Patrick Bond Professor, University of Johannesburg Department of Sociology Auckland Park Kingsway Campus, P.O. Box 524, Johannesburg, 2006 Cell phone: +27 83 425-1401 * E-Mail: pbond@mail.ngo.za and pbond@uj.ac.za
DATE: 30 October 2021 TO: Ishmael Kgabo Semenya (Pr.Sci.Nat)/ Reg.EAP (EAPASA), Director, EnviroXcellence Services, projects@enviroxcellence.co.za and envirovip@worldonline.co.za and isemenya@icloud.com SUBJECT: Comment on two adverse environmental impacts of the MMSEZ – climate catastrophe and depleted natural capital – still neglected in the EIA On October 22, 2020, my first submission was offered to the Musina Makhado Special Economic Zone (MMSEZ) Environmental Impact Assessment (EIA) process, and in several subsequent online consultations, I had the opportunity to repeat my concerns, both to Delta BEC and EnviroXcellence Services. But these concerns, it is patently obvious, have not been substantively replied to, regarding either the EIA failure to address potential climate-related costs, or the costs of depleting Limpopo’s and other South African mining sites’ non-renewable mineral resources (thus leading to a decline in sovereign natural capital and a net negative rate of return using full cost-accounting principles). I also endorse the variety of other concerns raised by Interested and Affected Parties, such as community grievances, the implications for water resources, and biodiversity. This comment builds upon these prior concerns, because of two critical new factors: 1) the latest Social Cost of Carbon research calculations – at R45 000/ton – should compel a rethink of the MMSEZ’s massive greenhouse gas emissions (anticipated at 30-50 Megatons/year), due in part to what will be considered a South African “climate debt” and also due, in part, to the MMSEZ’s role in catalysing climate sanctions against South Africa (including MMSEZ exports to several of South Africa’s main markets); and 2) the response to my concern about non-renewable wealth depletion by the prior IAP – Delta BEC – reveals a lack of basic competence in cost-benefit analysis, especially natural capital accounting and ecosystem valuation. Please therefore consider the 22/10/20 EIA filing – reiterated below – as not yet having generated a satisfactory reply, with both points becoming even stronger concerns in October 2021 as a result of the latest information on the climate crisis. MMSEZ’s potential role in adding to worsening South African climate liabilities The major problem with not only the 1320MW coal-fired power plant but also the highly carbon-intensive industrial developments proposed, is that they will contribute to the climate catastrophe in a manner that, once costed properly using latest data, makes the MMSEZ objectively uneconomic. 1
The EIA submitted on 1 September 2021 is extremely troubling. Emissions of nearly 20 Megatons (mt) will emanate from the 1320MW coal-fired power plant. But even if an alternative energy source is provided, a wide variety of other industrial facilities will be emitting greenhouse gases, as acknowledged in two tables:
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South Africa’s total greenhouse gas emissions, Mt/year CO2-equivalent, 1990-2018
Source: ClimateWatchData 2021. GDP per person, constant 2010 $
Source: World Bank 2021. South Africa’s National Greenhouse Gas Inventory Sector
Energy IPPU AFOLU (excluding. FOLU) AFOLU (including. FOLU) Waste Total (excluding. FOLU) Total (incl. FOLU)
2000 Emissions (Gg CO2e)1 349 099,70 32 987,30 53 229,40
2000 % Contribution by Sector 78% 7% 12%
2017 Emissions (Gg CO2e)# 410 685,30 32 084,60 48 641,80
2017 % Contribution by Sector 80.1% 6.3% 9.5%
Change Gg CO2e# 61 585,60 -902,70 -4 587,60
% Change 2000 to 2017 17.6% -2.7% -8.6%
41 088,7011
-
17 997,50
-
-23 091,20
-56.2%
13 557,80 448 874,20
3% -
21 249,00 512 660,70
4.1% -
7 691,10 63 786,50
56.7% 14.2%
436 733,50
-
482 016,40
-
45 282,90
10.4%
Source: https://bit.ly/3kkaCco 3
On the one hand, South Africa’s annual emissions have been declining, from a 2014 peak of 535 mt, with a target of 420 mt in the year 2030. The decline correlates closely not only with the end of the commodity super cycle, which reduced demand for deep mining and smelted minerals (two of the highest-emitting sources), but also declining South African GDP/person, as the corruption and stagnation associated with the mid/late-2010s also affected energy consumption. A Department of Environment census of greenhouse gases published in August 2021 reveals much lower estimates of emissions in 2017 from the Energy, Industrial Processes and Product Use (IPPU), Agriculture, Forestry and Other Land Use (AFOLU) and Waste sectors. From a gross emissions level of 513 mt, the sequestration associated with the AFOLU sector (about 30.5 mt) allows a net of 482 mt. (It may be significant that Sulphur hexafluoride SF6 emissions are still not in the census.) However, to add the MMSEZ’s anticipated 30-50 mt/year to the IPPU category will blow South Africa’s carbon budget, and add both massive new climate liabilities at very high cost, and contribute to planned climate sanctions against South African exports, known as the Carbon Border Adjustment Mechanism. The MMSEZ’s implications for South Africa’s Social Cost of Carbon The annual anticipated emissions in both tables provided in the MMSEZ EIA – one of which has unacceptable levels of missing data – are in excess of 30 mt, whether or not the coal-fired power plant is added. If it is, the emissions could be as high as 