THE IMPACT OF CARBON TAX AND RENEWABLES ON ECONOMIC GROWTH The potential prosperity lost

Transcription

1 THE IMPACT OF CARBON TAX AND RENEWABLES ON ECONOMIC GROWTH The potential prosperity lost Davis Carbon Tax Committee 12 May 2015 ROB JEFFREY MANAGING DIRECTOR ECONOMETRIX (PTY) LTD ECONOMETRIX Leaders in Economic Insight

2 MAJOR ISSUES ECONOMETRIX IS INDEPENDENT ECONOMIC STRUCTURE : SECTORAL GROWTH ELECTRICITY : SECURITY AND PRICE OBJECTIVES POLITICAL AND ECONOMIC ECONOMETRIX Leaders in Economic Insight

3 MAJOR TRENDS AFFECTING FUTURE SOUTH AFRICAN ECONOMIC GROWTH ECONOMETRIX Leaders in Economic Insight

4 RELATIVELY POOR ECONOMIC GROWTH

5 POOR FORECAST ECONOMIC GROWTH

6 GOODS PRODUCING SECTORS ARE LAGGING

7 SECTORAL EMPLOYMENT TRENDS GROWTH IN SERVICES DECLINE IN GOODS PRODUCING Employment trends, change from September of 2006 to 2012, 2013 Quarterly Employment Survey Formal Sector (Nonagricultural) Quarterly Employment Survey Formal Sector (Nonagricultural) Quarterly Employment Survey Total Mining Manufacturing Electricity, Gas & Water Construction Trade, Hotels & Non-Financial Services Transport & Communications Financial & Business Services Community Services Source : Statistics South Africa

8 MANUFACTURING PRODUCTION VS RETAIL SALES

9 EXCESSIVE IMPORTS AND INSUFFICIENT EXPORTS

10 LARGE CURRENT ACCOUNT DEFICIT

11 INCREASING SOCIAL COSTS

12 LOW GROSS DOMESTIC FIXED INVESTMENT

13 DEPOSITS AS % GROSS FIXED CAPITAL FORMATION

14 GLOBAL COMPETITIVENESS INDEX

15 RATINGS OF LONG TERM DEBT Invest ment Grade

16 THE ECONOMIC BENEFITS OF ENERGY AND ELECTRICITY ECONOMETRIX Leaders in Economic Insight

17 Human Development Index Correlation Between Human Development and Per Capita Electricity Consumption 4,000 kwh per person per year is the dividing line between developed and developing countries. The Human Development Index is a comparative measure of life expectancy, literacy, education, and standards of living. Countries fall into four broad categories based on their HDI: very high, high, medium, and low human development. Source: Human Development Index 2010 data United Nations; Annual Per Capita Electricity Consumption (kwh) data World Bank Updated: 4/11 Annual Per Capita Electricity Consumption (kwh)

18 ELECTRICITY AND PRODUCTION

19 WORLD POPULATION PER CAPITA AND TOTAL CONSUMPTION AS A % OF 2010 LEVELS

20 WORLD NET ELECTRICITY GENERATION BY ENERGY SOURCE (Tri KWH

21 COMPARATIVE COST OF ELECTRICITY BY GENERATING SOURCE ECONOMETRIX Leaders in Economic Insight

22 FUNDAMENTAL WEAKNESSES OF RENEWABLES FOR BASE LOAD ELECTRICITY Low Load Factors Wind and solar have very low load factors Wind Load factor (capacity factor) of between 20% to 30% Unreliable and unpredictable Fallacy that the wind is always blowing somewhere Blowing strongly enough to provide useful energy Solar only available during daylight hours- cloud? Biomass competes with food Wind and solar power Depend on subsidies. Require almost equivalent Back up traditional power Storage expensive except pump storage

23 23 HOURLY CONTRIBUTION FROM REIPP (OCT 2014) 5/13/2015

24 Power (MW) SUMMER WINTER & AVERAGE LOAD PROFILES Half-hourly time-of-day net power sent out curve for South Africa Jul Dec Avg Time of day (h)

25 LCOE PLUS BACK UP (excl externalities) Nuclear PV Solar Coal CCGT (50% LF) OCGT (Peaki ng10 % LF) CSP (6h) Wind LCOE Unbalanced Total LCOE plus back up Percentage higher than coal 25.8% 57.7% 0.0% 112.2% 43.5%

26 EU RESIDENTIAL ELECTRICITY PRICES

27 IMPACTS OF HIGHER ELECTRICITY PRICES ON THE SA ECONOMY ECONOMETRIX Leaders in Economic Insight

28 INFLATION: CPI VS ELECTRICITY

29 GROWTH IN MANUFACTURING PRODUCTION

30 MINING PRODUCTION GROWTH

31 LOST OPPORTUNITY 2008 to 2014 LOSS GDP & EMPLOYMENT 2008 to 2014 (Constant 2010 Rand) Value Add Rm Employment Values ' Values Real Growth % per annum 2.1% 2.1% Potential growth % per annum 4.1% 4.2% Possible values Lost potential 2008 to

32 BALANCE OF EMISSIONS IN TRADE

33 REDUCTION IN GROWTH OF SA ECONOMY 2014 TO 2030 Reduction in size 2030 GDP : -4.4% to -6.2% GDP reduction : Reduction in GDP growth: - R213b to -300 billion -0.3 to -0.4% p.a. Reduction in employment : Job losses : -1.1 to -1.5 million jobs Dependents affected: 4.1 million to 5.7 million Substantial negative impact on b.o.p. CA deficit increases to: -R600 million

34 REDUCTION IN GROWTH OF MINING SECTOR 2014 TO 2030 Reduction in 2030 GDP : - 3.5% to - 5.0% GDP reduction : - R11.0 to -16 billion Reduction in GDP growth: -0.2% to 0.3% p.a. Reduction in jobs : to jobs Dependents affected : to

