Why South Africans should demand investments that don’t expose them to the moral and financial hazards of fossil fuels
‘Anthropogenic climate change is the largest, most pervasive threat to the natural environment and human rights of our time.’ – UNEP, 2015
‘People of conscience need to break their ties with corporations financing the injustice of climate change.’ – Archbishop Desmond Tutu, 2014
- Humanity’s use of fossil fuels has become like burning a house down to keep warm.
- Fossil fuel energy is dirty, dangerous, expensive and outdated when compared to the alternatives. In most instances, there is no longer any reason, other than satisfying vested interests, to persist in maintaining or developing fossil fuel energy systems. Given that alternatives are now increasingly technically and financially viable, fossil fuel systems can now only be justified in instances where there is a clear plan for phasing them out in time to keep cumulative global carbon dioxide well below the limits required to hold average global warming to no more than 1.5 degrees.
- Fossil fuel use cannot be eliminated overnight, but fossil fuel corporations must now commit to phasing out fossil fuels by around 2040, in accord with scientifically determined imperatives.
- Far from being a brake on economic development and human wellbeing, switching away from the use of fossil fuels is proving to be beneficial to societies in a multitude of dimensions, including reduced air and water pollution, reduced economic and resource instability, reduced conflict, reduced corruption and reduced mortality.
- Despite progress in international agreements on reducing carbon emissions, the unexpectedly strong growth of low-carbon technologies, and an apparent stabilisation in annual global carbon emissions, the world is still on track to add more carbon dioxide (CO₂) into the atmosphere – in total – than is safe. (Because CO₂ lingers in the atmosphere, it is cumulative emissions, not annual emissions, that require urgent, deep restraint.)
- Many estimates of the economic damage likely to be caused by climate change ‘tell us nothing about the most important driver of the [social cost of carbon], the possibility of a catastrophic climate outcome’.
- Existing agreements on emissions reductions are predicated in good part on the dangerous assumption that after 2050, CO₂ can be sucked back out of the atmosphere using so-called ‘negative emissions technologies’ that do not yet exist.
- Though South Africa has in theory committed itself to the global goal of holding average global warming well below 2 degrees (the Paris agreement), in practice neither its current actual emissions reductions commitments nor its energy development plans are adequate to meeting that goal.
- Annual subsidies to fossil fuels globally are estimated at over $500 billion and in SA may exceed R60 billion.
- Many fossil fuel companies continue to obstruct the transition to renewable energy.
- Fossil fuels are a finite resource. They are often increasingly costly to find and extract and they will run out. Replacements will be needed, sooner or later. Many countries realise this, including no less than 48 developing countries that have now committed themselves to achieving 100% renewable energy. South Africa is an outlier in clinging to outdated and costly energy systems.
- If global civil society succeeds in winning the battle for proper regulation of carbon emissions, trillions of dollars of investments in fossil fuel companies and infrastructure may become ‘stranded assets’.
- Divestment is a socially powerful strategy for creating conversations around climate change, empowering citizens to act directly to help forestall possibly the greatest threat to humanity, stigmatising continued investment in fossil fuels and averting new investment in fossil fuels.
- The campaign to divest from fossil fuels has already resulted in funds worth over $5 trillion being divested globally.
Climate change, mostly caused by burning fossil fuels, is a highly probable, potentially deadly threat to humanity. Government actions to slow climate change remain inadequate and fossil fuel companies continue to block change. Fossil Free South Africa is a network of South Africans calling for divestment from fossil fuels – and restorative reinvestment in sustainable energy – to stigmatise fossil fuel use, accelerate sustainable system change, help slow climate change, reduce the financial risks of fossil fuel investments, and so help secure our human rights and common future. We are part of the growing global movement for divestment first inspired by 350.org.
Our campaign began in November 2013 with a call on the University of Cape Town to divest. In June 2017, our campaigning contributed to the City of Cape Town becoming the first city in Africa, or in a developing country, to commit to fossil fuel divestment.
We do not believe that fossil fuel use cannot be eliminated overnight, but (given the likely absence of viable carbon capture and storage) fossil fuel corporations must now commit to phasing out fossil fuels by around 2040, in accord with scientifically determined imperatives, as the graph below (from the International Energy Agency’s 2016 World Energy Outlook) indicates.
What is divestment?
Fossil fuel divestment means ending direct and indirect investments in the companies most directly responsible for producing and selling fossil fuels.
There are many different ‘flavours’ of divestment. Some divestors start out, for example, by simply excluding coal from their portfolios; others exclude coal, gas and oil; yet others also exclude those companies with substantial carbon footprints in their supply chains, or companies that provide good and services to the fossil fuel industry.
The most common ‘flavour’ of divestment is to ask institutions to phase out all investments in the global top 200 publicly listed companies with the greatest emissions potential in their buried reserves of oil, gas and coal, the so-called Carbon Underground 200.
Divestment is a powerful social and economic strategy intended to address:
- The inadequate pace of action by most governments.
- The recalcitrance and corruption of the fossil fuel industry.