50MT/year, or 10% of the 2000s’ annual average emissions. The MMSEZ EIA’s mitigation statement is extremely vague, offering no clarity on what degree of emissions curtailment at the MMSEZ will be required by the 1.5 degree global maximum target. The EIA completely ignores the estimated costing of the MMSEZ’s extremely high rate of emissions. The critical question that has been raised to transcend this unnecessary evasiveness, is how damage associated with climate catastrophe is best costed and disincentivised, given that CO2 emissions stay in the atmosphere for hundreds of years and methane for at least 12 years while being 25 times more potent a greenhouse gas. A widely-accepted way to assess such damage is termed the Social Cost of Carbon (SCC), a concept being continually updated, and a widely-accepted form of disincentive is the Carbon Border Adjustment Mechanism. South Africa stands badly exposed in both categories, and the associated liabilities will worsen if the MMSEZ is approved (whether with a 1320MW coal-fired power plant or not). The SCC concept has for at least 15 years become the central variable in assessing notional climate debt, for example. In South Africa, assuming that on average during the 2010s, the economy’s annual emissions were around 500Mt, we can make rough estimates of climate debt, i.e., what the National Environmental Management Act (NEMA) considers to be ‘polluter pay’ liabilities owed by those who benefited from these emissions.
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Such costs are typically defined as the marginal social damage from emitting one metric ton of CO2-equivalents. To illustrate the concept, one assessment of the U.S. debate by Tom Erb (of the Center for Climate and Energy Solutions) considers how ordinary property owners “buy home insurance to prevent financial ruin in event of a catastrophic fire, even if the risk of such a fire is small. Given the significant uncertainty in the SCC’s calculation – could additional emissions have a larger impact than predicted? Are there unknown extreme risks? – valuing uncertainty in the next SCC will increase its price, perhaps significantly” (Erb 2021). There is no estimate as to how much the ‘significant’ uncertainty can be reconciled with the younger generation’s greater suffering due to climate catastrophe (and hence greater risk-averse interests), as well as a much lower rate of commercial insurance to financially defend against Loss and Damage. In 2020, Christain Aid (2020) estimated that the Global North’s climate damage that year was 60% insured, while only 4% in the Global South. Nevertheless, Erb (2021) continues, for the sake of environmental justice, “the SCC should consider how future climate damages will impact some people more than others, such as by giving greater weight to damages that occur in poorer communities or nations. A focus on environmental justice would demand consideration of disproportionate impacts in the SCC.” David Anthoff and Johannes Emmerling (2016) estimate that this disproportionality impact means a genuine SCC should be raised “by a factor of 2.5 from a U.S. perspective when our disentangled equity weighting approach is used.” To illustrate with South Africa, suffering far higher inequality (a Gini income coefficient of 0.63 compared to the U.S. 0.48), a numeric 31% adjustment would mean the SCC should be 3.75 times higher than standard measures. It is also vital to acknowledge 2021 innovations in measurement addressing not just the physical, environmental and narrowly ‘economic’ aspects of loss and damage, but also the costs of rising mortality that can be traced to emissions. Daniel Bressler’s (2021) ‘Mortality Cost of Carbon’ suggests that in the period 2020-2100 when 83 million deaths are anticipated to result from the climate crisis, one additional average human death results from “adding 4,434 metric tons of carbon dioxide in 2020, equivalent to the lifetime emissions of 3.5 average Americans.” The annual U.S. average emissions is 15.5 tons, while South Africa’s is 8.3 tons (albeit with much worse inequality disparity). With U.S. life expectancy longer than South Africa’s, and nearly double the per capita output, it is likely that only 2000 metric tons per person is South Africa’s lifetime per capita emissions – an estimate that becomes debilitating once updated SCC data are used, especially to assess the full costs of the MMSEZ’s addition to CO2 emissions. Bressler (2021) makes the ethically critical point that the value of a human life in the United States should not be considered higher than a low-income African: Alternative methodologies give greater weight to richer individuals who die compared to poorer individuals based on their willingness to pay to avoid a 5
