Carbon Disclosure Project South Africa's Carbon Chasm - Based on Carbon Disclosure Project 2010 responses from the JSE 100 Companies

Carbon Disclosure Project South Africa's Carbon Chasm - Based on Carbon Disclosure Project 2010 responses from the JSE 100 Companies
Carbon Disclosure Project
South Africa’s Carbon Chasm

Based on Carbon Disclosure Project 2010
responses from the JSE 100 Companies

Report writing and analysis by KPMG   Carbon Disclosure Project
                                      44 (0) 20 7970 5660
Carbon Disclosure Project South Africa's Carbon Chasm - Based on Carbon Disclosure Project 2010 responses from the JSE 100 Companies
South Africa’s Carbon Chasm – Based on Carbon Disclosure Project 2010 responses from the JSE 100 Companies

 Carbon Chasm foreword
                                         Recent figures reported in 2011 by the International Energy Agency, show that Greenhouse gas
                                         (GHG) emissions increased by a record amount in 2010, to the highest output in history,1 yet scientific
                                         evidence shows that we need to see global emissions cut by up to 95% in some major economies by
                                         20502 if we are to avert climate change and continued disruption to our weather patterns.
                                         As some three quarters of total global emissions3 are generated by corporations globally, the role
                                         of business in helping achieve the required emissions reductions is crucial. We are delighted to be
                                         working with KPMG in South Africa to gain a better understanding of how South African businesses
                                         are tackling emissions reductions, based on CDP data collected in partnership with the National
                                         Business Initiative.
 The Intergovernmental Panel on Climate Change (IPCC) recommends that there is a substantial reduction in emissions, against
 business as usual, by 2050 in emerging markets. In 2009, the South African government committed to reduce the country’s
 emissions by 34% from business as usual levels by 2020 and 42% by 2025. This research investigates whether South Africa’s
 biggest businesses are on track to achieve these reductions, based on the emissions reduction targets reported through CDP
 in 2010.
 What is striking is that even though just one third of South African companies in the JSE 100 companies report setting targets,
 this covers 93% of the JSE 100 direct emissions profile, due to a small number of companies, in sectors such as mining,
 generating the majority of emissions. This shows how heavy emitters recognise the importance of developing and delivering
 emissions reduction strategies. It is also striking that the power sector is responsible for 45% of South Africa’s emissions,
 compared to just 26% globally. This high footprint from the power sector means that energy efficiency measures, which can
 be applied in all businesses, need to play a major role in reducing power usage and in turn, the power sector’s high carbon
 When considered against CDP’s Carbon Chasm report series, based on the largest Global, UK and US companies, South
 Africa’s JSE companies are setting strong targets compared with the government commitment to reduce emissions. However
 this is counterbalanced by the enormous footprint from the power sector which has heavy dependence on fossil fuels and very
 limited reduction plans. In addition, just one third of companies in the JSE 100 report targets, meaning there is scope within
 two thirds of the JSE 100 to advance further emissions reductions. This can be achieved in every company, through energy
 efficiency, changes in processes and improved technology, many of which generate cost savings, often with a short payback.
 More and more investors and companies globally are identifying and acting on these opportunities not just because they make
 good environmental sense, but also just as important, they make good business sense.

 Joanna Lee
 Chief Partnerships Officer, Carbon Disclosure Project

2.   Intergovernmental Panel for Climate Change Fourth Assessment
     Report, 2007

Carbon Disclosure Project South Africa's Carbon Chasm - Based on Carbon Disclosure Project 2010 responses from the JSE 100 Companies

KPMG foreword
                          The business and regulatory risks relating to climate change and sustainability are complex and
                          evolving. While there are undoubtedly commercial opportunities to be capitalised on in the process,
                          what is clear is that there is an implied level of shared responsibility by all stakeholders – most
                          notably between Government and business. KPMG plays a key role in facilitating this engagement.
                          South Africa has made a bold commitment in international climate negotiations to reduce national
                          emissions to 34% below ‘business as usual’ levels by 2020 and 42% by 2025 (with a few identified
                          dependencies). The fact is that Government cannot achieve this on its own – and nor should they.
                          It’s up to every responsible citizen – corporate and individual – to play their part in achieving this.
                           Using the Carbon Disclosure Project (CDP) 2010 dataset to analyse how companies are currently
setting emissions reduction targets and what level of reduction these will likely deliver, it is clear that South Africa currently
faces a ‘carbon chasm’. A particular challenge for South Africa is that our coal-based electricity mix is already responsible
for a large portion of national emissions. What is exciting is that an analysis of the available data reveals that the Private
Sector holds great potential for achieving our national desired emissions reduction. Indeed, to bridge the ‘carbon chasm’
fully, energy efficient behaviour should extend to organisations in all sectors of the economy, and to private households.
 Government plays a crucial role in creating an appropriate policy framework to incentivise low carbon behaviour. The
challenge in South Africa is balancing climate objectives with our very pressing socio-economic issues, and promoting low
carbon growth whilst tackling unemployment and poverty.
At KPMG, we understand the complexities about bringing together a hugely diverse and apparently disparate group of
stakeholders – especially from business and Government – through constructive, facilitated engagement to realise the vision
that ultimately benefits us all.
KPMG is proud to play a leading role in cutting through this complexity, including as the lead sponsor of the CDP in South
Africa and as shown in our support of this Carbon Chasm initiative. Through relevant, timely disclosure, the CDP allows for
the building of bridges of profound change – leading by example, demonstrating the practical application of what will go on
to challenge and inspire others. The ‘Carbon Chasm’ highlights the challenges – and opportunities – in getting this right.
Our Climate Change & Sustainability global practice is a multi-disciplinary team of outstanding professionals geared to serve
clients as the business investment in this area grows. We have a strong presence in Africa and the global leadership team
includes Yvo de Boer, former Executive Secretary for the United Nations Framework Convention on Climate Change and
now Global Advisor with KPMG (based in the UK). We look forward to continuing our engagement with you in positively
shaping this space.

