 4E emissions (Waste sector)
Work is being undertaken by the DEA in consultation with business to publish Amendment Notices to the regulations as required, which will be subject to further full public consultation. The DEA has committed to share updated guidelines with business by end of January 2018. They have further committed to give an update on the challenges with the regulations and to find a way forward.
Business comments on the technical guidelines have been submitted and workshopped on multiple occasions, most recently in July 2017. The comments were submitted again following this workshop, as requested by the DEA. Since this workshop, the draft version on the DEA’s website was replaced with a version marked as final, but that has not incorporated the comments submitted. These guidelines are still problematic for some of the sectors. The DEA has committed to address and incorporate the comments by business by end-January 2018, following which there will be a workshop of the final document where the DEA will give feedback on why any comments may not have been included.
This commitment is welcomed, however at the time of writing, the deadline for the submission of PPP is still 21 December 2017 and these guidelines are required for this reporting. The notice of extension has been submitted to the Minister for approval.
The DEA is developing a climate change response legal framework. The framework was sent out via the National Climate Change Committee (NCCC) in May 2017. The last version seen by business was still high level and the legal form has not yet been confirmed. Through BUSA, business submitted extensive comments and proposed the framework and amendments preferred.
The ITTCC participated extensively in this response including a desktop review of penalties applied internationally for non-compliance with such legislation, and a legal opinion specifically regarding the criminalisation clauses of the framework. The conclusions of this work were included in the submission.
Key messages in the comments included:
Business supports the development of a specific environmental management act. In this way the necessary and dedicated framework to manage all aspects of a climate change response can be provided, covering the elements contained in the National Climate Change Response White Paper, which requires legislation for implementation.
Business confirms its view that a chapter of the National Environmental Act will not allow sufficient flexibility to deal with the significant complexities which can be addressed through a dedicated climate change act and therefore supports a dedicated act.
Business has adopted an approach in this submission, which assumes that the legislative framework is intended and required to:
- Be used to give appropriate regulatory effect to the White Paper;
- Domesticate national obligations in terms of the UNFCCC and its instruments; and
- Provide clear guidance to organs of state and stakeholders as to their obligations in terms of a climate change response in line with the Constitutional requirement of the rule of law.
In general, any legislative instrument in respect of climate change is expected to build on the National Climate Change Response White Paper as the foundation and to articulate clearly the domestic requirements which will ensure compliance with South Africa’s obligations in terms of the UNFCCC. The current draft does not achieve that goal adequately and needs significant revision to do so.
In addition, the Bill is too vague to pass constitutional muster and to ensure the necessary regulatory certainty to enable compliance and implementation. The need for legal certainty is defined by the imperative to avoid vagueness which requires that laws must be written in a clear and accessible manner such that an average person is able to determine their obligations and the consequences for not meeting those obligations.
The proposed Bill is largely restricted to empowering the state with discretionary powers and the full scope of these discretionary powers, and the consequences of the exercise of this discretion, are not clearly articulated. In the light of this, in its current form the Bill may not pass constitutional muster.
The introduction of specific criminal sanctions for failing to meet a carbon budget, and presumably the same approach to criminalisation of other offences in line with the approach taken in NEMA is not supported and therefore strongly opposed. This is an entirely new legislative regime and it is not yet clear how it will work. Punitive measures are accepted but not criminalisation at this time. This is particularly problematic in relation to exceeding the carbon budget, given the challenges with the process that were experienced by many companies.
Furthermore, criminalisation of offences as contemplated in this regard would be unique in the developing world. Business sees no reason for South Africa to have a legislative framework for climate change which is one of the most stringent in the world. The imposition of the carbon budget (cap) as well as a carbon tax already creates a unique situation. Business is therefore disappointed that Government appears intent on proceeding with this legislation without conclusion on the alignment of these two instruments.
There has been no subsequent version of this framework following the submission of comments at the end of May 2017. It is understood that this work is in progress.
6.3.1 CARBON TAX
Technical work on both the Z-factor and the Trade Exposure allowance has been ongoing throughout the year between business broadly, individual sectors and the team at National Treasury. This work is not yet finalised.
Good progress had been made through engagements with sector representatives. Any outstanding sectors should provide their input by January 2018. Treasury is in the process of procuring the services of a consultant to undertake a review of the proposed benchmarks. The benchmarks will be published in a regulation in terms of the Carbon Tax Bill. This is expected to occur around June 2018. It was recognised that any regulation in this regard would need to include a provision for the addition of additional sectors.
Carbon offset regulations:
Significant revisions have been affected and a second draft will be published for comment early in 2018 after the publication of the Carbon Tax Bill.