higher probability of death. Because richer individuals have more financial resources, they have a higher willingness to pay to avoid a higher probability of death. The implication of these alternative methodologies is that lives in richer countries (e.g. in Western Europe, North America) are weighed more than lives in poorer countries (e.g. in Africa, South Asia)… although there are often significant regional heterogeneities in incomes within countries, no national governments currently assign higher values to the statistical lives of richer citizens or lower values to the statistical lives of poorer citizens in cost-benefit analyses. In that case, Bressler continues, the calculation of a Mortality Cost of Carbon would average an additional $221 above prevailing SCC estimates. However, in September 2021 a new SCC was estimated by a European research team, of $3000/ton, or R45 000/ton (Kikstra et al 2021). The University College London (2021) summarised, The researchers updated the model to take advances in climate science over the past decade into account, as well as the effect of climate change on the variability of annual average temperatures – both of which increased the projected cost of climate change. The authors calculated the effect of these changes on the ‘social cost of carbon’, a crucial indicator of the level of urgency for taking climate action that calculates the economic cost of greenhouse gas emissions to society. Expressed in US dollars per tonne of carbon dioxide, estimates currently vary greatly between $10 to $1,000. However, when taking more robust climate science and updated models into account, this new study suggests that the economic damage could in fact be over $3,000 per tonne of CO2… The jump in cost to the economy is mainly due to higher economic damages in the global South, the study found, and the consequences of slow and lacking adaptation to a changing climate. The authors of the paper also focused their research on longer-term consequences of climate change, such as the effects of extreme weather events – droughts, fires, heatwaves, storms – on health, savings and labour productivity. The $3000/ton social cost of carbon should be used alongside awareness of factors such as mortality (using equal-life valuations not biased to price a Northern life higher than a Southern life as a commercial insurer or Northern economist might), inequality and a more appropriate discount rate in African advocacy, for Loss and Damages and for expenses associated with adaptation and resilience. What, then, are the cost implications for South Africa, especially for the MMSEZ? If the lower-bound amount of annual emissions is used, 30 mt would amount to a $90 billion/year SCC at the $3000/ton rate, or R1.35 trillion/year at a conversion of R15/$. If the 50 mt estimate that includes the coal-fired power plant is used, then the SCC rises to $150 billion, or R2.25 trillion. South Africa’s entire national GDP in 2020 was R5.6 trillion. So by doing even a rudimentary costing of the greenhouse gas-emissions within the MMSEZ, using the EIA’s own estimates, it should be clear that the MMSEZ is uneconomic, and will burden all South Africans with an unacceptably high level of carbon debt to other countries and future generations. 6
The MMSEZ’s implications for climate sanctions based on trade The SCC will be increasingly used in civil litigation on climate crisis, based on the Polluter Pays principle that is widely accepted in both South African and international law. In addition, the European Commission has announced it will introduce an import levy, called the Carbon Border Adjustment Mechanism (CBAM), on certain goods produced in countries with lower environmental standards. It is likely that the United Kingdom and United States will also adopt and prepare for 2023 implementation of the same strategy, and if the 2024 U.S. election returns the presidency to a conservative Republican, there is little question that the protectionist aspects of a CBAM will prove attractive to even the type of climatedenialist like Donald Trump who had already imposed numerous irrational, unjust tariffs on imported base metals and other products from South Africa. The EU claims it will accelerate global climate action by preventing businesses from transferring production to non-EU countries with less strict climate rules – dubbed ‘carbon leakage’ – initially applied to five sectors considered at high-risk of carbon leakage: iron and steel, cement, fertiliser, aluminium, and electricity generation (EUObserver, 2021). Many Northern companies are committing to ‘net-zero’ or ‘carbon neutral’ in their carbon emissions to bring them in line with the Paris Agreement. For example, ‘The Climate Pledge’ movement, supported by Amazon, or other affiliated schemes like Business Ambition for 1.5°C, are committing to reach the Paris Agreement target of net-zero carbon emissions by 2040. South Africa is the economy in Africa that will be most subject to CBAM penalties, in part because there are vast new carbon-related mega-projects planned such as the MMSEZ. One example is the R800 billion Presidential Infrastructure Coordinating Commission Strategic Integrated Project #1, to rail and ship 18 billion tons of coal from the Botswana border (where another 220 billion tons awaits further coal shipments). This project is already being undermined by climate-related calculations, because although the international coal price was rising to $228/ton in mid-2021 (from $50/ton in April 2020), the main agency responsible – Transnet – announced it would cut the project because it anticipated a collapse in coal prices from 2037 and hence a long-term “stranded asset” problem. These costs are multiple times more than any climate finance provided, although the South African government is currently negotiating with Western country delegations for $10 billion of “concessional finance” to allow Eskom to retire coal-fired power plants early and to pursue “non-fossil-fuel development” in the main coal-mining region of the country. In all these respects, the MMSEZ is out of step with the current trends – e.g. the reduced emissions in government’s Nationally Determined Contribution commitment to the United Nations (420 mt by 2030).
