OPINION: SA must act in her own best interest after G20 summit Rob Jeffrey

Business Report   7 August    Rob Jeffrey

OPINION: SA must act in her own best interest after G20 summit

CAPE TOWN – Leaders are following their national vested interests; and there are many hidden agendas. Angela Merkel has expressed deep disappointment over two issues, namely the agreements on climate change and trade. A closer examination reveals that Germany is itself a major cause of world economic problems.

As noted by “The Economist” recently, Germany’s surplus of $300 billion (R4.03 trillion) is damaging the world economy. There are two key causes of this surplus. Firstly, it is caused by insufficient investment spending and infrastructure development by Germany itself and secondly the German economy benefits massively from the relatively weak euro.

The result is that Germany earns trade surpluses whilst insisting that its weaker European partners endure austerity. Clearly, Germany has a stake in protecting this trade surplus and must ensure that other countries remain less competitive.

It therefore has a powerful interest in maintaining the political EU, with Germany as its leader and more relevantly maintaining the undervalued euro.

It must also try to ensure that, having already selected the more expensive non-competitive renewable energy path; it encourages other countries to follow the same route.

This policy will help German wind technology firms to expand their exports. Germany, in the meantime, is effectively curbing its own further massive expansion of renewables whilst increasing its not talked about coal fired power station expansion. Its first new coal-fired plants came on line so quietly that most people do not know of them.

Bjorn Lomborg, of the Copenhagen Business School, calculates that the promises of the Paris Accord – through slower gross domestic product (GDP) growth as a result of higher energy costs – will result in a global economic cost of $1trln to $2trln every year from 2030.

The costs for the US are likely to be $154/172bn every year in lost GDP. In addition, there is promised support to disadvantaged countries of $100bn per annum in climate aid.

Trade deficit

The US therefore has an estimated financial economic cost of a trade deficit of $300bn per year. Little wonder that the new US administration is taking a long hard look at both climate change science and pulling out of the Paris accord.

Bjorn Lomborg goes on to say that peer reviewed estimates show that even if all countries continue their promised reductions for 2031, then from 2032 until 2100 it will reduce global temperatures by just 0.17°C. The entire US climate promises will reduce global temperatures by just 0.031°C by 2100.

India and China are two other countries present at the G20 and cutting back on old dirty coal-fired power stations and coal mining activities.

But they are expanding their activities in new High Efficiency Low Emissions (Hele) clean coal power stations. In this way they significantly reduce their greenhouse gas emissions and in particularly their production of other pollutants, such as mercury, sulphur, and of course the use of water. Both have massive ongoing expansion programmes of nuclear and particularly coal. Meanwhile, Indian business is planning to invest in one of the biggest coal mines in the world in Australia.

Japan is set to build 45 modern Hele coal plants, totalling approximately 45GW. The International Energy Agency has forecast that 730GW of these highly efficient plants will be built by 2040. Asean countries are expanding their coal fleets at more than 4% per annum.

Based on the Lomborg figures above, South Africa’s GDP in relationship to the global GDP and South African emissions of 1.1% of global, emissions means that firstly carbon tax and renewables would cost South Africa between R35bn to R51bn per annum and secondly that South Africa’s sacrifices will reduce temperature increases by only about 0.0026°C by 2100.

This is less than measurable. This is a measure of the futility of South Africa’s efforts to curtail production of coal-fired power station generation in a country with a treasure chest of coal resources.

An analysis of domestic economic data reveals that because of the proposed Integrated Resource Plan (IRP) 2016, Eskom’s demand for coal will decline by 37% because of closing coal plants.

The overall economic impact will probably involve more than 300000 people losing their jobs, affecting over one million dependents. In addition, it is likely that export sales of coal could be reduced by more than R10bn per annum.

It is estimated that by 2035, because of the planned IRP 2016 and the planned carbon tax, South Africa’s GDP growth potential will have been reduced by almost R1trln and employment would be almost 5 million less than what could have been achieved. The current IRP 2016 base case and unconstrained renewables scenario and the new mining charter are more than likely going to be the final nail in the coffin for the mining industry.

These policies will certainly destroy the aspirations of emerging miners, transport drivers and employment in the coal mining industry, if not in the whole mining industry. Countries should use the most economic energy systems domestically available. In South Africa’s case, these are nuclear, coal and potentially gas.

The discounted value of coal reserves is more than a trillion rand. The value of uranium reserves is probably equal to this. The IRP 2016 effectively throws these benefits away and denies South Africa’s future generations their natural inheritance.

Research programmes

An institution that should be positioned to analyse and advise the country on the best energy and electricity generation path for the country is the CSIR, and clearly Eskom itself. Sadly, the CSIR research seems to be based on a one sided renewables viewpoint.

These efforts should be matched by equal techno/economic research programmes in other technologies, primarily nuclear and fossil fuels, including coal and gas.

The energy potential of the country lies in those efficient proven technologies of nuclear and new modern Hele coal plants that will give South Africa a competitive edge and a substantial trade advantage.

These in turn can be reinforced by applicable solar for domestic and general business use, supported by a significant expansion of gas, but only if South Africa can find gas in economic quantities.

Renewables, particularly wind, involve increased prices and increased subsidies.

The fact is that the Paris Accord did not bind countries to the agreement. Its objectives were sound targets. However, countries were left to act in their own best interest. Other countries in the world are doing precisely this. South Africa should also now act in its own best interests.

Rob Jeffrey is the former MD of Econometrix and is an independent economic risk consultant.