Randall Spalding-Fecher

Electricity and externalities in South Africa

Abstract As the electricity supply sector in developing countries undergoes increasingly rapid restructuring, and technology and fuel choices widen, understanding the environmental implications of investment choices becomes ever more important. The objective of this paper is to expand previous analysis of the external costs of electric power generation in South Africa. We present a quantitative analysis of air pollution impacts on human health, damages from greenhouse gas emissions, and the avoided health costs from electrification, as well as discussing other impacts qualitatively. The central estimate of total external costs is R7.3 billion, or 4.4 cents per unit of coal-fired power generated. Relative to current electricity prices, the external costs are approximately 40 and 20 per cent of industrial and residential tariffs, respectively. We then discuss policy options for addressing these costs, including taxation, tradable permit systems, and integrated resource planning, as well as expanded regional energy trade and the possibility of accessing climate change-related funding for cleaner electricity production.

Comparing developing countries under potential carbon allocation schemes

To stabilise atmospheric greenhouse gas concentrations, all countries will eventually need to be included in the effort to limit climate change. This article explores what potential future greenhouse gas allocation schemes might mean for key developing countries. The need for development is widely acknowledged, but growth in non-Annex I country emissions means that such development may need to take a different path to business as usual. The national interests of developing countries in negotiating potential future commitments are shaped by basic characteristics, notably emissions (both annual and historical cumulative), economic growth and population. These factors in turn shape the acceptability of allocations based on ability to pay, emissions intensity, or emissions per capita. Results for six major developing countries (China, India, Brazil, South Africa, Argentina and Nigeria) show that the implications for developing countries differ widely. For example, ability to pay does not favour Argentina; a reduction based on emissions intensity is not appropriate for Brazil; and per capita allocations would be problematic for South Africa. It is difficult to conceive of a single allocation scheme that would be appropriate for all developing countries. This points to the need for differentiation between developing countries in terms of any potential future commitments.

Energy and the World Summit on Sustainable Development: what next?

Given the importance of energy issues to sustainable development, energy was a priority issue at the World Summit on Sustainable Development in August 2002. The objective of this paper is to examine the outcomes of the Summit on energy, and to assess them against proposals to address the lack of access to modern energy and the need to move toward a cleaner energy system. We find that lack of political leadership from key countries prevented agreement not only on targets for renewable energy, but also on a programme to promote access. The achievements of the Summit were limited to enabling activities such as capacity building and technology transfer, rather than substantive agreements. While WSSD put energy higher on the agenda than before, no institutional home or programme to take the issues forward has emerged. This therefore remains a critical challenge to be addressed. Achieving this broad goal will require building a coalition to promote cleaner energy, and committing resources to programme for energy access. Based on analysis of proposals and the negotiations, we propose several key areas where progress is still possible and necessary, including: shifting more international public and private energy financing toward access investments and cleaner energy investments, advancing regional approaches to access and renewable energy targets, and a range of mechanisms to strengthen institutional capacity for integrating energy and sustainable development.

The economics of energy efficiency for the poor—a South African case study

South Africa’s Reconstruction and Development Programme set ambitious goals for providing basic services to all, including housing and electrification. More efficient use of energy has the potential to socially and politically support these goals, particularly when it is targeted at low-income communities lacking adequate energy services. This paper examines the economics of energy efficiency for the urban poor from the perspective of society, utilities and poor consumers, using five example programmes. While the five energy efficiency programmes generally have significant economic and environmental benefits from a social perspective, they may not be as attractive to utilities and consumers. Also examined are the policy options for overcoming the significant barriers to energy efficiency, and ways government can bridge the gap between what is good for society and what is good for the electricity industry.

Cost-benefit analysis of energy efficiency in urban low-cost housing

This cost-benefit analysis study considered energy-efficiency measures in low-cost housing, primarily standard 30 m 2 Reconstruction and Development Programme (RDP) houses. The three packages of interventions that improve the thermal performance of the houses (ceilings, roof and wall insulation, windows and partitions) were found to be economically attractive both from a national and a household perspective. The net benefits from the whole package for a standard RDP home is about 10 per cent of the value of the housing subsidy provided by the government. The same interventions applied to informal housing appear more costly because the lifespan of shacks is taken to be five years. Row houses are particularly attractive, although their social acceptability requires further study. Compact fluorescent lamps and solar water heating are also attractive because of the energy savings they deliver. Apart from saving money, all these measures improve the quality of life of households by increasing comfort and decreasing indoor air pollution. Although the measures have a net social benefit, it does not mean that poor people can afford them. Energy-efficiency measures tend to have high capital costs, while the benefits are spread over many years. With their high discount rates, consumers are often not able to wait for future savings, nor do they have access to capital for investment. Based on our analysis, however, a capital subsidy of between R1 000 and R2 000 (not the full capital cost) is all that would be required to make these measures attractive to poor households across a range of regions and income groups. The no-cost measures of northern orientations: climatically correct window size and placement, as well as the appropriate wall and roof colour have a thermal running cost and environmental impact.