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Ironically, it was South Africa – the government owing the highest amount of climate debt to the continent – which in March 2021 suggested an appropriate strategy, against the logic of the MMSEZ. The government’s Nationally Determined Contribution offer was clear: “The just transition in South Africa will require international cooperation and support… by the international climate and development and finance community for non-fossil-fuel development in Mpumalanga…” (Republic of South Africa 2021, 28). That specific clause is just as appropriately directed at Limpopo Province. The need to calculate the MMSEZ’s cost to South African natural capital accounts The final point to reiterate is that in addition to full-cost accounting of the vast penalties that should be imposed on the MMSEZ’s emissions, making the project uneconomic, there is an additional aspect that the September 2021 EIA authors admit they have not taken seriously. The language is revealing: “While this cost benefit analysis study does take social, economic and environmental issues into consideration through the inclusion of externalities, it does include the value the community attaches to the potential loss of a natural asset (if unmitigated), as could for instance potentially be done through direct approaches such as the Contingent Valuation Methods (CVM) where the community is surveyed directly. These approaches are however still relatively unexplored in South Africa and pose their own shortcomings in determining the value of natural resources.” (emphasis added) First, the “community” writ large would include all South Africans worried about a much wider range of externalities than addressed by the MMSEZ EIA consultants, and who according to 2002 mining legislation have the right to consider the minerals beneath the soil as sovereign wealth, which also needs conserving for future generations. The “relatively unexplored” natural capital accounts of South Africa are provided by the World Bank and StatsSA, and discussed in the October 2020 EIA filing. So the feeble excuse made by Delta BEC in its reply to that analysis – i.e., that the costs of natural capital are “relatively unexplored” – is simply unacceptable. Therefore, in short, the September 2021 EIA is in desperate need of revision based merely on the two points above – climate costs and depleted natural capital accounts – not to mention the many other factors raised by critics on environmental, community and economic grounds. References Anthoff, David and Emmerling, Johannes, Inequality and the Social Cost of Carbon (August 26, 2016). Milan, Fondazione Eni Enrico Mattei Working Paper 54, https://www.feem.it/en/publications/feemworking-papers-note-di-lavoro-series/inequality-and-the-social-cost-of-carbon/ Bressler, Daniel (2021). The Mortality Cost of Carbon. Nature Communications, 29 July. https://www.nature.com/articles/s41467-021-24487-w
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Christian Aid (2020). Counting the cost 2020: A year of climate breakdown. London, December. https://reliefweb.int/sites/reliefweb.int/files/resources/Counting%20the%20cost%202020.pdf Erb, T. (2021). The Social Cost of Carbon: Going Nowhere But Up. Center for Energy and Climate Solutions, 30 March. https://www.c2es.org/2021/03/the-social-cost-of-carbon-going-nowhere-butup/ EUObserver 2021. EU carbon border tax to target imports from 2026. Available from EU carbon border tax to target imports from 2026 (euobserver.com). Accessed 5th October 2021 Kikstra, J., P. Waidelich, J. Rising, D. Yumashev, C. Hope and C. Brierley 2021. The social cost of carbon dioxide under climate-economy feedbacks and temperature variability, Environmental Research Letters, Volume 16, Number 9. 6 September, https://iopscience.iop.org/article/10.1088/17489326/ac1d0b Republic of South Africa (2021). South Africa’s First Nationally Determined Contribution under the Paris Agreement. Department of Environment, Forestries and Fisheries, Pretoria. https://www.environment.gov.za/sites/default/files/reports/draftnationalydeterminedcontributions_ 2021updated.pdf
