Recap: CPLC Carbon Pricing and Competitiveness Workshop

CPLC Carbon Pricing and Competitiveness Workshop

May 29-30, 2019 in South Africa

Carbon pricing is all about including a price on a non-tangible (carbon dioxide) that has very tangible impacts on our companies – from a business continuity perspective and business risk perspective – that ultimately boils down to a financial impact. On May 29th and 30th in South Africa, Eskom, National Business Initiative in South Africa, and the South African Department of Environmental Affairs organized a CPLC workshop hosted by Sasol. The workshop provided the opportunity for learning through collaboration and focused on how we avoid competitiveness impacts of carbon pricing policies and measures. Hearing from stakeholders from different countries provided invaluable insight into what works and what doesn’t. This is especially important as we try to get our head around this issue of carbon pricing, as pricing this non-tangible, and in some cases the counterfactual, can have unintended negative consequences.

CPLC is currently supporting an industry-led Commission that is examining the issue of carbon pricing and the competitiveness of businesses, particularly the high emission and trade-exposed. The Commission is being informed by a background report that recognizes that while present empirical evidence of impacts, such as relocation and loss of investment productivity, are limited, there is still risk of such impacts. However, the report also recognizes such risks can be effectively mitigated through smart policy design.

For the coal and mining dependent South African economy, this risk is real. Therefore, it is very useful that the Commission’s work will seek to unpack competitiveness concerns and explore what we can do about it. Carbon pricing is a key component of South Africa’s decarbonization plans and careful design will be critical to its success.

In the South African context, we cannot have one goal only – i.e. emissions reductions – we must approach pricing systemically and consider the socio-economic impact.  A key reason many economists support market-based policies is due to, among others, the continuous incentive they provide to innovate to reduce emissions.  The workshop provided a convivial platform for stakeholders from various organizations to interact and engage on these matters – in a completely collegial manner. The non-intrusive convening power of the CPLC allowed for a unique collaboration between South Africa’s Department of Environmental Affairs, energy players Eskom and Sasol, and the National Business Initiative (NBI).

Representatives from the finance sector, energy sector, transport sector, public sector, and government shared some key insights based on what they picked up from presentations and discussion throughout the morning:

  • Climate change concerns should be mainstreamed at a policy level to produce comprehensive, rather than isolated and contradictory, policies. For example, promoting the use of electric vehicles in one policy, but having an inhibitory import tax in another policy, would be contradictory.

  • Carbon pricing should be seen as a tool to support a just transition – that is support for mitigating the social impacts of transitioning to a low-carbon and climate-resilient economy. Studies show that this is the most effective use of carbon revenues. In this regard, there is value in learning from other jurisdictions that have processes in place to support the just transition, especially of those with economies dependent on emissions-intensive and trade-exposed sectors.

  • It is imperative for businesses to include carbon pricing in strategy, planning and decision making. This process enables the mainstreaming of climate change issues in the business context – i.e. managing risk. This includes both the cost of carbon but also the cost of adverse climate impacts.

  • Carbon pricing should be considered an enablement or tool for repurposing sites and assets instead of allowing them to become stranded.

  • Climate impact modeling shows that the Southern African region is particularly vulnerable to the changing climate. We have already started to feel that impact.

Key questions

  • Given the size and structure of the South African economy and the resulting inflexibility, what enabling policy environment is required to transition to a low-carbon economy?

  • How can carbon policy help us to do more? How can a pricing instrument be designed to help us do more?  

  • Can we price carbon to benefit the region? Can South Africa influence and lead in this regard so that the region benefits?

Perhaps most important was the realization that - yes there is also the cost of doing nothing.

We came out of the session with a lot of learning and a lot of questions that spoke to the richness of the discussion. Happily, we also came out of that session with a view that carbon pricing is not limited to just one instrument. There is a toolbox of carbon pricing instruments that we can tap into. The active engagement by participants during sessions and even during tea breaks points to the hunger for further discussions on the carbon pricing toolbox. The take-home was clearly ‘let’s put a price on it!’

About the Author

Mandy Rambharos is the Head of Climate Change and Sustainable Development for Eskom Holdings, South Africa’s State owned power utility. She is responsible for all Sustainable Development and Climate Change policy and strategy development for Eskom. Mandy represents Eskom on the World Bank’s Carbon Pricing Leadership Coalition advisory committee and serves as the co-chair of the African Working group for this initiative.