Eskom and Sasol forge a duopoly in emissions
March 5, 2009
Sasol's numerous brushes with competition authorities have entrenched its reputation for monopolistic tendencies in markets for the liquid fuels and chemicals it produces from coal and gas.
State-owned Eskom has garnered less attention from competition authorities than its privatised counterpart, possibly because the electricity supply sector that the utility monopolises has its own watchdog, the National Energy Regulator of SA.
But if the ambit of our anti-trust regulators were to extend from pricing and control to environmental integrity, Eskom and Sasol might be considered the duopoly of the nation's carbon polluting industries.
The novel reference to the pair as a duopoly came this week from delegates at the government's climate change summit.
The description is apt. Emissions from the combustion of fossil fuels for energy provision account for about 73 percent of the nation's total carbon emissions, with coal-addicted Eskom responsible for the biggest chunk and Sasol following as the biggest private sector emitter.
Mike Goldblatt, an economist specialising in environmental and natural resource economics, believes no other country faces such a duopoly. It has implications for any attempts to create market mechanisms to reduce greenhouse gas emissions.
The National Treasury has begun investigating what form of carbon taxes may be appropriate for South Africa, possibly in conjunction with an emissions trading scheme that caps emissions and creates a market for trading in emission reductions.
The combined size of Eskom and Sasol poses the danger that a regulatory system is built around them, taking less cognisance of smaller participants with nevertheless significant emissions. In addition, the bargaining power wielded by the duo as a result of their size could determine whether a carbon tax is imposed on them.
A research paper on carbon taxes published in February by the University of Cape Town's Energy Research Centre (ERC) says European experiences with carbon taxes suggest that requests for exemptions from a general carbon tax should be anticipated here. But the paper points out that if most emissions from coal are exempt, then the tax is likely to become ineffective.
Another recent ERC paper on emissions trading as a policy option highlights the difficulties of ensuring that sufficient liquidity exists in a cap-and-trade system, given Sasol's and Eskom's dominance.
Regulating emissions at the point of combustion may not be appropriate, much like regulating the upstream providers of coal, oil and natural gas, of which there are a limited number of entities, the paper says.
One option, Goldblatt suggests, is to separate Eskom and Sasol into several carbon trading units, each with its own cap.
This is just a hint of the many complex issues surrounding carbon taxes and emissions trading schemes.
In the near future, vested interests are sure to vigorously lobby government arms in an attempt to influence policy. A climate change policy is due to be released by the end of 2009 with regulatory, legislative and fiscal details fleshed out by 2012.
The point was made at the summit on Wednesday that whatever policy package is chosen, its outcome needs to result in a lower emissions trajectory, rather than merely create a derivative market in carbon.
The policy will paint a clearer picture of the government's resolve to translate its long-term intent to move towards a zero-carbon economy into immediate action.
Short and medium-term commitments are the real indicators of whether there is political will to deal with the transition from a fossil fuel economy to cleaner energy.
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