SASOL AND CLIMATE CHANGE

SASOL AND CLIMATE CHANGE

Sasol is an international integrated chemicals and energy company. Through our talented people, we use selected technologies to safely and sustainably source, produce and market chemical and energy products competitively to create superior value for our customers, shareholders and other stakeholders. We develop and commercialise technologies, and build and operate world-scale facilities to produce a range of high value product streams, including liquid fuels, chemicals and lower-carbon electricity. We employ more than 30 000 people working in 33 countries. We recognise that we have a responsibility and opportunity to contribute to finding solutions to the policy and physical implications of climate change. Sasol supports an international agreement that defines how countries will share efforts to reduce greenhouse gas (GHG) emissions, in line with the principle of common but differentiated responsibilities. Bongani Nqwababa Stephen Cornell Joint Presidents and Chief Executive Officers November 2017 About Sasol and climate change Sasol s business reporting and stakeholder communication aims to provide a balanced, accurate and accessible account of our business. This booklet aims to provide a brief overview of climate change and Sasol s position on the topic. 1

Climate change: introduction The earth s climate is undergoing consistent warming that is unprecedented. This change has been particularly noticeable since the 1950s which marked an increase in greenhouse gas (GHG) concentrations in the atmosphere. What is global warming and the greenhouse effect? According to the Intergovernmental Panel on Climate Change (IPCC), the globally averaged combined land and ocean surface temperature data, as calculated by a linear trend, show an average warming of 0,85 degrees Celsius over the period 1880 to 2012. Natural climate cycles explain why the warming has taken place unevenly and fitfully, but not the warming trend itself. This warming has coincided over the past half century with a surge in carbon emissions from our rapidly industrialising world. Human-induced (anthropogenic) GHG emissions have increased since the pre-industrial era. These emissions are largely driven by economic and population growth, and has led to atmospheric concentrations of carbon dioxide (CO 2 ), methane and nitrous oxide that are unprecedented in, at least, the past 800 000 years. Their effects, together with those of other anthropogenic drivers, have been detected throughout the climate system and are extremely likely to have been the dominant cause of the observed warming since the mid-20th century. Sun A Solar radiation The sun's energy is absorbed by the earth's surface and converted to heat energy Some of the sun's energy reflects back into space B C The heat energy rises and some escapes earth's atmosphere D Some of this heat energy encounters gas molecules (CO2) that scatter it and reflect it back towards earth Finding a way to reduce GHG emissions and climate change is the challenge for the next half century. What is climate change? The United Nations Framework Convention on Climate Change (UNFCCC) defines climate change as 'a change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability observed over comparable time periods'. The greenhouse effect: Radiant short-wave rays A from the sun pass through the atmosphere and heat the surface of the earth B. The earth absorbs much of this heat energy and some is reflected back into space (longwave radiation) C. GHGs in the atmosphere prevent some of the heat energy escaping and reflect it back to earth D. However as CO2 levels rise, a greater amount of heat energy is trapped in the atmosphere, dramatically increasing the temperature of the earth s surface. This process is known as global warming. 2 3

Climate change: introduction continued In an effort to unite countries and encourage all governments to participate in finding a way forward on climate control, and to effectively cut GHGs, the UNFCCC was established in 1992 and came into effect in 1994. This laid the foundation for the inaugural United Nations Climate Change conference referred to as the Conference of the Parties (COP). COP 1 was held in Berlin in 1995 with the latest conference, COP 23, held in Bonn during 2017. At COP 21 in Paris, 2015, a new global agreement was adopted, known as the Paris Agreement, which is applicable to all parties for implementation from 2020 onwards. Its goal is to reduce GHG emissions and limit the global average temperature increase to well below 2 degrees Celsius, while urging efforts to limit the increase to 1,5 degrees Celsius. 195 countries (including South Africa) signed the agreement. The Paris Agreement entered into force on 4 November 2016, with the required thresholds for ratification having been met on 5 October 2016. South Africa ratified the climate agreement ahead of COP 22, which took place in Marrakesh, thereby securing a seat at the negotiating table. South Africa s commitment under the Paris Agreement is for its GHG emissions to peak from 2020 to 2025 and plateau for a 10-year period from 2025 to 2035, before declining. Emissions during this period will be in the range of 398 and 614 million tons CO 2 equivalent. Climate change: energy transitions The availability of affordable sources of energy has resulted in significant societal benefits over the past 100 years and today energy lies at the heart of our modern way of life. However, the increased use of energy from carbon-intensive fossil fuels has led to an increase in heat-trapping GHGs in the earth s atmosphere most notably CO 2. Therefore the challenge is to break the relationship between economic and societal development and GHG emissions. This will require improved efficiency and innovative thinking. World s primary energy consumption by fuel* (2016) Nuclear energy Coal Hydroelectricity 28% 3% 7% 5% Renewables 13 276 Mtoe** 24% 33% Natural gas Oil Sasol is committed to playing its part in South Africa s transition to a lower-carbon intensive and more climate change resilient economy. What are fossil fuels? Fossil fuels are hydrocarbon deposits which occur naturally throughout the world, formed from the decomposed remains of organic matter. Hydrocarbons consist predominantly of hydrogen and carbon. The three major fossil fuels in the world are: coal crude oil natural gas Utilisation of fossil fuels, which are converted into energy, has enabled largescale industrial development. South Africa s primary energy consumption by fuel* (2016) 0,2% Hydro-electricity Nuclear energy2,9% 1,5% Renewables Coal 69,6% 122 Mtoe** 22% Oil 3,8% Source: BP p.l.c. 2017. BP Statistical Review of World Energy June 2017 * Primary energy comprises commercially-traded fuels, including modern renewables used to generate electricity ** Million tons oil equivalent Natural gas 4 5

