Carbon intensive but decarbonising quickly? Using Life Cycle Assessments to determine whether the South African pome fruit industry is becoming cleaner.

Research profile: Lorren de Kock

Carbon intensity is an important descriptor of and widely used proxy for environmental impacts of products. Products exported from carbon-intensive economies are becoming vulnerable to soft-trade barriers. Producers and customers thus need to know whether production is becoming cleaner. The purpose of this study was to determine the global warming potential of South African apples and pears (pome fruit) for the years 2000, 2010 and 2020, and compare it to that cultivated and packaged in other countries. The Attributional Life Cycle Assessment (LCA) methodology was used to determine the climate change impact across the main stages of the pome fruit life cycle namely; the farm, packhouse, controlled atmosphere store and cold store. Retrospective LCAs were used to determine the historical environmental impacts for the years 2000 and 2010 and a prospective LCA for the year 2020.

The results obtained from the Intergovernmental Panel on Climate Change (IPCC) impact assessment method indicated a decrease in the aggregated Global Warming Potential (GWP) of pome fruit from 1.52 kg CO₂eq/kg fruit in 2000 to 1.23 kg CO₂eq/kg fruit in 2010 and finally 1.02 kg CO₂eq/kg fruit in 2020 across the four life cycle stages specified. The life cycle stage with the largest contribution to greenhouse gas (GHG) emissions was the Controlled Atmosphere store. At the activity level, the consumption of the national grid electricity in the fruit packaging and storage facilities was identified as the hotspot for all years. The normalised results for the industry show the same rate of decline during the 20-year period and correlate to the increasing trend of eco-efficiency practices implemented within the industry. South African pome fruit GHG emissions for the year 2000 were relatively high compared to similar international studies on apples and pears during the same period. The results for the years 2010 and 2020 indicate a sustained decline in GHG emissions intensity. Improvements are due largely to more intensive farm-stage production coupled with eco-efficiency improvements in all four value-chain stages, with a projected decline in carbon intensity of electricity from the national grid expected to make a significant contribution in the coming years.

Does the South African carbon tax internalise the environmental externalities of climate change and what are the impacts on emissions and the socio-economic landscape?

South Africa is ranked among the top 20 countries in absolute carbon dioxide emissions globally (National Treasury, 2013: 19) with 83% of emissions emanating from the energy and energy consumption sectors (Department of Environmental Affairs, 2014).  The high carbon intensity (tons CO₂e/R1000) of the economy has been due to the abundance of coal reserves with resulting cheap coal intensive electricity, leading to the establishment of the energy intensive mining and metals sectors as drivers of the economy (Alton et al., 2012).    

The escalating carbon emissions of this business-as-usual (BAU) scenario and resulting carbon intensity of the economy is untenable and in contrast to the national development goals of government which includes sustainable development and environmental health.

In 2009 the South African government voluntarily ratified the COP 15 accord to reduce emissions to below baseline levels.  The aim is to reduce GHG levels by 34% by 2020 and 42% by 2025 (National Treasury, 2013: 21) dependent on financial, technological and capacity building support from developed countries.  The resulting National Climate Change Response Policy (NCCRP) is the government’s response (Department of Environmental Affairs, 2014) to climate change and offers a strategic approach to mitigation and adaptation actions, institutional arrangements as well as monitoring and evaluation of the mitigation actions (Boyd et al., 2011: 18).  As part of the National Appropriate Mitigation Actions (NAMAs) for South Africa, is a carbon budgeting approach to identify mitigation measures for large emitters and a carbon tax to internalise climate change externalities by pricing carbon.  The carbon budget approach puts an absolute limit on the carbon dioxide emitted by applying a constraint on emissions nationally and per sector (Department of Energy (DoE), 2013: 31) whereas the carbon price approach is an intervention by government to correct the current market failure of excluding the environmental and social externalities caused by GHG emissions.  (National Treasury, 2013: 58).  The carbon pricing and budgeting mechanism, together with other regulatory measures aims to influence producer and consumer behaviour which is intended to incentivise the investment in low carbon technologies and the transition to a low carbon economy (National Treasury, 2013: 46). 

