South Africa: The Effect Of The Post-Kyoto Protocol Agreement On South African Businesses

Last Updated: 22 September 2009
Article by Gary Birch

Climate change and all its associated effects are going to have an effect on South African businesses. It is expected that Government will commit to a carbon emission reduction programme at a global meeting of nations in Copenhagen, scheduled for December. The summit, which is expected to be more widely accepted than its predecessor, the Kyoto protocol, will lead to the implementation of new laws that will have an effect on South African businesses.

There is at present little doubt that an agreement will be reached. The only uncertainty is the shape or form the global agreement and the resulting legislation will take. The consequence is that South African companies are at present in the uncomfortable position of choosing whether to hold off making changes until the new legislation is implemented and play catch-up with those who have; or to start predicting the likely changes which are going to have to be implemented. In addition to this, international markets are becoming more environmentally conscious, affecting the expansion efforts of South African companies with large carbon footprints.

The UN summit in Copenhagen will try to reach global agreement on how to tackle climate change. During the build up to the summit we have seen and are likely to hear of political wrangling and manoeuvring between developed and developing nations, with each trying to guide the agreement to meet their own agendas as well as to impose the least stringent measures on themselves while trying to get everyone else to do as much as possible.

The amount by which each nation will have to reduce their omissions is likely to be debated strongly, preceding the summit and at the summit itself. The general consensus in academic writings is that the "rich" nations, besides having to reduce their own omissions, will have to assist, both financially and technologically, the developing countries in order for them to support the agreement and address global warming and its consequences.

Currently, in South Africa there are no regulations obliging companies to report on greenhouse-gas emissions. This is one area in which South African companies are going to have to develop. Most companies view environmental reporting as a largely reputation enhancing exercise, rather than as part of a strategy to reduce emissions. But that is expected to change after the UN summit, which will likely require mandatory reporting of all significant greenhouse-gas emissions.

It is estimated that South Africa's greenhouse-gas emissions rank in the top 20 in the world, and contribute approximately 1,8% to global emissions as well as being responsible for 42% of Africa's emissions. Government has, however, indicated its intention to reduce emissions, promising to assist businesses that take-up the environmental challenge with tax incentives and savings.

In considering international trends, an idea of what the potential new legislation may look like may emerge. The USA, one of the major polluters who previously did not sign the Kyoto protocol, has recently affirmed its commitment to the global agreement in having passed the American Clean Energy and Security Bill. The Bill, once in force, is expected to have "profound changes in many sectors of the economy, including electric power generation, agriculture, manufacturing and construction" (Legal Brief Environmental). The legislation sets limits on the overall emissions of heat-trapping gases, but allows emitters to trade pollution permits or allowances, otherwise known as carbon credits, among themselves. The limit will then be reduced over the years, increasing the value of the carbon credits and requiring companies to use more renewable resources in order to obtain their electricity.

In a similar move, Australia plans to introduce a carbon trade scheme, which is aimed at 1000 of Australia's biggest polluters. The Australian government has indicated its intention for carbon trading to start in July 2011, thereby forcing business to pay for polluting. The Senate is expected to vote on the package of 11 Bills later this year.

A proposed measure that is being suggested in a number of jurisdictions, which could have significant effects on South African companies' ability to export, is cross-border carbon adjustments. The aim would be to create import fees which would be levied by carbon-taxing countries on goods manufactured in countries without taxes on carbon.

Companies will have to remain vigilant regarding potential legislative changes which could result in significant financial consequences and legal compliance issues for their businesses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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