- The corruption of democratic and regulatory processes in many countries by the fossil fuel industry.
- The need to end social acceptance and approval of the fossil fuel industry.
There is a dawning reality that climate change is a moral and human rights issue of grand proportions. Future generations may well look back on our slowness to act on climate as being as morally compromised as the generations that failed to act quickly and firmly on issues of slavery, racism, genocide and apartheid. Yes, the world will still need fossil fuels for the next couple of decades, while alternative technologies take root. But fossil fuels have to be phased out, while few if any fossil fuel companies acknowledge this reality.
We don’t expect or advocate overnight divestment; institutions, if they are committed to change, should have some time to adapt.
It may indeed be true that divestment is not the best strategy for everyone committed to stopping climate change. Some privileged institutions or persons may be able to use effectively alternative strategies, such as shareholder engagement.
But divestment appears to be the most effective strategy accessible to most ordinary citizens for slowing climate change.
Table 1: The social/power context for divestment action: Working against the fossil fuel industry/lobby.
Social actors with potential to slow climate change
|National politicians||• Create laws and regulations to limit carbon emissions||• Limited public understanding/
• Up against the fossil fuel lobby
|Regional/local politicians||• Demonstrate local climate and energy solutions
• Lower-carbon investment
|• Limited influence on national energy policy|
|Climate negotiators||• Build international agreements that should shape national and regional policy||• Politicians’ limited understanding of climate emergency
• Up against the fossil fuel lobby
|Fund managers/owners||• Prioritise funding of low-carbon energy, industrial and agricultural strategies
• Communicate climate/carbon risk info to institutional/retail investors
|• Insufficient demand for low-carbon investment strategies
• Conventional mindsets: ‘Everyone else is invested in big carbon’
• Comparatively limited low-carbon investment opportunities
• Lack of urgency, limited understanding of climate risk
|Fossil fuel companies and fossil fuel dependent utilities||• Invest in or switch to renewable energy: companies like Total and E.ON are doing this.||• Regulatory constraints, eg. Eskom has limited opportunities for RE investment
• Internal culture
• Infrastructure lock-in
|Renewable energy sector||• Initiate and scale up renewable energy projects||• Mixed policy signals from government
• Up against the fossil fuel lobby
• Infrastructure lock-in
|Media||• Communicate more clearly about the climate emergency
• Communicate more about RE/low-carbon strategies and opportunities
• Exclude advertising from fossil fuel companies
|• Limited public appetite for ‘bad news’
• Limited understanding of climate science
• Advertising / financial power of the fossil fuel lobby
• Conventional/ conservative/ reactionary views’
|Academia||• Research and public communications
• Support institutional divestment policies
|• Scientists often reluctant to engage in social action/awareness
• Institutional or intellectual links to the fossil fuel establishment or culture
• Non-climate scientists often ignorant of climate emergency
|NGOs, foundations, faith-based organisations||• Talk about the moral / human rights crisis presented by climate change
• Lower-carbon investment
|• Limited alternative investment opportunities in SA|
|Activists||• Direct action against fossil fuel facilities||• Not everyone is close to fossil fuel facilities, not everyone has the appetite for at-times physically risky protest
• Often ruthless tactics of fossil fuel lobby
|Citizen investors||• Vote for governments that act decisively on climate change
• Support legal action against climate change
• Low-carbon lifestyles and consumption choices
• Divestment (which is a low-carbon consumption choice)
|• Government policy frequently beholden to or unduly influenced by fossil fuel lobby
• Low-carbon lifestyles constrained by social energy choices, geography, economy
• Limited alternative investment opportunities in SA
The table above attempts to analyse the various different sectors that have influence over which way the world is moving in respect of climate change. As it suggests, overcoming the financial/lobbying power of the fossil fuel industry is vital to progress in decarbonisation.
Divestment can be complementary to other strategies and tactics, offering teeth, for example, to shareholder activism. Divestment is probably not a strategy that would have any chance of success in the absence of international climate negotiations and the renewable energy revolution. But in the context of those parallel processes, it offers a chance for ordinary people who are neither climate negotiators nor technologists nor politicians nor activists, to make a powerful, committed, substantive statement about the world they want to see. If there is a better strategy, we would like to know about it. The divestment movement undoubtedly has its limitations, it certainly has many vociferous critics – but none that we’re aware of offer substantive alternatives.
The context for climate change
Our lives are governed by a mostly invisible and glorious symphony played by a multitude of hidden orchestras, from the bacteria that digest our food in our guts to the oceanic phytoplankton that produce most of the oxygen in the air we breathe. Our lives depend on a stable environment and constant flow of key resources, particularly clean water and food, to remain alive. In modern cultures, these resources find their way to us through a multitude of complex social and technological systems that because of their complexity and energy intensity may be more vulnerable to breakdown than they may appear (Motesharrei et al., 2014; Ahmed, 2014).