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EIA filing of 22 October 2020 DATE: 22 October 2020 TO: Delta Built Environment Consultants (E-mail: sez@deltabec.com) SUBJECT: Comment on two adverse environmental impacts of the MMSEZ – climate catastrophe and depleted natural capital – neglected in the EIA I object to the Environmental Impact Assessment prepared by Delta Built Environmental Consultants, on grounds of incomplete work provided decisionmakers about extremely adverse environmental impacts of the Musina Makhado Special Economic Zone (MMSEZ). These include not only local water, air and land pollution and destruction of habitat, but also two national and global factors: contributions to climate change and depleted mineral wealth. The likely damages will have an especially deleterious impact on future generations, on poor and working-class people, on women, and on black people in the region and continent. There are other specialists and interested organisations who will comment on the first four of these factors. Please allow me to make inputs on the contribution the MMSEZ will make to the unfolding climate catastrophe, and also to a factor the EIA has entirely ignored: the depleted sovereign mineral wealth of South Africa. Indeed, the EIA statement appears to be incomplete in two ways: the lack of attention to GreenHouse Gas (GHG) emissions in spite of extraordinary, rapidlyworsening crisis conditions; and even rudimentary natural capital account calculations. Although not a resident of the area in Limpopo Province that will be most directly affected, I have standing because climate catastrophe and depleted mineral wealth will adversely affect me and my descendants. 1. The EIA fails to consider the contribution of the MMSEZ to climate catastrophe On p.802, the EIA author states, “7.2.7. The estimation of greenhouse gas (GHG) emissions was not included in the scope of work. Reference is made to GHG emission reporting regulations as proposed facilities are required to report emissions on the National Atmospheric Emission Inventory System.” This is a stunning omission, and should not be permitted. Since climate catastrophe is the single greatest threat to the existence of the human species and many others, this lack of detailed attention to the MMSEZ’s vast contribution to Greenhouse Gas emissions is unacceptable.m To the credit of the EIA author, at least there is acknowledgement of how damaging the climate implications are: “7.3.7. … The emission over the lifetime of the project will consume as much as 10% of the country’s carbon budget. The impact on the emission inventory of the country is therefore HIGH. The project cannot be implemented in the current regulatory confines when considering following: 10
• The Nationally Determined Contribution (NDC) in terms of South Africa’s commitment in terms of the Paris Agreement; • The Peak Plateau Decline (PPD) emission trajectory; • The Integrated Resource Plan (IRP), which sets out the planned electricity production capacity of the country; • When considered on an international level, the project could reduce emissions by as much as 10 million tonnes CO2e per year, if the plants are built to the recommended emissions intensity specifications.” On the latter point, the EIA author then claims, “The construction of a coal fired thermal power plant should not be approved unless the plant is fitted with a carbon capture and storage unit that can sequester all emission from the combustion of coal from the starting date of operation.” Yet there is no operative example anywhere in the world of such CCS operations being technically or financially feasible, especially if there many tens of millions of tons per year of CO2 to store. There is no attempt to assess Limpopo’s geological conditions for storing. And there is no attempt to assess the implications of the additional energy required (usually 10% in such models) to scrub and then pump CO2 to the storage site. The vulnerability of extremely dangerous stores of CO2 concentrations is not acknowledged. Other mitigation strategies are inadequate, including the new carbon tax. The 2020 market prices for emitting a ton of carbon are, across the world, nearly universally under $35 whereas at least $80 is needed to incentivise a switch to cleaner forms of energy, transport, agriculture, etc. There is huge variance, and South Africa’s tax of just $0.43/ton in 2020 compares unfavourably to Sweden’s at $132/ton. The CO2 emissions market – which South Africa’s carbon tax may segue way into – still swings wildly, following closely the wild fluctuations of stock markets, including during the 2020 Covid-19 roller-coaster. So the potential for such mitigating strategies to offset the vast increase in GHGs from MMSEZ is unrealistic for the foreseeable future. In short, the EIA’s handling of the climate catastrophe is inadequate and should be rejected in part because the South African government will become a laughing stock, if the MMSEZ’s extreme contribution to climate catastrophe is simply ignored or shunted aside. 2. The EIA fails to consider natural capital accounting On 24-25 May 2012, South Africa became a signatory to an extremely important international agreement, the Gaborone Declaration. That document makes very clear the responsibility the South African government and private sector actors – including EIA consultants – have to engage in full-cost accounting that includes the depletion of natural capital in projects such as the MMSEZ. The language is below.
