Parliamentary Portfolio Committee Presentation on the National Climate Change Response White Paper 8 November 2011

2 presentation overview 1.The South African and Sasol context 2.Our approach to climate change 3.Comments on the implementation of the National Climate Change Response White Paper 4.Notion of a carbon budget is impractical and unworkable in view of the IRP2 5.Concluding remarks

the south african and sasol context

4 Source IEA - Top 20 CO2 Country emitters, global potential for GHG reductions is dominated by the policies of the top five emitting countries... 60% of emissions are produced by the top 5 countries 1.1% of total Global emissions

5 south africa’s top emitters Source: CDP 2010

6 Source: International Energy Agency Data south africa versus other countries that have implemented a form of a carbon tax

7 Source: International Energy Agency Data – Sasol analysis South Africa is far more dependent on coal than this peer group South Africa is far more dependent on coal than this peer group south africa versus other middle income and commodity producing countries

our approach to climate change

9 our approach to climate change mitigation (1/2)  Sasol supports the transition to a lower carbon economy which takes into account South Africa’s critical developmental challenges  As a significant contributor to the economy, Sasol has an important role to play in this transition  As a strategic step in responding to the need for development of lower carbon energy, Sasol New Energy was established to broaden the company’s business activities  Sasol has engaged in major initiatives to mitigate GHG emissions, including:  an across the board efficiency improvement drive  exploration of additional gas resources, displacing coal as a feedstock  projects in renewable energy  CCS from research to commercialisation  To reduce carbon emissions will require significant capital expenditure and time to implement the mitigation and adaptation steps and are influenced by exploration uncertainties, commercial and political risks 9

10 our approach to climate change mitigation (2/2)  Furthermore, climate change policies are being introduced at a time when other environmental regulations (Air Quality Act and Clean Fuels 2) require significant investment to comply with  Climate change policies should not constrain but should rather play a supporting role to enable Sasol to reduce its carbon footprint, grow its business and continue meeting the needs of all its stakeholders 10

the national climate change response white paper

12 overarching comments  The White Paper is significantly different to both the Green Paper and the draft White Paper, which if remains unchanged will lead to a material difference in the implementation of the policy and the impact of the policy on key South African sectors  Our comments focus on the following areas, which raise concern:  Peak-Plateau-Decline (PPD) emissions trajectory  Copenhagen commitment and the mitigation approach  Interplay between a carbon budget and the proposed carbon tax  Competing policy drivers  Timeframe for implementation  Ongoing application of the IRP2 reduces industry’s carbon space

13 peak-plateau-decline emissions trajectory  A proposed national emission profile with emission numbers for the PPD trajectory has been included in the White Paper. These were not reflected in the Green Paper nor the draft White Paper  The trajectory is presented as a range with upper and lower limits, whereas in the draft White Paper it was referred to in broad terms as an initial trajectory, understood to be aspirational, as part of an ongoing review process  A trajectory requires a comprehensive review before it can be used as the ambition against which regulatory monitoring and evaluation is to be undertaken. This has, as yet, not been completed  The ambition needs to be based on at least two key elements:  an accurate national greenhouse gas inventory  the range of mitigation actions that can be undertaken having considered what is technically feasible and the international support that will be required to fund and implement these actions

14 south africa’s copenhagen commitment “South Africa will take nationally appropriate mitigation action to enable a 34% deviation below the Business as Usual emissions growth trajectory by 2020 and a 42% deviation below the Business as Usual emissions growth trajectory by In accordance with Article 4.7 of the Convention, the extent to which this action will be implemented depends on the provision of financial resources, the transfer of technology and capacity building support by developed countries. Therefore the above action requires the finalisation of an ambitious, fair, effective and binding multilateral agreement under the UNFCCC and its Kyoto Protocol”.

15 copenhagen commitment and the mitigation approach  Although the White Paper reflects the Copenhagen commitment, the conditions attached to the Copenhagen commitment are not included in the approach to mitigation set out in the policy paper  By fixing firm emission numbers in the policy paper, the conditionality of the pledge linking the extent of mitigation action to financial, capacity and technological support has been lost  Implementing the policy paper in its current form could serve to prejudice South Africa’s negotiation position during COP17 and beyond

16 interplay between a carbon budget and the proposed carbon tax  Implementation of a carbon budget and carbon tax will require close policy coordination. This is presently not apparent in the White Paper or any other documentation  A carbon tax is a market-based mechanism which sets a carbon price and needs to take into account specific national and sector characteristics to ensure effective implementation.  A carbon budget sets emission allocations across the economy and will have the effect of impacting sector characteristics  The proposed carbon budget and the envisioned carbon tax are thus applied in the same domain. Uncoordinated it can lead to perverse outcomes such as crippling burdens on sectors and/or misalignment in emission reduction targets  Currently in combination, these policies will lead to companies or sectors being committed to reduce emissions, at the same time being subjected to a tax, thereby reducing the capacity to develop mitigation and adaptation steps

17 timeframe for implementation  In light of the further work required, including extensive engagement with government and key stakeholders, the two-year timeframe allocated to understand the implications of and formulate the proposed carbon budget for all sectors and sub-sectors in South Africa is impractical.

notion of a carbon budget impractical and unworkable in view of the IRP2

19 the implementation of the IRP2 will lead to a proportional reduction of industry sectors All Other Sectors 57% Mt CO 2 PPD Mid-point Mt CO 2 All Other Sectors 58% All Other Sectors 60% 491 Mt CO All Other Sectors 46% 506 Mt CO 2 All Other Sectors 40% - 34% - 42% 2025 All Other Sectors 54% 293 Mt CO 2 from IRP2 275 Mt CO 2 from IRP2 LTMS BAU Mid-point 542 Mt CO 2

20 conclusions  The White Paper addresses both mitigation and adaptation. Whilst our commentary is focused on mitigation, we recognise the importance of adaptation and that it needs to be given higher priority in climate change policy development  Our primary concern is centred around the introduction of fixed numbers for the PPD, which fundamentally changes the way in which climate change policy will be implemented nationally, and is also likely to negatively impact the international negotiations  Furthermore, if implemented as proposed, the policy will become an impediment to economic growth in South Africa with serious socio-economic consequences we look forward to a constructive engagement with government departments and the portfolio committee to work towards finding a workable solutions to transition to a lower carbon economy