NEIL OVERY: Implications of carbon border adjustments for jobs if we keep coal

Current debates in SA about the energy transition away from coal in favour of sustainable forms of renewable energy are dominated by concerns about potential job losses in coal-mining areas.

About 90,000 people work in SA’s coal mines and Eskom’s coal-fired power stations, while thousands more work informally around mines and power stations, providing daily essentials to workers. That debates are focused on these potential job losses is, therefore, entirely understandable. For the transition to be a just transition, these jobs must be protected via the provision of alternative livelihoods, training opportunities and social protection.  

This concern for jobs has, however, been subverted by pro-coal forces, both inside and outside the government, who are attempting to prolong the use of coal and delay the transition to renewables. For example, the self-confessed “coal fundamentalist”, minerals & energy minister Gwede Mantashe, has repeatedly stated that the SA economy will “collapse” if coal is abandoned, resulting in “ghost towns” and “starving families”.

Similarly, the pro-coal SA Youth Economic Council has warned of “severe economic woes and catastrophic social consequences” if coal is “shut down”. These arguments are spurious because it has never been Eskom’s or the government’s intention to rapidly abandon coal. Rather, a phased transition away from coal is planned, with coal remaining a part, albeit a diminishing part, of SA’s energy mix well into this century.  

Outside the obviously urgent environmental need to burn less coal, SA must transition away from coal to protect jobs because of the imposition of what are commonly known as border carbon adjustments (BCA).

BCAs impose duties on imports based on the amount of carbon emitted during their production. They are designed to discourage emissions during production and can therefore affect the export of goods from countries with high carbon emissions. Because coal accounts for more than 85% of electricity generation, SA’s exports are among the most carbon intensive in the world, meaning that many will fall foul of BCAs.  

The EU has already announced its version of a BCA, called the Carbon Border Adjustment Mechanism (CBAM). This mechanism will initially apply to imports into the EU of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen, but will expand to capture more products, such as plastics, in the future.

A three-year transitional phase will begin on  October 1 2023, when importers will have to declare greenhouse gas emissions embedded in their imports. These yearly declarations will be used to determine duties that will begin to be charged from 2026.  

Research indicates that R26bn worth of products exported from SA to the EU could be at risk in this early stage of the CBAM. This translates into thousands of potential job losses in the iron, steel, and aluminium sectors in particular. For example, the steel industry employs 28,000 people in SA.  

In 2021, it was announced that the US (SA’s second-largest export market) would introduce a BCA and, in July 2021, the FAIR Transition and Competition Bill was presented to Congress to begin this process. (Canada has recently stated its intention to introduce a BCA.)  

While it is too early to accurately quantify how significant the effect of BCAs will be on jobs, SA-based companies are already worried about their potential effects.

In February, the Australian mining and metals company South32 asked Eskom if it could supply South32’s Hillside aluminium smelter in Richards Bay, which employs 1,400 people and exports much of its aluminium to Europe, exclusively with nuclear power from the Koeberg nuclear power station near Cape Town.

Graham Kerr, the CEO of South32, stated: “We have a view that ultimately Europe will not take aluminium that is not green, which potentially makes Hillside uncompetitive.”

Kerr’s desire to take power from Koeberg comes on the back of the EU’s controversial decision in 2022 to categorise nuclear power as a “sustainable” form of energy, meaning SA exports produced by electricity from nuclear power would probably not be subject to the CBAM. In what could be read as an indication that the Hillside plant may be forced to close if South32 cannot access electricity that is not generated by coal, the company’s COO, Noel Pillay, remarked: “We’ve been very clear to the SA government and Eskom that we’ll not own and run a brown aluminium smelter going forward.” 

These comments from South32 reveal the threat that BCAs pose to SA jobs. Those who continue to promote coal would do well to listen to these concerns for it is clear that if SA is to avoid the worst affect of BCAs, it must continue to decarbonise its economy in a just and equitable manner.

However, it now seems clear that the government intends stalling the transition away from coal. Recently, electricity minister Kgosientsho Ramokgopa informed the National Council of Provinces that the decommissioning of coal-fired power stations in SA must be “halted”.  

Ramokgopa’s defended this decision with the frankly farcical observation that the generating capacity lost by closing coal-fired power stations could not be replaced by renewable energy sources because they would take a “few years” to connect to the grid. This, from a government that has spuriously delayed, and continues to delay, for nearly 10 years now, the effective rollout of renewables.

In another twist, it should be remembered that “halting” the phase-out of coal threatens the $8.5bn secured for the phase-out, meaning that coal is likely to stay with us even longer. It’s not difficult to see how coal interests within the ANC and the government are pulling certain levers here, while leaving others well alone.   

SA must not be dissuaded from transitioning away from coal by regressive vested interests inside and outside the government who take a deliberately myopic view on the relationship between coal and jobs.   

• Dr Overy, a freelance researcher, writer and photographer, is a research associate in Environmental Humanities South at the University of Cape Town.