The price set on a ton of CO₂e is based on fossil fuel inputs and will start with a nominal rate of R120 with a 10% increase each year for the first 5 years (National Treasury, 2014: 5) with the possibility of the introduction of an ETS in 2025 (National Treasury, 2013: 35).  The effective rate will depend on the tax thresholds, industry sector allowances, graduated relief for trade exposed sectors and the availability of carbon offsets (National Treasury, 2013: 10). It is proposed that the revenue from the carbon tax be recycled through tax shifting to provide relief for poor households and support social and environmental programmes. 

However, does this price on carbon result in the maximum net social benefit balanced with the marginal costs?  In other words, is the carbon tax rate efficient?  Historically a price has not been set on the environmental and social externality of climate change for goods and services in South Africa.  Prices have been determined purely according to the market equilibrium of supply and demand.  Therefore the inclusion of the climate change externality will alter the market equilibrium of this classic supply and demand curve to a more efficient equilibrium (Chapter 3: The theory of environmental externalities, n.d.).  However, given the phased approach of the carbon tax with all the tax free thresholds and allowances, it is unlikely that the effective rate represents the ‘new’ market equilibrium accurately.  National treasury (2013, 46) also state that currently the proposed carbon tax does not reflect the true marginal external damage cost but will be adjusted over time as the global climate agreement matures. 

To give another perspective on carbon pricing, research done by Ackerman and Stanton (2012) to determine the actual ‘social cost of carbon’ (SCC), which is the damage per metric ton of carbon equivalent (tCO₂e), results in costs much higher than the $21 per ton tCO₂e estimated by the US Federal Interagency Working Group.  The cost of $21 per t tCO₂e for 2010 in 2007 dollars determined by climate economic models excluded the biggest risks associated with climate change and underplayed the effects on future generations according to the authors.  This price is equivalent to R80,22 (PPP in 2007 $) (“PPP conversion factor, GDP (LCU per international $) | Data”, n.d.).   For the South African carbon tax rate proposed by National Treasury in 2014, the high initial thresholds mean that the effective rate of between R12 and R48/ tCO₂e emitted is even lower than the $21/ tCO₂e estimated by the Working Group in 2010.  What Ackerman and Stanton (2012) found is that by re-analysing the models and including the four major uncertainties of climate sensitivity, level of damages at high and low temperatures and a discount rate they found that the SCC is approximately $900/ tCO₂e in 2010 and $1500/ tCO₂e in 2050.  The 2010 figure equates to approximately R4000/ tCO₂e (PPP for 2010 $), which again validates the economic inefficiency of the South African carbon price according to global studies.

Taking into consideration the current design of the South African carbon tax there have been a few studies conducted to determine the impact of the tax on emissions and socio-economic conditions.  The Long Term Mitigation Scenarios (LTMS) was the first study to determine the impact of a carbon tax on emissions and socio-economic development using Computable General Equilibrium (CGE) models (Merven et al., 2014: 7).  It found the carbon tax to be the best mitigating option with reductions of 12 287 Mt from 2003 to 2050 and an additional 5 000 Mt from economic incentives.  The socio-economic implications of a carbon tax (Merven et al., 2014: 7; Pauw, 2007; Kearney, 2008) resulted in a slight reduction in the GDP by 2% and job creation for semi-skilled workers in 2015.  There was also a negative impact on poor households which could be offset by revenue recycling.  Other studies conducted by the University of Pretoria, National Treasury and the World Bank on the macro-economic impacts (Merven et al., 2014: 7) from 2006 to 2012 found similar results with impacts on GDP being neutral provided that revenue recycling takes place.  However the main limitation in all of these studies was the use of static CGE models which did not take into account the market response to higher energy prices. 

Research by the National Treasury and the United Nations University – World Institute for Development Economics Research (UNU-WIDER) in 2012 used a South African CGE model linked to the Energy Extended South African General Equilibrium model (e-SAGE).  Results indicated that the impact on emissions were substantial with negligible impact on GDP, employment and income inequality.  It pointed out that if international trading partners introduce a border tax adjustment (BTA) on South African products this will have a larger negative impact on the social-economic landscape than a domestic carbon tax (Alton et al., 2012: 19).  Limitations included the model not being linked to an optimising energy model and the exclusion of the social cost of carbon.

