Download sectoral classification for the low carbon economy in south africa

I t ’s a jou r ne y
towa rds a low ca rbon e conomy
SECTORAL CLASSIFICATION FOR THE LOW
CARBON ECONOMY IN SOUTH AFRICA
oct 2012
TABLE OF CONTENTS
Table of Contents ......................................................................................................................... 2
1.
Background ......................................................................................................................... 3
2.
Current State of Affairs........................................................................................................ 4
3.
Classification Systems in Use and Under Development ......................................................... 6
3.1
National Inventory ......................................................................................................... 6
3.2
Standard Industrial C lassification.................................................................................... 8
3.3
National Treasury ......................................................................................................... 10
3.4
Private Sector Reporting Initiatives............................................................................... 11
3.5
Emission Offsets and Carbon Credits ............................................................................ 12
4.
Auditing requirements ....................................................................................................... 13
5.
Mapping of sectoral classifications ..................................................................................... 14
6.
Conclusion ........................................................................................................................ 14
2
1.
BACKGROUND
The South African National Development Plan (National Planning Commission, 2012) states that “A
low-carbon future is the only realistic option, as the world needs to cut emissions per unit of output
by a factor of about eight in the next 40 years”.
The Development Plan, approved by parliament, devotes a whole chapter 1 to the transition of the
South African economy to a low carbon economy. This focus is the latest in a long line of actions
aimed at converting the SA economy. The timeline of these actions is shown below:
A Framework For
Considering Marketbased Instruments To
Support Environmental
Fiscal Reform In SA
(April 2006 )
Long Term
Mitigation
Scenarios
(October 2007)
2006
2007
Carbon Tax
Discussion
Paper
(December
2010)
National Climate
Change Response
White Paper
(October 2011)
Defining South
Africa’s Peak,
Plateau & Decline
GHG trajectory
(June 2011)
2008
2009
National
Development Plan
2030
(August 2012)
Regulation 142 to the
National Energy
Act(34/2008)
Mandatory provision
of energy data
(February 2012)
2010
2011
2012
Historic
Likely introduction of
carbon tax
(2014-2015)
Likely date for
mandatory reporting
(2013-2014)
2013
2014
1015
Forecast
Figure 1: Timeline of SA's transition to a low carbon economy
Transition to a low carbon economy will require intervention at almost all levels of the country’s
economy. It is therefore important that the management of the economy is aligned with the low
carbon transition plans.
The classification of the activities in the economy stands central to the management of the
economy. The classification is required for management, national and international reporting and
verification/auditing purposes, with different requirements depending on whether it is for carbon
1
Chapter 5.
3
inventories or mitigation requirements.
Classification is dictated in areas covering international
relations and required in the domestic economy for both the private and public sectors.
This report analyses the structure of the SA economy and the current sectoral classifications from a
greenhouse gas accounting and management perspective.
The importance of classification of activities involving carbon and greenhouse gasses stem from the
fact that carbon cuts through all aspects of the social life and economy of the country. Conflict in
the different sectoral classification mechanisms can cause much confusion if it is not properly
addressed and explained.
The report concludes that a number of different sectoral classification systems are
currently in place and functioning well. These systems are deeply embedded and will be
impossible to replace. The only workable option is to map these systems to each other,
with respect to both greenhouse gas accounting also called carbon foot printing /
inventories, and mitigation, in order to harmonise the different actions needed for the
transition to a low carbon economy.
2.
CURRENT STATE OF AFFAIRS
This section describes the state of affairs with respect to the classification of activities in the
economy and how it impacts on the path required for a transition to a low carbon economy.
The role players in the sectoral classification of economic activities are summarized below:
Table 1: Role Players and mandates in the SA economy, relating to climate change.
Role Player
Mandates
Inter-Ministerial
Committee on Climate
Change (IMCCC)
The IMCCC is responsible is responsible for the implementation of the
White Paper and must publish the National Climate Change Response
Policy within three years from the publication of the White Paper 2 (Oct
2014)
Department of
Environmental Affairs
(DEA)
DEA is responsible for the following:
2
• to prepare the annual GHG Inventory. The inventory system will form
part of the National Atmospheric Emission Inventory component of
the South African Air Quality Information System (SAAQIS).
