Photo: Lindi Botha
Former Eskom CEO André de Ruyter made headlines recently after he said that carbon tax could derail South Africa’s export industries, specifically the fruit and manufacturing sectors. He pointed to Eskom’s continued pursuit of coal, which does not take into account the ample renewable energy the country could provide.
As the world clamps down on heavy polluters, many countries are looking at implementing carbon border adjustment mechanisms (CBAMs). This seeks to level the playing field between, for example, a French farmer and a South African one.
The French farmer’s produce would land on a French supermarket shelf at a price that takes his input costs and a carbon tax into account, since the EU imposes this tax on farmers.
Produce imported from South Africa, where there is no carbon tax in place, would take only the input costs into account when pricing an item. The EU sees this as unfair and would therefore impose a carbon tax on the South African product so that the price of both items reflected input costs and carbon taxes.
Speaking at the 2024 Hortgro Technical Symposium in the Western Cape in June, De Ruyter said South Africa was one of the most carbon-intensive countries in the world.
“It has 1,5 times the carbon intensity of China and double the carbon intensity of the global average, and a lot of this carbon is contained in our export products.”
Of the developing countries, South Africa has the largest carbon footprint from energy generation on the African continent thanks to an 80% reliance on coal (see graph: South Africa’s energy mix).
The EU started implementing its CBAM transition phase in October 2023, scheduled to come into full force in 2026. During this period, EU-based importers of goods covered by CBAM from non-EU countries are obligated to report the embedded emissions of their imports without incurring any financial liabilities.
After 2026, if carbon emissions exceed the prescribed amount, importers will need to pay an additional tax or purchase carbon credits to offset their emissions. For now, industries subject to CBAM are electricity, aluminium, iron, steel, cement, fertilisers, and hydrogen.
Agriculture is excluded from these taxes for now, but all indications are that food imports will be taxed by 2035. More worrying is that the UK is putting in place its own CBAM, which will include agriculture far sooner. Canada and Japan are also working on their own CBAMs.
Wolfe Braude, general manager of Agbiz Fruit, notes that the European Parliament has called for the European Commission to assess the possibilities for an extension of CBAM to include imported agricultural products by 2030, with taxes coming into force by 2035.
“This is likely because alignment will be needed between the Green Deal programme policies and the CBAM.”
South Africa is a carbon-intensive producer and this applies to agriculture (see graph: Greenhouse gas emissions from agriculture). Braude points to South Africa’s estimated carbon footprint of more than 1 100t of carbon dioxide equivalent (tCO2e) per US$1 million (about R18 million) of exports.
“Next largest is Poland, at 650t of CO2e per US$1 million. Most countries have an intensity of between 500tCO2e and 500tCO2e per US$1 million. This means that any expansion of CBAM to include agriculture would be a direct risk for South African agricultural exports to the EU.”
The cost of coal
If South Africa does not address its carbon emissions, CBAM will make our fruit exports less competitive. Braude explains that the CBAM tax can be offset by purchasing CBAM certificates.
“If an exporter’s country imposes a domestic carbon tax, then the exporter will only pay the difference between the two countries’ taxes to keep the playing field equal. However, South Africa’s carbon tax is insufficient to match the EU CBAM price, providing an estimated 5% discount.”
The price of such certificates will be calculated on the weekly average auction price of EU emissions trading system allowances. The exporter must declare by 31 May each year the quantity of goods and the embedded emissions in those goods imported into the EU in the preceding year.
If they can prove that a carbon price has already been paid during production, this amount can be deducted from their final bill.
The product’s carbon footprint would ideally be calculated using actual data collected by the producer. If such data is not available, the country average will be used.
Failing such availability, the EU will look at the average emission intensity of the worst-performing 10% EU equivalent-type of goods. This holds significant challenges for South Africa as a universal measuring and reporting system for agricultural emissions is yet to be put in place.
South Africa’s fruit sector has however already made headway in understanding its carbon footprint, although far more data collection and verifying needs to be done to gain a definitive and transparent footprint.
The biggest culprit? Electricity from Eskom’s coal-fired power stations. Considering that farmers are at the mercy of government’s energy policies in terms of a substantial portion of their carbon footprint, any decision to continue to pursue coal or switch to renewable energy has a massive impact, especially in lieu of CBAMs.
The Confronting Climate Change industry benchmark, which analysed data from the 2011 to 2020 seasons, shows that coal-based electricity makes up 52% of on-farm carbon emissions for pome fruit production in South Africa. The remainder comes from diesel (21%), nitrogen fertiliser (20%), agrochemicals (6%), and land use change (1%).
Other industries show a similar trend, with citrus production attributing 48% of its emissions to Eskom electricity, while table grape production stands at 63%.
