SA’s coal market under threat from carbon tax proposals

American warned yesterday, but concerted engagement with the government was showing signs that changes might be made.
The company, a founding member of the Industry Task Team on Climate Change, has a high-powered delegation of executives headed by chief executive O Cynthia Carroll in Durban at the United Nations climate change negotiations (COP-17). The team aims to highlight the efforts by one of the largest mining companies in South Africa to cut energy usage.
Ms Carroll said yesterday the process the South African government was adopting in formulating a carbon tax policy was far preferable to that in Australia, where Anglo is carefully weighing up the financial merits of a pipeline of projects worth US$10 billion-US$15 billion after the government passed a carbon tax policy that will affect the mining sector heavily.
She warned about the implications of the current proposals for South Africa’s economy.
Anglo wanted a clear and stable policy environment on climate change as it had long-life assets around which it had to plan, said Mr Godfrey Gomwe, executive director of Anglo American SA.
In Australia, a tax of US$25 per tonne of carbon emitted was adopted to become effective from July next year, provoking a furious response from not only the mining sector, but other industries such as airlines and steel makers.
Anglo felt the tax was a revenue-raising scheme, raking in more in the first three months than the European tax scheme in six years, said Seamus French, head of Anglo’s metallurgical coal business. It also gave industry no time to come up with schemes to reduce emissions, he said.
The tax has knocked up to 30 percent off the value of its Australian projects and made its exports 7 percent less competitive than other major metallurgical coal-producing regions.
“Our frustration is there’s been no engagement on this and it’s been take it or leave it. We’ve spent US$120 million in Australia in developing a solution but it will take 10 years to come up with something that’s manageable and supportable. In South Africa, the approach is much more one of engagement and understanding what the industry can support and how it will impact on investment. It’s a much broader-thinking approach here than what we’ve seen in other places,” Ms Carroll said.
The proposal in South Africa is to impose a tax of up to R200 per tonne of carbon, and as it stands it would lead to an 11 percent reduction in Anglo’s cash flows from the country, said Mr Gomwe.
“If it is applied as it stands now to export coal then there would be no export coal industry in South Africa. It would be uncompetitive,” Mr Gomwe said.
“Our position is that we’re not saying no to a price on carbon, it’s how it’s priced. It is anti- developmental in a way because it will punish industry.”
The task team has held numerous meetings with the Treasury and other departments to raise concerns and highlight the potential outcomes of the proposal.
“It appears that they are having a rethink and we see something different coming to what’s currently on the table,” he said.
South Africa is a major producer of carbon, emitting the equivalent of about 500-million tonnes of carbon dioxide a year, with Eskom accounting for nearly half of that. Sasol and ArcelorMittal SA are also large contributors.
Anglo is working to make coal a more acceptable option in power generation.
Its three-legged strategy is to ensure a higher quality of coal is burnt in power plants, putting fewer pollutants into the atmosphere; carbon capture and storage; and more efficient plants.
Improved power-plant technology could lift efficiency to above 40 percent from the current 28 percent, and in some cases in pilot projects, to above 60 percent, said Norman Mbazima, head of Anglo’s thermal coal business.
“This, the efficiency programme, is probably the most important aspect in bringing down emissions immediately.”
In talks with governments in the various countries in which Anglo operates it has become clear there is no single approach on carbon reduction or any obvious answers on how to do so, Ms Carroll said. – Businessday.