Moses Kgosana
Chief Executive, KPMG in South Africa

Carbon Disclosure Project South Africa's Carbon Chasm - Based on Carbon Disclosure Project 2010 responses from the JSE 100 Companies
Executive Summary

South Africa has made a voluntary                             Emissions need to decrease by an
commitment in international climate                           estimated 0.2% per year to achieve                                  “Climate change is widely
negotiations to reduce national                               South Africa’s 2020 commitment of                                   recognised as one of the most
emissions to 34% below business as                            34% below business as usual.                                        serious challenges the world
usual levels by 2020 and 42% by 2025,                                                                                             faces, with consequences that
dependent on finance, technology                              • South Africa’s absolute emissions
                                                                commitment has not been formally                                  go far beyond its impact on the
and capacity-building support from
                                                                quantified. Therefore the best                                    environment alone. The question is
industrialised countries. This carbon
chasm report evaluates how the                                  available approximation of the 2020                               no longer if we have to move into a
emissions reductions targets of the                             absolute emissions commitment                                     low-carbon future but how we will
largest 100 companies listed on the                             using publicly available data is                                  get there.
Johannesburg Stock Exchange (the                                34% below the ‘Growth Without                                     South Africa’s Carbon Chasm
JSE 100) compare with the national                              Constraints’ scenario in the Long                                 report illustrates that there is a
commitment.                                                     Term Mitigation Scenarios (LTMS)2.                                gap between business as usual
                                                              • South Africa’s total emissions level                              carbon emissions and South
The research utilises the Carbon
Disclosure Project (CDP) 2010 dataset                           from all sources in 2010 has been                                 Africa’s commitment of 34% below
to analyse how companies are currently                          estimated at approximately 500                                    the business as usual scenario by
setting emissions reduction targets and                         million metric tonnes of CO2-e3. This                             2020. However, many companies
what level of reduction these targets can                       is used as the baseline to calculate                              in the South African market have
deliver. Projections on emissions from                          the reduction rate required to 2020.                              stepped up to the challenge of
electricity in South Africa’s Department                      The projected annual increase                                       voluntarily reducing greenhouse
of Energy’s Integrated Resource Plan                          in emissions from electricity                                       gas emissions by putting forward
are also assessed against the national                        generation is the primary driver                                    substantive commitments that
commitment, as South Africa’s coal                            in South Africa’s annual total                                      contribute to meeting South
based electricity mix is responsible for a                    emissions growth up to 2020.                                        Africa’s overall commitment.
large portion of national emissions.
                                                                                                                                  Although it is encouraging to see
                                                              • As the electricity mix is unlikely to
Key Findings                                                    change substantially before 2020,                                 the articulated voluntary GHG
                                                                South Africa expects to increase                                  reduction emissions targets
South Africa faces a carbon chasm.                                                                                                in the private sector, it is only
                                                                emissions from electricity generation
• The gap between business as usual                             by 2% per year, as per the                                        through a collective effort that
  carbon emissions and South Africa’s                           Department of Energy’s projections4.                              climate change can be seriously
  voluntary commitment of 34% below                                                                                               addressed.
                                                              • When this projected rate is adjusted
  business as usual in 2020 is 253                                                                                                South Africa will soon become
                                                                for the weighted average of the JSE
  million tonnes CO2-e1. This chasm                                                                                               the focus of world attention
                                                                100 targets for electricity efficiency5
  constitutes approximately half of                                                                                               in the lead up to COP17 in
                                                                the annual increase rate slows
  current national emissions.                                                                                                     Durban, with the chance to
                                                                to 1%. This demonstrates that
• When adjusted for the JSE 100                                 electricity efficiency is a crucial lever                         address some of the gaps that
  targets this chasm is more than                               in achieving substantial emissions                                exist in the international climate
  halved to 105 million tonnes CO2-e.                           reductions.                                                       framework.
  This illustrates that the private sector                                                                                        This report contributes to the
  holds great potential for achieving                                                                                             debate on the road to the
  South Africa’s desired emissions                                                                                                climate negotiations in Durban
  reduction.                                                                                                                      by providing an interesting
                                                                                                                                  insight into the current state of
                                                                                                                                  achievement of South Africans
1. CO2-e stands for carbon dioxide equivalent, which is the   2. The Long Term Mitigations Scenarios (LTMS) are a set of          climate ambitions.”
   accepted unit of measurement for greenhouse gases.            evidence-based scenarios of future possible mitigation
                                                                 actions by South Africa. They were developed by the Energy       – Yvo de Boer, KPMG’s Special
                                                                 Research Centre (ERC) in 2007 and provided a basis for the
                                                                 South Africa’s negotiation policy at the international climate   Global Advisor on Climate Change
                                                                 negotiations in Copenhagen in 2009.                              and Sustainability and former
                                                              3. Carbon Disclosure Project 2010, South Africa JSE 100
                                                              4. The Department of Energy has gazetted the 2010 Integrated        Executive Secretary to the UN
                                                                 Resource Plan (IRP2010) which maps out the expansion of          Framework Convention on Climate
                                                                 South Africa’s electricity supply up to 2030.
                                                              5. Scope 2 emissions are Indirect GHG emissions from                Change
                                                                 consumption of purchased electricity, heat or steam, as
                                                                 defined by the Greenhouse Gas Protocol

