Budgeting for climate change

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The following article by Dr Harald Winkler was found on the Engineering News website.
Published: 21 Mar 08 – 0:00

Finance Minister Trevor Manuel said some remarkable things about climate
change in his 2008 Budget speech. Much attention was focused on the short
term and the electricity crisis. The Treasury seems to be keeping an eye on
the longer-term crisis precipitated by climate change. The realisation that
this is an economic challenge seems to have been internalised – and no
longer only in the Department of Environ- mental Affairs and Tourism.

The man holding South Africa’s public purse strings now recognises –
explicitly – that climate change may require a change in growth path. And he
outlines in a little more detail what that might mean – creating jobs
through shifting to a more energy-efficient economy, while deferring
energy-intensive projects. That is very different to our past, when
competitive advantage was built around cheap electricity and
energy-intensive minerals beneficiation.

In the short term, the key measures are a 2c/kWh tax on nonrenewable
electricity, generating R2-billion in revenue this year and doubling that
next year. The revenues are to be spent on a range of programmes: efficient
use of electricity, generation from renewable sources, conservation of
electricity and cogeneration.

The headline news, of course, was the R60-billion – “this is not a grant” –
for Eskom to resolve the crisis in the short term. The same Budget speech
makes it clear that 73% of Eskom’s R343-billion capital-expenditure
programme will go to power plants. And the plans are dominated by
demothballed coal, new coal, and diesel generation for peak load. The big
expenditure is still on fossil-fuel plants, with a little cogeneration and a
few hundred megawatts of wind. So the revenue from the 2c/kWh is not that
big. From a social perspective, it might be better structured as a
step-block tariff.

So one should conclude that Manuel is talking the talk, but not yet walking
it – perhaps, but this observer would like to believe that the changes
signal a more substantial shift in paradigm. Why do I think so? Firstly, the
National Treasury appears ready to move into implementing some proposals on
environmental fiscal reform. These proposals were developed and workshopped
some years ago. Now specific options have been put on the table at a higher
level. Notably, these ” include the use of emission charges and tradable
permits, tax incentives for cleaner production technologies and reform of
the existing vehicle taxes to encourage fuel efficiency”. So national policy
on emissions trading, a carbon tax and other instruments for mitigating
climate change are on the agenda.

Secondly, Manuel supports the national dialogue that has started on these
options. He indicated that “we have to work hard at developing an
understanding between very diverse groups of people: scientists,
environmental activists, engineers, businesspeople, workers, policy
advisers, and regulators”. Such work has indeed already begun in the process
of long-term mitigation scenarios for South Africa. As Manuel laconically
puts it, there are some competing perspectives to consider. Clear
institutional arrangements will be needed to manage this within a
comprehensive, integrated programme. He notes 244 inputs on a range of
interventions, and highlights that some point out “that subsidising
fossil-fuel burning generators would send the wrong signal in the light of
environmental considerations”. The issues are clearly understood – they will
require common effort across different perspectives to resolve.

This brings me to the third reason – the theme of human solidarity. The
Budget speech suggests that South Africans are in these things together.
Manuel returns several times to the most fundamental challenge of climate
change mitigation – changing our development path.

It starts with global solidarity. “There are steps we have to take to change
the legacy we will leave our children: adjustments to our growth path we
have to make as a global community, as nations working together, as citizens
of a shared humanity, in response to the challenge of climate change and
environmental responsibility.” Interestingly, he places the same solidarity
needed to fight global warming in the same sentence as the war on poverty,
and battles for infrastructure development and financial stability. He
posits that we share these obligations: rich and poor, urban and rural, men
and women, business and community organisations, labour and government.

But the proof of the pudding is in serious intent to change. The theme of
shifting the structure of the economy from its energy-intensive past to
greater energy efficiency is repeated. This represents a call to shift
paradigms. The magnitude of the required change is clearly understood when
Manuel says: “Our economic growth over the next decade and beyond cannot be
built on the same principles and technologies, the same energy systems and
the same transport modes that we are familiar with today”.
No, the Budget allocations do not yet reflect that new paradigm. The proof
in the long run will lie in future Budgets, with expenditure reflecting the
shifts. However, I for one, would like to believe that it signals a serious
intent to move in that direction. If we do, there may be some hope yet in
combating climate change.