AMN - Green design may minimise carbon tax effects – comment by Yolanda Torrisi

Africa’s push towards maturity and first-world economic practice inevitably involves the adoption of international laws and conventions. A notable example of this push is South Africa’s adoption of a carbon tax later this week, as a committed signatory to the Paris Agreement on Climate Change.

South Africa’s newly re-elected pro-mining President Cyril Ramaphosa signed a gentle version of the tax into law last week but the industry must prepare for a stricter regime now, while companies embark on mine planning and work to minimise the tax’s expected effects down the track.

The country’s adoption of the carbon tax regime is multi-phase, with the first phase starting this Saturday as the southernmost African nation joins about 40 countries globally by adopting the reform on June 1.

Although phase 1 of the tax has been described by some parties as unlikely to have much of an impact on mining companies, the second phase will inevitably affect mine planning efforts and certainly support the continent’s existing momentum towards green energy use and worker-less mining.

Phase I of the carbon tax will last for 3.5 years in South Africa, extending through to December 2022. The cost will be about $8.34 per ton of CO2 equivalent before allowable tax breaks that have been confirmed by South Africa’s National Treasury.

Treasury will take stock in future of the effect the tax has had on the nation’s progression towards its emissions targets before it chooses to embark on phase II of the tax, flagged for a 2023-2030 implementation period.

But the mining industry must take stock much earlier to move forward projects on the continent. Green energy use in project design is a real solution.

The costs of sourcing or generating power is an important part of economic assessments of mining projects. To move forward projects to a bankable feasibility study point, the models proposed by industry must reduce vulnerability to carbon tax-led power price hikes, by implementing green energy use.

Whatever model the nation adopts will require a recalculation of economic models found in feasibility studies, economic and scoping studies, and financier assessments of project viabilities. If economic models are less vulnerable to change now — by using good design and green energy best practice — there will be less uncertainly attached to investments going forward in the future.

South Africa’s national utility company Eskom may well continue its push towards appreciating prices in the wake of the tax and point towards the reform as it has previously forecast. But the nation’s Treasury is dubious, saying on Sunday it was not expecting the tax to raise electricity prices. Regardless, factoring costs into modelling is part of the process and it is something all parties must do to move projects forward on the continent, as nations and companies adopt increasingly environmentally-responsible practices.

- Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the continent. Contact: yolanda@yolandatorrisi.com