Health benefits of electrification in developing countries: a quantitative assessment in South Africa

A major challenge facing developing countries is how to allocate scarce capital, especially public capital, for the provision of basic services. Electrification, as part of an integrated service delivery package, is both a large draw on public funds and also an important catalyst for economic development. One of the major benefits of electrification, but one that is not included in traditional cost-benefit analysis, is the avoided health costs of fuels such as wood, coal and paraffin. This paper looks at the South African electrification programme, and presents estimates for these avoided health costs. The resulting benefits are of the same order of magnitude as earlier estimates of the local air pollution damage from the power stations that produce electricity. This demonstrates the importance of including the benefits of electricity provision – such as avoided health costs – in any discussions of environmental taxes on electricity, or subsidies for electrification, as part of a comprehensive cost-benefit analysis framework.

Energy and environment in South Africa: charting a course to sustainability

The past decade has witnessed a sea change in the priorities for the energy sector in South Africa – moving from the apartheid era single-minded emphasis on energy security to a broader concern about access to affordable energy, economic efficiency, and environmental sustainability. Transforming an energy economy based on vast, inexpensive supplies of coal, large public investments in synthetic liquid fuels and nuclear power, and highly inequitable access to clean household fuels, however, presents a major challenge. This paper explores the major environmental impacts associated with energy use in South Africa, identifying areas that are clearly not sustainable. We also chart recent moves forward to address these challenges to “sustainable development” in the energy sector, with a focus on the household sector and bulk energy supply. We present a set of key policy recommendations that stress the importance of pressing economic and social development needs, and improving the quality of life of the majority, as the starting point for developing long term sustainability policies for the sector.

Indicators of sustainability for the energy sector: a South African case study

In 2002, the year of the World Summit on Sustainable Development, and after, both South Africa and the international community have been reviewing the role of energy in sustainable development. Energy is critical to economic and social development but, depending on the way it is produced, transported and used, it can contribute to both local environmental degradation, such as air pollution, and global environmental problems, principally climate change. Part of the challenge of moving towards a sustainable development path is to be able to track progress. The objective of this paper is to present a set of indicators and analysis for South Africa, based on the Helio International Sustainable Energy Watch (SEW) indicators, that shows how to track progress toward sustainability in the energy sector. Within the SEW framework, South Africa is the closest to the sustainability target on the indicators for access to electricity, resilience to external impacts, and burden of energy investments on the public sector. South Africa performs worst on the indicators for carbon emissions per capita and energy intensity. Continued high energy intensity and emission intensity are potentially a competitive disadvantage for the South African economy. High carbon emission intensity also makes South Africa increasingly vulnerable to pressure to take on some kind of commitment within the United Nations climate change negotiations process. On the other hand, it makes South Africa an attractive candidate for Clean Development Mechanism international investment projects, which could help to move the country onto a lower emission intensity path. Investment in clean energy is only beginning in South Africa, so this indicator is far from sustainability. The poor score on the indicator for renewable energy use also reflects the long road ahead for South Africa in developing renewable energy sources, particularly those other than traditional biomass - and is a challenge to move beyond seeing these only as solutions to remote area energy problems.

Should the use of standardized baselines in the CDM be mandatory

There has been considerable debate on the merits of standardized baselines (SBLs) in the clean development mechanism (CDM), and how such baselines could reduce transaction costs for CDM projects. It has not been considered whether the voluntary versus mandatory use of SBLs by CDM project developers can affect the environmental integrity of the CDM. An example is given in which SBLs are applied to a homogeneous output industry in order to illustrate how the voluntary use of SBLs could lead – even with relatively stringent benchmarks – to over-crediting of emission reduction credits.

Demand-side energy efficiency promotion under the Clean Development Mechanism: lessons learned and future prospects

This paper provides an overview of the significance of end-use energy efficiency improvement for sustainable development and of the status of such projects under the Kyoto Protocols Clean Development Mechanism. It provides an independent analysis of the relevant decisions that have been taken by the CDM Executive Board/Methodology Panel, with a view to: (1) identifying key issues raised, (2) deriving lessons learned, and (3) evaluating whether issues have been handled consistently. It is clear from the analysis presented that the CDM is only making a very small contribution to promotion of energy efficiency (approximately 140 kt CO 2 e (carbon dioxide equivalent) per year), despite significant potential for improvement in developing countries worldwide. The paper therefore offers recommendations on how to improve the process, including creation of a dedicated energy efficiency working group or practitioner/expert forum to derive international best practice with respect to (1) monitoring and verification of CDM projects, drawing on existing protocols, and (2) common elements in the design of CDM baseline methodologies for end-use energy efficiency projects. The recommendations are based on a detailed analysis of common challenges facing such “demand-side” energy efficiency projects and means of overcoming them. The paper also argues why the CDM Executive Board and Methodology Panel need to acknowledge and give greater attention to the differing nature of the three efficiency markets - discretionary retrofit, planned replacement, and new installations - when developing guidance and tools.