Executive Summary

If achieved and maintained, targets                      Recommendations
from the JSE 100 companies could                                                                      It is important to
result in a 0.5% annual reduction                        • To bridge the ‘carbon chasm’ fully, it
in the JSE 100’s overall direct6                           is critical that the target setting JSE    note that South
emissions.                                                 100 companies follow through on            Africa’s emissions
                                                           maintaining and achieving the targets      reduction commitment
• Target setting amongst the JSE 100                       they have set. Emissions reduction
  has shown a strong upward trend.                         actions, particularly on energy            is conditional on
  31 of the JSE 100 reported having                        efficiency, must also extend to the rest   international financing,
  an emissions reduction target in                         of the JSE 100, and non-listed carbon      technology and
  2010, as compared to 20 companies                        intensive organisations.
  in 2009.                                                                                            capacity-building
                                                         • To achieve this, strong and clear          support.
• The most carbon intensive sectors                        policy signals are required from
  are leaders in target setting. Target                    government, indicating how it
  setting companies account for 93%                        intends to achieve the overall
  of the JSE 100 direct emissions,                         commitment, what actions it expects
  and 19% of South Africa’s national                       in each sector and what policies
  emissions.                                               and incentives will be put in place to
                                                           ensure the transition to a low carbon
• In line with South Africa’s status as
  a developing country, the JSE 100
  average reduction target of 0.5% is                    • It is important to note that South
  lower than the Global 100 average                        Africa’s emissions reduction
  target reduction rate of 1.9%7 and                       commitment is conditional on
  the FTSE 100 target reduction rate                       international financing, technology
  of 2.5%8.                                                and capacity-building support. As
                                                           the 17th Conference of the Parties
                                                           (COP17) is due to be hosted in
                                                           South Africa at the end of 2011, the
                                                           government and private sector have
                                                           an opportunity to influence these
                                                           aspects of the international climate
                                                           negotiation outcomes.
                                                         A key challenge in performing the
                                                         carbon chasm analysis South Africa’s
                                                         commitment to reduce emissions to
                                                         34% below business as usual in 2020
                                                         is that the absolute commitment has
                                                         not been quantified. The commitment
                                                         should be quantified and disclosed
                                                         as a matter of urgency, for emitters
                                                         in South Africa to be able to develop
                                                         strategies and set appropriate targets
                                                         for emissions reductions and to be able
                                                         to participate in carbon markets.

6. Scope 1 emissions, as defined by the Greenhouse Gas
7. Global 100 Carbon Chasm Report, CDP
8. FTSE 100 Carbon Chasm Report, CDP


International Climate                        South African Climate Policy                  The Long Term Mitigation
Negotiations and South                       South Africa has committed to reducing
                                                                                           Scenarios (LTMS)
Africa’s role                                its greenhouse gas emissions by 34%           The Long Term Mitigation Scenarios
Achieving a global deal on climate           against a ‘business as usual’ baseline by     (LTMS)9 process was mandated by
change remains one of the greatest           2020 and 42% by 2025.                         government to build evidence based
multilateral policy challenges of the                                                      scenarios of future possible mitigation
                                             This voluntary commitment was
21st century. The first commitment                                                         actions by South Africa. The process
                                             submitted under the Copenhagen
period of the Kyoto Protocol, governing                                                    was established with three key goals
                                             Accord at the COP15 held in
greenhouse gas emissions in                                                                in mind: to engage South African
                                             Copenhagen in 2009. South Africa’s
industrialised countries, expires in 2012.                                                 stakeholders in building scenarios, to
                                             commitment is conditional on finance,
Countries are now working towards                                                          inform the South African delegation to
                                             technology and capacity-building
a successor to this treaty in the form                                                     COP15’s negotiating position, and to lay
                                             support from Annex 1, or industrialised
of a second commitment phase of                                                            the basis for long term climate policy in
the Protocol and/or a new governing                                                        South Africa. South Africa’s voluntary
framework.                                   This international commitment is one          commitment under the Copenhagen
                                             of the important factors influencing          Accord is based on the ‘Peak, Plateau
South Africa, as the host of the next        domestic policies related to climate          and Decline’ trajectory of the LTMS.
Conference of the Parties (COP17) is         change, which also need to be aligned
a particularly important stakeholder in                                                    In the absence of an official
                                             with local socio-economic development
the current process of negotiations. The                                                   quantification of South Africa’s
                                             priorities. Context is provided by the
event, to be held in Durban in November                                                    commitment, the ‘Growth without
                                             National Climate Change Response
and December 2011 is a watershed                                                           Constraints’ scenario in the LTMS
                                             Green Paper published in 2010. This
moment in international climate policy. It                                                 provides a proxy for ‘business as usual’,
                                             sets out the guidance and framework
represents a critical chance for countries                                                 which forms the baseline of South
                                             for climate change policy in South
to agree on a deal. However, a number                                                      Africa’s commitment. This scenario
                                             Africa relating to both mitigation and
of issues remain unresolved.                                                               models the trajectory of greenhouse gas
                                                                                           emissions if the economy and society
The overarching challenge to                 Concurrently, a carbon tax discussion         do not change their behavioural patterns
international negotiations is in             paper has been developed. This                and economic growth is as expected.
reconciling the interests of developed       outlines the government’s intention to        Under this scenario, emissions are
and developing countries. Developing         implement an economy-wide carbon              projected to increase almost 50% by
countries are calling for a second           tax in South Africa. The proposal,            2020 from 2010 levels and more than
commitment period of the Kyoto               currently under revision based on             triple by 2050.
Protocol with binding emission limits on     stakeholder consultation, is expected to
developed nations. However, a number                                                       Based on the ‘Growth Without
                                             be finalised in the latter half of 2011 and
of the industrialised countries do not see                                                 Constraints’ scenario, the commitment
                                             implemented in 2012.
a second commitment period without it                                                      of 34% below business as usual
including targets for the major emitting     Finally, a number of policy initiatives       translates to emissions of 491 million
countries, including the United States.      have an indirect influence on climate         tonnes of CO2-e per annum by 2020,
In addition to securing this overarching     change mitigation in South Africa. These      slightly lower than South Africa’s
agreement, a number of key technical         include the push for renewable energy in      estimated 2010 annual emissions of
issues are outstanding, including the        the latest Integrated Resource Plan for       50010 million tonnes CO2-e. This would
details of operation of the financial and    electricity (IRP2010), a CO2 emissions        require a yearly decrease in emissions of
technology mechanisms as well as             tax on new vehicles, and a levy on the        0.2% to meet this estimation of South
the arrangements for measurement,            price of electricity on account of carbon     Africa’s commitment. It must be noted
reporting and verification of emissions.     emissions. Additionally, there are a range    that the LTMS were performed in 2007,
                                             of fiscal incentives to promote energy        and the business as usual projection is
                                             efficiency and the adoption of low            in the process of being updated.
                                             carbon technologies.