The high-consumption lifestyle that many are living and many more aspire to, depends on a level of consumption that can no longer be sustained without critically damaging Earth’s ‘life support systems’. It has been calculated by the Global Footprint Network that human civilisation over-stepped the biocapacity of the planet at some point in the 1980s. Since then, we have been living in overshoot:
Today humanity uses the equivalent of 1.6 planets to provide the resources we use and absorb our waste. This means it now takes the Earth one year and six months to regenerate what we use in a year.
This overshoot shows itself in the destruction of soils, forests, fisheries, the extinction of species, and the depletion of key non-renewable resources such as phosphorus. We are even running out of a resource that most of us would assume is unlimited: sand (Beiser, 2016).
The various dimensions of ecological damage have been described within the framework of a ‘safe operating space for humanity’, the boundaries of which must be respected if humanity is to continue flourishing.
If we are to turn away from causing the biophysical decline of ‘Spaceship Earth’, and the social disruption it is already bringing, there are arguably three vital global transformations that are required. These have been summarised by Johan Rockström (2014), one of the leading authors of the ‘planetary boundaries’ framework, as:
- Creating sustainable food systems (that capture carbon in soils)
- A fossil fuel-free world economy
- Transition to a circular economy
We might perhaps add to that:
- Establishing a more widespread culture of human respect for life and living systems
One of the most critical areas of damage to the environment is permanent damage to a key but little appreciated factor that has allowed the development of human civilisation: a stable climate, now threatened principally by the burning of oil, gas and coal, and land-use change.
The causes of climate change
Greenhouse gases are those gases, such as carbon dioxide (CO₂) and water vapour, that trap heat in the atmosphere. There are natural and human sources of greenhouse gases.
The natural balance of greenhouse gases has kept the temperature of the Earth stable at levels mostly comfortable for human development over the past 10,000 years. Without natural greenhouse gases, Earth’s average surface temperature would be -18°C (Ma 1998). (On Venus, where the atmosphere is mostly CO₂, the surface temperature exceeds 400°C.)
Before the Industrial Revolution, the level of carbon dioxide in the atmosphere was around 280 parts per million. However, over the past 200 years, human development largely based on fossil fuel use has driven that level to over 400 parts per million.
Parallel atmospheric carbon dioxide and temperature increases
Table 2: Human contributions to global warming
|Carbon dioxide (CO₂)||Burning of fossil fuels: coal, oil and gas||~65%|
|Carbon dioxide (CO₂)||Deforestation||~12%|
|Methane (CH₄)||Agriculture (esp. livestock and rice fields), fossil fuel extraction, landfill decay||~14%|
|Nitrous oxide (N₂O)||Agriculture (especially nitrogen-fertilised soils and livestock waste), industrial processes||~6%|
|Fluorinated gases (‘F gases’)||Industrial processes||~2%|
|Sources: The Guardian, 2011; US EPA|
The consequence has been a steady rise in temperature over the past century. Average global temperatures have increased nearly one degree.
The human ‘fingerprint’ on CO₂ increases
There are a number of ways in which it can be determined that human activity is responsible for increased warming. These include:
- Satellite observations show less heat has been escaping to space as human CO₂ emissions increase.
- The isotopic form of additional CO₂ in the atmosphere is consistent with that found in fossil fuels.
- Atmospheric oxygen is declining as carbon is burned (binding with oxygen to form CO₂).
- If warming was caused by increased solar activity, there would be warming throughout the atmosphere, but in fact the lower levels of the atmosphere are warming as the upper levels cool: the warming pattern expected from increased greenhouse gases.
- Coral records over the past few centuries show a sharp increase in the amount of fossil fuel-typical carbon.
- The amount of CO₂ dissolved in the ocean is increasing sharply, causing the seas to become more acidic and threatening marine food chains, while warming events are destroying the coral reefs that also nurture these food chains.
The global risks of climate change
The risks of climate change include increased levels of extreme weather such as storms, floods, droughts, sea-level rise and heat waves. These shifting weather events can have knock-on effects on existing natural systems, causing deforestation, melting permafrost, wild fires, decreased crop yields, accelerated glacial and snowpack melt, changes in ocean circulatory systems (in turn affecting weather patterns), threats to biodiversity, migration of marine and terrestrial wildlife, shifting patterns of disease.
Increased levels of atmospheric carbon dioxide are also causing ocean acidification, threatening marine food chains.
It is important to appreciate that climate change is not just a future risk: it is already creating significant environmental, economic, social and human costs, as indicated in the figure below, ‘Deaths attributed to climate change’.
Estimated annual damage due to climate change runs close to 1% of global GDP (Climate Vulnerability Monitor 2012), and the additional costs of the fossil fuel industry cost close to another 0,7% of global GDP. These combined costs could double by 2030.
Runaway global warming
There is a significant risk that the collective effect of human-induced warming will catalyse natural processes that will accelerate the warming process over varying timescales. A few examples:
- Global warming has already reduced the amount of snow and ice in the Arctic. Because that ice and snow normally reflects a significant amount of heat back into space, the reduction in ice increases the amount of heat being retained.
- The likely accelerated release of natural methane deposits previously held in permafrost and undersea on the ocean floor. Methane is also a greenhouse gas, and when added to the atmosphere, accelerates existing warming.
