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12 December 2011

Our biggest crisis – energy, water, climate change?


Image: Google Maps

by Dr. Chris Herold, Umfula Wempilo Consulting

Energy holds the unenviable distinction of linking the word crisis to the delivery of essential services in the mind of the South African public. Damaging as it was (and may still be), it is transitory. Yet, before we are even out of the first crisis, the energy sector is now on the brink of pitching us all into a much more serious second crisis that threatens to relegate our entire economy to decades of gloom.

The context

Bear with me while I briefly fill in the background. At the start of my term as chairman of the SA Institute of Consuling Engineers (SAICE) Water Division someone raised the question at the April 2008 SAICE Council, “Are we facing a water crisis similar to the energy crisis?” Of course each of us were aware of problems in our own fields. But when my committee and I started investigating and putting the pieces together, the picture that emerged was alarming. A crisis committee of top experts was identified and convened, that includes, amongst others, two past presidents of SAICE, the then sitting and two previous presidents of Water Institute of South Africa (WISA), a former director general of the Department of water affairs (DWA) and a representative of the Development Bank of South Africa (DBSA). Expertise was drawn from the top echelons of management, water resources, water quality, municipal services, research, economics capacity building and academic fields. It is noteworthy that without exception every one of the carefully identified and extremely busy individuals recognised the need and joined the group without hesitation, and all continue to provide enthusiastic support.  The first product of this group was a submission to the portfolio committee of Water Affairs and Forestry on 22 October 2008. The upshot was the pairing of the two words “water” and “crisis”, which have since become common coinage.

By now you are probably well aware of the key crises facing the water sector, and will readily identify similar problems in the energy field and other service delivery fields:
  •  Mismatch between water supply and water demand
  • Theft of water resources
  • Failure to achieve demand management targets
  • Decaying infrastructure
  • Deteriorating water quality
  • Loss of essential skills
  • Strangling of educational pipeline

But isn’t something missing from our list of core crises?
Climate change – the tail that wagged the dog

Of course! This is the joker in the pack that that will soon gobble up a large chunk of our water resources, right? Wrong.In the SAICE submission to the Portfolio Committee on Water Affairs in 2008 climate change was placed last as a potential black swan, and did not make it into the list of key crises. The statement was made that, “compared with the man-made crises that we are facing, climate change is still a much less imminent threat”. While nothing has happened since then to change this opinion, we made the strategic blunder of leaving the field open for others to run away with the agenda and push through radical changes that threaten to cripple our national economy. The reason is simple – we were all too busy trying to do something useful like addressing the more important issues. On 10 March this year Prof. Grant Cawthorn of the University of the Witwatersrand School of Geosciences was quoted in Mining Weekly as stating that “climate change is probably the world’s biggest distraction”. Unfortunately this is an understatement. It is much more than a mere distraction. A feeding frenzy has already set in to divert a grotesque share of our scarce national resources to drastically slash carbon emissions (and incidentally directing heady profits into the pockets of eager developers who would otherwise be unable to sell their as yet hopelessly expensive technologies).
  
The price of mitigation

Right now we are in the painful early stages of a very steep hike in electricity costs, due to the construction of just two long overdue conventional coal-fired power stations, which happen to be the cheapest and most efficient option. We are sitting on about two-thirds of the coal reserves of Africa and the fabulous thick Waterberg coal seams alone can support nearly 20 new large power stations. Instead of using this largess, we are being urged to rush blindly in and throw everything into alternative energy sources, which are between two (in the core of wind) and three (in the case of solar) times more expensive than coal. (Think what that will do to your electricity bill and our pivotal industries.) In the meantime our cash strapped municipalities cannot even afford to maintain their crumbling infrastructure, let alone expand it. Add to that the intention to introduce a carbon tax that would rake in R82-billion per year! This is equivalent to incurring the cost of building a new Medupi power station every 1½ years – for decades to come! And don’t forget that Medupi power station is greatly over-priced since the tenders were let when our backs were to the wall and just before the over-heated world economic bubble burst. The only difference is that the carbon tax may not get us any new power stations for our money. Its main effect will be to push up the cost of electricity to astronomical levels, hammer our means of production, and price our manufactured products out of the export markets. Employment targets will become pipe dreams and the hope of tens of millions of our people to escape from grinding poverty will be dashed.  And all that for the sake of an unproven hypothesis.

Even if the hypothesis eventually proves correct, that anthropogenic (man-made) carbon emissions are the main driver of climate change, the timing is all wrong. Right now we need to utilise our cheap energy to drive economic growth, create jobs and restore and expand essential infrastructure. Rushing in far ahead of our global competitors is a sure way to lose what is left of our export markets, which once lost would take decades to win back. The double whammy is that the high cost of locally produced goods would mean that they would also lose ground to better priced imports. Job losses, or at the very least stagnation of growth, would seal the fate of millions of our people.