The most up to date study was done by the ERC at the University of Cape Town as part of the Mitigation Action Plans and Scenarios (MAPS) programme using a linked model between the South African TIMES model (SATIM) and the (e-SAGE) (Merven et al., 2014: 8).  The linking of the two models allowed energy supply and demand to be endogenised in order to determine the socio-economic implications of a carbon tax and renewable energy programmes.  With regards to the current carbon tax design, it found that it only reduced emissions by 5% by 2040 relative to the reference or BAU case.  GDP was 0.7% less and there were 2.6% fewer jobs than in the 2040 reference case.  The sensitivity of the carbon price was tested by increasing the amount in $10 increments up to $50/ tCO₂e.  It was found that there was a tipping point between $10 and $20/ tCO₂e from 5% at $10 to a 50% reduction in carbon emissions at $20.   This indicates that the tax will be most effective at a rate of between R54 to R107/ tCO₂e (PPP in 2014 $) in curbing emissions.  However, the effect on GDP is a drop of between 0.7 - 3.2% and new job creation will decrease by 2.2 – 5.7%.

In conclusion it was found that the carbon tax rate is inefficient with the effective price not taking into account the negative externalities of climate change.  This was confirmed by comparing the South African carbon tax effective rate of R12 – R48/ tCO₂e to international research costings of between R80 – R4000/ tCO₂e for 2010.  These findings are applicable to the South African context as climate change is a global commons space.  With regards to the implications of a carbon tax on emissions and socio-economic development, the latest research found that the carbon tax is most effective in reducing emissions at an effective rate of between R54 – R107/ tCO₂e.  The resultant reduction in GDP and new job creation can be offset by recycling the revenues to households ensuring social welfare is not negatively affected.

References

Ackerman, F. & Stanton, E.A. 2012. Climate Risks and Carbon Prices: Revising the Social Cost of Carbon. Open-Assessment E-Journal. 6:2012–10. DOI: 10.5018/economics-ejournal.ja.2012-10.

Alton, T., Arndt, C., Davies, R., Hartley, F., Makrelov, K., Thurlow, J. & Ubogu, D. 2012. The Economic Implications of Introducing Carbon Taxes in South Africa.

Boyd, A., Rennkamp, B., Winkler, H., Larmour, R., Letete, T., Rahlao, S. & Trikam, A. 2011. South African approaches to measuring, reporting and verifying: A scoping report.

Chapter 3: The theory of environmental externalities. n.d.

Department of Energy (DoE). 2013. Integrated Resource Plan for Electricity (IRP) 2030.

Department of Environmental Affairs. 2014. South Africa’s Greenhouse Gas (GHG) Mitigation Potential Analysis. Pretoria.

Merven, B., Moyo, A., Stone, A., Dane, A. & Winkler, H. 2014. Socio-economic implications of mitigation in the power sector including carbon taxes in South Africa. (September). Available: http://www.erc.uct.ac.za/Research/publications/14-Merven-etal-Socioeconomic_implications.pdf.

National Treasury. 2013. Carbon Tax Policy Paper.

National Treasury. 2014. Carbon Offsets Paper.

PPP conversion factor, GDP (LCU per international $) | Data. n.d. Available: http://data.worldbank.org/indicator/PA.NUS.PPP?locations=ZA.

The transition to a low-carbon economy in South Africa: using the decarbonisation of the German economy as a case study.

Historically and currently South Africa’s economy is carbon intensive and has been driven by resource intensive industries which include mineral extraction and petroleum and chemicals processing due to the large mineral reserves available.  These industries were and still are supported and incentivized by government through the supply of relatively cheap electricity generated from the extensive coal reserves (Brent et al., 2002).  Since the 1990’s the secondary (manufacturing) and tertiary (services, transport) economic sectors have surpassed these resource intensive industries in total contribution to GDP, however the electricity and fuel supplied to these sectors remains very carbon intensive.  Thus even with the transition to a value adding secondary and tertiary economy, these sectors remain very carbon intensive.