• to compile the country’s National Communication for the UNFCCC
National Climate Change Response White Paper (Republic of South Africa, October 2011)
4
Role Player
Mandates
Department of Energy
(DoE)
The DoE is involved as there is a very close link between the GHG
emissions and energy consumption. The DoE is responsible for the
implementation of the Flagship Programmes identified in the White Paper.
It is also responsible for the Integrated Energy Plan (IEP) and Integrated
Resource Plan (IRP)
The DoE has published regulations that empowers the Minister of Energy
to demand disclosure of GHG emissions by all public and private entities.
Department of Trade
and Industry (DTI)
The DTI must co-operate with the National Treasury in implementing the
carbon pricing policy.
The DTI is the custodian of the South African technical infrastructure
institutes which include:
•
•
South African Bureau of Standards (SABS) where ISO standards
for GHGs has been adopted as national standards, and
South Africa Accreditation System (SANAS) who regulates
accreditation for GHG validators and verifiers.
National Treasury
The National Treasury must implement the carbon pricing policy in
cooperation with the DTI
Stats SA
Stats SA is responsible for the recording of the official statistics of the
country
The timeline current state of development of the climate change related regulatory environment in
SA is summarised below:
Table 2: Development of regulating environment.
2000
2006
2010
Initiative/Document
Initial National Communication
A Framework For Considering
Market-based Instruments To
Support Environmental Fiscal
Reform In South Africa
Carbon Tax Discussion Paper
2010
International commitment to a
GHG target in Copenhagen
2011
National Climate Change Response
White Paper
2011
Second National Communication
Contents
South Africa published the Initial National
Communication under the UNFCCC in October 2000
Published April 2006, this document forms the basis
of the environmental tax legislation in SA
This document was published in 2010 and built on
the 2006 publication and started setting the scene
for the introduction of carbon tax
South Africa has committed itself to a 34% reduction
of its CO2 by 2020 and a 42% reduction by 2025,
subject to international assistance.
The White paper published in October 2011 spells out
the distribution of responsibilities for the alignment of
the South African economy with the low carbon
targets.
South Africa published the Second National
Communication under the UNFCCC in 2011
5
2012
2012
3.
Initiative/Document
R. 142 National Energy Act
(34/2008): Regulations:
Mandatory provision of energy
data
National Development Plan 2030
Contents
This regulation, published in February 2012,
empowers the Minister of Energy to demand GHG
disclosure from any entity operating in South Africa.
Its publication duplicates this mandate which,
according to the White Paper, places the
responsibility to perform this function on DEA
The National Development Plan was published and
approved by Cabinet in August 2012. Chapter 5 of
the document is focussed on the transition of the SA
economy to a low carbon economy.
CLASSIFICATION SYSTEMS IN USE AND UNDER
DEVELOPMENT
This section describes the classification systems currently in use as well as the developments in
sectoral classification that we are aware of.
3.1
NATIONAL INVENTORY
The National Inventory is the carbon footprint of the country. The UNFCCC requires that this be
submitted on a biennial basis – once every second year. The lead agency for the National
Inventory is the Department of Environmental Affairs
The UNFCCC requires that reports are submitted in the Common Reporting Format (CRF) which is
based on the IPCC guidelines for national GHG inventories. Following these guidelines, only direct
process emissions are required from companies, as other direct emissions and electricity related
emissions are obtained directly from the energy industry. The result of the country’s National
Inventory is shown in Figure 2 below.
The Department of Environmental Affairs published the 2000 South African National Inventory on
this classification as indicated below:
Table 3: The IPCC Division of Emission Sources into Four Broad Categories
Sectoral scope
1
2
3
4
Description
Energy
Industrial Processes and Product Use
Agriculture, Land Use, Land Use Change and Forestry
Waste
South Africa‘s total GHG emissions measured using these guidelines in the year 2000 are estimated
to be 461 178,5 GgCO2 equivalents (461 million tons CO2 e). 83% of emissions were associated
with energy supply and consumption with 7% from industrial processes, excluding fuel combustion
or electricity consumption, both reported as Energy; 8% from agriculture excluding fuel combustion
reported as Energy and Sewage; and 2% from Waste; as shown in the diagram below. These
figures exclude emissions or sinks from land use, land use change and forestry (LULUCF) activities
within the Agriculture, Forestry and Land Use (AFOLU) sector.
