Only a public pathway can reach a green recovery

Reimagining the economy

by Bruce Baigrie

The author is a climate justice activist and is part of the Alternative Information and Development Centre’s (AIDC) Alternatives to Extractivism and Climate Change programme. He is an ecologist with a Masters in Conservation Biology.

We increasingly hear that the Covid-19 virus creates an opportunity to reimagine the economy. But whether that will be positive for the climate depends on a global political will that is free from the conventional sentiment that the market must decide. This article argues that a public pathway is needed for the post-Covid-19 recovery to address the climate crisis.

‘The pandemic gives us a chance to reimagine the economy’. The list of those who subscribe to such sentiment continues to grow. Most recently the SARS commissioner Edward Kieswetter and former University of Cape Town Vice-Chancellor Mamphela Ramphele ‑ who outsourced UCT workers ‑ have joined its supporters.[1],[2] This is because for many, including our President, the pandemic “reveals how grinding poverty, inequality and unemployment is tearing the fabric of our communities apart.” It should worry us that it took a pandemic to reveal such brutal realities, not least to our President. But that does not detract from the fact that an opportunity is available to those of us who want to meaningfully transform our society.

The covid-19 pandemic, in just its first few weeks, shifted economic “sensibility” to what the modern Left has struggled over for decades. The state can in fact be, and now has to be, a central player in the economy. The neoliberal dogma that mass borrowing and spending are impossible and that austerity is simply mandatory, is done – although probably not without a fight.[3] The editorials of publications such as the Financial Times and The Economist lead the charge, where “governments will have to accept a more active role in the economy … must see public services as investments rather than liabilities” and where “[b]ragging about having slightly healthier finances … would be like boasting about having the cleanest face at a mud-wrestling contest.”[4] Here in South Africa, the South African Reserve Bank (SARB) broke from its rigid inflation targeting position and has slashed interest rates by 2.5%.

However, government has hardly followed their lead. The President announced a misleading stimulus figure, which after reallocations amounts to just 2% of GDP, far below the global benchmark. The social grant top-ups were too little too late, and by the rime of writing just 100,000 people have received the special R350 grant.[5] It is scary to think that South Africa’s record high unemployment can get worse. Couple this with the fact that millions are likely to have moved into absolute poverty and the scale of the intervention required becomes apparent.

Centring the climate crisis

What is encouraging is the growing number of politicians, academics and other public figures who believe that the post-Covid-19 recovery should centre on the climate crisis. This is critical, as the coming decade is our last chance to avoid the climate catastrophe of global warming of more than a 1.5°C increase. To do this, we must cut our emissions of carbon by 50% by 2030, and reach net-zero[6] emissions by 2050.[7] South Africa has a significant obligation to achieve this. The country has higher per capita emissions of greenhouse gases than China[8] and, aside from some far smaller economies, has the most carbon intensive economy in the world[9]. To meet this burden, many of the figures mentioned above believe that this recovery should be led by the private sector.

South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP)

This programme aims to increase the proportion of energy generated from renewables (sun, wind and water) by relying on private sector companies to invest in the infrastructure. The companies will be attracted by the opportunities to make profits from the sale of renewable energy to the national electricity grid.

In South Africa, this means freeing up the REIPPPP. The view that the REIPPPP is the best way forward to a renewable energy future is widely held. Eskom and the ruling party remain highly contested terrains, embedded with powerful coal interests. What renewable energy exists has come almost entirely through the REIPPPP programme and those in the state who see a renewable future have tethered themselves to it.[10] But a market-led transition will fail the core components of the recovery many seek. This is a recovery that both meets climate targets and is just.

The market has failed (again)

The last two decades have seen renewable energy production around the world ‑ excluding hydropower ‑ increase almost 5-fold.[11] Countries such as Germany have been presented as great success stories and China accounts for almost a third of all renewable energy. Critically, as many proponents of renewable energy point out, is how cheap it is, far cheaper than energy based on fossil fuels.

So, what percentage of global energy has been produced by this boom? Around 8%.[12] But will this 8% grow at rates similar to the significant rate during its production? No. The bad news is that the rate of global investment in renewable energy has in fact fallen[13] (specifically in the world’s largest economies such as China, Germany and the US) and it should thus surprise no one that emissions continued to rise[14] following the Arctic and Australian fires. But the slow-down in the rate of investment should puzzle no one given the inherent logic of markets. The primary constraint on firms in a market is competition, which inevitably forces those firms to drive down their prices. This process begins what Sean Sweeney from the Trade Unions for Energy Democracy[15] describes as a “three-fall effect”. As competition between renewable energy firms increases, the bidding price of renewable energy falls ‑ whilst capital expenditure costs do not do so at the same speed. As a result of this, profit margins fall as well, and thus a ‑ planet threatening ‑ fall in the rate of investment follows. To give the scale of the investment required, the International Renewable Energy Agency (IRENA) estimated (in 2016) that “the [annual] average then needs to reach US$900billion between 2021 and 2030”. Decrease in the rate aside, 2019 was still a record year for total investment in renewables. The record amount? US$282.2billion. Worse still, the IRENA projections are based on limiting the average global temperature rise to 2°C, which is not good enough.