The transition to a low carbon economy forms part of the South African National Development Plan – Vision 2030, the National Strategy for Sustainable Development and Action Plan (2014) and the New Growth Path (2020).  Furthermore the Green Economy Accord was agreed to by the government, labour unions, civil society and the private sector with the aim of creating 300 000 new work opportunities in the green economy by 2020 (Department of Environmental Affairs and Energy, 2013).  This green economy approach supports growth and low-carbon development which South Africa has included in the country’s future development plans to foster an inclusive and sustainable economy.

The four critical economic sectors identified for investment in this South African Green Economy Model (SAGEM) are:

• Natural resource management

• Agriculture

• Transport and

• Energy

So is this transition to a low-carbon economy already happening before any formal investment?  Figure 1 shows the relationship between CPI linked GDP and CO₂ emissions (Real GDP/MtCO₂) each year since 1990.  What is clear is that the carbon intensity of the South African economy peaked around 1995; has decreased slowly since then and is projected to continue a downward trend as seen in Figure 1. 

 

Figure 1: Real GDP to CO2 emissions relationship for South Africa (“IEA - Report”, n.d.)

From further investigation, one of the main reasons for the downward trend is due to real GDP more than doubling (108% increase) in the period 1990 – 2012 (“Statistics South Africa”, n.d.).  Thus by fitting the curve in Figure 1 there has been a decline/decoupling of carbon intensity and economic growth which has mainly been due to the increasing GDP as the CO₂ emissions in millions of tons has increased by 48% from 1990 - 2012.  The main contributors to this increase being energy production, industrial processes and AFOLU (Agriculture, Forestry and Other Land Use) and Waste (Letete, Guma & Marquard, 2010).  One can argue that with CO₂ emissions increasing, this ideal transition is not happening and that a true or absolute decoupling has not taken place.  However, the economy has been growing without carbon emissions increasing at the same rate which does indicate a gradual de-coupling of GDP and carbon emissions.  However, this is not sustainable growth path.

To accelerate this transition to a sustainable low carbon economy, strategic objectives have been put in place based on the SAGEM modelling exercise in 2013 which followed a system dynamic modelling approach (Department of Environmental Affairs and Energy, 2013):

·         Natural Resource Management

This objective includes investment in land restoration including virgin land rehabilitation and alien vegetation eradication will increase water availability and not reduce land available for agriculture.  This will in turn create more jobs in this sector especially in restoration of water ecosystem services and biomass for energy (from alien vegetation).

·         Agriculture

Investments in conservation agriculture and the use of organic fertilizer which has the benefit of increased crop yield with minimal impact on ecosystems and water sources is encouraged.

·         Transport

This sector requires investments in improving energy efficiency in transport systems (improved public and goods transport systems) which translates to less energy consumption and decreasing the carbon intensity of fuel production (Sasol, 2014). 

·         Energy demand and supply

The modelling exercise recommends a 2% of GDP investment into all industry sectors to increase energy efficiency and thus reduce overall demand going forward.  Also the diversification of the energy mix to increase renewable energy sources to 33% of total mix by 2030.

·         National development

With the increase of investment in the transition to a low carbon economy in all 4 sectors the energy and agricultural sectors will show the largest job growth which is the first priority of the country.  Other benefits are the much needed sustainable and long term economic growth and lowering of GHG (Green House Gas) emissions.

 

Germany is a prime example of an ongoing successful transition to a low carbon economy.    The focus up until now has been on the energy sector as this contributes more than 80% of total GHG emissions (United Nations Climate Change Secretariat, 2012).



Figure 2: Green House Gas emissions by sector in Germany (excluding Land Use, Land Use Change and Forestry) (United Nations Climate Change Secretariat, 2012)

 In order to achieve this low carbon growth path a transformation of the energy industry to have renewables as the primary energy source by 2050 was key.  The concept was put together in 2010 (Energy Concept) and specific targets were put in place with a monitoring process and financing plan called the ‘Energiewende’ (transition of the energy system) (“German Missions in the United States - Climate and Energy Policy”, n.d.).  The main actions and objectives of this initiative are:

·         Renewable energies as a cornerstone of future energy supply:

·         Energy efficiency as the key factor

·         An efficient grid infrastructure for electricity and integration of renewables

·         Energy upgrades for existing buildings and energy-efficient new buildings

·         Energy for transport system transformation

·         Energy research towards innovation and new technologies

·         Energy supply in the European and international context

·         Acceptance and transparency

Since the start of the ‘Energiewende’ initiative which is a 40 year project, the share of renewables in electricity supply reached 25 percent in 2012 and is still growing. In only the last 10 years, renewable energy in the electricity sector has quadrupled and after one year from the start of the ‘Energiewende’ initiative, the grid system and overall power capacity has coped well with the system shift and the shut-down of 8 nuclear power plants. Future plans include the development of new and smart grids and storage systems.