Trade Exposure regulations:
The following approach to providing an allowance against the carbon tax in respect of trade exposure was discussed:
It was confirmed that the data from the GHG reporting regulations would be used as the basis of the carbon tax. It was agreed that the primary methodology for determining trade exposure would use the UN concordances between trade (HS codes) and production (ISIC codes converted to SIC codes).
There may be sectors where the data required to apply the methodology as contemplated is not available. In such cases, GVA may be used as a proxy for production. It was noted that the application of this methodology may result in sectors that are known to be trade exposed not being determined as such through the primary methodology, a second qualitative step may be needed.
Percentage trade intensity is calculated using the previously discussed formula ((X + M) /Y) and a three-year average is used to determine trade exposure relative to the threshold: where X= exports; M=imports; Y=local sales.
The proposal is now to use the 30% trade intensity threshold (determined in terms of the methodology above). However, before finalising, a more detailed analysis of the approach will be undertaken by business.
Quantum of allowance:
To be based on a threshold of 30%, the maximum allowance of 10% will be allocated as follows:
- 0-10%: Zero allowance
- >10% -< 30%: graduated scale based on the formula in the first discussion paper.
- ≥30%: 10% allowance
Alignment of the schedule of activities which are subject to carbon tax, and the list of trade exposed activities needs to be concluded once the Bill is published.
Publication of the Carbon Tax Bill:
The budget review for 2017 included the statement:
“By the end of this year, government expects to provide clarity on the alignment of the carbon tax and carbon budget after 2020.”
“During 2016, following comments received on the draft Carbon Tax Bill, government held additional public consultations. A revised Carbon Tax Bill will be published for public consultation and tabled in Parliament by mid-2017. The latest developments include the following:
- During the first phase of the tax (until 2020), there will be no impact on the price of electricity.
- A revised regulation for the carbon offset allowance, enabling firms to reduce their carbon tax liability, will be published by mid-2017.”
Despite this statement, none of the accompanying regulations, nor the Carbon Tax Bill were published for public consultation by mid-year.
The Medium-Term Budget Policy Statement (October 2017), and Minister’s speech contained the following references to the carbon tax.
“The revised Carbon Tax Bill will be published shortly.”
“I am also happy to announce that Cabinet has approved the release of the Carbon Tax Bill to Parliament for formal consideration and adoption.”
Based on engagements with National Treasury, it is understood that their intention is to engage with stakeholders on the Bill and to ultimately have the Bill adopted, without an implementation date. It is further understood that the Bill will be published for public comment, and the comments would be considered before the Bill is finally tabled in Parliament, and that this would be followed by public hearings. The Socio-Economic Impact Assessment Study (SEIAS) would accompany the Bill when published for public comment.
There is a global paradigm shift currently underway where government and business have begun to recognise the value of partnerships in dealing with the challenge of climate change and sustainable development. Consequently, The Department of Environmental Affairs (DEA) is partnering with the South African business sector to inclusively address issues of climate change.
Recently, business has actively increased its participation in multilateral dialogues seeking global solutions to issues of climate change and sustainable development. This has led to business being regarded in some jurisdictions, as trusted stakeholders in partnering with state organs to find and implement solutions for climate change. This is especially important as business can derive specific pragmatic solutions, and critically fund both the implementation of effective responses to climate change, and sustainable development aspects, that are regarded as significant business risks outside any regulatory requirements. This paradigm shift is supported by platforms such as We Mean business1 and the Marrakech Partnership on Climate Action2.
business engagement on global issues such as climate change and sustainable development has been dominated by developed country voices. Non-governmental organisations (NGOs) have taken the role of representing developing countries in the absence of strong business voice from the region. As a result, the dominant voices leading the Non-State Actors narrative at the global platform for climate change and sustainable development issues are those from western nations. Thus, it is a key imperative that South African business voices become more vocal in the climate change and sustainable development narrative, at both the local and global level platforms. Furthermore, given the current rhetoric, the challenges faced by developing countries, particularly South Africa, in managing the key climate change risk issues, are lost in the debate.
South African business has publicly given its support of the country’s NDC, and recognises the principles of equity and common, but differentiated responsibilities and respective capabilities… 3
South Africa’s vulnerability to climate change impacts is also given; accordingly, adaptation and mitigation efforts must be balanced.
There is a very real need for business and government in South Africa to work in partnership with our international counterparts to effectively describe the challenges experienced in a developing country context.
Specifically, the complexity of developing country issues necessitates a focus on the broader development context (illustrated by the breadth of the Sustainable Development Goals). In the case of developing countries, climate mitigation and adaptation, must be an outcome of a system that deals with a range of development issues – from poverty eradication, job creation, a just transition to lower-carbon technologies, transformation and eliminating inequality – as envisioned in South Africa’s National Development Plan
Because of the need for partnership, and prompted by Exxaro; Eskom, Sasol and the National Business Initiative (NBI) met to discuss and propose an approach on how best South African businesses and government can use the COP-23 platform to showcase the significant advances made on both climate change mitigation and adaptation by government and business. The purpose of this engagement is twofold:
- Strengthen the relationship between the South African business community and government in addressing the global challenges of climate change and sustainable development; and
- Develop consistent messaging between the South African government and business that showcases the significant advances in climate change management work undertaken locally.
