THE SOCIOECONOMIC IMPLICATIONS OF RENEWABLE ENERGY AND LOW CARBON TRAJECTORIES IN SOUTH AFRICA

Transcription

1 THE SOCIOECONOMIC IMPLICATIONS OF RENEWABLE ENERGY AND LOW CARBON TRAJECTORIES IN SOUTH AFRICA Tara Caetano and James Thurlow Green and Social Workshop March 2014 Bonn, Germany

2 Introduction Literature Review Transmission Channels Scenarios Results Concluding Remarks Overview

3 Introduction Challenge: Pursuing low carbon policies in the context of high levels of unemployment, inequality and poverty. Two main mitigation actions: o Renewable energy investment o Proposed Carbon Tax Is this enough?

4 Literature Review Three studies have explored the introduction of carbon taxes in the South African context: o Pauw (2007): Static CGE model; detailed energy technologies; partial equilibrium energy model Small reduction in welfare o Devarajan et al. (2011) Static CGE; one energy technology; no long-term electricity plan Decreases welfare; more efficient than other tax instruments in curbing energy use and emissions o Alton et al. (2012) Dynamic CGE; energy price response; capture L and K market rigidities; tax recycling A CT of R12 per ton of CO 2 in 2012 and projected to rise linearly to R210 per ton in 2022; sufficient to meet the national emissions reduction target. Highlights the importance of both tax design and method of recycling; trade-off between growth and welfare; ring-fencing the electricity sector is a limitation This study: o o More disaggregated electricity sector detailed renewable energy options Modeled the proposed carbon tax level

5 Renewable Energy Scenarios System capacity (GW) Base Case (BAU) Cost: R0.79 trillion [US$108 bil.] Gas Renewables Hydro Nuclear Coal Policy- Adjusted Cost: +- R1.07 trillion [US$147 bil.] Emissions: - 19% of BAU by Emissions: - 42% of BAU by Emissions 3 Cost: R1.25 trillion [US$171 bil.]

6 RE-IPPPP Bid 1 Bid2 Bid 3 Solar PV MW Alloca3on Construc3on Jobs O&M Jobs Wind MW Alloca3on Construc3on Jobs O&M Jobs CSP MW Alloca3on Construc3on Jobs O&M Jobs R3 000,00 R2 500,00 Price (Average Rand per MWh) (Base April 2011) 60,0% 50,0% Local Content Requirements R2 000,00 R1 500,00 R1 000,00 Solar PV Wind Solar CSP 40,0% 30,0% 20,0% Solar PV Wind Solar CSP R500,00 10,0% R- Bid 1 Bid 2 Bid 3 0,0% Bid 1 Bid 2 Bid 3

7 Carbon Tax Carbon tax proposed by the South African government: Partially implemented in 2015 and increased linearly to US$12 (R120) per ton of CO 2 Complex exemptions for energy intensive sectors: Effective Carbon Tax After Exemptions US Dollars per metric tonne of CO 2 $12,00 $10,00 $8,00 $6,00 $4,00 $2,00 $- Proposed All sectors Electricity Petroleum Iron and steel, cement, ceramics, chemicals and fugitive emissions from coal mining Agriculture and Waste

8 Linkages: RE Investment Renewable Energy Investment o é RE è é INV Elec è ê INV Econ ê Growth: less investment available for more profitable sectors é Direct Employment: higher level of employment compared to coal (highskilled) ê Indirect Employment: profitable sectors also have é unskilled labour shares; è negative impact on income distribution o é RE Cost of Elec generation (é Inv = same GWh) é Price Elec è é Price Electricity è ê Demand (dependent on the assumptions made about the ability to respond to energy price changes) è ê Employment è Negative impact on income distribution

9 Linkages: Carbon Tax Assumption: Carbon Tax introduced with a uniform reduction in indirect taxes o Government revenue remains the same o Relative price increase for energy intensive goods é Price of energy intensive goods è ê Demand è é Competitiveness of less energy intensive goods è Chance for Growth Some energy intensive activities also employ a large share of unskilled labour: Employment Impacts è Decreased Employment è Decrease in welfare

10 Based on two simulations: o One with no carbon tax Results o One with a carbon tax of a the level value, R120/ton Carbon tax levied on all fossil fuels burned in SA Imposed in 2015 and increased linearly to R120 per ton in 2019 Uniform reduction in indirect sales tax

11 Results GDP Growth 3,95% 3,90% 3,90% 3,90% Average Annual GDP Growth (%) 3,85% 3,80% 3,75% 3,70% 3,65% 3,60% 3,82% 3,79% 3,67% 3,64% GDP Growth 3,55% 3,50%

12 Results Emissions Reduction 50,00% 45,00% 43,62% 40,00% 39,66% Deviation from the baseline in ,00% 30,00% 25,00% 20,00% 15,00% 29,26% 11,00% 18,00% Emissions Reduction 10,00% 5,00% 0,00% 0,00%

