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Globally, multiple countries and companies have set out goals to achieve net zero emissions as part of their commitments to address climate change.
Here's what net zero means and how South Africa can achieve it:
1. What exactly is net zero?
We need to understand the Paris Agreement first. The Paris Agreement is a legally binding international treaty on climate change adopted by 196 countries in Paris in 2015 and entered into force in November 2016.
Its goal is to limit global warming to well below 2 degrees Celsius, preferably to 1.5°C, compared to pre-industrial levels.
In order to limit global warming, a significant reduction of greenhouse gas emissions such as carbon dioxide (CO2), Methane (CH4) and Nitrous Oxide (N20).
That's where net zero comes in - by ensuring that the amount of greenhouse gas emissions being released into the atmosphere are reduced and ultimately equal to the amount being removed in order to significantly reduce the amount of harmful emissions that contribute to global warming.
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The 2021 Glasgow Climate Pact, forged at the COP26 climate change conference, recognised that reaching net zero emissions by 2050 is essential and the key to keeping temperatures to 1.5°C of warming.
In short, the plan is to remove carbon, not just reduce it, hence the term net zero.
2. What does net zero mean for South Africa?
The Paris Agreement established a process for countries to set out their plans to reduce emissions, known as Nationally Determined Contributions (NDCs), in which many governments have set a target for achieving net zero.
Some of these NDCs have been codified in legislation, leading to penalties if they're not reached.
In South Africa, the Climate Change Bill is meant to be the overarching legislation to drive the implementation of our NDCs.
Others are not legally binding but still demonstrate national and sectoral commitments, such as the UK and the US targeting 100% clean electricity by 2035.
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During 2021, South Africa's NDC target range for 2025 was updated from its original value of 398-614 Mt CO2-eq to a range of 398-510 Mt CO2-eqfor 2025, and its 2030 mitigation target range was updated from 398-614 Mt CO2-eq to a range of 350-420 Mt CO2-eq. In addition, South Africa's NDC also includes various policy instruments to achieve our targets, for example, the carbon tax.
3. What incentives and taxes does South Africa have in place?
Governments around the world are using sustainability tax measures to reduce emissions, meet their commitments on carbon neutrality and tackle climate change, as well as to raise revenue and fund important policy objectives. While these goals are shared, the policies established to achieve them vary greatly.
The following is an extract from Finance Minister Enoch Godongwana's Budget Speech in February 2022:
The nominal and net carbon tax rate has been subject to much debate between the various business, NGO and government stakeholders. It is clear that global carbon pricing mechanisms will have an impact on the South African rates set.
The upcoming Climate Change Bill will make it compulsory for taxpayers to participate in the carbon budget system. Greenhouse gas emissions allowances are allocated to emitters, and emitters should stay within these budgeted allowances, or else they could face a sizable carbon tax penalty.
A key design feature of the carbon tax system is the carbon offset allowance which provides flexibility to firms to reduce their carbon tax liability by investing in projects that reduce their emissions.
During the first phase of the carbon tax, carbon offset projects developed under three international carbon offsets standards were allowed to be utilised. In terms of the proposed Carbon Offsets Programme developed by the Department of Mineral Resources and Energy and which is currently under consultation - South Africa plans to develop a framework for potential domestic standards that will ensure the generation of carbon credits. These carbon credits can be used as part of South Africa's allowable carbon offsets.
4. Are these taxes ringfenced for use in carbon reduction?
In the South African context, it's clearly stated that National Treasury's policy on the carbon tax is what is termed "soft earmarking" - which means that they don't directly take the carbon tax collected and allocate it to green programmes. The proposed increases in the carbon tax and other green levies are expected to be much higher than inflation over the next 10 years.
5. Is there a difference between carbon neutral and net zero?
Carbon-neutral means purchasing carbon credits to offset companies' greenhouse gas emissions. Carbon-neutral allows for emissions to be emitted with no specified level of reduction in emissions required.
Net zero means reducing own and supply chain emissions in line with the latest climate science (so-called science based targets), and balancing remaining residual emissions through purchasing carbon credits.
6. Are there easy things SA companies should be doing right now to reduce carbon emissions?
South African companies face many challenges of power outages, industrial action, high inflation and interest rates, and a volatile currency. The pressure is building from a global and local point of view in relation to expanded Environmental Social Governance (ESG) reporting, carbon tax/pricing issues, investor ESG requirements and financiers moving to green financing.
So how should companies practically think through this challenge?
- Admit the reality of what is coming.
- Identify their current greenhouse gas emissions and set science-based targets of where they need to get to in order to be "net zero" by a set date, including a carbon credit strategy.
- Align their business strategies to these ambitions and formulate a net zero plan.
- Build a business case for the net zero plan and align the capital allocation framework, including setting an internal price on carbon.
- Get the buy-in from all stakeholders (government, labour, staff etc.)
- Access the finance required to achieve these new ambitions (significant green financing and grants are becoming available).
- Establish strong governance (including executives' key performance areas) around the execution of the net zero plan.
- Communicate the plan publicly and formally report progress against the plan under global sustainability reporting standards.
Paul O'Flaherty is the Africa head of EY-Parthenon - the strategy consulting arm of EY. News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.
