Good morning, and welcome back to Energy Source.
All eyes are on the United Arab Emirates this week where government officials, scientists and lobbyists are arriving ahead of this year’s UN climate summit.
The energy industry will be there in force seeking to influence critical debates, in particular whether countries should agree to phase out fossil fuels and who should pay for the energy transition in developing countries.
Today the Financial Times takes a deep dive into the UAE’s pivotal role as host of the talks. The nation is one of the world’s largest producers of hydrocarbons but has spent $200bn on green energy projects over the past year. Some experts say these investments, many of which are overseas, are crucial to driving the energy transition. Critics, meanwhile, allege they are part of a “greenwashing” campaign that aims to buy the Emirates influence in global climate talks.
“This strategy might pave the way for an agreement that, paradoxically, keeps the fossil fuel industry afloat, while simultaneously positioning the UAE as a climate leader through support for renewable energy projects,” said Harjeet Singh, global head of political strategy at Climate Action Network International.
The summit is taking place as the renewable industry faces fierce headwinds. Andrés Gluski, chief executive of power company AES, told my colleague Amanda Chu that investors are making “big mistake” in favouring oil and gas over green energy.
Today’s newsletter is a dispatch from South Africa by David Pilling, the FT’s Africa editor, who assesses the energy transition challenges facing two of the nation’s biggest companies, Sasol and Eskom. — Jamie
Eyes on the energy transition in Africa’s most industrialised economy
Greetings from South Africa where I co-chaired the FT’s Moral Money summit in Johannesburg, its inaugural event in Africa. Naturally, the energy transition was high on the agenda.
Africa contributes a small fraction of the world’s per capita global carbon emissions. Uganda, for example, releases about one-hundredth of US emissions — so the idea that African nations should contribute to global decarbonisation targets is often treated as a bad joke on the continent.
With 600mn people lacking regular access to electricity, there is little sympathy for the idea that African economies can afford to cut emissions. More often than not, such demands are regarded as a neocolonialist ruse disguised as environmentalism to keep Africans poor.
But South Africa is different. Here, in Africa’s most industrialised economy, the energy sector is about 70 per cent dependent on coal. Per capita carbon emissions stand at about 6.7 metric tonnes a year, comparable with some countries in Europe and higher than the UK’s 4.6 metric tonnes. In this respect, South Africa belongs more to the global north than the global south.
With that in mind, I’m offering readers two tales of energy transition from South Africa, one from the private and one from the state sector.
The corporate story: spotlight on Sasol
Sasol, an energy and chemicals company that is the second-biggest carbon emitter in South Africa, is facing a shareholder revolt over its transition goals, which investors say are too timid and poorly mapped out.
After years of trying to persuade Sasol to change course, two of South Africa’s big investment funds, Ninety One and Old Mutual, said they would vote against the company’s environmental targets at its annual general meeting on November 17. They never got the chance. Campaigner group Extinction Rebellion beat them to the punch when they interrupted an address to shareholders by Fleetwood Grobler, Sasol’s chief executive. Amid the mayhem, Sasol abandoned the meeting altogether.
Sasol’s pledge is to cut Scope 1 and Scope 2 (meaning direct and indirect) greenhouse gas emissions 30 per cent from its 2017 baseline by 2030, and to be net zero by 2050. It plans to get there through “energy and process efficiencies”, investment in renewables and switching from coal to gas as a feedstock. Beyond that, it is also planning a more radical switch to green hydrogen.
At the Moral Money summit, I pressed Vuyo Kahla, Sasol’s executive vice-president, on its transition goals. Is it dragging its feet as rebel shareholders suggest? Kahla said protesters had a right to express their opinion, but that the company remained committed to its stated ambitions. For a company that runs a coal-to-liquid plant that was the biggest single-point emitter of greenhouse gases in the world (on its own bigger than Norway) that was significant, he said. But carbon emission goals, he added, needed to be balanced with other imperatives, including employment and reducing pollutants such as nitrogen oxides and sulphur dioxide.
Leanne Govindsamy of the Centre for Environmental Rights said shareholders were right to challenge Sasol. The company has resisted change for years, she said, and appeared more interested in reckless expansion in the US — where it has had to write down several investments — than paying for a clean-up at home.
Kahla said it was precisely Sasol’s innovation in fossil fuels — it invented coal-to-liquid technology to circumvent apartheid-era sanctions — that would enable it to move into other technologies, such as sustainable aviation fuels and green hydrogen for steel production.
It occurred to me that Sasol is having its Kodak moment. Kodak became a byword for clinging on to old technology too long — in its case when digital technology rendered film redundant. Sasol insists it is alive to the unfolding challenges. But it has a lot of work to do to persuade its shareholders it is moving fast enough.
The state story: focus on a ‘just’ transition
Nearly two years ago, at COP26 in Glasgow, the US, EU, UK, France and Germany pledged to provide finance worth $8.5bn to help South Africa shut its coal plants down more quickly than scheduled “while supporting an equitable, inclusive transition” through the Just Energy Transition Partnership. The crucial word here is “just” — implying that greener energy would not come at the expense of jobs and communities.
But what was dreamt up in UN-land has not always gone smoothly in South Africa, which remains deeply divided along racial lines 30 years after apartheid. Coal is one of the few industries in the nation that has undergone a transition into black ownership. About 100,000 people work directly for the coal industry in a country where at least one in three people is unemployed.
Shutting down state-owned coal-fired power plants and accelerating the transition to solar and wind — built by private companies, many of them white owned — is highly controversial. So is the idea of decommissioning coal-fired power stations more quickly in a country where regular power cuts of six hours a day are crippling industry and antagonising voters. Gwede Mantashe, the energy minister, likes to call himself a “coal fundamentalist”.
At the Moral Money summit, I asked Pravin Gordhan, minister for state-owned enterprises, which oversees the giant electricity parastatal Eskom about how the transition was going. He complained that the promised money had not materialised, and that much of it was loans and guarantees not grants. South Africa is broke and doesn’t want to load up on more debt to please western environmentalists.
I spent a day at Komati power station in October last year, just days before it was shut down for good. A few days after that, David Malpass, then president of the World Bank, turned up with a cheque for $497mn to help repurpose the plant. But Gordhan implied the plant had been shut down too quickly before proper plans had been put in place, for example by training workers to make small off-grid solar units.
“You’ve got to put the ‘just’ part first,” he said. “You’ve got to take care of societies, businesses, individuals, people working in mines, people working in power stations. Don’t just promise them training. Get them training on the ground.”
Gordhan denied that the “just” element of the transition would delay the transition itself. But it is hard to have it both ways. As with Sasol, a plan to go green is one thing. Executing it is quite another. (David Pilling)
Power Points
Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and David Sheppard, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on Twitter at @FTEnergy. Catch up on past editions of the newsletter here.
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