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It is important to explain in detail why the omission of natural capital accounting on this project negates the EIA’s usefulness. There is such a vast share of South Africa’s mineral wealth under the MMSEZ and surrounding areas, that will be drawn into the energy and metallurgical complex, that to fail to carry out even a rudimentary natural capital accounting renders the EIA document incapable of a full-cost assessment.
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There are vital temporal and spatial aspects of these natural capital accounts that must be considered. Together they represent a classic case of unequal ecological exchange. Future generations who lose wealth to present generations, and Global South locations from which resources are drawn but not properly compensated, will be owed an ‘ecological debt.’ The definition of this debt is the uncompensated extraction of non-renewable minerals, and it represents the siphoning of wealth from future generations to current, and from the poorer resource-dependent regions to wealthier parts of the world economy, including the East Coast of China and Hong Kong, where the Chinese corporations and their state and private shareholders reside. To begin with a concern about the MMSEZ’s impact on future generations, the most unjust abuse of resources is obvious: fossil fuels. Coal combustion is already responsible for catastrophic greenhouse gas emissions and what is termed “loss and damage” caused by climate change. The benefits of fossil fuel consumption accrue to those alive today, versus costs paid by those who will suffer droughts and drying soils, forest fires, floods, sea-level increases and ocean acidification amidst fast-rising temperatures tomorrow. Not only temporal, but also geographical implications are obvious, too: those who benefit most have a higher carbon footprint and come from the “Global North” (including the East Coast of China and Hong Kong), versus those in the Global South (i.e., Limpopo Province), who not only did not cause the crisis but are least able to finance adaptation and resilience, as well as cover loss and damage (Bond 2012). In the pages below, we will focus not on such obvious climate injustices of this sort, but on two other features associated with resource dependencies: the intergenerational and the geographical transfers of non-renewable resource wealth. These transfers are extremely important. The Pacific island nation of Nauru, where a century of phosphate mining left a legacy of barren land and environmental catastrophe along with near bankruptcy, is a classic example of consuming intergenerational wealth (Gowdy and McDaniel 1999). In quantitative terms, according to a 2018 World Bank report, unequal ecological exchange through resource depletion collectively costs Sub-Saharan African countries more than $100 billion annually, in minerals and oil extraction and trade via transnational corporations (Lange et al 2018, Bond 2018). There are, in short, massive ecological debts owed by current generations and by the Global North, including debts owed by Global-North elites within the South – e.g., Chinese and South African companies operating within Africa – to future generations and the poorest peoples, that are not currently on the agenda to be repaid (van der Merwe, Bond and Dodd 2019, Bond and Garcia 2015). A just society’s version of a natural resource legacy should, in contrast, be provided to future generations and to the poorest regions from which the resources are 13
extracted. One example of ecological debt paid to compensate pollution-related damage to natural resources is the U.S. Superfund program, but it is limited to local processes. Globally, as another unsatisfactory example, the Green Climate Fund supports projects in poor countries but with no recognition of the funders’ liability in the event they are major greenhouse gas emitters (Bond 2016). Natural resources are typically depleted without appropriate compensation mainly because of adverse power relations. The depletion of wealth is most extreme in the Global South, including Limpopo Province, especially in cases in which local leaders are in league with global and local mining corporations. Such sites’ reinvestments of resource rents compare unfavourably to democratic countries, some of which (e.g., Norway) partially plough back the proceeds of resource extraction into national wealth funds. That process occurs because of the state-owned and managed character of resource ownership and exploitation. For example, Equinor (Norway’s state-owned oil company) provides funds to a sovereign wealth fund that invests the proceeds and distributes its income. In turn, this makes it possible to engage in both more rational use of such income for future generations via educational and socialinfrastructural investments, and to curb uneven geographical development with compensatory payments. In considering whether MMSEZ could follow this model, and develop a fund to compensate future generations, there is a long-standing difference between the “weak-sustainability” conception of the substitutability of capital – i.e., reduced natural capital being compensated for by higher productive or human capital (Solow 1974, Hartwick 1977) – and the “strong-sustainability” position that aims to protect the overall stock of natural resources, as argued, for instance, by Herman Daly (1996). Regardless of this debate, the recirculation of resource-sourced wealth is extremely unusual, and is feasible in a few sites, like Norway, because of a long tradition of social democracy based on the society’s commitment to fairness. That commitment followed the struggles of trade unions and rural people’s organisations to unite in red-green coalitions that won power during the twentieth