35 REDUCTION IN GROWTH OF MANUFACTURING SECTOR 2014 to 2030 Reduction in 2030 GDP : -1.5% to -1.9%. GDP reduction : -R15b to R19 billion Reduction in GDP growth: -0.1% to 0.13% p.a. Reduction in employment : Job Losses: to jobs. Dependents affected :

36 IMPACT ON AGRICULTURE FARMING AND FOOD SUPPLY Competitively priced & secure supplies of electricity are essential for Poultry production Processing commodities Wheat/flour, maize/animal feed Food storage Climate control for apples and export fruit, dairy products Vegetable production and processing. Food security is a major government requirement. Raises costs & has inflationary consequences for citizens Effects export competitiveness Undermine food security

37 IMPACT OF CARBON TAX RENEWABLES AND POLICIES Impact of Carbon Tax GDP Growth: -6.2% -R300 billion Employment: -1.5 million jobs Impact of Renewables GDP growth: -6.2% R300 billion Employment: -1.5 millions Impact on Fixed Investment GDP growth: -18.6% -R900 billion Employment: -4.5 million Total impact on GDP and employment GDP growth: R1.5 trillion Employment: -7.5 million

38 FAILURES OF POLICY AND INADEQUATE INVESTMENT Structural Inadequate growth of goods producing industries. Electricity Supply - load shedding Competitive prices Efficiency Labour relations Productivity Transformation Regulations Mining Security of tenure General Corruption competitiveness

39 FUTURE STRUCTURAL GROWTH REQUIREMENTS ECONOMETRIX Leaders in Economic Insight

40 ASSOCIATED ELECTRICITY SALES GROWTH % AGRICULTURE MINING INDUSTRY SERVICES TOTAL PRODUCTIVE RESIDENTIAL TOTAL ELECTRICITY SALES STRUCTURAL GROWTH REQUIREMENTS REQUIRED COMPOUND GROWTH OF GDP % Low Potential Unsustainable Growth Growth Growth GDP GROWTH FOR AGRICULTURE(%PA)? GDP GROWTH FOR MINING (%PA)? GDP GROWTH FOR INDUSTRY (%PA)? GDP GROWTH FOR SERVICES (%PA)? GDP GROWTH TOTAL (%PA)? ASSOCIATED REAL EXPORTS ASSOCIATED REAL IMPORTS CURRENT ACCOUNT DEFICIT *ASSOCIATED EMPLOYMENT INDEX

41 POTENTIAL COST OF INCORRECT POLICIES 2014 TO 2030 POTENTIAL PROSPERITY FOREGONE LOSS OF GDP R Million GDP AGRICULTURE GDP MINING GDP INDUSTRY GDP SERVICES GDP TOTAL *ASSOCIATED EMPLOYMENT DEPENDENTS POPULATION

42 SOUTH AFRICA REMAINS AN INDUSTRIALIZING COUNTRY SA Source IEA - Top 20 CO2 Country emitters, 2008

43 TOTAL WORLD CARBON DIOXIDE EMISSIONS

44 THE INEQUITY IN GLOBAL ENERGY CONSUMPTION

45 REDUCING EMISSIONS THE ROLE OF TECHNOLOGY Raising global average efficiency of coal plants from 34% to 40% with off-the shelf technology Would save 2 Gigatonnes of CO2. More than the annual CO2 emissions of India- 4th largest emitter Initiatives needed to cut 2 Gigatonnes of CO2 emissions Run EU Emissions trading scheme for 53 years Run the Kyoto Protocol 3X over Multiply the world s current solar capacity 195X Increase the average global efficiency of coal plants to 40%

46 SUMMARY AND CONCLUSIONS ECONOMETRIX Leaders in Economic Insight

47 ECONOMIC GROWTH & ACHIEVING POLICY OBJECTIVES Sustainable economic growth Development of goods producing industries Mining, manufacturing and agro-processing industries Ensuring energy and electricity certainty Security of supply Competitive prices Higher growth of goods producing industries will Reduce current structural weaknesses Reduce unemployment Reduce poverty Reduce inequity Increase standard of living Automatically increase transformation

48 ENERGY AND ELECTRICITY THE WAY FORWARD The objective must be security of supply at competitive costs. Requires a multilevel approach to the electricity needs of SA Efficiency programmes at industrial and domestic levels Developing energy resources with major competitive advantage namely coal and now potentially gas Exploration of shale gas and gas as a matter of urgency Introduction of gas fired power stations initially LNG based with a view to potential future domestic development of shale and other gas deposits Building three or more gas fired power stations and at least two major coal fired power station based on cleaner technology. Proceeding with one nuclear power station Limited but selected usage of renewables: Solar focussed primarily on domestic usage Limited Bio mass, Pump storage and hydropower where economic Limited Wind at a few carefully selected sites

49 CARBON TAX IS CONTRARY TO POLITICAL SOCIAL AND ECONOMIC OBJECTIVES Contrary to political an social objectives Increases Unemployment Increases Poverty Increases Inequity Reduces Standard of living Contrary to stated development policy Reduces mineral beneficiation objectives Contrary to stated NGP or NDP Reduces economic growth goods producing sectors ENERGY ELECTRICITY & EMPLOYMENT GROWTH ARE THE KEYS TO SOUTH AFRICA S FUTURE ECONOMIC, SOCIAL AND POLITICAL PROSPERITY SUSTAINABILITY STABILITY AND INDIVIDUAL ECONOMIC FREEDOM

50 FREEDOM IS NOT FREE

51 THANK YOU ECONOMETRIX Leaders in Economic Insight

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