- Deforestation — as temperatures rise, forests are more likely to burn, in turn adding carbon dioxide to the atmosphere, creating further warming. These ‘feedbacks’ mutually accelerate each other, creating the risk of ‘runaway’ global warming.
- As Antarctic ice melts, the easing of pressure on the underlying mantle could result in increased volcanic activity.
Social risks of climate change
The political and social impacts of climate change are already unfolding. There is good reason to think that climate change has been a substantial contribution to war and instability in both Darfur and Syria, as major droughts destroyed livelihoods; and to African migration into Western Europe (Baker, 2015).
The full economic consequences of climate change are either misunderstood or denied
The leading climate economist Nicholas Nicholas Stern, who convened the British government’s landmark 2006 Stern Review on the Economics of Climate Change, has pointed out (2016) that:
As the Intergovernmental Panel on Climate Change acknowledged, published [social cost of carbon] estimates ‘lie between a few dollars and several hundreds of dollars’. These values often depend crucially on the ‘discounting’ used to translate future costs to current dollars. The high discount rates that predominate essentially assume that benefits to people in the future are much less important than benefits today. [So] most current models of climate-change impacts make two flawed assumptions: that people will be much wealthier in the future and that lives in the future are less important than lives now.
Mark New (Fossil Free UCT, 2014) of the African Climate Development Initiative at the University of Cape Town explains that while economists’ models of future economic impacts discount the future costs of climate change, in reality the future costs of climate change actually increase, as the external costs of current fossil fuel usage emerge:
As the impacts of climate change that we are committing to now through not reducing emissions continue to get larger and larger, either the damages or the costs of adaptation continue to get larger. So we have this increasing interest rate that we’re going to be paying further and further into the future.
Robert Pindyck (2013) of MIT argues that integrated assessment models intended to estimate the social cost of carbon rely on arbitrary inputs, such as chosen discount rates, and ‘tell us nothing about the most important driver of the SCC [social cost of carbon], the possibility of a catastrophic climate outcome’.
Systemic threats of climate change
While economic modeling may anticipate some of the direct risks to economic systems and development, it is more likely that current economic modeling does not fully account for the complex interrelationships between human society, the economy and the environment that supports them. On this subject, it is worth quoting Stern (2016) at length:
Current economic models tend to underestimate seriously both the potential impacts of dangerous climate change and the wider benefits of a transition to low-carbon growth… Many estimates of economic losses are based on the outputs of integrated assessment models (IAMs). These models attempt to combine the key elements of biophysical and economic systems… Sadly, most IAMs struggle to incorporate the scale of the scientific risks, such as the thawing of permafrost, release of methane, and other potential tipping points. Furthermore, many of the largest potential impacts are omitted, such as widespread conflict as a result of large-scale human migration to escape the worst-affected areas.
What’s more, climate change is not the only major stress on the human environment; it is just one of the stresses that is closest to critical levels.
What do current levels of climate change mean for Africa?
According to New (Fossil Free UCT, 2014) two degrees of global warming by 2100 would mean an average three degrees of warming for Africa, because continents warm more than oceans, and drier regions warm faster than wetter regions. In a four-degree warming scenario, Africa faces warming of six or more degrees. ‘A two degree policy target or a four degree outcome actually means even more significant impacts on the African continent.’ This has to be set against a likely doubling of population by 2050, the only continent facing such a demographic boom.
In agriculture, four degrees of warming would mean that maize could no longer be grown in South Africa, and some areas would no longer be cultivable. The 10-15 year droughts that already afflict African rangeland regions would come every two years. New says that dealing with such changes is beyond the scope of technologies such as genetically modified organisms. New also says (and this was in 2014 before new studies suggesting greater possible sea level rise had emerged) that two degrees of warming would mean half a metre of sea level rise by 2100; four degrees would mean a metre of sea-level rise.
In a four-degree world, according to New:
The Cape Flats disappears… it either has to be protected or starts eroding away or disappearing.
… it means ripping up every single tarred road in South Africa and replacing it with something that doesn’t melt.
… it means rebuilding our built environment to cope.
Other negative environmental impacts of fossil fuels
Climate may have become the key danger of using fossil fuels, but it is far from being the only danger of using fossil fuels. There are many others.
The World Health Organisation estimates there are at least seven million annual deaths globally due to air pollution (though this figure includes very large numbers of deaths from indoor wood-burning, which remains a key source of household energy across Africa). A recent OECD report (Roy 2016) estimated that annual premature deaths from outdoor air pollution in South Africa are as high as 10,432. Coal smoke can also cause birth defects. Tragically, ‘the people that are exposed to the smog are almost always the people that cannot afford to pay the doctors’ bills for bronchitis, asthma or, worse, lung cancer’, as South African environment minister Edna Molewa observed in 2013. The cost of premature deaths due to air pollution in South Africa has been calculated by the Global Commission on Economy and Climate as close to 1% of GDP annually. Outdoor air pollution also damages crop yields, halving yields at times in parts of India.