Renewable energy is profitable, but not remotely profitable enough to meet even the woefully insufficient targets of the Paris Climate Accords. They have not been able to displace fossil fuels ‑ under market conditions ‑ which remain profitable, subsidies aside. The IEA’s 2019 report found that just 0.8%[16] of the oil and gas industry’s capital investment went into renewables. Fossil capital, whether it be oil, gas and coal, or the automobile industry, will not transition on its own accord. It will have to be forced, something only the state can do. The motivating force for averting climate breakdown will have to come from outside the profit motive, as unsettling as that may be for some.

The good thing for those who want to reimagine the economy is that this is good for the justice and equality that they seek. When markets require firms to lower their prices, they overcome this by reducing their costs, usually the cost of the wages of their employees. More significant locally is our issue of generating employment; the potential of renewable energy through the REIPPPP is often cited with great promise. However, since the REIPPPP will always seek the cheapest inputs, it is not nurturing the local manufacturing industry for renewable energy. The latest round of the REIPPPP saw all photo-voltaic panels imported from China.[17] In markets the costs of externalities, pollution, for example, are also pushed elsewhere, usually onto poorer countries, people and the environment. Finally, in the long run, the price of privatised electricity in a society like ours will be too high for the majority of people. Electricity, among other things, must be produced as an essential public good and a human right.

What do to with Eskom?

In South Africa we are faced with a momentous challenge. Whilst the markets cannot avert a climate catastrophe, how could Eskom ever be the vehicle to do so? With energy demand dropping, the slimmest of silver-linings of the pandemic has been the space afforded to Eskom for critical maintenance. The blackouts of this year are a now distant memory – although not for some. None of this changes the fact that Eskom is still R480billion in the red and still produces around 90% of its electricity from coal. There are a number of factors that have led to this situation. Prominent in the press is the rampant looting that took place during the Zuma years. Through their lackeys in the state and aided by private consultants[18] and even international auditing firms, the Guptas managed to steals billions.[19] This corruption required the gross mismanagement of Eskom’s coal contracts, a key contributor to previous load shedding, alongside aging and poorly maintained infrastructure,

But there are other factors at play. The commercialisation of Eskom by government meant it had to act as a for-profit company. In a country with poverty levels like South Africa, it is nigh impossible to recover costs through a user-pay system. The result of this is that South African municipalities owe around R35billion to Eskom, R15billion owed by Soweto alone.[20] This is a core component of Eskom’s death spiral. To make up for these losses it hikes up tariffs, evident in the four-fold increase over the last 12 years.[21] The increased price means less electricity is bought bringing further losses and subsequent tariff hikes to continue the spiral. The coal-fire mega-projects of Medupi and Kusile, due to be completed well over five years ago, are unlikely to be completed by next year and are almost 300% over-budget. This delay is good for the climate and local environment, but as the President admitted, “The problems with the construction of Medupi and its ‘twin’ Kusile account for much of the financial crisis at Eskom”. The World Bank also happened to give a US$3.75billion loan to Eskom to build Medupi. In 2019, the loan had a carrying value of R22.3billion and earned interest of 4.9% per year, comprising about 5% of Eskom’s total debt.[22] The delays at Medupi are in no small part due to failures of Hitachi Power Systems Africa, contracted to build the boilers. It should surprise no one that they were awarded the contract, since Chancellor House Holdings, an ANC investment arm, owned a 25% stake. Given that (1) the World Bank was well aware of the corruption around Medupi; and, (2) that the bulk of the loan was going towards a coal-fire station despite impending climate change, this debt to the World Bank must clearly classified as odious.[23]

The challenges of building a “New Eskom” are immense, and go beyond generating 100% of its electricity from renewable energy. But its current crises were caused by political decisions and they can be undone with political will. The New Eskom we require would need to be restructured around a series of principles that make it a truly publicly owned utility. This requires much deeper levels of public and worker participation. There are examples for us to follow. In Paris, the water utility was municipalised with various civilian bodies that provide oversight.[24] In Chinese state-owned enterprises there are elected employee congresses with decision-making power on a variety of social issues, including welfare and housing, wages and bonuses. They also have a say in the nomination of senior managers, a safeguard against outside “cadre deployment”. It is through such processes and bodies that the transparency and accountability required of Eskom can be developed.