Given their experience at COP17 in Durban, the NBI undertook the main project management for the South African pavilion. They were supported by resources from business and the DEA. The opportunity to participate was presented to all NBI, BUSA, Chamber of Mines, ITTCC and EIUG members. Sasol, Exxaro, Eskom, DBSA, Woolworths, ITTCC and DBSA all sponsored the pavilion, while some other members and the DEA provided supplementary material for the space, primarily video material.
In addition, the NBI and government co-produced to videos and four infographics. The first video set the scene for climate change and sustainable development in South Africa and the importance of partnership. The Minister of Environmental Affairs and CEOs from NBI, Sasol, Exxaro and others gave their thoughts on the transition of SA and the importance of collaboration. The second video showcased some examples of SA business’ efforts towards addressing climate change and working towards a sustainable future. The videos were produced in such a way that they can be used post COP.
The infographics detailed South Africa’s key demographic information and challenges – the so called Vital Statistics; the next detailed South Africa’s climate change policy journey; then South Africa’s mitigation and adaptation efforts.
Government also distributed the videos and infographics produced via their social media platforms and the Minister of Environmental Affairs personally sent Joanne Yawich (NBI CEO) an SMS to thank business for the great work on the event.
The videos and infographics were positively remarked on and there were numerous requests for copies of these as well as the NBI CDP infographics, which were also on display.
These, together with the private sector sponsor information and government printed information, were distributed throughout the pavilion and gave good insights as well as started many conversations. This included other governments, academics, NGOs, business from other regions and interested members of the public, as well as South Africans from who may not otherwise, or often be engagement with.
The cocktail event was well received. There were about 70 people in attendance (mostly South Africans) with three Deputy Minsters, three MECs, three Parliamentarians, and the South African Ambassador to Germany.
In addition, the pavilion hosted many side events, including:
- Sessions on Climate Finance (NBI and the DEA).
- NBI, DoE, Sasol and Exxaro hosted an event on Energy Efficiency, where the Deputy Minister of Energy was part of the panel.
- NBI’s socio economic scenarios were presented.
- NBI’s green economy finance work.
- Exxaro, WITS GCI event on Adaptation (featuring Eskom, Sasol and NBI).
- Joanne Yawich spoke at a WWF event on local mobilisation.
Sponsoring organisations also held events at the pavilion, including:
- Exxaro/Tata Power event on community based wind farms.
- DBSA Catalysing Wind Investment.
The South African government held events on:
- Carbon Sinks
- Adaptation Event
- Launch of the African Alliance on Circular Economy
In addition, the pavilion hosted outside events as requested through the UNFCCC Secretariat which included:
- WOCAN event on women’s empowerment
- Carbon Market Watch – transport emissions
- PAN African Parliament Meeting
Finally, there were also several key bilateral and informal meetings
COP 23 was technical with focus placed on the Paris Rule Book.
Political debates on developed vs developing country issues were rife, fuelled by the lack of progress on the pre-2020 commitments to curb emissions and increase financial flows:
- A set of decisions to accelerate work on pre-2020 were agreed, including finance and mitigation
- A few countries ratified the second commitment period of the Kyoto Protocol at COP 23
- More financing commitments from developed countries such as France and Germany
The US team negotiated as per normal; there was no request from Federal government to change direction, particularly if the Paris deal can be renegotiated.
2018 Facilitative Dialogue, now renamed the Talanoa Dialogue, will assess progress on cutting emissions and future trajectories:
- A process throughout 2018 that aims to increase ambition
- Business and Parties will be allowed to participate
Discussions on the Paris rules progressed to developing text; however, much work remains to be done to secure robust Paris rules by COP24.
- Text is at 179 pages and an additional session has been scheduled before COP 24.
The Adaptation Fund ‘shall’ serve the Paris Agreement – an issue that was highly debated!
Finally, the Gender Action Plan was agreed as well as a Local Communities and Indigenous Peoples Platform.
Likely possibility that a SA Pavilion request will be come through again next year.
- An NBI working group has been formed to decide on whether such an option should be pursued
It is becoming clearer that the 2-degree target of the Paris Agreement will be overshot and that pressure for greater country ambition is mounting:
- Risk of greater pressure for developed and developing countries to take on board stricter and deeper targets
- SA has agreed to host G77 & China climate change meeting in 2018
- US position seems unclear with US States pushing ahead with climate change policy, even in the face of President Trump’s decision to withdraw