                                                                                           9.  Long Term Mitigation Scenarios, prepared by the Energy
                                                                                               Research Centre, October 2007
                                                                                           10. Carbon Disclosure Project 2010, South Africa JSE 100


However, it is still the best publicly                        towards achieving the global reduction                         strategic options that frame different
available approximation of business as                        target of between -60% to -80% from                            scenarios to close this gap, with varying
usual. This initial declining trajectory                      1990 levels. This reduction is deemed                          effectiveness.
contradicts the general understanding                         necessary to limit climate change to two
that South Africa intends to follow the                       degrees Celsius above pre-industrial                           The ‘Current Development Plans’
‘Peak, Plateau and Decline’ trajectory,                       levels by 2050, considered to be                               scenario shows how the growth without
which entails increasing emissions up to                      dangerous climate change. However, it                          constraints would change if current plans
a peak in 2020. This highlights the need                      is assumed that South Africa bears less                        for energy efficiency and introducing
for urgent quantification and disclosure                      than its proportional share of the global                      renewable sources into the energy
of South Africa’s commitment, and the                         burden of reduction due to its status                          mix are implemented. ‘Start Now’
trajectory required to achieve it.                            as a developing country. Therefore the                         accounts for mitigation actions that are
                                                              desired reduction band is between -30%                         implemented through sectoral plans and
South Africa’s voluntary commitment                           to -40% from 2003 levels by 2050.                              cooperative governance. The ‘Scale Up’
to reduce emissions 34% below                                                                                                scenario enhances the effectiveness of
business as usual in 2020 does fall                           The gap between the 2050 target                                this plan, by scaling up actions taken in
within a target band defined by the                           required by science and the business as                        the early years of ‘Start Now’. Together
‘Required by Science’ scenario. This                          usual scenario is in the region of 1300                        the two strategies can be thought of as
scenario is based on the recognition                          Mt CO2-e per year of required mitigation                       ‘Energy Efficiency Plus’.
that South Africa must contribute                             effort. The LTMS then goes on to outline

Figure 1: Long Term Mitigation scenarios

                                        Strategic options to get from Growth Without Constraints to Required By Science


                                                                                               Growth without Constraints
   Mt CO2 -equivalent

                                                                                                                                      Current Development Plans
                        1000                                       Interim national
                                                                  commitment date
                                                                                                                                Start Now

                                                                                                                                                            Scale Up
                                                                                                                 Use the Market

                                                                                                                   Required by Science

                               2003   2006   2009   2012   2015   2018     2021       2024   2027       2030      2033       2036      2039       2042      2045       2048
                                                                                        Source: DEAT 2007 Long Term Mitigation Scenarios: Strategic Options for South Africa, pg7

South Africa’s Carbon Chasm – Based on Carbon Disclosure Project 2010 responses from the JSE 100 Companies

‘Use the Market’ drives further              Climate change remains high on the
emissions reductions by using a carbon       agenda for many large South African
pricing mechanism to create incentives       companies. Each year the CDP
for mitigation. In this scenario, a CO2      questionnaire is sent to the top 100
tax is a key cost driver, making the         companies listed on the JSE, and South
use of fossil fuels less attractive and      Africa’s fourth CDP in 2010 generated
encouraging investment in low-carbon         a response rate of 74%. This ranks
technologies. Over 75% of the target         the South African CDP response rate
reduction is achieved through using the      as the joint fourth highest response
market.                                      rate internationally.11 Of the responding
                                             companies, 94% disclosed their
The LTMS analysis identifies several         greenhouse gas (GHG) emissions. There
areas to be explored further to close this   has also been an increase in the number
gap: investment in new technologies          of companies with GHG emissions
in the future, identifying lower-carbon      reduction targets, with 31 companies
resources, incentives for behavioural        having specific targets (a 55% increase
change and redefining competitive            from 2009) and 22 making the
advantage in the transition to a low-        commitment to develop targets. The
carbon economy. The key to success is        increasing trend in target setting via CDP
leadership in government, business and       provides a clearer indication as to how
civil society, together with international   companies are adapting to competitors’
alignment and active support. This           and national emissions reduction targets
report examines the alignment between        in response to climate change.12
government intentions and strategies
formulated by the business community.

CDP in South Africa
The Carbon Disclosure Project (CDP)
was established in 2000 with the aim to
accelerate solutions to climate change
by putting relevant information at the
heart of business, policy and investment
decisions. This has challenged the
world’s largest companies to measure
and disclose their carbon emissions.
In addition to disclosing emissions
performance; which includes emissions
reduction targets and energy use,
the CDP questionnaire also assesses
companies’ wider performance by
requiring disclosure on the management
of climate change; as well as the risks
and opportunities surrounding climate
change. It takes companies on the
path of measuring, managing and
subsequently reducing their emissions.