It is difficult to quantify the full economic impacts of acid mining drainage from coal mining in South Africa, but one remarkable example is that coal mining has so polluted the Olifants River that Eskom can no longer reliably use river water in its coal power stations (Colvin, 2011).
Threats to arable land
In South Africa, for example, 46% of arable land is in Mpumalanga, and of that, 26% is threatened by coal mining.
Negative social impacts of fossil fuels
Health and safety
Jobs in the fossil fuel industry, are, on the whole, riskier than those in other energy sectors (Pollin et al., 2014: 29).
Economic risk from fossil fuels
Oil price changes, in the current global food system, can bring sharp increases in food and transport costs, with particularly unpleasant consequences for the poor. In the long-run, dependency on any non-renewable resource is economically risky, particularly given the concentrated influence on oil prices of Persian Gulf states.
Conversely, reduced dependence on fossil fuels is helping countries build geographically distributed economic resilience: the president of Iceland attributed his country’s recovery from economic crisis in part to its development of renewable energy.
In 2014, conflicts in no less than seven world regions and countries, including Nigeria and South Sudan in Africa, could be linked to oil (Klare, 2014). Though other pretexts were used to justify the globally destabilising 2003 invasion of Iraq, former US Federal Reserve chairman Alan Greenspan, amongst others, was clear that seizing Iraq’s oil was the real reason for invasion (Beaumont and Walters, 2007).
Distortion of climate science by fossil fuel companies
The fossil fuel industry has, over the past 30 years, mounted a systematic campaign to obscure the science of climate change and mislead the public about the link between human activity and global warming. In 2006, the prestigious British Royal Society publicly requested Exxon Mobil to cease its funding of climate denial (Royal Society, 2006). In 2013, The Guardian reported that between 2002 and 2010, ‘anonymous billionaires had donated $120m to more than 100 anti-climate groups working to discredit climate change science’. In 2015, the attorney general of New York opened an investigation into whether Exxon Mobil had lied to the public about the causes of climate change (Gillis and Krauss, 2015). Much of the history of this systematic campaign of denial has been chronicled by the historian Naomi Oreskes.
The corruption sponsored by the fossil fuel industry goes far beyond attempts to corrupt science. Examples abound. The OECD (2014) notes that the economic sector most prone to instances of bribery is the extractive industries.
In the US, fossil fuel companies have spent hundreds of millions of dollars to subvert democracy and limit regulation of their industry (Cray and Montague, 2014). In Nigeria, Shell has infiltrated most government ministries (Smith, 2010). The South African state oil company, PetroSA, has been at the centre of a series of scandals (amaBhungane, 2013).
Most recently, in South Africa, the Public Protector’s 2016 report on state capture indicated that undue influence probably played a role when the Tegeta coal mine owned by Oakbay Resources secured extraordinarily favourable terms in a deal to supply Eskom’s Arnot Power Station (Karim, 2016). The Betrayal of the Promise report on state capture, written by leading academics, argued in turn that:
Eskom and Transnet, in turn, are the primary vehicles for managing state capture, large-scale looting of state resources and … a continuous source of self-enrichment and funding for the power elite and their patronage network.
Financial risks of dependence on fossil fuels
High energy costs
In the UK, consumer energy costs have begun to fall as coal is replaced in the national energy mix by renewables. In South Africa, according to the Centre for Environmental Rights, ‘it seems hard to escape the conclusion that Eskom is selling power to South Africans that is more expensive than it should be to maintain vested interests in the coal-mining industry.’
Infrastructure lock-in and technological risk
In South Africa, coal remains a significant export earner, now even more important than gold.
Even if South Africa neglects to immediately reduce its domestic coal usage, many other countries are moving fast towards decarbonisation, and South Africa’s export earnings from coal risk sharp decline. South Africa needs to prepare for the potential loss of earnings from coal by planning a ‘just transition’ for the coal and energy sectors, as are countries like Germany.
Table 3: Relative contributions of gold and coal to SA’s economy
|Source: StatsSA, 2015|
Some might interpret this table as indicating that coal is essential to South Africa’s economy. However, another lesson that can be drawn from it – specifically, the decline of the gold industry – is the danger of economic dependence on nonrenewable resources. The Department of Energy says that South Africa’s coal resource will last ‘at least another 50 years’ (SA Department of Energy, n.d.). That is arguably a very short time horizon from an energy security perspective, and it’s far from certain that there will be a secure supply of coal even that long (Fisher and Downes, 2015):
Impending coal shortfalls for the existing power stations are a serious risk to energy security. Dubbed the ‘coal supply cliff’, a massive shortage (in excess of 60 million tons) in coal supply is anticipated from 2018.
If in 50 years time we will be forced to switch to alternative energy sources anyway, why not make the switch now, especially when the alternatives are already far less expensive?
The apparent value of coal to the economy neglects to factor in costs externalised to the environment and society.
Other economic risks of dependency on fossil fuels include the prospect that countries that refuse to reduce their carbon emissions will see other countries retaliate by imposing tariffs on embodied carbon in exports (Davenport 2016).
