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SA coal burners slow to cut emissions
Gugulakhe Masango
Posted: Thu, 05 Apr 2007

[miningmx.com] -- THE slow pace of reducing pollution in South Africa, which is one of Africa's largest polluters, is costing the country dearly in the lost financial benefits of trading a new commodity called carbon credits.

Carbon credits were created by the Kyoto Protocol on Climate Change, and finance for carbon credits is channelled through the clean development mechanism (CDM) created by the protocol.

According to a 2005 Pricewaterhouse-Coopers study, South Africa stands to generate about $400m (R2,8bn) from gas emissions reduction projects.
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South Africa's Designated National Authority (DNA), a structure that regulates and promotes the implementation of CDM activities, has received 44 CDM project applications.

Seventeen of these are real projects or project development documents (PDDs) that are under review, but they are not big money spinners and the rest are project idea notes (PINs).

There are only five registered CDM projects in South Africa. Eskom has submitted five PINs for renewable energy, fuel switching and energy efficiency projects. Sasol has submitted two PDDs for the coal to natural gas fuel switching project, which are awaiting approval from the DNA.

State power utility Eskom predominantly uses coal to fire its electricity generators, making it the country's largest polluter. Sasol, which converts coal and gas to liquid fuel, is another large polluter.

"We have seen some action from Sasol but they know they can do better. We have yet to see some action from Eskom. I don't know what ace they have up their sleeve, they have just been very inactive on CDM," said Stanford Mwakasonda, a senior researcher at the Energy Research Centre at the University of Cape Town.

Kim Fraser, general manager: Sasol Safety, Health & Environmental Centre, says: "Sasol is embarking on numerous projects with possible CDM opportunities. However, these projects lack approved methodologies."

"We do not accept the assertion that Sasol is one of the biggest polluters in the country as this assumes a very narrow view of pollution. Once the national framework for industrial emissions has been established, we expect to see many new initiatives that will further minimise gas emissions from industries throughout South Africa," she said.

"We're aiming for a 10% improvement in greenhouse gas intensity by 2015 and a 15% improvement in energy intensity by 2015, with 2000 as the base year."

Fraser said Sasol was screening many projects to determine whether they could attract CDM funding.

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Eskom felt there were benefits to be derived from the CDM market, said Wendy Poulton, general manager of corporate sustainability at Eskom.

"However, the process is complex, so Eskom would support streamlining it as far as possible," she said.

Poulton, who has the support of the Eskom board to identify CDM projects, faces the challenge of long lead times for project approval and high transaction costs.

The late arrival of the DNA in 2004 caused an additional delay in Eskom submitting CDM projects, she said. "Eskom has been active in the development of the CDM, and before the DNA was put in place, extensive work was carried out internally to define potential projects."

Eskom is also a participant in the International Emissions Trading Association, but the question remains why the company appears to be lagging behind in delivering CDM projects.

"The low number of projects is due to very strong competition from other developing countries such as China and India. Given the scale of development in these countries, it's not surprising they attract most attention," Poulton said.

South Africa will attract more CDM projects because of a new focus on Africa, it is thought, and while it's moving slowly in delivering CDM locally, Eskom is assessing opportunities to collaborate with other African utilities to promote greenhouse gas emissions reductions.

"It's worrying that not much is happening in South Africa regarding CDM projects," said Mwakasonda, adding that the lack of an emission reduction target might be the reason.

"It might be that corporates such as Eskom and others are playing a waiting game, knowing that South Africa is very likely to have emission reduction targets in the next commitment period and that this would be the right time for them to come aboard," Mwakasonda said.

"They're probably thinking that if they act now it will be more expensive for them to reduce emissions later, when they have binding reduction quotas from the government."

The Kyoto Protocol commits industrialised countries to reducing emissions of greenhouse gases from 2008 to 2012. "We feel the birth pains of the South African CDM market stem from a lack of focus on 'the ability to execute' by project developers when deciding when and how to undertake a CDM project," said Henk Sa, EcoSecurities SA's country director.

Geoffrey Stiles, the principal at Marbek Resource Consultants said:"We are currently identifying CDM projects for a large international pool of companies in Europe and Japan that wish to buy carbon credits from South African projects."

Despite the promise of investments in CDM projects, it's proving difficult to convince companies that there are real benefits from developing projects and selling the resulting carbon credits. "Because the market is new and very volatile, business often sees it as high-risk and feels it adds little real value to their projects," said Stiles.