                                             11. Carbon Disclosure Project 2010: South Africa JSE 100, p10

                                             12. KPMG, 2010 in ‘Carbon Disclosure Project 2010: South
                                                 Africa JSE 100, p8


Scope                                                                understanding that South Africa           • Average annual real GDP growth rate
                                                                     intends to follow the ‘Peak, Plateau        forecasts (KPMG macroeconomic
The scope includes:                                                  and Decline’ trajectory, which entails      forecasts for South Africa) between
                                                                     increasing emissions up to a peak           2010 and 2020 are used to adjust
• All the JSE 100 companies that have
                                                                     in 2020. It must be noted that the          intensity targets for growth.
  made disclosures through the CDP
                                                                     2007 LTMS are out of date, and
  in 2010. The JSE 100 companies’                                                                              • The JSE 100 companies without
                                                                     the business as usual trend line is
  reported Scope 113 emissions                                                                                   a target are assumed to be
                                                                     in the process of being updated.
  account for 21% of South Africa’s                                                                              following a business as usual
                                                                     It is, however, still the best publicly
  national emissions in 2010.                                                                                    emissions trajectory and are
                                                                     available projection.
                                                                                                                 assigned the average annual
• Emissions from electricity generation,
                                                                  • To give the most accurate                    growth rate in the ‘Growth Without
  currently almost entirely generated
                                                                    approximation of the JSE 100                 Constraints’ scenario in the LTMS.
  by Eskom, South Africa’s state
                                                                    targets, company targets are                 This assumption should not
  owned power utility. Emissions
                                                                    weighted according to company                materially affect the overall weighted
  from electricity generation account
                                                                    contribution to total the JSE 100            average emissions reduction per
  for 45% of South Africa’s national
                                                                    emissions, to give an overall                annum, as non-target setting
  emissions in 2010.
                                                                    weighted average emissions                   companies only accounted for 7%
• The remaining 34% of national                                     reduction per annum.                         of total JSE 100 reported Scope 1
  emissions will only be assessed to                                                                             emissions.
                                                                  • This analysis uses the targets
  approximate South Africa’s carbon
                                                                    reported to CDP in 2010 by these           • The average annual percentage
  chasm. The assumption is made that
                                                                    companies to calculate their                 increase in national emissions from
  this portion of emissions will follow a
                                                                    expected annual reduction rate. For          electricity generation is calculated
  ‘business as usual’ trajectory.
                                                                    this purpose, a total of 68 absolute         using a weighted average of the
                                                                    and intensity CO2-e emissions                JSE 100’s scope 214 emissions
Calculations                                                        targets have been analysed. 31 JSE           reduction targets, with the rest of
                                                                    100 companies supplied sufficient            national emissions from electricity
The JSE 100 average target reduction                                data for this calculation as some            being assigned the CO2-e emissions
rate of emissions and projected                                     companies set more than one target.          growth rate as per the projection
emissions from electricity generation                                                                            in the Department of Energy’s
have been evaluated against the                                   • Targets that do not cover                    Integrated Resource plan.
reduction rate required to achieve South                            the full period up to 2020 are
Africa’s 2020 voluntary commitment.                                 extrapolated up to 2020 based
                                                                    on the assumption that companies
• Considering South Africa’s                                        will continue to set targets at least
  commitment against a business as                                  at the same level. This assumption
  usual trendline, KPMG has calculated                              may be conservative (in the sense
  that South Africa’s commitment                                    that it underestimates the carbon
  to reduce emissions 34% below                                     chasm) as many short term targets
  business as usual by 2020 translates                              may have been set under low
  into an average annual reduction                                  economic growth expectations. As
  rate of at least 0.2% per annum.                                  the economic outlook improves, or
  This figure is arrived at by calculating                          companies adjust their targets based
  the compound annual growth rate                                   on their performance against them,
  between South Africa’s estimated                                  targets may become less aggressive.
  national emissions in 2010, and                                   Equally, if the government moves
  66% of the 2020 value in the                                      forward with national climate change
  LTMS ‘Growth without Constraints’                                 policy, companies may tighten their
  scenario. This initial declining                                  targets to respond to policy change.
  trajectory contradicts the general

13.   Scope 1 emissions are all direct emissions, as defined by                                                14.		 Scope 2 emissions reductions are Indirect GHG emissions
      the Greenhouse Gas Protocol                                                                                    from consumption of purchased electricity, heat or steam,
                                                                                                                     as defined by the Greenhouse Gas Protocol

Analysis of the JSE 100’s Reported Targets

An increasing number of                     As illustrated in figure 3, in 2010, 31    CO2 equivalent targets lead
companies report having                     of the JSE 100 companies reported          the way
                                            having some form of emissions
targets                                     reduction target in place. Forty-seven     There are a total of 68 targets reported
According to the JSE 100 responses to       did not respond or had no current          by these 31 companies, indicating that
CDP in 2010, 31 of these companies          targets in place. Twenty-two JSE 100       it is common for a company to set
are setting targets to reduce their         companies reported that they were in       more than one target. As illustrated in
emissions or energy consumption. As         the process of setting targets.            figure 4, targets are most frequently
shown in figure 2, the trend is toward                                                 defined in terms of carbon dioxide
more companies setting targets, with                                                   equivalent emissions, (CO2-e), which
20 companies reporting targets in 2009      Figure 3: Target setting by JSE 100        is the accepted unit of measurement
and only 12 reporting targets in 2008.                Companies in 2010                for greenhouse gases. Recent ‘Carbon
It is expected that this increasing trend                                              Chasm’ reports by CDP found that this
will continue in 2011, as 22 additional                                                trend is also reflected globally amongst
companies were in the process of                                                       Global 100 companies and FTSE 100
                                                                           16          Companies . Energy consumption is an
setting targets in 2010.
                                                   28                                  alternative target and the benchmark is
                                                                                       used by the JSE 100 companies as it is
Figure 2: Trends in target setting by                                                  directly related to emissions but easier
          JSE 100 Companies                                                            to measure and track over time.
         Currently setting targets
         Targets in place                                                 3            Figure 4: Types of targets
                                      22                31
40                                                                                                     4%
                                                     No target
20                                                   Currently setting targets
          8                           31
10                          20                       Previously had a target
                                                     Those that had targets in place
        2008              2009       2010            No response