Shifting the Overton Window

The stark reality is that the required levels of investment in renewables ‑ among so many other things required to build a low-carbon economy ‑ can be achieved only through unprecedented levels of public-led investment. But such a public role, particularly after a crisis like Covid-19, is hardly unprecedented.[25] In any event, it’s the public sector that has gotten us this far ‑ through financing the high-risk innovation[26] and nurturing the growth of private renewables.[27] Fortunately for us, such an investment drive and the potential millions of jobs it will bring[28] is incredibly appealing to the mass of unemployed people ‑ and those workers whose wages are depressed as a result.

The appeal of the transition to a low-carbon economy goes beyond employment. The mass roll-out for climate resilience of public transport particularly commuter railways; the retrofitting of RDP houses; and the overhauling and expanding of sanitation services are all in the interests of the working-class and the poor.

The crises of Eskom are some among many that show the enormity of the challenge of the South African state in leading a just transition. But South African policy-makers serious about a just transition must exit the echo chamber of a REIPPPP or a coal-powered economy. The data is clear. We have examples all around the world to look at ‑ the market cannot save us. Any proposals that are serious about meeting climate targets must begin from this position and do the hard work of preparing the public pathway to a renewable energy future. This does not have to be limited to a reformed Green New Eskom,[29] but through direct municipalisation of renewable energy as well. Critical to such proposals is that they provide the knowledge and support that assist social forces, whether they be trade unions or movements, in shifting the state.

ENDNOTES

[1] https://www.news24.com/fin24/Economy/South-Africa/kieswetter-coronavirus-is-a-chance-to-reimagine-sa-economy-address-past-injustices-20200527-2

[2] https://www.news24.com/news24/columnists/mamphela_ramphele/mamphela-ramphele-reconstruction-and-redevelopment-of-our-economy-is-only-way-forward-20200525

[3] https://newpol.org/self-extinction-of-neoliberalism-dont-bet-on-it/

[4] https://www.economist.com/europe/2020/03/26/how-grasshoppers-triumphed-over-ants-in-europe

[5] https://www.timeslive.co.za/news/south-africa/2020-06-02-over-100000-grants-of-r350-paid-out-nearly-16-million-declined/

[6] Net-zero means the overall balance of emissions must be zero. Emissions could still be released so long as they are counter-balanced by carbon sequestration.

[7] https://www.ipcc.ch/sr15/

[8] https://www.wri.org/blog/2020/02/greenhouse-gas-emissions-by-country-sector

[9] https://data.worldbank.org/indicator/EN.ATM.CO2E.PP.GD?most_recent_value_desc=true

[10] Department of Public Enterprises (2019) Roadmap for Eskom in a Reformed Electricity Supply Industry. RP 369/2019 https://www.gov.za/sites/default/files/gcis_document/201910/roadmap-eskom.pdf

[11] https://ourworldindata.org/renewable-energy

[12] https://www.vox.com/energy-and-environment/2019/6/18/18681591/renewable-energy-china-solar-pv-jobs

[13] https://www.forbes.com/sites/dominicdudley/2019/07/10/renewable-energy-investment-falls/#5a80c60c4fb7

[14] https://www.carbonbrief.org/analysis-global-fossil-fuel-emissions-up-zero-point-six-per-cent-in-2019-due-to-china

[15] https://unionsforenergydemocracy.org/wp-content/uploads/2017/10/TUED-Working-Paper-10.pdf

[16] https://www.enerjiportali.com/wp-content/uploads/2020/01/The-Oil-and-Gas-Industry-in-Energy-Transitions.pdf

[17] https://www.pv-magazine.com/2019/05/27/artsolar-south-africa-must-preserve-its-solar-module-industry/

[18] https://www.nytimes.com/2018/06/26/world/africa/mckinsey-south-africa-eskom.html

[19] https://www.gsb.uct.ac.za/files/Eskom%20Enquiry%20Booklet%20Sept%202017.pdf

[20] http://www.eskom.co.za/IR2019/Documents/Eskom_2019_AFS_singles.pdf, p, 8.

[21] https://www.poweroptimal.com/2019-update-eskom-tariff-increases-vs-inflation-since-1988-with-projections-to-2022/

[22] Ibid 17

[23] https://www.cadtm.org/spip.php?page=imprimer&id_article=11662

[24] https://www.tni.org/files/download/ourpublicwaterfuture-07_chapter_five.pdf

[25] https://rooseveltinstitute.org/public-role-in-economic-transformation-lessons-from-world-war-ii/

[26] Mazzucato, M. (2015) The Green Entrepreneurial State, SPRU SWPS 2015-28 (October) https://www.sussex.ac.uk/webteam/gateway/file.php?name=2015-28-swps-mazzucato.pdf&site=25

[27] https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2020/Apr/IRENA_Energy_subsidies_2020.pdf

[28] http://aidc.org.za/download/climate-change/OMCJ-booklet-AIDC-electronic-version.pdf

[29] https://mg.co.za/environment/2020-06-04-its-time-for-a-green-new-eskom/

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