Risk of stranded assets
Consider what would happen if African countries continue to pour money into new fossil fuel projects, only to have these projects rendered obsolete by new standards on global emissions, and by the relatively inexpensive electricity that can now be provided by renewable energy? This scenario is in fact a global problem for the fossil fuel industry and its investors, described as the problem of stranded assets. Fossil fuel companies are valued on their as yet unexploited underground reserves. But if global emissions targets are taken seriously, then approximately 80% of those reserves must be left in the ground.
According to the research NGO Carbon Tracker, by 2011, the world had already used over a third of its 50-year carbon budget of 886 gigatonnes of carbon dioxide, leaving only 565GtCO₂ of kinda-safe space to continue emissions. (The global carbon budget is the amount of carbon dioxide scientists estimate can still be added to the atmosphere without pushing climate systems to dangerous levels of warming.) But the proven reserves of private and public companies and governments were equivalent to 2,795 GtCO₂:
Only 20% of the total reserves can be burned unabated, leaving up to 80% of assets technically unburnable.
This is far from being just a risk to Africa’s development. This “carbon bubble” is a risk to investors, and investment fund beneficiaries such as pension holders, around the world – because their investments may be overvalued by $22 trillion.
Priorities for decarbonisation – electricity
South Africa is one of the world’s top 10 coal producers. It has an extremely carbon-intensive economy, with 70% of primary energy (far above the global average of 30%), and 85% of electricity, coming from coal in 2014.
Some argue that the continued use of fossil fuels is vital for Africa’s development. But often, these are the same voices that, in other contexts, seek to minimise the threat of climate change. On the other hand, significant African voices echo the call of Ghanaian president, John Mahama (Friedman, 2014), who has said:
Climate change is real, and Africa stands to suffer the most. We can’t take the same paradigm that America did or Europe did or even China did. We need to look at the conditions of the day and develop according to those conditions.
African civil society has argued strongly for steering clear of fossil fuels, as in a 2015 letter (Bassey and Berry) addressed to the organisers of a Chatham House Conference on Extractive Industries in Africa:
Local communities are most affected by extractive industries in Africa, which routinely disrupt and destroy their livelihoods, health, ecosystems and cultural coherence. To exclude their voices strips this event of all legitimacy… Mere lip service is paid to sustainability and inclusivity, and to international protocols to reduce continued global reliance on fossil fuels and cut carbon emissions.
In 2015, the President of the African Development Bank, Akinwumi A. Adesina, said:
Africa has potential for 11 terawatts of solar energy, 350 gigawatts of hydropower, 110 gigawatts of wind power, and an additional 15 gigawatts of geothermal potential… Africa should accelerate investments in technology, innovations, policies and regulations to speed up a renewables revolution. Africa cannot power its homes or businesses with potential. Africa must unlock its huge renewable energy potential and combine this with conventional energy to light up and power Africa.
Few policymakers appear to have been able to keep up with the pace of technological and financial change in the electricity sector. Those who still believe in the continued need for fossil fuels are likely doing so either on the basis of outdated assumptions or vested interests. The facts are that renewable energy is already producing savings for African economies, as in South Africa (CSIR, 2015):
… renewable energy from South Africa’s first wind and solar (photovoltaic) projects created R4 billion more financial benefits to the country than they cost during the first six months of 2015.
The first benefit, derived from diesel and coal fuel cost savings, is pinned at R3.6 billion. This is because 2.0 TWh (terawatt-hours) of wind and solar energy replaced the electricity that would have otherwise been generated from diesel and coal (1.5 TWh from diesel-fired open-cycled gas turbines and 0.5 TWh from coal power stations).
The second benefit is the saving of R4.6 billion to the economy derived from 203 hours of so-called ‘unserved energy’ that were avoided thanks to the contribution of the wind and solar projects.
Table 4: Coal production and usage in South Africa in 2013
|Source/usage||MTCE (Megatons carbon equiv.)||% of total|
|Total saleable production||256.3|
|a) Total domestic use||183.9||(100%)|
|b) Total by application||172.92|
|Source: Department of Mineral Resources, 2015: 72–74. (It’s unclear why totals a) and b) don’t match exactly.)|
As table 3 shows, 65% of all coal produced in South Africa goes towards electricity generation.
Carbon taxes, when introduced, will further contribute to the increasing cost of fossil fuel-generated electricity.
Decarbonising our electricity sector is therefore an obvious priority.
The benefits of decarbonisation
From the above analysis of the dangers of fossil fuels, we can easily list the benefits of decarbonisation:
- More stable, and in many instances, declining energy costs.
- A more stable climate
- Cleaner air and water
- Greater global geopolitical stability
- Greater economic stability
- Reduced threats to arable land
- Increased energy and water security
- Improved health and well-being
- Increased biodiversity
- Reduced pressure on public expenses
- Flexible, decentralised energy production
Another key benefit will be more jobs.