                                                                                                   Energy consumption

Analysis of the JSE 100’s reported targets

Absolute targets are most                   Figure 5: Absolute vs Intensity
frequent                                              targets*
A major differentiator between targets
is whether they are absolute or intensity                        7%
based. Absolute emissions reduction
targets are defined by the GHG Protocol
as goals to “reduce absolute emissions
over time” and are the most popular
target type.
Intensity emissions reduction targets are                                        57%
defined as goals to “reduce the ratio of
emissions relative to a business metric
over time”. Intensity targets are popular
for the reason that they allow companies
to account for growth.
As illustrated in figure 5, 37% of target                         Absolute

setting companies set intensity targets                           Intensity
only, 57% set absolute targets only,                              Both
while 7% adopt both absolute and
intensity targets.
Although setting intensity commitments
can be valuable for a company,
the ultimate result of a company’s
emissions reduction targets should be
an absolute reduction in emissions.
Such absolute reductions are required
if the private sector is to deliver in
line with South African government
commitments and are not guaranteed
by a reduction in emissions intensity. In
fact, if a company’s activity grows at a
faster rate than the emissions intensity
reduction rate, absolute emissions will
actually increase. By setting absolute
targets, 64% of target setting JSE 100
companies have committed to avoiding
emissions growth.

                                            * Percentages do not add up to 100 due to rounding up of numbers

South Africa’s ‘Carbon Chasm’

If South Africa continues on its                        Figure 6 illustrates projected emissions                            • Reductions in direct emissions,
estimated business as usual emissions                   trajectories of South Africa’s national                               based on Scope 115 reduction
trajectory, it will face a carbon chasm of              emissions, and compares projected                                     targets set by the JSE 100
253 million tonnes CO2-e in 2020. This                  national emissions to South Africa’s                                  companies
gap between the national commitment                     reduction commitment.
and national emissions would constitute                                                                                     • Reductions in emissions from
approximately half of current estimated                 This graph represents South Africa’s                                  electricity generation both due the
emissions. However, this chasm is more                  estimated carbon chasm, the gap                                       changes in electricity mix projected
than halved to 105 million tonnes CO2-e                 between projected emissions and South                                 in the Department of Energy’s
when South Africa’s business as usual                   Africa’s estimated commitment for 2020.                               Integrated Resource Plan, and
emissions trajectory is adjusted for the                The chasm is represented under a                                      Scope 2 reduction targets set by the
potential effects of the JSE 100 targets                business as usual scenario, and shows                                 JSE 100 companies
and electricity resource plans.                         the decrease in the carbon chasm when
                                                        adjusted for:

Figure 6: South Africa’s Carbon Chasm (million tonnes CO2-e)

                      Business as usual

                      Projected SA 2020 emissions, adjusted for JSE Scope 1&2 targets and IRP2010

                      SA estimated reduction commitment


                                                                                                               IRP2010 and JSE 100
                                                                                                               targets reduced carbon chasm
                                                                                                               to 105 million tonnes                              253



                               South Africa’s
                               Carbon Chasm

             2010       2011        2012        2013         2014          2015          2016          2017         2018          2019          2020
                                                       Source: DEAT 2007 Long Term Mitigation Scenarios: Strategic Options for South Africa, KPMG analysis

                                                                                                                            15. Direct emissions, as defined by the Greenhouse Gas Protocol

South Africa’s ‘Carbon Chasm’

JSE 100 direct emissions                               are proactively managing their carbon
reduction targets contribute                           strategy. However, in absolute numbers,     Target setting
                                                       not enough of South Africa’s largest
to closing the carbon chasm                            companies are setting targets. It is        companies’ Scope 1
Based on current reported targets, the                 important that the trend of increasing      emissions account for
JSE 100 companies aim to achieve                       numbers of companies setting targets        93% of reported Scope
a weighted average yearly Scope 1                      continue.                                   1 JSE 100 emissions,
emissions reduction of 0.5%, also
accounting for those companies that did
                                                       Responses indicate that companies           and 21% of estimated
                                                       in the carbon intensive sectors are         national emissions.
not set targets.                                       setting slightly less aggressive targets
To comply with South Africa’s 2020                     than their peers in less carbon intensive
interim voluntary commitment, an                       sectors. However, due to their greater
annual reduction rate of at least 0.2%                 weight in terms of overall emissions,
is needed. With a weighted average                     these targets contribute substantially
target reduction rate of 0.5%, the JSE                 to achieving an overall target reduction
100 companies, on average, are setting                 rate that exceeds the required rate to
targets exceeding the reduction rate                   achieve the national emissions reduction
required by the national commitment.                   commitment.
Actual reduction rates are of course                   However, most targets set are for the
dependent on whether targets are                       short term, making it less certain that
achieved, and whether target levels can                the required rate will be maintained up
be maintained for the full period up to                to 2020 and beyond. Based on targets
2020.                                                  where sufficient detail was provided
This average reduction rate is                         (31 responses): 24% of targets had
substantially lower than the Global                    already reached their end date at time of
100 average reduction rate of 1.9%                     publishing the 2010 CDP (2009 or 2010
and lower than the FTSE 100 rate of                    target years), a further 27% of targets
2.5%16. This can be justified by the                   span less than 3 years into the future.
fact that South Africa’s desired band                  Only 26% of targets cover the full period
for reductions is much lower than                      to the 2020 interim commitment date.
that of industrialised countries, due to
South Africa’s status as a developing
country. However, as South Africa’s top                Figure 7: Longest target year per company
performing companies, the JSE 100
should strive to achieve international
                                                           2020                                          26
Although 69 of the JSE 100 companies                                             10
have not yet reported emissions
reductions targets, target setting
companies’ Scope 1 emissions account                       2014                              16
for 93% of reported Scope 1 JSE
100 emissions, and 21% of estimated
                                                           2013             6
national emissions. This means that on
balance, companies with more carbon
intensive operations are leading the                       2012                        13
way in terms of target setting. This is
promising as a large portion of private                                     6
sector emissions are accounted for, and
companies that will be most affected by
a potential carbon pricing mechanism                       2010                              15