6
These AFOLU activities contribute 2 057 GgCO2 e as a source but also provide a sink of 20 751 Gg
CO2 e to provide a net sink of emissions of 18 694 GgCO2 e.
Figure 2: Total greenhouse gas emissions by sector in South Africa in 2000,
without land use, land use change and forestry (GgCO2 equivalents).
The reporting requirements of the National Inventory conflicts with other reporting structures in the
following way:
•
Institutions reporting under the National Inventory only report their direct emissions,
whereas
•
when companies report their carbon footprints in terms of the guidelines of the GHG
Reporting Protocol or ISO-14064-1, they report all direct emissions (fuel and process
emissions) and emissions related to electricity usage.
The National Climate Change Response White Paper mandates DEA to develop a system of
mandatory GHG reporting using the Section 29(1) of the Air Quality Act. This system is currently
under development as part of the air pollutant reporting system. The custodian of the data will be
the South African Weather Service. The initial design of the system is shown below:
7
Figure 3: Proposed Emissions Inventory System
(Department of Environmental Affairs, 12 October 2011)
3.2
STANDARD INDUSTRIAL CLASSIFICATION
The Standard Industrial Classification (SIC) is an international activity based system used
worldwide for importing, operating and tariff negotiations and policy formulations.
The Department of Energy, as well as Statistics SA, divides the SA economy according to the
Standard Industrial Classification Codes (SIC).
The classification is done according to 10 main activities.
Table 4: Standard Industrial Classification into ten main industrial sectors
Sectoral scope
1
2
3
4
5
6
7
8
9
10
Description
Agriculture, hunting, forestry and fishing
Mining and quarrying
Manufacturing
Electricity, gas and water supply
Construction
Wholesale and retail trade, hotels and restaurants
Transport, storage and communication
Financial services
Community. Social and personal services
Private households as employers.
8
In 2006 a total of 2 480 589 TJ of energy was consumed.
Industry, residential and transport
sectors are the three major energy consuming sectors. The values for residential is boosted by the
inclusion of estimated biomass consumption figures.
The category ‘non-energy use’ is for energy carriers such as petroleum product solvents, lubricants
and bitumen which is not utilised for their energy properties.
Figure 4: Sectoral consumption of energy in South Africa in 2006.
The Department of Energy published Regulation 142 to the National Energy Act (Act 34 of 2008) on
24 February 2012. This Regulation states that:
Section 4(1):
For purposes of these Regulations, data providers are classified according to the
following categories:
(f)(i) an entity which carries out economic activities as classified
according to the SIC;
Section 5(2):
Where relevant, the data provider contemplated in regulation 4(1) must also
make available to the Department or a representative of the Department, data
and information describing the quantity and nature of - (a) greenhouse gases
and related gaseous particles emitted as a result of the data provider's economic
activities and processes;
This regulation has not been implemented yet.
When implemented it will duplicate the
requirements of disclosure that has been allocated to DEA in terms of the National Climate Change
Response White Paper.
Although the SIC classification is ideal to monitor and track mitigation activities, however it cannot
easily be collated to reflect the inventory and identification of gaps or quality control concerns is
difficult to detect.
9
3.3
NATIONAL TREASURY
The publication of the 2006 discussion paper, A Framework for Considering Market-Based
Instruments to Support Environmental Fiscal Reform in South Africa, saw the economy divided into
a new sectoral classification.. This classification seemed to focus on the sectors with high
emissions, therefore eligible to pay carbon tax.