Renewable energy creates more and better jobs
One of the most profound weaknesses of Africa’s society and economy is the very high level of unemployment, especially in rural areas: long-term unemployment among youth in sub-Saharan Africa reached 48.1% in 2014 according to the International Labour Organisation. One of the great actual and potential advantages of a shift towards renewable energy in the electricity sector is job creation, often in remote and otherwise economically marginal areas.
This pattern is internationally consistent. Robert Pollin, a professor of economics at the University of Massachusetts, observes (2016) that:
Specifically, spending $1 million on clean energy investments generates about 17 jobs across all sectors of the U.S. economy, while spending the same $1 million on maintaining the existing fossil fuel infrastructure produces only about five jobs.
But renewable energy are not just more numerous. They are also better, safer jobs. (Pollin et al., 2014: 29):
In short, the clean energy investment agenda creates more jobs, better jobs, and a broader distribution of opportunity across wages and skill levels.
In South Africa, the RE industry has created 35,000 operational jobs in the past five years (Moyo, 2016). Another 10 GW of RE capacity is planned for 2025, which will no doubt see a great many more jobs created, certainly rivaling the 90,000 currently employed in more dangerous, less secure jobs in the coal industry.
One way of estimating the likely job creation potential of renewable energy in South Africa comes by way of a comparison with India (AIDC 2016), which by 2014 had created 437,000 jobs in the renewable sector, 173,000 attributable to the solar PV and wind power sectors. India’s then total renewable energy installed capacity of 42,849 MW was roughly equivalent to South Africa’s current installed capacity of 42,090 MW, suggesting that the job potential in converting South Africa’s electrical sector to renewables might be of a similar order – without the concurrent agricultural job destruction through land and water degradation that comes with the coal industry.
Non-climate benefits of turning away from fossil fuels
Decarbonising the SA electricity sector would save R90 bn a year by 2040
Over the past few years, South Africa has initiated one of the world’s most successful renewable energy development programmes (Onishi, 2016). The Department of Energy has committed to commissioning 13,225 MW of renewable energy generation by 2025, through the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP). The programme, established in 2011, has already completed 4 successful bidding rounds, awarding contracts to 92 projects, mostly wind and solar photovoltaic, with some concentrated solar (CSP).
The tariff for solar photovoltaic energy in South Africa fell from R3.65/kwh in Round 1 of the REIPPP to R0.62/kwh in Round 4 (Moyo, 2016). The cost of wind energy fell from R1.15/kwh in Round 1 to R0.62/kwh in Round 4. These costs are almost half the tariff prices for coal from independent power producers (R1.03/kwh), Eskom coal (R1.05/kwh to R1.16/kwh), and nuclear power, which is estimated at between R1.17kwh to R1.30/kwh.
New-build renewable energy is now significantly cheaper than new-build coal or nuclear power, and no longer requires subsidy.
According to Tobias Bischof-Niemz of the Council for Scientific and Industrial Research (Onishi, 2016), decarbonisation, without turning to nuclear energy, is not only viable but will save money: ‘South Africa is in a very fortunate situation where we can decarbonize our energy system at negative cost.’
If South Africa aimed for a 70% renewable energy target by 2040, this would cut energy costs dramatically (Cloete, 2016):
The ‘re-optimised’ mix is almost R90-billion a year cheaper by 2040 than the ‘business-as-usual’ scenario’, says Bischof-Niemz, adding that, even if renewable energy was 50% more expensive than assumed, the ‘re-optimised’ option would still be cheaper than the ‘business-as-usual’ approach.
Obstacles to decarbonisation
There are many formidable obstacles to removing fossil fuels from the energy system:
- Cultural: Despite the evidence presented by the growing success of renewable energy, many people still simply find it difficult to imagine an energy system and society that is no longer dependent on fossil fuels. Petrol-fueled cars, for example, have iconic status within the mythos of global consumer society. Our use of fossil fuels is the cataclysmic culmination of humanity’s ancient love of fire, a love we must now curtail or set aside.
- Technological: Despite rapid progress, and potential alternative technologies such as electric cars and bicycles, ground and air heat pumps, solar heat in industrial processes, and electric and hydrogen-fueled aircraft, not all fossil fuel applications can yet be replaced by no-carbon solutions.
- Political: As described above, the political influence of the fossil fuel industry in many countries goes far beyond its legitimate democratic weighting.
- Institutional: Many of South Africa’s state-owned enterprises are de facto fossil fuel companies.
- Financial: Despite ostensible commitments to decarbonisation, global fossil fuel subsidies still amount to over $1 trillion annually. It has been suggested that by diverting fossil fuel subsidies to development, extreme global poverty could be reduced by three-fourths (Sumner, 2016). We examine this factor in more detail below.
A key obstacle to decarbonisation: Fossil fuel subsidies in South Africa
Total fossil fuel subsidies across Africa for 2013 were estimated to be $32 billion, dropping to $26 billion in 2015, according to International Monetary Fund analysts (Cody et al, 2015).
In South Africa, the government-owned Central Energy Fund (CEF) has various subsidiaries, including PetroSA, the Strategic Fuel Fund, iGas, the African Exploration Mining and Finance Corporation (which supplies Eskom with coal), and South African Agency for Promotion of Petroleum Exploration and Exploitation (PASA), all of which invest substantial amounts each year in fossil fuel production.