16. CDP Global 100 Carbon Chasm Report, CDP FTSE 100       2009             6
    Carbon Chasm Report, CDP

                                                                  0%      5%       10%      15%    20%   25%         30%
South Africa’s Carbon Chasm – Based on Carbon Disclosure Project 2010 responses from the JSE 100 Companies

While this report focuses on targets         however more of the JSE 100 should                                    The Department of Energy has recently
set by the JSE 100 companies, as             be setting targets and targets should                                 gazetted the 2010 Integrated Resource
opposed to actual emissions reductions       be set further into the future. While                                 Plan (IRP2010), which maps out the
performance, a concern is that of the        direct private sector emissions are                                   expansion of South Africa’s electricity
targets that have already expired, it is     a substantial component of South                                      supply up to 2030. This is a national
unclear whether these targets have been      Africa’s national emissions, no analysis                              electricity plan, which forms a subset
met. Therefore, although companies that      of South Africa’s carbon chasm would                                  of the national energy plan. The goal
have a history of target setting are more    be complete without an analysis of                                    of integrated resource planning is to
likely to continue setting targets, these    emissions from electricity generation.                                ensure sustainable development of
targets may be adjusted downwards                                                                                  the electricity mix, while meeting the
to make them more achievable. To add         Emissions from electricity                                            forecasted national electricity demand
to this, many targets may have been          are a primary driver in South                                         and taking into account technical,
set based on low economic growth             Africa’s emissions growth up                                          economic and social constraints and
expectations due to the prevailing           to 2020                                                               externalities. From a carbon perspective,
economic environment, and therefore                                                                                South Africa’s electricity mix is currently
may be adjusted as the economic              The projected emissions level                                         90%18 dependent on coal and a key
outlook improves.                            from electricity generation in 2020                                   objective is to diversify into renewable
                                             as compared to 2010 translates                                        energy alternatives.
Companies in the carbon intensive            to a 2.04% average increase in
sectors are setting longer targets than      emissions per annum between 2010                                      After two rounds of consultation, the
their JSE 100 peers in other sectors, with   and 202017, which falls significantly                                 Department of Energy has promulgated
29% having a target up to 2020.              short of the emissions reduction                                      the ‘Policy- Adjusted IRP’ scenario. See
                                             rate of 0.2% required to meet the                                     Figure 7 below:
The JSE 100 target setting companies
are setting targets at the right levels,     national commitment.

Figure 7: Process to reach Policy-Adjusted Integrated Resource Plan

                               Before second round
                                                                                    Second round of                                  After consultation
                              of consultation process
                                                                                  consultation process                            process (February 2011)
                             (IRP as of October 2010)

                          Scenarios tested                                                                                   Scenarios tested
                          • “Emission Limit”                                                                                 • Base case “Adjusted Emission”
                          • “Carbon Tax”                                                                                       (based on Emission Limit 2.0)
     Quantitative         • “Regional Development”                                                                           • “High Efficiency”
     optimisation         • “Enhanced Demand Side                                                                            • “Low Growth”
      (least cost)          Management”                                                                                      • “Risk Averse”
                                                                                                                             • “Peak Oil”
                          ¢Emission Limit 2.0 to be                  Main changes                                            • “Earlier Coal”
                          pursued further                            • Increased nuclear costs by 40%
                                                                     • Included learning rates
                                 Multi-criteria                        (mainly affects Photo Voltaic,
                                decision making                        Concentrating Solar Power, wind)                              Policy choices
                                                                     Disaggregated solar technologies

     Quantitative              Revised Balanced
      balancing                 Scenario (RBS)                                                                                     Policy-Adjusted IRP

                                                                                                                                                   Source: IRP2010

                                             17. As carbon emissions projections are not provided for the          18. IRP2010
                                                 Policy Adjusted IRP, carbon emissions for the Revised
                                                 Balanced Scenario are used as the closest available
                                                 projection. However, the allocation for coal is the same in
                                                 both scenarios, therefore the deviation will not be substantial

South Africa’s ‘Carbon Chasm’