13 Results Employment 1,33% 1,32% 1,32% Average Increase in Employment 1,31% 1,30% 1,29% 1,28% 1,31% 1,31% 1,30% 1,29% 1,28% Employment 1,27% 1,26% Base Base CT Policy-Adjusted Policy-Adjusted CT Emissions 3 Emissions 3 CT

14 Results Income Distribution 1,20% 1,00% 1,10% 1,06% 1,01% 0,97% 0,80% 0,85% 0,81% 0,60% 0,40% Relative Income Growth of Poor Households 0,20% 0,00%

15 Concluding Remarks Carbon tax is an effective mechanism for emissions reduction Level is too low to get us to our Copenhagen pledge Won t have a devastating impact on the economy Direct employment impacts of renewable energy investment likely to be drowned out by indirect impacts on employment weakened by a decrease in cost Choice of recycling mechanism is critical to ensure synergies between green and social

16 Thank you! Comments and questions are welcome.

17 Energy as an intermediate input Sector output LEO Inputs CES Inputs LEO Capital Labor Input 1 Input n Energy

18 Methodology 2007 social accounting matrix (SAM) o 55 activities and 47 commodities 3 x agri, 44 x industry (4 x petr, 10 x elec), 8 services o 7 factors of production 4 labour groups (based on level of education), 1 energy and 1 non-energy capital, 1 agricultural crop land o 14 households 10 deciles with the top decile divided into 5 sub-groups Energy is an intermediate input o Leontief: fixed proportions. Energy-savings investment behaviour: io ij,t+1 / io ijt =1 (1 P jt / P j,t 1 ρ ) s i

19 Closure Rules Upward sloping labor supply curves for less-educated workers; full employment for skilled labour Putty clay capital and endogenous capital accumulation Fixed current account with flexible real exchange rate Savings-driven investment o Distinguish between electricity (exogenous) and non-electricity sector investment o Electricity investment differentiated by subsector (esp. import content and job creation) o Government borrows abroad to pay for investment (gradual interest and principal repayment)

20 Energy-saving investment behaviour Change in energy inputs per unit of output based on energy prices Energy product input coefficient (io ij ) falls when o Energy prices (p i ) rise (provided there is some new investment) o New investment share (s j ) is positive (provided the price rises) Governed by a response elasticity (ρ) io ij,t+1 / io ijt =1 (1 P jt / P j,t 1 ρ ) s i

21 REIPPP bid allocation

22 IRP Renewable Energy Breakdown 70 Planned New Capacity Builds in the IRP (GW) 60 GW gas waste wind CSP PV nuclear coal Committed 0 Baseline Policy Emissions

23 Economy-wide framework Agriculture Industry Payments Factor markets Incomes Rural Services Production Product markets Consumption Urban Taxes Productivity Human/physical capital Recurrent spending Taxes Loans Public sector or government Trade Foreign markets and countries Public investment Foreign investment Remittances Taxes & social grants Savings & private investment

24 Demand and supply linkages Warehouse Domestic supply Freight transport CET Supplier 1 CES Supplier n Exports Imports CES Output 1 CES LEO Sector output Output n LEO Consumption linkages LE S Households Total supply LE O LE O Investment Capital Labor Inputs Intermediates Government Traders Factory Production linkages Supermarket

25 Energy sector Partly exported Coal Coal- Eired (discard) Coal- Eired (low grade) Nuclear Hydropower Solar (photovoltaic) Partly imported Natural gas Solar (thermal) Wind Electricity Waste Gas- Eired Diesel Imports Final users Industries Households Government Investment Coal- to- liquid Imported Crude oil Gas- to- liquid Oil reeining Petroleum Feedstock Biofuels

26 2007 energy balance (native units) Coal (kt) Crude oil (kt) Natural gas (TJ) Electricity (GWh) Petroleum (Ml) Production 247, , ,587 25,528 Imports 1,783 19,042 45,383 10,624 4,859 Exports 66,964 13,589 4,743 Stocks 7,324 Total 175,162 19, , ,622 25,645 Electricity 102,870 19,113 Petroleum 45,437 19,042 67,732 7,133 Industry 22, , ,400 1,209 Transport 3,501 21,544 Agriculture 32 5,998 1,433 Commerce 3, , Residential 1,135 53,

27 Differential electricity prices Rand per MWh in Average Plastic products Households Furniture Other chemicals Clothing Other services and producers Machinery Forestry Agriculture Other transport equipment Fisheries Footwear Scientific equipment Beverages and tobacco Leather products Vehicles Transport services Food processing Metal products Government services Other manufacturing Hotels and catering Business services Glass products Trade services Construction Financial services Coal mining Electricity Electrical machinery Paper Communication Basic chemicals Textiles Non-metals Other mining Wood products Recycling Nonferrous metals Rubber products Water distribution Iron and steel Printing Petroleum refining