century, eventually constructing a welfare state (Esping-Andersen 1990). In contrast, resource-endowed areas that have long witnessed repressive, superexploitative conditions of accumulation – such as South Africa’s apartheid system and even worse post-apartheid inequality – are exemplars of appropriating the common wealth. In these sites, current wealthy owners of the extractive industries facilitate both the temporal and spatial shifts in ways that impoverish descendants. The conceptual origins of the need to engage in full-cost natural capital accounting are important to assess. Paul Burkett (2006) confirms how one of the major challenges to neo-classical economics starting in the early 1970s was the notion of “limits to growth”: scarcity associated with excessively rapid depletion of nonrenewable resources. A new discipline soon emerged as a result, based on the reconceptualisation of the environment as natural capital. According to Burkett (2006, 94), “although the origins of natural capital are unambiguously neoclassical, ecological economists have been at the forefront in developing and popularising its 14
usage… as a core paradigmatic concept.” In short, argued neoclassical economists, “an economy can indefinitely maintain a positive level of consumption by investing its savings in capital, so long as capital can be substituted for the natural resource,” according to Burkett. Within this logic, the concept of “Intergenerational Equity” (IE) gradually dawned. The next step, following Robert Solow’s (1974) suggestion that various forms of capital are substitutable, was his student John Hartwick’s (1977, 972) call to: Invest all profits or rents from exhaustible resources in reproducible capital such as machines. This injunction seems to solve the ethical problems of the current generation short-changing future generations by ‘overconsuming’ the current product, partly ascribable to current use of exhaustible resources. Under such a program, the current generation converts exhaustible resources into machines and ‘lives off’ current flows from machines and labour. Taking the “Hartwick Rule” argument from natural to productive capital and then to human capital investment (the “knowledge stock”) was not a major leap. One ready objection is that the substitutability of these different kinds of capital is not at all straightforward (Berkes and Folke 1992, Burkett 2006). Also important, conceptually, is the division of natural resources into two types: renewable and non-renewable (exhaustible). For accounting purposes, Robert Costanza and Herman Daly (1992, 38) suggested, “Renewable natural capital is analogous to machines and is subject to… depreciation; nonrenewable natural capital is analogous to inventories and is subject to liquidation.” We are concerned, in objecting to the MMSEZ EIA, with non-renewable natural capital. In terms of temporality, Gro Harlem Brundtland’s 1987 World Commission on Environment and Development (1987) defined “sustainable development” as meeting “the needs of the present without compromising the ability of future generations to meet their own needs.” In 1993, summing up two decades of mainstream environmental-economics thinking, Solow (1993, 170) asked, “What should each generation give back in exchange for depleted resources if it wishes to abide by the ethic of sustainability? ... we owe to the future a volume of investment that will compensate for this year’s withdrawal from the inherited stock.” The calculation of non-renewable natural capital as a negative “withdrawal” became one of Herman Daly’s (1996) objectives inside the World Bank, even though his agenda was much more radical: reversing the neoliberal policy agenda using natural capital accounting as a lever. His 1996 farewell speech beseeched colleagues to “stop counting natural capital as income” without a corresponding debit to account for depletion. This is what the MMSEZ EIA is missing. It took more than a decade for Daly’s words to resonate sufficiently that the counting of natural capital began in earnest. Impressive organising efforts by the World Bank and Conservation International led to a Wealth Accounting and the 15
Valuation of Ecosystem Services (Waves) project. A parallel pro-mining interstate institution is the Committee for Mineral Reserves International Reporting Standards (2020), self-described as an “international initiative to standardise market-related reporting definitions for mineral resources and mineral reserves.” As one example of Waves, the 2012 Gaborone Declaration for Sustainability in Africa was signed a month before the Rio+10 Earth Summit, at a time when world environmental policy leaders anticipated a major shift towards the “green economy” and associated techniques of ecological modernisation. According to the Declaration, due to “limitations that GDP has as a measure of well-being and sustainable growth,” the ten African signatories (including South Africa) would begin “integrating the value of natural capital into national accounting and corporate planning.” The Hartwick Rule is quite intuitive: to keep inherited capital at least constant, when a mineral (a non-renewable resource) is extracted, thereby reducing a country’s mineral wealth, that country should create or invest in another asset, at least to the value of the mineral that is no longer there. Taking the economic value of mineral resources to be the difference between the price paid in the market versus the total cost of producing it, including a proper return on capital (“resource rent” or “economic rent”), the Hartwick Rule thus requires that this value of extracted mineral resources be captured and continually reinvested. The Hartwick Rule is one way to implement the Intergenerational Equity principle. But the concept has deep roots in human civilisation, which unfortunately have been