- National Treasury announced that it updated its technical paper aimed at assisting reduce energy’s impact on the environment.
- National Treasury said the updated paper served as “a foundational step” towards encouraging more long-term investments in sustainable projects.
- The document said spates of loadshedding in 2018 resulted from operational challenges at Eskom’s coal-fired power stations.
National Treasury said in its updated its technical paper, entitled “Financing a Sustainable Economy”, that trends are likely to force reductions in the consumption of coal based energy in coming years.
The original version of the document was published in May of last year. The document seeks to “assist in reducing pressure on the environment, including supporting the transition to a low carbon economy by phasing out greenhouse gas emissions and optimising the use of natural resources”.
The updated document comes after Minister of Mineral Resources and Energy Gwede Mantashe has drawn considerable criticism for voicing his concern that South Africa could rush its transition towards renewable energy at the expense of economic growth prospects.
This stance has seen critics of the minister slam him as a supporter of coal groups at the expense of renewable energy options.
National Treasury said the updated version of its paper served as “a foundational step” towards encouraging more long-term investments in sustainable projects.
“Where previously financial institutions would only focus on the return on investment of projects, the focus on sustainable finance encourages them to also be cognisant of how their investment decisions impact the environment,” the document said.
The document highlighted carbon tax’s impact as a policy consideration as well as its impact on fuel and costs with implications including regulatory changes, border tax adjustments, trade sanctions or restrictions like reduced coal exports.
“An investment in a coal mine may deliver short-term returns but over time may not hold value, as consumer trends and regulation force reductions in the use of coal-based energy. Climate change and environmental and social factors are potentially important drivers of portfolio risk and return,” the document said.
The document said spates of loadshedding in 2018 resulted from operational challenges at Eskom’s coal-fired power stations, and this was where the renewable energy projects made a contribution to the supply of electricity.
“Kusile, similarly has rising from R161 billion, including flue gas desulphurization, to a projected R226 billion. South Africa has some of the world’s highest concentrations of sulfur dioxide and nitrogen dioxide emissions as a result of its coal-fired energy generation,” the document said.
The document said the call for Independent Power Producers (IPPs) had certain specifics that were required either in terms of technology and over the different window periods the prices fell dramatically.
“This was a factor of economies of scale internationally, as investment in these technologies grew as well as greater local capability and reduced perceptions of risk impacted pricing. The one bid window the call for independently produced coal-fired power as that has not been successfully concluded,” the document said.
The document said the cost of the global economic transition to a low-carbon economy could be trillions of dollars and that for South Africa transitioning to a cleaner economy will be “both fiscally and economically expensive”.
“It will also have a social cost as well as opportunities. The country’s transition risk has been estimated at R2 trillion because of the significant exposure to a global low-carbon transition through exports, thermal coal and related infrastructure, power generation and synthetic fuel production,” said the Treasury document.
The Treasury document said there were legal challenges based on water usage, pollution and climate change impact as well as banks and other financiers’ reluctance to fund new coal-fired energy generation.
A National Treasury statement accompanying the document said the potential impact of climate change physical risks from extreme weather transition risks, liability and disclosure risks resulting from loss and damages, rising insurance costs, director’s liability and disclosure failures.
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