The last few months have seen numerous public discussions on energy transformation in South Africa, and the role that the mining industry can play in driving that energy transformation. The temptation is to focus entirely on the interrelationship between the mining industry and renewable energy production: on the one hand, most of the raw materials needed for energy transition are mined by the industry, and on the other, mining companies are driving an acceleration in the introduction of new energy projects to secure clean, cost-effective energy supply. This was, indeed, the discussion at the recent Africa Renewable Investment Summit (ARIS) 2023.
As important as that drive is, however, it is equally important to understand the continuing role of coal-fired energy in an energy-poor country like South Africa, specifically, how coal miners are deliberately and actively engaging with the energy transition imperative in the country and how they see the transition driving strategy at each of their companies.
South African coal producers have responded to the global call for decarbonization in noticeably different ways: from redefining themselves in the energy space (supplying the coal fired power industry, but investing in renewable energy production at the same time) to doubling down on producing coal to be burned in power stations around the world.
Regardless of the divergence in strategy, all of them agree there is still a role for coal to play, especially in countries facing energy poverty, albeit that “for how long for?” is up for debate. But does this mean there are irreconcilable differences inherent in this marriage between the coal producers and utilities and the decarbonization commitments made by them?
Scope 1 and 2 emissions: The “easy piece”
At the Summit, there was broad agreement on the need to address coal miners’ Scope 1 emissions (direct greenhouse gas emissions that occur from sources that are controlled or owned by them e.g. emissions associated with fuel combustion in vehicles) and Scope 2 emissions (emissions that a company causes indirectly as a consequence of the inputs into its production).
Each of these coal miners has identified the need, and expressed the commitment, to responsibly pursue their strategy and target Scope 1 and Scope 2 emission reductions, largely by reducing the energy consumption in their operations, and by introducing renewable energy into the power mix on mine.
The clear challenge then is, how to reduce Scope 3 emissions, being emissions that are not produced by the company itself and are not the result of activities from assets owned or controlled by them, but by those that it is indirectly responsible for, up and down its value chain? In the case of South Africa’s coal producers, those are predominantly the downstream emissions of the coal burning utilities they supply, including Eskom.
Scope 3 emissions: The tension
According to the World Bank, the power sector generates 41% of South Africa’s CO2 emissions, due mainly to Eskom’s generation fleet. i The impact of this is material for coal producers: Exxaro, for its 2022 financial year, reported Scope 1 and 2 emissions of 971 ktCO2e, against 74 488 ktCO2e of Scope 3 emissions, based on the use of product sold by Exxaro (representing over 98% of Exxaro’s scope 3 emissions).ii This means that burning coal to produce energy accounted for ~99% of the company’s total GHG emissions.
How, then, as a producer of steam coal, do you drive change in a utility that has a shortfall in primary energy generation, an increased need for energy transmission infrastructure and unsatisfied capital requirements?
There is consensus on the need for the coal mining industry to collaborate to reduce Scope 3 emissions, coupled with continuously evolving thinking on how the industry can work with Eskom. One relatively simple, but very important, suggestion put forward by Mike Teke of Seriti, is for all coal producers to improve the quality and consistency of coal delivered. Another, proposed by Vuslat Balogyu of Menar, is to support improved power generation technology at Eskom, to better address emissions. While there have clearly been discussions at a number of levels to address this challenge, the need is clear. Coal in South Africa cannot adequately decarbonize without structured and targeted co-operation with its coal-burning customers to reduce the emissions produced by the latter.
Developing world challenge
It is to be expected that the CEOs of South Africa’s coal producers share the belief that, in a country that faces energy poverty, significantly cheaper coal-fired energy is required as part of the energy mix to underpin its development, as well as in other countries that rely on this power source to support their economies. To this end, Seriti will build new coal mines, and Thungela will continue to build its thermal coal portfolio globally.
Nonetheless, the opportunity exists for the coal mining industry to target Scope 3 reductions – it cannot only focus on Scope 1 and 2 emissions – and develop a framework for active collaboration to target and reduce Eskom’s Scope 3 emissions, and those of its other customers, globally.
AUTHOR: Sandra Du Toit is a Director in the Energy Transformation Practice at Partners in Performance, and moderated the above mentioned panel discussion.