The ‘Policy-Adjusted IRP’ is an iteration             Renewable Energy Feed-in Tariff (REFIT)                      Although the target setting JSE
on the ‘Revised Balanced Scenario’                    scheme, in favour of a competitive                           100 companies represent a large
(RBS), allowing for increased nuclear                 bidding scheme with a price ceiling.                         portion of emissions from electricity,
costs, learning rates and disaggregation                                                                           all sectors of the economy, including
of solar technologies. The RBS was the                As emissions from electricity generation                     private households should be seeking
preferred scenario following from the first           accounted for an estimated 45% of                            efficiencies in energy consumption. Aside
round of the IRP Consultation process                 South Africa country emissions in 2010,                      from reducing carbon emissions this
as it balanced least cost scenarios                   the low likelihood of changing the                           will this ease South Africa’s electricity
with objectives including climate                     electricity mix substantially before 2020                    supply pressures in the short term
change mitigation, diversity of supply,               is a primary factor driving South Africa’s                   and create savings for the consumer.
localisation and regional development.                carbon chasm.                                                Additional financial incentives to invest
                                                      In the absence of a less carbon intensive                    in energy efficiency measures such as
Despite efforts in the Integrated                                                                                  Eskom’s Energy Efficiency Demand Side
Resource Plan to hasten the                           electricity mix in the short term, an
                                                      important lever in reducing carbon                           Management programme have proven
introduction of renewable energy in                                                                                effective from the outset and should be
South Africa’s grid expansion plans,                  emissions from electricity is to seek
                                                      efficiencies in electricity consumption.                     escalated to improve the efficiency of all
various factors hamper a substantial                                                                               electricity consumers’ usage.
change in energy mix in the short term.               The JSE 100 target setting companies
Construction of two new build coal-fired              are setting a good example through their
power station projects is well underway               Scope 2 emissions reduction targets.
and policy uncertainty is creating                    When adjusting national emissions                              “As emissions from
challenges in introducing Independent                 growth from electricity for the JSE                            electricity generation
                                                      100 Scope 2 emissions targets, it
Power Producers (IPPs) to the grid.
                                                      slows to only a 1% average increase                            accounted for an
This has recently been evidenced by
the dropping of the much anticipated                  per annum, partially bridging the                              estimated 45% of South
                                                      carbon chasm.                                                  Africa’s emissions
                                                                                                                     in 2010, the low
Figure 8: IRP2010 Scenarios		                                                                                        likelihood of changing
Scenario                          Constraints
                                                                                                                     the electricity mix
                                                                                                                     substantially before
Base Case 0.0                     Limited regional development options
                                  No externalities (incl.carbon tax) or climate change targets                       2020 is a primary factor
Emission Limit 1.0 (EM1)          Annual limit imposed on CO2 emission from electricity industry of
                                                                                                                     driving South Africa’s
                                  275 MT CO2-eq                                                                      carbon chasm. This
Emission Limit 2.0 (EM2)          Annual limit imposed on CO2 emission from electricity industry of                  shows the importance
                                  275 MT CO2-eq, imposed only from 2025                                              of electricity efficiency
Emission Limit 3.0 (EM3)          Annual limit imposed on CO2 emission from electricity industry of                  initiatives to reduce
                                  220 MT CO2-eq, imposed from 2020
                                                                                                                     carbon emissions in the
Carbon Tax 0.0 (CT)               Imposing carbon tax as per Long Term Mitigation Strategy (LTMS)
                                  values (escalated to 2010 ZAR)
                                                                                                                     short term.”
                                                                                                                                     – Neil Morris,
Regional Development 0.0 (RD)     Inclusion of additional regional projects as options
Enhanced DSM 0.0 (EDSM)           Additional DSM committed to extent of 6 TWh energy equivalent in
                                                                                                                         KPMG Climate Change and
Balanced Scenario                 Emission constraints as with EM 2.0, Coal costs at R200/ton; LNG
                                  cost at R80/GJ, Import Coal with FGD, forced in Wind earlier with a
                                  ramp-up (200 MW in 2014; 400 MW in 2015; 800 MW from 2016 to
                                  2023; 1600 MW annual limit on options throughout)
Revised Balanced Scenario         As with Balanced Scenario, with the additional requirement of a
                                  solar programme of 100 MW in each year from 2016 to 2019 (and a
                                  delay in the REFIT solar capacity to 100 MW in each of the 2014 and
                                  2015). CCGT forced in from 2019 to 2021 to provide backup options.
                                  Additional import hydro as per the Regional Development scenario
Note: All scenarios (except Balanced and Revised Balanced) were tested with a case of Kusile not committed.
                                                                                                 Source: IRP2010


South Africa’s announcement of               To create the right incentives for             It is important to take into account that
a voluntary emissions reduction              emissions reductions, South Africa’s           South Africa’s emissions reduction
commitment has signalled a clear             government urgently needs to move              commitment is conditional on
intention by government to regulate          forward on creating a policy environment       international financing, technology and
carbon emissions. However, a key             geared towards low carbon economic             capacity-building support. As the 17th
challenge in performing the ‘carbon          growth, which provides incentives              Conference of the Parties (COP17) is
chasm’ analysis for South Africa is that     for mitigation, as well as reasonable          due to be hosted in South Africa at the
the commitment to reduce national            penalties for lack of mitigation without       end of 2011, South Africa’s business
emissions to 34% below business as           hampering economic growth. Position            community, together with government,
usual in 2020 has not been quantified.       papers released by the government              have an opportunity to influence these
The commitment should be quantified          indicate that it is likely that a carbon tax   aspects of the international climate
and disclosed as a matter of urgency,        will be introduced in the near future.         negotiation outcomes. A strong, fair
for emitters in South Africa to be able to   However, there is still uncertainty as         global climate change policy is the key in
develop strategies and set appropriate       to exactly what shape a mechanism              creating the right incentives for all players
targets for emissions reductions.            to price carbon in South Africa will           to limit dangerous climate change.
                                             take and at what level it will be priced,
Despite this information constraint, the     what other policies and incentives will
JSE 100 carbon intensive companies           be put in place, and what actions the
are setting targets to reduce both           government expects in each sector.               The focus for the JSE
their direct carbon emissions and their                                                       100 target setting
emissions from electricity consumption.      Furthermore, it is essential that
The carbon chasm analysis has shown          government continues to engage                   companies should
that target setting behaviour holds          its private sector and civil society             be on achieving and
great potential for bridging South           stakeholders, particularly in the lead           maintaining their targets.
Africa’s chasm. The focus for the JSE        up to COP17. This will help to ensure
100 target setting companies should          that national mitigation actions are
                                                                                              In addition, this target
be on achieving and maintaining their        both appropriate and achievable in               setting behaviour should
targets. In addition, this target setting    light of South Africa’s socio-economic           extend to the rest of the
behaviour should extend to the rest of       objectives, particularly the protection          JSE 100, and all other
the JSE 100, and all other organisations     of the poor and the need to tackle
particularly in carbon intensive sectors.    unemployment.                                    organisations particularly
Private households and individuals                                                            in carbon intensive
should be seeking efficiencies in their                                                       sectors.
energy consumption.


CDP Carbon Disclosure Project

CO2-e Carbon dioxide (CO2) equivalent

COP Conference of the Parties

DSM Demand-side management

FTSE Financial Times Stock Exchange

GHG Greenhouse gas

IRP Integrated Resource Plan

JSE Johannesburg Stock Exchange

LTMS Long Term Mitigation Scenarios

Mt Megatonne

MW Megawatt

MWh Megawatt Hour

NBI National Business Initiative

REFIT Renewable Energy Feed-in Tariff

SA South Africa(n)

UNFCCC United Nations Framework
Convention on Climate Change

South Africa’s Carbon Chasm – Based on Carbon Disclosure Project 2010 responses from the JSE 100 Companies



Our sincere thanks are extended to the following:
CDP Country Lead Partner

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