Table 5: Sectoral classification by National treasury according to the 2006 discussion paper
Sector
Transport fuels
Vehicle taxation
Aviation taxes
Product taxes
Water supply
Waste water
The budget speech of the Minister of Finance saw a wider classification with each of the sectors
being allocated certain tax obligations as well as provisions to reduce the tax burden. The
classification is listed below:
Table 6: Sectoral Classification of the Economy According to the 2012 Budget Carbon Tax
Proposal
Sector
Electricity
Petroleum (coal to liquid)
Petroleum (oil refinery)
Iron and steel
Aluminium
Cement
Glass and ceramics
Chemicals
Pulp & paper
Sugar
Agriculture, forestry and land use
Waste
Fugitive emission: coal
Other
Eligible for carbon tax
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
Yes
The division of the economy is significant as the tax liability of individual entities will depend on
how they are classified in terms of the above.
Note that transport and construction are not listed as sectors in this classification.
The carbon tax is still very much under development and we will probably only see clarity on this
issue when the next round of discussion or policy papers are published by National Treasury.
10
3.4
PRIVATE SECTOR REPORTING INITIATIVES
The Johannesburg Securities Exchange (JSE) require of companies to disclose their emissions on a
voluntary basis through the international investor driven initiative the Carbon Disclosure Project
(CDP). The JSE classifies companies in line with international trading requirements such as capital
raising and compilation of indices.
Table 7: Sectoral Classification of the JSE
Industry
Oil & Gas
Supersector
Oil & Gas
Basic Materials
Chemicals
Basic Resources
Industrials
Construction & Materials
Industrial Goods & Services
Consumer Goods
Automobiles & Parts
Food & Beverage
Personal & Household Goods
Health Care
Health Care
Consumer Services
Retail
Telecommunications
Media
Travel & Leisure
Telecommunications
Utilities
Utilities
Financials
Banks
Insurance
Real Estate
Financial Services
Technology
Technology
Sector
Oil & Gas Producers
Oil Equipment, Services & Distribution
Alternative Energy
Chemicals
Forestry & Paper
Industrial Metals & Mining
Mining
Construction & Materials
Aerospace & Defence
General Industrials
Electronic & Electrical Equipment
Industrial Engineering
Industrial Transportation
Support Services
Automobiles & Parts
Beverages
Food Producers
Household Goods & Home Construction
Leisure Goods
Personal Goods
Tobacco
Health Care Equipment & Services
Pharmaceuticals & Biotechnology
Food & Drug Retailers
General Retailers
Media
Travel & Leisure
Fixed Line Telecommunications
Mobile Telecommunications
Electricity
Gas, Water & Multi-utilities
Banks
Nonlife Insurance
Life Insurance
Real Estate Investment & Services
Real Estate Investment Trusts
8770 Financial Services
Equity Investment Instruments
Non-equity Investment Instruments
Software & Computer Services
Technology Hardware & Equipment
This classification is useful in managing risks within an investment portfolio, but for integrated
supply chains the inventories and mitigation activity reporting are difficult to benchmark.
In addition CDP reports are linked to the listed entity and inventories contain information from
activities across the globe.
11
3.5
EMISSION OFFSETS AND CARBON CREDITS
For projects to obtain carbon credits, both Certified Emission Reductions (CERs) and
Voluntary/Verified Emission Reductions (VERs) the classification is done in accordance with the
fifteen Scopes stipulated by Annex A of the Kyoto Protocol. Scopes 1 to 9 are linked to industrial
sectors and 10 to 13 based on sources of GHG emissions. These are the categories in which
existing GHG auditor competency is defined.
See Table 8 below for the list of all scopes.
Table 8: Sectoral classification under the Kyoto Protocol (CDM)
Sectoral scope
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Description
Energy industries (renewable - / non-renewable sources)
Energy distribution
Energy demand
Manufacturing industries
Chemical industries
Construction
Transport
Mining/mineral production
Metal production
Fugitive emissions from fuels (solid, oil and gas)
Fugitive emissions from halocarbons and sulphur hexafluoride
Solvent use
Waste handling and disposal
Afforestation and reforestation
Agriculture
(Source: UNFCCC, 2011)
Emission reduction projects in the voluntary market are not in the public domain and they can
participate under a range of standards. The South African projects developed under Verified
Carbon Standard (VCS) include energy efficiency and agricultural project and can be classified
under the scopes of the Kyoto Protocol. The various CDM projects developed in South Africa
currently does not cover all the CDM project scopes. Competency for GHG verification could
therefore be limited to those in the diagram below.
