Energy & electricity minister Kgosientsho Ramokgopa says he is considering options on how to intervene in Eskom’s tariff hike proposals and has not ruled out the possibility of proposing that the Treasury delay the full implementation of carbon taxes.
Carbon taxes make up a small element of the tariff hike, but uncertainty about carbon taxes has the potential to create confusion for exporters and in climate diplomacy ahead of the Group of 20 summit, which SA will host next year.
A delay in the implementation of the carbon tax would have implications for companies responsible for heavy emissions in sectors like manufacturing, and oil and gas.
Briefing reporters during the 2024 Windaba on Thursday, Ramokgopa said addressing the escalating cost of living was a strategic priority.
The government was evaluating responses to Eskom’s application to the National Energy Regulator (Nersa) for a tariff increase, which proposes 36.1% hikes by 2025/26.
The minister said the government had to find a balance between Eskom’s revenue demands and reducing the financial strain on household incomes. If the government’s intervention came to delaying the carbon tax and decarbonisation drives to comply with the EU’s cross border adjustment mechanism (CBAM), this could be considered, he said.
CBAM, which seeks to encourage energy-efficient practices by foreign producers by imposing tariffs on carbon-intensive goods entering the EU, is due to be phased in from 2026 to 2034 and will initially cover imports of iron and steel, cement, aluminium, fertiliser, hydrogen and electricity.
“There have to be those trade-offs. So, we think as we make the point on the carbon tax delays, we are not saying scrap it. We are saying delay it.
“I’ve made the point that we’ve got an obligation to meet those [Eskom revenue] contributions. So, you can meet the contributions ... and then face a revolution, a genuine and objective experience of people who are just hungry.
“We must choose which battles to fight and which battles can be delayed to a later stage. And I’m sure we can explain ourselves to whoever,” he said.
Ramokgopa said many households in the country “have to decide if they have two meals a day, one meal a day or a meal every other day.
“The choices we are making all have consequences. But one thing we know is if the current tariff application is approved as is, our businesses will be uncompetitive.
“A lot of households will not be able to afford this. And remember those are fed by municipalities and they are going to pay the surcharge.”
He said the government’s second course of action could involve a revenue analysis related to the R82bn debt that municipalities nationwide owed to Eskom for electricity. He said that over time, the government would stabilise the debt and introduce smart meters to allow accurate billing and to improve the delivery of free basic electricity provision to indigent households.
“I am confident ... the issues around the tariff ... we can provide some degree of relief.
“But we are not going to soil the Nersa process. So, Nersa is going to run its process, I will make that submission as the minister through that process,” he said.
The minister said his department was making progress in formulating its case to Nersa on the tariff applications and he was considering proposals including that Nersa give Eskom room to set a portion of its revenue target to the outer years to provide ease to consumers.
“From a policy point of view, once we have resolved that internally, and I think there is an appetite to go that route, then I can make a public announcement. Nersa, then, will know that ‘this part of the tariff application that relates to this policy, that possibly is going to go in the outer years, we are removing it’ and then we get to a stage where we can explain the tariff increase.”
He emphasised that the government would not undermine Nersa as it considered Eskom’s proposal. He said the government was careful to avoid an overcorrection, resulting in a much lower tariff but also constraining Eskom’s revenue to the point where it was forced to reintroduce load-shedding.
In his remarks at Windaba on Wednesday, presidential climate commission executive director Crispian Olver cautioned that SA could not depend exclusively on its trade relationships with emerging economies and groups such as Brics to avoid CBAM, as emerging economies would eventually introduce similar mechanisms.
“I know some people think we can avoid this issue and maybe just sell to Russia, India and China. But let me assure you, as they themselves, certainly India and China, take on their own emission reduction targets, they will want to prevent carbon leakage from their economies. So the Brics is not going to come and save us.”
Deputy head of the EU mission to SA Fulgencio Ruiz said CBAM was “a very important tool” to decarbonise while driving down carbon leakage — not a protectionist measure.
“We do recognise and acknowledge where legislation has an external dimension. It will impact on partner countries. We are not naive about that. In that aspect, we are conducting dialogues with various departments on how we can find each other and how we can learn from each other’s position.”
Independent power producer office head Bernard Magoro said even though his institution was “technology agnostic”, the CBAM had serious repercussions for SA’s export goods and the economy.
The German embassy said it was closely monitoring SA’s climate objectives and energy transition initiatives.
“As partners of SA, we are following developments in the sector quite closely. We remain invested in the partnership and we are hopeful that SA remains committed to its climate and energy goals,” a source at the German embassy said.
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