Does this sound like an exaggeration? Just compare R82-billion with the entire 2009/2010 tax revenue of just R571-billion and you will see what I mean. Last year we also over-spent our tax revenue by R177-billion (31%), with similar projected deficits for the next three tax years. (SARS website, 2011). Another R82-billion onto that will not be pretty. But it will help SARS to look good since it will be income for them, but it will be equivalent to a 14% increase in income tax for the rest of us since the tax will be passed on to all productive consumers who happen to pay their electricity bills. Moreover, the reduction in competitiveness will put downward pressure on GDP, which will magnify the impact of the tax. The large budget deficit also increases the risk that the carbon tax could be soaked up to reduce the budget deficit, which means that we would all have to pay a similar amount on top of the carbon tax to fund the doubling or trebling of the cost of new power generation plant. This will directly reduce our ability to fund essential maintenance, refurbishment and development of water infrastructure. Naturally it would have a similar impact on all other forms of infrastructure development and betterment of society. Infrastructure bottlenecks would in turn further constrict manufacturing capacity and drag down our economy even further.

Reduced carbon emission?

Some may take comfort in the thought that the ensuing economic decline will have the desired effect of reducing our carbon footprint. But they would be wrong.
The sad fact is that all this sacrifice will be pretty useless, as it will hardly make a dent in global carbon emissions. Moreover, other nations are eagerly queuing up to purchase our cheap coal so that they can burn it and remain more competitive than us. And having voluntarily destroyed our manufacturing industry (and any hope of beneficiation), we would be forced to sell our coal to our competitors since raw materials would be our only remaining source of foreign exchange. The only difference in carbon emissions would be that our coal would be burned in the northern instead of the southern hemisphere. And every chunk of it would have to be transported half way around the world in ships that have to be beneficiated and propelled with fossil fuels before arriving at the gates of a power station typically smaller and less efficient than our own. The net result would be more, not less emission per unit of electricity sent out. In the meantime we will futilely double or treble our incremental electricity cost and console ourselves with the delusion that we are helping mankind!

The right timing

The most touted potential impact of climate change (and the one for which there is the least evidence) is that on water resources. Yet if that were to occur (whether caused by anthropogenic carbon emissions or natural causes) we would be powerless to take mitigating measures if we have already foolishly run down our economy and blown our pay cheque trying to reduce emissions. Eventually we will need to wean ourselves off fossil fuels and reserve enough for chemical feedstock, but right now we have to do some serious building of our economy. Aside from meeting the pressing aspirations of our people, it will place us in a much stronger position to switch energy sources later when the time comes. And for us, that time is half a century or more away. Most of our competitors will run out of cheap fossil fuels long before we do (and make no mistake, they will continue to use them until that happens), which would give us a competitive advantage to build up our economy. It would also prevent us from losing markets when we eventually switch over. Another big advantage is that we won’t have to waste our meagre financial and skilled manpower resources finding the best alternatives – the expensive learning curve would already have been carried by other nations better able than us to afford it. In this regard earlier this week I heard an Eskom spokesperson wax enthusiastic about the REBID tender, and then paradoxically state that the cost of is solar photo-voltaic (PV) and concentrating solar powerr (CSP) set to fall steeply. If that is the case, then why should we be crazy enough to invest heavily in 1650 MW of obscenely over-priced solar generation that will probably be obsolete before it is commissioned? The sensible thing would be to let other much more wealthy nations sift the wheat from the chaff. By the time they are through and we really need to make the change we can pick up the most efficient technology at bargain prices. The key lies in the timing. And now is not the right time.

The show-stopping threat

So the big immediate show-stopping threat of climate change is not the effect on climate. Rather it is the panic stricken “sky is falling” mentality that would have us charge like lemmings off the lip of the nearest economic cliff.

It is not insignificant that in the same sentence quoted by Mining Weekly Prof. Cawthorn added that our “biggest and most immediate challenge… belongs to clean water”. But then, how will we address this, if we blow our financial resources chasing shadows?

“The prudent see danger and take refuge, but the simple keep on going and suffer for it.” Proverbs 27:12

References

[1]Herold (2010). The Water Crisis in South Africa, Civil Engineering, Vol 18 No 5, June 2010.
[2]Herold (2011), Major Water Threats, Civil Engineering, Vol 19 No 5, June 2011.

Contact Dr. Chris Herold, Umfula Wempilo Consulting, Tel 011 463-5203, herold@wirelessza.co.za