Climate change: energy transitions continued Policymakers are already responding to the challenge to break the link between development and GHG emissions. Sasol recognises that this is the first of many steps required to transform global energy systems to become sustainable even as demand for energy continues to rise. While it has been acknowledged that climate change requires a global response, the contribution from every country will depend on its national circumstances. This is particularly so for developing countries and those with limited access to lower-carbon energy. The principle of common but differentiated responsibilities and respective capabilities was recognised by the UNFCCC and this will be reflected in the pace and manner in which energy transitions will take place. The challenge of addressing climate change is particularly acute in South Africa. The country depends heavily on coal and other mineral resources as a source of economic value creation as well as employment opportunities. Exploiting and beneficiating South Africa s mineral wealth requires competitive and reliable sources of energy. South Africa is a country with abundant coal reserves with minimal natural gas resources and limited hydro-electric potential to meet its energy requirements. Although the penetration of renewable energy (particularly solar and wind) is making good progress, much investment will be required and challenges must be overcome before renewables can make a meaningful contribution to meeting the country s energy requirements. While the consumption of coal in South Africa is likely to decline over time, it is expected to remain significant over the next 30 years, failing which long-term damage to the economy could result. Due to the reliance on this resource and the limited availability of less carbon-intensive resources, there are fundamental structural challenges in moving towards a lower-carbon economy. The principle of 'common but differentiated responsibilities and respective capabilities was recognised by the United Nations Framework Convention on Climate Change (UNFCCC) and this will be reflected in the pace and manner in which energy transitions will take place. Due to the reliance on coal and the limited availability of less carbon-intensive resources, there are fundamental structural challenges in moving South Africa towards a lower-carbon economy. Climate change: Sasol s position Sasol acknowledges the scientific basis related to human-induced climate change and concurs that its effects and repercussions are real and challenging. We agree that intervention is needed to mitigate its impact. Sasol supports an international agreement that defines how countries will share efforts to reduce GHG emissions, in line with the principle of common but differentiated responsibilities. As a South African-based company, we are of the view that an agreement that provides assurance for all can only be delivered through a multilateral rule-based process such as the UNFCCC, whereby environmental integrity is maintained with the ability to trade fairly. We are of the view that the Paris Agreement represents such an agreement. We believe that meeting the growing global demand for energy will accelerate GHG emissions unless viable technological solutions are developed and implemented in an economically sustainable manner. In South Africa this challenge is more acute, given the country s limited access to lower-carbon resources. A cautious and aligned approach should be adopted in developing climate change policy one that balances national priorities of reducing unemployment and achieving economic growth, in line with international commitments negotiated through the UNFCCC. We actively engage with various stakeholders on our approach to responsibly manage these challenges. Furthermore, we have also taken the strategic decision to focus on identifying and using gas resources natural gas being a cleaner hydrocarbon, as a bridge to a lower-carbon economy. Sasol's proposal for a national approach to climate change policy: 1 Ensure that South Africa has a firm understanding of its GHG emissions, and that the country's measurement, reporting and verification systems are internationally approved. 2 Continue incentivising improved energy efficiency. 3 4 Encourage access to lower emission hydrocarbon alternatives such as natural gas. Continue investing in and developing clean energy alternatives such as renewable energy. 6 7