In Figure 2, the GDP to CO2 emissions relationship of both South Africa and Germany also indicates a downward trend for Germany which should accelerate further with the ‘Energiewende’ initiative.

 

Figure 3: GDP to CO2 emissions relationship for Germany and South Africa (“IEA - Report”, n.d.)

The big question remains, in the aftermath of the green economy modelling exercise for South Africa, whether there has been any monitoring of progress and has any progress been made?  The OECD Economic Survey report for South Africa in 2013 found that the policy framework for addressing climate change and water scarcity is sound but the implementation and eventual monitoring of these policies has been slow due to inadequate administrative capacity (OECD, 2013).   Compared to global pricing, the prices for energy and water do not cover total costs or reflect environmental externalities.  As part of the National Development Plan (NDP) South Africa will need to start monitoring the environmental outcomes, especially water usage and national GHG emissions to build up a database for benchmarks and to inform further policy decisions which is the process followed by the ‘Energiewinde’ initiative for the energy sector in Germany.  A further recommendation is that SA can start monitoring a limited set of headline indicators as set out in the OECD’s Green Growth Indicators (OECD, n.d.).

The main recommendations put forward by the OECD Economic Survey Report 2013 to accelerate the decoupling of economic growth and GHG emissions are as follows:

• Reduce implicit and explicit subsidies for energy and coal consumption, and use other instruments, such as cash transfers or supply vouchers, for protecting the poor;

• In designing climate change mitigation policies, favour broad and easy-to-implement instruments with limited demands on administrative capacity, such as a simple carbon tax;

• Apply the carbon tax as broadly as possible, including the electricity sector;

• Regularly revisit and revise the Integrated Resource Plan (IRP) to take into account new information about technologies, costs and demand.

• Increase the emphasis on energy efficiency in construction and industry and;

• Give responsibility for monitoring progress on the various objectives relating to climate change to a single institution, making that institution accountable to parliament via regular reporting.

Once the monitoring body has been put in place the implementation of these policies with feedback mechanisms can build the foundation to a faster decoupling of economic growth and carbon emissions in South Africa.  Up until then no progress will be evident.

 

References

Brent, A.C., Rohwer, M.B., Friedrich, E. & Blottnitz, H. Von. 2002. Status of life cycle assessment and engineering research in South Africa. The International Journal of Life Cycle Assessment. 7(3):167–172. DOI: 10.1007/BF02994051.

Department of Environmental Affairs and Energy. 2013. South African Green Economy Modelling Report (SAGEM). DOI: 10.1038/320390c0.

German Missions in the United States - Climate and Energy Policy. n.d. Available: http://www.germany.info/Vertretung/usa/en/06__Foreign__Policy__State/02__Foreign__Policy/05__KeyPoints/ClimateEnergy__Key.html [2015, July 06].

IEA - Report. n.d. Available: http://www.iea.org/statistics/statisticssearch/report/?&country=SOUTHAFRIC&year=2012&product=Indicators [2015, May 12].

Letete, T., Guma, M. & Marquard, A. 2010. Information on climate change in South Africa : greenhouse gas emissions and mitigation options.

OECD. 2013. OECD Economic Surveys - South Africa. DOI: 10.1787/eco_surveys-jpn-2009-en.

OECD. n.d. Towards Green Growth: Monitoring Progress - OECD Indicators. DOI: 10.1787/9789264111318-en.

Sasol. 2014. Climate Change and Energy Insecurity. DOI: 10.1680/ensu.2011.164.2.161.

Statistics South Africa. n.d. Available: http://www.statssa.gov.za/.

United Nations Climate Change Secretariat. 2012. Summary of GHG Emissions for Germany. Available: http://unfccc.int/files/ghg_emissions_data/application/pdf/deu_ghg_profile.pdf.