KATISHI MASEMOLA: SA simply can’t afford to ditch coal
The jobs and foreign exchange earnings provided by the industry far exceed the concessional financing currently on offer to switch to alternative energy sources
The future of coal, its mining and use are in the balance as governments continue to discuss how best to tackle the causes and mitigation of climate change. In the process they are reaching deals, the most recent two being the Paris and Glasgow agreements of 2015 (COP21) and 2021 (COP26) respectively. These aim to reduce emissions by completely ditching coal as a resource to be mined and burnt.
SA is endowed with an abundance of coal, about 7% of the world’s total recoverable resource, and is the fourth-largest producer, with about 28% of output exported, according to Stats SA (February 2022).
According to coalminingmatters.co.za, 80% of SA’s energy is produced from coal, and as of 2019 the industry employed about 86,000 people (19% of the 453,000 jobs in the mining sector), who earned a combined R24.7bn. This from a low of 50,000 jobs and employee earnings of R5.8bn in 2004, which represents a 72% net increase in employment and a five-fold increase in coal employee earnings over the period.
State-owned power utility Eskom, supported by government and with the fiscus guaranteeing its debt, embarked on a multibillion-rand investment in the Medupi and Kusile coal-fired power stations in an attempt to ensure energy security, while also maintaining and using its other long-established coal-fired plants.
The Parliamentary Monitoring Group reported that by May 2021, R123bn had been spent on Medupi alone, and according to a report of the SA parliamentary portfolio committee on public enterprises this is expected to escalate to a total overall cost of R145.6bn. The actual spend on Kusile was R141.7bn as at April 2021, and is expected to escalate to R161bn.
Internationally, on the supply side about 1,600 new coal plants were established in 62 countries in 2018/2019, an indication that investment in coal mining is informed by a rising global demand for coal. In SA the diversified mining houses may be investing less in coal, but the majority of new coal projects come from junior mining outfits.
According to Canyon Coal, demand from China and India amounts to 3.5-billion tonnes and 1-billion tonnes, respectively, with demand from the US and Europe only slightly below that of India. Most of SA’s coal exports go to China and India. As reflected on coalage.com, in the two years from February 2020 SA’s coal exports to China grew by 1.25-million tonnes.
With the Russia-Ukraine conflict leading to a surge in gas and oil prices, there has been a sudden increase in demand for coal, by European countries in particular, as they seek to compensate for disrupted supplies from Russia and possible disruption from other suppliers depending on how the conflict spreads.
SA’s mining sector contributed 40% of the country’s foreign exchange earnings in 2018. In 2019, 26% of the coal industry’s production by volume was exported, but this amounted to 39% in terms of revenue, according to Trade & Industrial Policy Strategies’ Coal Value Chain in SA report.
As economist Chris Hart argued in Business Day, shutting coal-fired power stations will mean costlier electricity, fewer jobs and the country’s relegation to the fourth division internationally (“SA will suffer if we turn our back on coal”, December 16 2021).
The wide-ranging costs of ditching coal outweigh the benefits of going green. SA is told and expected to catch up with the West’s standards, yet even as Africa’s biggest polluter, these emissions are minimal compared with the West, and are a fraction of what the West has produced over the past three centuries.
The $8.5bn in pledges and guarantees, grants and “soft” loans by some Western governments for SA to ditch coal even earlier than the 2050 cut-off is minuscule compared with the rand costs of lost jobs and forex earnings and the wasted investment in power stations. For instance, the combined investment of R306.6bn in Medupi and Kusile is well more than double the R131bn in green financing pledged. And Eskom produces 95% of SA’s electricity, with 90% of this generated by coal-fired power stations.
Just as Australia and China have seemingly decided on policies and strategies that best suit their economic circumstances, it is only prudent for SA to invest more in technologies and expertise to achieve carbon-neutral coal mining and carbon-captive storage interventions. At the same time, SA could continue to invest in cost-effective renewables and other sources of energy, such as offshore gas and from neighbouring countries to achieve security of supply and cheaper and more reliable energy.
Even if our country was to give up on coal — which would be ill-advised — as Hart says, “SA must be adequately compensated”. In agreeing with his position, and in the light of the triple crisis the country faces (46.6% joblessness, the highest in the world for a country not at war; between 60% and 67% of the population living in poverty; and the world’s widest inequality), no policy, “green” or otherwise, should be allowed to worsen unemployment. Leaping onto the global green rollercoaster could come at the cost of our economic survival.
• Masemola is a director and consultant at Semo Advisory & Consulting.
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