South Africa’s biggest polluters will have to ensure they’re prepared for a raft of regulations coming their way. Government last month released its draft carbon tax policy, which has already been approved by Cabinet. And more environmental taxes have been mooted, as South Africa tackles its status as one of the world’s biggest polluters, heading up to the United Nations Framework Convention on Climate Change to be held in Durban this year.
The clampdown is likely to place pressure on local companies to cut their carbon dioxide emissions. And the pressure from government could mount, as South Africa attempts to reach its target of cutting emissions by 34 percent below the ‘business as usual’ levels by 2020, and by 42 percent by 2025.
While many companies are already voluntarily looking at innovative ways of reducing their carbon footprint, pundits reckon many still have a long way to go. Eskom for instance emitted some 220 million tonnes of carbon dioxide in 2009. Among the listed companies, Sasol reported emissions of 60 million tonnes, making South Africa the worst emitter of greenhouse gases on the continent, and responsible for around half of Africa’s emissions.
Part of the problem is that, to date, government has not slapped financial penalties on big carbon emitters in the country, and that’s made many firms reluctant to alter the way they operate. But that’s already starting to change, with government implementing its first carbon tax last year, when in September 2010, it launched its tax on purchasers of gas-guzzling vehicles. Now government’s gone a step further with its draft carbon tax. This policy is looking at charging companies between R75 and R200 per tonne carbon dioxide. Government is also looking at an environmental tax on non-renewable sources of electricity, while a tax on coal companies is also on the cards.
Firms have also been loathed to change their ways because of a perception that going green is a costly affair for companies, but this perception is starting to change. An example would be local company Vital Health foods, who has already been able to reduce its electricity usage by 12 percent per month, and 15 percent during peak demand. That’s translated into savings of more than R200 000 over an eight-month period, simply by coating the roof of its manufacturing facility with a special paint called Thermoshield and by replacing old-fashioned incandescent bulbs with LED lights. Thermoshield reflects the sun, thereby reducing the need for air conditioning in the building. Because the facility pharmaceutical products, it has to remain cool at all times.
More companies in South Africa are realising the necessity for transparency on their carbon emissions, and the need to change. The Carbon Disclosure Project (CDP) for 2010, which challenges companies to measure and report on their carbon emissions, found more listed firms responded this year to questions on how much carbon dioxide they’re emitting than last year (74 percent versus 68 percent in 2009) – with South Africa’s response the fourth highest CDP response rate internationally. There were also other positive trends among local companies: the level of disclosure on greenhouse gas emissions and climate change practices have improved, while more companies are including climate change issues in their governance activities. Jon Duncan, climate change and sustainability partner at ERM Southern Africa agrees that more companies in South Africa are looking to quantify their carbon exposure. “Companies are maturing in terms of understanding their carbon footprint. They’re starting to collect and manage greenhouse gas information better than they did three years ago.”
The country is also fairing reasonably well in comparison to its emerging market peers. India is the world’s third largest emitter, and Russia is fourth. South Africa features in the thirteenth position, while Brazil is the world’s eighteenth largest polluter. According to Duncan, the fact that the Johannesburg Securities Exchange has a Socially Responsible Index (SRI) that was already launched in 2004 shows how far advanced we are. “South Africa has a sustainability index, with companies listed on that index. So relative to some of our developing economic peers, we’re ahead. Also, people like Mervyn King create a good profile in terms of sustainability (for SA). So with companies adhering to King 3, it shows we are playing a leadership role.”
South Africa will need all its leadership skills, too, when delegates from across the globe gather at the United Nations Framework Convention on Climate Change late this year. In many respects, last year’s conference, held in Cancun, Mexico in December, failed, with most controversial issues still unresolved. These will have to be tackled by environmental ministers when they meet in Durban.
That means South Africa could be left to mediate a showdown between countries on how to replace the Kyoto Protocol, which expires at the end of 2012. If no agreement is reached at Durban – which currently seems possible – it will mean countries will be under no pressure to reduce their greenhouse emissions. And with no regulation, companies, too, may feel they’re not obligated to reduce their footprints. As it is, the Carbon Disclosure Project found that few firms have quantified the potential financial implications of climate change. They’re also not far enough advanced in their adaptation initiatives. What’s more, the CDP found some sectors, like the real estate sector, food products and hotel and resorts sectors offered almost no response at all.
According to Duncan, however, by ignoring climate change, companies could find themselves losing out. “Companies may find they can’t get their product into the market because it’s too carbon intensive. Or they may find they suffer physical risks that could damage their assets – through water shortages or flooding.” He says companies shouldn’t just look at their own operation, but also at the risks down their supply line.
To see how Thermoshield works in practice, see here.
George van der Riet