To date, 20 South African emission reduction projects registered under the Clean Development
Mechanism, are linked to more than one sectoral scope, see diagram below:
12
Figure 5: Registered South African emission reduction projects per CDM sectoral scope
classification
4.
AUDITING REQUIREMENTS
The South African Accreditation Services (SANAS), an entity under the Department of Trade and
Industry (DTI), has commenced with accreditation of GHG verifications as a new project. This
program has been prioritised and is on a fast track for completion in 2013. The standard ISO14065
has been accepted as a South African Standard, creating consistency with international practices in
relation to GHG calculations or verifications.
The expectation is that from February 2013 SANAS will accept applications for accreditations for
ISO 14065. The drivers for this programme are:
•
•
•
•
•
•
Carbon tax calculations
Increased export requirements for carbon footprint declarations
Carbon trading on the voluntary market
Mandatory GHG emission reporting
Potential bilateral agreements
Calculations or verifications for the Carbon Disclosure Project (CDP)
Sectoral classification is of importance for this program as it impacts directly on the competency
requirements of auditors.
13
5.
MAPPING OF SECTORAL CLASSIFICATIONS
The great divergence in the different classification schemes can only be understood if the schemes
are mapped against each other
Table 9: Classification schemes
Role players
Carbon Disclosure Project
Classification system
Based on Global Industrial
Classification Codes (GSIC)
Department of
Environmental Affairs
Intergovernmental Panel on Climate
Change (IPCC) guidelines for
national GHG inventories
Standard Industrial Classification
Codes (SIC)
Kyoto Protocol Annex A
According to budget speech
Department of Energy
Carbon credits
Treasury Carbon tax
6.
Categories
JSE top 100 categorised in
accordance with Industry
Classification benchmark
Sectors
Main Activities
Sectoral scopes
Categories
CONCLUSION
The report concludes that a number of different sectoral classification systems are currently in
place. These systems are deeply embedded and will be impossible to replace. The only workable
option is to map these systems to each other, with respect to both greenhouse gas accounting
(carbon foot printing) and mitigation, in order to harmonise the different actions needed for the
transition to a low carbon economy.
Table 10 schematically shows the relationship between the different systems of classification.
14
Table 10: Mapping of different Sectoral Classification Schemes
Department of Environmental
Affairs
1. Energy
Department of Energy
Treasury Carbon tax
JSE
Carbon credits
4. Electricity, gas and water
supply
Electricity
Energy
1. Energy industries
2. Energy distribution
1. Energy industries
7. Transport, storage and
communications
8. Financial services
2. Industrial Processes and
product Use (IPPU)
6. Wholesale and retail trade,
hotels and restaurants
10. Private households and
employers
3. Manufacturing
Petroleum (coal to liquid)
Petroleum (oil refinery)
Glass and ceramics
Cement
Iron and steel
Aluminium
Chemicals
5. Construction
2. Mining and quarrying
Fugitive emission: coal
7. Transport;
Financials
IT and Telecommunications
Health Care services
Consumer staples
Consumer discretionary
Consumer staples
Consumer discretionary
Materials
Industrials:
subsectors construction
subsectors mining, Precious
metals & minerals, Gold, Steel
Industrials
3. Agriculture, Forestry and land
use (AFOLU)
1. Agriculture, hunting, forestry
and fishing
4. Waste
9. Community, social and
personal services
Sugar
Pulp & paper
Agriculture, forestry and land
use
Waste
3. Energy demand
4. Manufacturing industries:
subcategory for cement, iron
and steel, aluminium and
refineries
5. Chemical industry;
9. Metal production;
6. Construction;
10. Fugitive emissions from
fuels (solid, oil and gas);
8. Mining/Mineral production;
11. Fugitive emissions from
production and consumption of
halocarbons and sulphur
hexafluoride;
12. Solvents use;
14. Afforestation and
reforestation;
15. Agriculture.
13. Waste handling and
disposal;
15
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