Producing one kilogram of pome fruit stands at 0,20kg of CO2e. With 52% of this footprint made up of Eskom electricity, it accounts for 0,10kg of CO2e. At an annual pome fruit production of 1,3 million tons, this sector adds 130 000t of CO2e to the atmosphere just by using coal-based electricity in production.
If carbon emissions generated from coal-based electricity in the packhouse were to be added, each kilogram of pome fruit would be lobbed with an additional 0,03kg of CO2e. This puts the carbon footprint of one kilogram of packed pome fruit at 0,34kg of CO2e, of which nearly one-third, at 0,13kg, is as a result of using coal-based energy.
If this carbon footprint from coal-based electricity were to be taxed under CBAM at the current cost of €70/t (about R1 356/t) for a carbon credit, the pome fruit industry could be forking out just over €1 million (R19,37 million) to get the coal-based 1,3 million tons of fruit into the EU market.
“CBAMs will have a catastrophic impact on exports like the Western Cape’s high-value horticultural trade,” said De Ruyter. He therefore believes government should prioritise abandoning coal-focused energy projects.
“Instead of wasting more money on reviving Eskom in its current state, they should redirect funds to renewable energy. This will not only boost South Africa’s race to net-zero, but will significantly reduce the carbon footprints of South Africa’s exports.
“Job losses caused by the closing of coal-fired power plants will be dwarfed by the job losses that could stem from export levies.”
An obvious but ignored route
Erecting on-farm solar, wind and hydropower plants has been the route chosen by many producers to circumvent Eskom’s challenges.
Although this has mostly been to ensure consistent power supply amid load-shedding rather than due to carbon footprint considerations, the cost and infrastructure to erect their own power sources are significant and mostly unattainable for the majority of growers. The responsibility Eskom has as the country’s power supplier can therefore not be understated.
De Ruyter noted that aside from the penalties of a CBAM adjustment, coal-fired power stations go against the ‘least cost’ principle. He pointed to a murky Integrated Resource Plan (IRP 2023), the latest version of which was released in January 2024, which plots government’s way forward for South Africa’s energy generation.
Energy experts and economists have criticised the plan, stating that costs have been distorted in favour of coal. De Ruyter said that in the plan, the cost of fossil fuels has been underestimated.
“There has been a technical revolution when it comes to renewable energy. The cost of solar has come down by 89% since calculations done in the early 2010s, which are being used in this plan.”
The IRP 2023 advocates for a delay in shutting down coal-fired power stations and limiting the amount of renewable power-generation projects that can come online, citing the higher cost of renewable energy as a core reason.
Business Leadership South Africa CEO Busi Mavuso agrees that the numbers don’t add up. “The IRP 2023 presents some spurious costing estimates that appear to elevate the price of renewable energy and underestimate the cost of fossil fuels.
“It slashes the amount of renewable energy – still easily the cheapest form of new energy generation – to be installed between 2024 and 2030 via public procurement from 15,2GW in IRP 2019 to 8GW in IRP 2023.”
By the Department of Energy’s own admission, South Africa has an abundance of sunshine, which should be better utilised for power generation. The department’s statistics show that the annual 24-hour global solar radiation average is about 220W/m² for South Africa, compared to about 150W/m² for parts of the US and 100W/m² for Europe.
According to a study by the Council for Scientific and Industrial Research (CSIR), South Africa could generate 250TWh/year from wind energy. This could theoretically meet the current electricity demand of the country if wind farms were installed across 0,6% of the available land mass.
Taking full advantage of South Africa’s solar energy would bring renewable energy production to 550TWh annually – more than double the current demand of 202TWh for South Africa, according to the CSIR.
“South Africa has perfect conditions to introduce a very large amount of variable renewables into the electricity system,” says Crescent Mushwana, the CSIR’s research group leader for energy-system planning and operation at the time of the study.
“Almost the entire country has sufficient resources for profitable wind projects, with bulk solar and wind energy coming in at a very low cost.”
His research also shows that there is low seasonality of both solar and wind supply, which means no seasonal storage would be required to ensure consistent energy supply.
As far as cost goes, GreenCape, a non-profit organisation working for wider adoption of renewable energy in South Africa, says that large-scale solar PV and onshore wind energy systems still offer lower energy costs compared to other utility-scale solutions when comparing levelised cost of energy (see graph: Cost of energy).
Renewable energy production is far cheaper than coal, but it’s the delivery that is tripping South Africa up. While the infrastructure is not there to harness the wind and solar energy to replace coal, it is these investments that De Ruyter and others argued should be made rather than pouring more money into Eskom’s coal power stations.
Braude says South Africa has about five years to fix its energy supply and carbon footprint before CBAMs tax agriculture.
“It’s a short window to wean ourselves off coal but it’s an opportunity other sectors like aluminium don’t have.”
- This story was produced with support from Internews’s Earth Journalism Network.
Email Wolfe Braude at [email protected].
