Dirty truth behind SA’s coal dependence

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An illegal miner gathers coal in a mine in Ermelo, Mpumalanga. South Africa’s lack of coherent policy direction and overreliance on coal will be detrimental to the country. Photo: Nelius Rademan
An illegal miner gathers coal in a mine in Ermelo, Mpumalanga. South Africa’s lack of coherent policy direction and overreliance on coal will be detrimental to the country. Photo: Nelius Rademan

VOICES


Every woman has had visitors who sloganeer militantly in the lounge about women’s oppression but won’t venture into the kitchen to help do the dishes.

Theorising gender relations in the abstract is obviously necessary, but changing the world requires that we use the theory to diagnose the specific problems we face and then act on the diagnosis.

Unfortunately, the discourse on South Africa’s minerals-energy complex often seems mired in the abstract.

READ: Mining: goose that lays the golden eggs is dying

Associate professor of economics and econometrics Sam Ashman usefully shapes a broad understanding of how collaboration between the state and big mining companies historically entrenched mining, especially coal.

To inform practical policies today, we need a more detailed understanding of the costs, risks and benefits of the minerals-energy complex for different socioeconomic groups. Even more, we need to analyse the public and private sector systems that secure its reproduction. Only then can we develop effective interventions to change direction.

Consider, for instance, the factors that promote continued dependence on coal. In many ways, the coal value chain is the core of the minerals-energy complex.

It comprises the coal mines and refineries led by Eskom and Sasol, as well as the aluminium and ferro-alloy refineries (including Mozal, the joint smelter project in Mozambique) that use about 15% of Eskom’s electricity.

As a whole, the coal value chain contributes about 5% of South Africa’s GDP and exports, although only 1% of its employment.

But it fuels more than 80% of the national electricity grid and is critical for four Mpumalanga municipalities – eMalahleni (Witbank), Steve Tshwete (Middelburg), Govan Mbeki (Secunda) and Msukaligwa (Ermelo).

These towns account for only 2% of the national population but 4% of the GDP, 70% of coal mining and almost 15% of electricity and petrochemicals.

Cost versus benefit

This is the thorniest kind of economic policy, where the benefits of change – in this case, a shift to cleaner energy and development of more equitable, labour-intensive industries – are huge but widely spread and often intangible, while the costs are visible and concentrated.

Already, for most South Africans, the costs of coal outweigh the benefits. Those costs take the form of increasingly intense droughts and floods, the risk of tariffs on South African exports, and the escalating cost and unreliability of coal-fuelled electricity.

READ: Correction on green power, then botched again

Households and businesses that can afford it are fleeing to renewable generation, which promises lower costs and fewer interruptions than Eskom’s coal-based supply.

Improving the competitiveness of the national electricity supply can go a long way towards supporting small businesses, creating more employment and more dynamic industrialisation.

But the transition away from coal will also come with costs. Most obviously, the new energy systems require large upfront investments in transmission and grid management, as well as generation.

Like any shift to a more productive technology, the transition also entails a loss of capital and livelihoods in now obsolete processes.

Mining companies will have to write off both their capital investments and coal reserves. Most of the international mining conglomerates have already sold their coal mines pre-emptively to local interests. Downstream refineries may be able to avoid similar write-offs by investing in alternative energy sources and feedstocks.

In a decade or so, however, the 90 000 coal mine workers, almost all in Mpumalanga, will probably face downsizing. The coal towns will lose their central industry, spelling trouble for small companies serving the mines and their communities.

The costs of the transition have so far been higher than needed because government systems have long been skewed to favour coal use. This is a problem of both the structures of the state and its specific decision-making systems.

Disjointed perspectives

Government oversight over the coal value chain is fragmented between a dozen departments, the provinces of Mpumalanga and Limpopo, Mpumalanga’s coal towns and several state-owned enterprises. Of these, only the environmental affairs department has an explicit mandate to promote clean energy, and it has no direct authority over the pricing and use of coal.

This disjointed system inevitably leads to rifts between state agencies. Most notably, the mineral resources and energy department insists that South Africa cannot afford to write off its coal reserves and that they are irreplaceable as a baseload for the national grid.

READ: More power, less darkness after Gwede changes law

Other government institutions generally see the phasing out of coal as unavoidable, given its loss of competitiveness and growing unreliability, as well as the escalating cost of emissions for the economy as a whole.

The lack of coherence in state structures makes it harder to re-engineer decision-making systems that were structured to favour coal use.

A few examples illustrate the problem: When the energy department makes decisions on the national electricity supply, it does not have to show how they align with national emissions targets. Nor does the department have to publish evidence on the costs and benefits of different options for businesses and households.

That calculation should take into account not only the direct costs of generation and transmission, but also the cost of emissions and other pollution, the growing unreliability and escalating tariffs of Eskom’s supply, and the impact of global technological trends on generation costs.

State-owned enterprises historically helped build the minerals-energy complex. To date, Eskom remains locked into coal because the energy department has barred it from large-scale renewable generation.

Meanwhile, Transnet reaps about a fifth of its revenues from its export coal lines. It has no incentive to move out of these investments as long as it does not have to pay the full cost of the related emissions.

Then there is the proposal to build a new 3.5-gigawatt, $5 billion (R72 billion) coal-fuelled power station at the Musina Makhado special economic zone (SEZ) in Limpopo. The SEZ will be owned by Chinese companies – the first private one in the country – and centre on metals refineries. It is endorsed by the trade, industry and competition department and Limpopo’s provincial government, ensuring that it will enjoy a range of government incentives.

Ignoring national imperatives

If that plant is built, it will effectively render national emissions targets impossible.

Neither the mandate nor the key performance indicators of the trade and industry department nor Limpopo require them to help reach emissions targets or contribute to a just energy transition. Nor are they required to show the probable impact on jobs and equality of investing in capital-intensive refineries, compared with putting the same resources into more labour-intensive clusters and businesses outside of the minerals-energy complex.

An effective policy to diversify away from coal has to start with clarity around its governance. The first step would be to translate national targets for reducing emissions and improving economic equality into consistent mandates and performance indicators for all of the relevant state agencies.

READ: Zimbabwe bucks the trend to cleaner energy, digging deeper into coal

In the longer term, restructuring should ensure that the responsibilities for transformation are aligned with authority and resources. More fundamentally, South Africans need to understand both the benefits and costs of depending on mining, particularly that of coal.

Too often, decision-making systems in both the market and government encourage officials to avoid the risks of innovation and ignore the costs of promoting capital-intensive minerals and energy activities rather than more labour-intensive and innovative industries.

The ultimate price is that the soaring costs of emissions are criminally undervalued, even as the climate crisis intensifies.

Makgetla is an economist at research institute Trade and Industrial Policy Strategies. This article was first published in New Frame.


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