Climate change: Sasol s efforts to address climate change In South Africa, where most of Sasol s GHG emissions occur, we participate actively in government policy on climate change mitigation. The company's approach to its own emissions is in line with the national approach proposed: 1 Reporting of GHG emissions: we voluntarily participate in various GHG reporting initiatives. Sasol has been reporting GHG emissions voluntarily since 1996. From 2002, we have been reporting in accordance with the GHG reporting protocol of the World Business Council for Sustainable Development and the World Resources Institute. Looking ahead, we will be required to report on the basis of the South African National GHG Emission Reporting Regulations. We have voluntarily participated in the Carbon Disclosure Project (CDP) since its launch in South Africa during 2007, and have made our annual responses available publicly. We have also developed a measurement, reporting and verification (MRV) standard for the Group, aligned to international best practice and the IPCC, which is now fully utilised by our various operations. This places Sasol in a good position to start reporting in terms of the imminent national GHG reporting regulations. Sasol also internally monitors its energy intensity across all operations to identify gaps and opportunities in improving performance, thereby ensuring stable and predictable operations. Accurate, complete and up-to-date data enables Sasol to effectively and responsibly manage climate change. We have voluntarily participated in the Carbon Disclosure Project (CDP) since its launch in South Africa during 2007, and have made our annual responses available publicly. 2 Energy efficiency efforts: we have proactively taken action by improving our energy efficiency by more than 16% over the past 15 years. Energy Intensity Index (ElI) (2015 National Energy Efficiency sets FY00 as baseline) 1,05 1,00 0,95 0,90 0,85 0,80 0,75 0,70 0,65 0,60 10 11 12 13 14 15 AEII* * Adjusted Energy Intensity Index Energy Intensity Index Adjustments for growth and self-generation 2015 Target We have a long-standing commitment to promote energy efficiency, and are one of the founding signatories to the Energy Efficiency Accord, a voluntary commitment between leading South African companies and the South African government's Department of Energy. 0,898 In South Africa Sasol has, over a number of years, displaced some of the electricity previously purchased from the national energy utility, Eskom, with self-generating capacity. While this helped improve South Africa s energy situation, it negatively impacted the company s energy intensity by 6,4% as the company now has to account for energy losses that would have been incurred by Eskom within its own facilities. When the baseline energy intensity is adjusted to reflect this impact, the total energy intensity reduced by 16,6% over the past 15 years on a comparable basis. 0,834 8 9

Climate change: Sasol s efforts to address climate change continued 3 Introducing natural gas: in our Southern African operations we have taken the strategic decision to focus on identifying and using gas resources where feasible natural gas being a clean bridge to a lower-carbon economy. We implemented projects that have resulted in a cumulative reduction of more than 10 million tons per annum GHG emissions over the past 10 years against a business as usual* baseline. This has been achieved through the introduction of natural gas as well as better energy efficiency in our processes. The supply of natural gas to our customers helps them to reduce their GHG emissions by approximately 2 million tons per year. GHG emissions (Mt CO 2 e /calendar year 75 70 65 60 55 50 2000 2005 2010 Business as usual* Actual Source: Sasol. 2015. Impact of natural gas feedstock on Sasol GHG emissions including efficiency gains * With no mitigation and energy efficiency improvement efforts. This recognises our success in introducing gas to South Africa, our expertise as well as our potential to find gas and build the gas economy in Southern Africa. It is important to secure feedstock to grow our integrated Southern African value chain and to enhance regional energy security and diversify the energy mix. This is explicitly framed by Sasol s response to the climate change challenge and the move towards lower-carbon energy alternatives. 4 Investing for improvement: we invest in capital and environmental enhancement projects as well as research. We have invested more than R20 billion on projects delivering environmental improvements over the past 15 years, predominantly related to air quality and GHG emissions. In line with our voluntary target to reduce emissions of Volatile Organic Compounds (VOCs) by 80% off a 2009 baseline by 2020, we have invested R2,7 billion on the VOC abatement project, R2,2 billion on the tar tank replacement project and R2,6 billion on the coal tar filtration east project. We continue to invest in research and development and partner with others to find innovative solutions related to our processes, products and by-products. This includes: 1 2 Researching the potential for offsetting GHG emissions in Southern Africa, including potential renewable energy projects; and Monitoring and influencing the development of carbon capture and storage (CCS) as a long-term solution. We continue to investigate sustainable solutions to further optimise the energy and process efficiency of our existing assets. In South Africa, where most of our GHG emissions occur, we participate actively in government policy on climate change mitigation. We believe that a cautious and aligned approach should be adopted in developing climate change policy that balances national priorities of reducing unemployment and achieving economic growth. 10 11

Climate change: conclusion Sasol recognises the challenge posed by climate change and the need to address the underlying cause, namely the emission of GHGs. At the same time, the demands of economic development requires a continuously increasing supply of affordable energy. Sasol believes that these challenges can only be addressed through all countries accepting shared but differentiated accountability, recognising the differing developmental requirements and resource endowments of different countries. Within this global context, South Africa faces a unique challenge to transition our economy to a lower-carbon footprint within the limitations of the country s economic requirements and energy resources. Sasol believes that the country needs to adopt an integrated approach to managing this transition, including the use of appropriate regulation, incentives and energy planning. South Africa has made important strides in the past few years to diversify its energy mix towards lower-carbon alternatives. The challenge, however, is to build on this good start in a way that ensures that the country: 1 Retains a competitive and secure supply of energy; and 2 Builds an energy infrastructure flexible enough to accommodate changes in energy demand while still being able to transition to a lower-carbon economy. This means that the country is likely to continue to require fossil fuels, including coal, for a long time. The country needs to consider what role natural gas can play as a relatively flexible, lower-carbon fossil fuel to enable this transition. In pursuing lower-carbon feedstocks and greater energy efficiency, Sasol has progressed some way to reducing its own GHG footprint. Sasol believes that it can use this experience to assist South Africa in the journey to a more diversified and lower-carbon energy future. www.sasol.com Sasol Limited Copyright subsists in this work. No part of this work may be reproduced in any form or by any means without Sasol Limited s written permission. Any unauthorised reproduction of this work will constitute a copyright infringement and render the doer liable under both civil and criminal law. Sasol is a registered trademark. 12

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