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    New research from Discovery Green and EY highlights the impact of rising carbon taxes

    Nosipho Radebe converses with André Nepgen, CEO at Discovery GreenSee.

    1
    enOctober 24, 2024
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    In a recent episode of Power Business on Power 98.7, Nosipho Radebe interviewed André Nepgen, CEO of Discovery Green, to discuss significant new research conducted by Discovery Green and Ernst & Young (EY). This research highlights the looming challenges posed by rising carbon taxes in South Africa, particularly for businesses reliant on coal-generated electricity.

    Key Findings from the Research

    • South Africa's Carbon Footprint: The study revealed that South Africa has the dirtiest electricity among major economies—producing carbon emissions twice the global median. This places South Africa at a disadvantage regarding carbon taxation compared to other nations.
    • Projected Cost Increases: Over the next decade, it is projected that carbon taxes could contribute to a 60% increase in electricity costs for businesses in South Africa. This is alarming as many companies are not prepared for such significant hikes in operational costs.
    • Financial Risks: By 2034, carbon taxes may account for more than 35% of electricity generation costs, presenting substantial financial risks for local enterprises.

    Specific Sectors at Risk

    Nepgen identified several sectors that are particularly vulnerable to these impending cost increases:

    • Mining
    • Smelting
    • Manufacturing
    • Cement
    • Fertilizer Production

    These industries rely heavily on electricity, and the anticipated increase in carbon taxes could create unsustainable financial pressures.

    Strategies for Businesses to Mitigate Costs

    Transitioning to Renewable Energy

    The primary suggestion for businesses to avoid the impact of rising costs is to switch to renewable energy sources. Nepgen emphasized the necessity for companies to consider operational shifts such as:

    • Relying predominantly on renewable energy systems rather than merely supplementing existing energy with solar or wind solutions.
    • Seeking out solutions that could provide up to 90-100% of electricity needs from renewable resources.

    Innovation in Energy Procurement

    A significant misconception exists that transitioning requires substantial upfront investment. However, Nepgen pointed out that innovative models are available, allowing businesses to procure energy with minimal initial costs. These models include:

    • Power Purchase Agreements (PPAs) with private renewable energy producers.
    • Utilizing existing infrastructure to access cleaner energy without the burden of high costs.

    Challenges in Adopting Renewable Energy

    Despite the clear benefits of switching to renewables, several barriers complicate this transition:

    • Misunderstanding of Renewable Energy Functions: Many businesses remain cautious due to unfamiliarity with how renewables operate compared to traditional energy systems. This misunderstanding involves the nuances of paying for energy generated rather than energy consumed.
    • Investment Hesitance: Businesses are often hesitant to invest due to perceived risks related to the variability in renewable energy output (from solar or wind sources).

    Role of Policy and Technological Advancements

    Nepgen also discussed the importance of policy changes and technological innovations in facilitating this transition to a low-carbon economy:

    • Supportive Legislation: Enabling policies that encourage private sector participation in the energy market are critical. This includes developing a fair framework for both private and public energy generators.
    • Rapid Implementation: There is a pressing need for expedited policy changes to encourage investment in renewable resources, thus fostering a sustainable and competitive market.

    Conclusion

    As South Africa approaches a pivotal crossroads in energy generation and consumption, businesses must adapt to the challenges posed by rising carbon taxes. With significant impacts anticipated across various sectors, transitioning to renewable energy presents not only a viable solution but a necessary strategy for survival. By embracing innovative energy procurement models and advocating for supportive policy frameworks, South African businesses can navigate the impending changes and position themselves for a sustainable future.

    In summary, as the carbon tax landscape evolves, proactive measures and a commitment to renewable energy are essential for businesses aiming to mitigate rising operational costs.

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