PetroSA accounts for almost all oil and gas production in South Africa. Transnet, another state-owned company, transports the bulk of fossil fuels in South Africa by rail and pipeline.
There are also a range of tax schemes favouring fossil fuel exploration and exploitation. South Africa also managed to secure substantial loans from the World Bank for the construction of the massive coal-fueled Medupi and Kusile power stations.
Table 5: SA’s national subsidies to fossil fuel production 2013–2014
|Subsidy||Subsidy type||Estimated annual amount|
|Funding for hydraulic fracturing (fracking) research||Direct government funding for research||$8m|
|Promoting exploration and exploitation of natural oil and gas||Direct government funding||$12m|
|Tax deductions||Tax breaks on exploration, R&D, accelerated depreciation||Unknown|
|Source: Garg and Kitson, 2015|
Table 6: Fossil fuel-related investment by SA’s state-owned enterprises 2013–2014 ($m)
|SOE||Description||Fossil fuel sector||Annual average 2013/14|
|Petro SA||Total company capex||Upstream & midstream oil and gas||
|Coal lines expansion||Coal transportation||
|Eskom||Total company capex (net of non-fossil fuel costs)||Electricity generation||
|Total SOE investment||
5,370 (R57 bn)
|Source: Garg and Kitson, 2015|
Table 7: South Africa’s public finance for fossil fuel production 2013–2014 ($m)
|Institution||Annual average fossil fuel finance ($m)|
|Development Bank of Southern Africa||
|Development Bank of Southern Africa||
|Industrial Development Corporation||
|Export Credit Insurance Corporation||
|Multilateral Development Bank shares||
|Total public finance for fossil fuels ($ m)||
|Total public finance (Rand m)||
|Source: Garg and Kitson, 2015|
What’s more, the Export Credit Insurance Corporation of SA also provides insurance to South African exporters. In 2015/16, the ECIC’s operating capital of R5 billion supported a total insurance exposure of R25 billion. Much of this covers unspecified mining and liquid natural gas operations (ECIC Annual Report 2016).
From these figures, we can estimate the annual extent of direct and indirect support for fossil fuels by state and state-owned enterprises in South Africa at more than R60bn annually.
In South Africa, there is currently no significant coordination of government policy on climate change between the departments of the environment, energy and mineral resources. Policy commitments to mitigating climate change and reducing the direct impacts of fossils from the DEA seem to have little impact on actual practice within the departments of energy and mining.
Even though the Department of Energy’s plans pay lip service to climate change, there is still no truly deep integration of climate-related concerns into energy planning. This has to change. South Africa needs a coordinated plan for phasing out fossil fuels and fossil fuel subsidies in an orderly transition that includes retraining fossil fuel industry workers, and will end our contribution to climate change, create greater certainty in the business sector and secure the rights and security of workers in the fossil fuel industry through a ‘just transition’.
At the same time, there is an urgent need for transformation in South African capital markets. Whether or not the move away from financing the fossil fuel economy is described as divestment, it is a transformation that is going to happen. The real question is whether it happens fast enough, and whether individual companies, entities, regions and countries embrace the transition or get left behind. We do not have hard research to show the full influence of the divestment movement, but anecdotal evidence suggests that it is persuasive in some quarters in stopping new investment in fossil fuels.
In the absence of adequate action to stop climate change from either government or business, it falls to citizens to take action. In these circumstances, divestment is a potentially powerful tool available directly (through personal savings) or indirectly (through community savings) to almost everyone, allowing us to state clearly that we do not wish to contribute to the destruction of a safe global climate, nor do we wish to share in the profits of those who are destroying our climate.
As Bill McKibben, co-founder of the global climate movement 350.org, has observed:
If it’s wrong to wreck the planet, it’s wrong to profit from the wreckage.
Points to be incorporated in future versions
- How fossil fuel investments can cannibalise other investments through climate change impacts. For example, agricultural holdings undermined by drought, infrastructure investments threatened by natural disaster.
- Impacts of fossil fuels on oceanic environments.
- The Task Team on Climate-related Financial Disclosure.
- The tools to manage decarbonised investments now exist (see, for example, work by MSCI, S&P, ET Index Research).
- Stranded assets and the carbon bubble.
- The current status of the global divestment movement.
- Arguments against divestment, and why we disagree with them, such as the
- Myth that fossil fuels are still necessary for development (see related article by Dana Nuccitelli in The Guardian.)
- How climate change can possibly be reversed if we act fast enough.
- The likely impacts and limitations of a carbon tax.
- The possibility that South Africa’s current National Development Plan could make our economy more carbon-intensive.
About this paper
This paper was researched and written by David Le Page, the FFSA campaign coordinator (email@example.com). It has been adapted and expanded, with thanks and permission, from a related paper commissioned by the African Climate Reality Project and Food & Trees for Africa. It is a work in progress and will be updated regularly. Corrections and suggestions are welcome.
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