obscured over time. Consider inheritance law: inheritors of property are simply custodians for future generations, especially if the inheritance involves entailment, which constrains the present heir from consuming the inheritance by recognising the rights of subsequent heirs. (To illustrate, in most cultures, there is the rich good-fornothing heir who lives by selling off the family silver, unfairly impoverishing his future generations.) Or, consider endowment funds, where the capital is conserved and only the income used. The deepest rationale in this case is the idea of stewardship, the idea that capital must first be conserved. Indeed, the accounting and economics professions generally define income not as revenue, but as the residual after we ensure that the capital is held constant. Further, environmental economics provides us with the “sustainable yield” principle: we can only consume that amount which doesn’t endanger the capital. And, in most countries, natural resources – including forests, streams, beaches, oceans, the atmosphere and minerals – are owned by the state as a trustee on behalf of the people and especially future generations. This is the public trust doctrine, and represents the implementation of the IE principle in the public domain. It is often derived from natural law and considered more fundamental than the Constitution. For the trustees, the foremost obligation is to ensure the corpus of the trust is kept whole. Moreover, there is a duty to treat all the beneficiaries equally. 16
To illustrate, in 2017, the Pennsylvania Environmental Defence Foundation won a judgement in the Supreme Court of Pennsylvania (2017) that the state must consider natural resources in the role as trustee, not proprietor, and therefore must use the proceeds from extracting fossil fuels for restoring the environment, not general government expenditure. How should the MMSEZ have counted natural capital depletion? There is increasing empirical work on both spatial and temporal inequity associated with extractivism. In Goa, India, for example, intergenerational inequity was identified based upon audited financials of the largest mining company, which revealed a system of mining leases that resulted in the loss of over 95 percent of the value of local minerals (after deducting extraction expenses and a reasonable profit for the extractor). Over eight years, the state Government of Goa received less than five percent of the mineral value as royalty, a pittance in comparison to the windfall profits raked in by the mining companies. The amount lost is a redistributive per-head tax, contributing to spatial inequity. Worse still, even the royalty was treated as windfall revenue and frittered away, cheating future generations of their inheritance (Basu 2015, 44-48). In such contexts of extreme resource depletion, there are at least two steps in achieving, at minimum, weak sustainability of mineral resources: ensuring no loss in the value of the natural resources, and investing those amounts received in exchange for selling the mineral wealth in productive assets so that overall wealth does not decline (Basu and Pegg 2020, 1). To measure whether these two steps have been taken, an “adjusted net savings” (ANS) variable was adopted by the World Bank, and The Changing Wealth of Nations series reported on how ”increasing standards of living lies in building national wealth, which requires investment and national savings to finance this investment” (World Bank 2011, 37). The level of national savings reflects whether there has been an increase in wealth, net of natural capital extraction. By definition, income minus consumption = savings = increased wealth. Increases in national wealth usually enable higher levels of subsequent income; rising wealth is a stronger requirement than Hartwick’s rule, which simply requires the maintenance of wealth. The Bank modified the orthodox measure of savings to account for nature and education, terming this ANS or “genuine savings”: gross national savings adjusted for the annual changes in volumes of all forms of capital, including natural capital and human capital. ANS is measured as net national savings minus the value of physical capital’s depreciation (“fixed capital consumption,” due to wear and tear), environmental degradation (including pollution), depletion of subsoil assets and deforestation, and credited for education expenditures (World Bank 2011, 37). If ANS is negative, then the country is running down its capital stocks and reducing future wellbeing, social welfare and future capacity to maintain extant standards of living; if ANS is positive, then the country is adding to wealth and future wellbeing (World Bank 2011, 37). Evidence indicates that countries that are more dependent 17
on mineral extraction have underinvested – their ANS tends to be lower. In the Bank’s calculations, all countries where mineral rents account for 15 percent or more of their gross domestic product (GDP) have underinvested in other forms of capital. In other words, these countries are simply using up their natural resources to finance consumption rather than investing in productive assets, thereby making themselves poorer in aggregate (World Bank 2011, 11) and cheating future generations of their inheritance. Though not typically conceded by the Bank, it is vital to define ‘consumption’ as profit expatriation plus Illicit Financial Flows associated with multinational corporates’ extraction in poor countries, thus allowing inordinately high consumption by the firms’ executives and shareholders, and not within the country of origin. This latter factor will be especially important in the case of the MMSEZ given that the project’s leading entrepreneur, Ning Yat Hoi, was accused of $2.76 million worth of corporate fraud and Illicit Financial Flows in Zimbabwe in 2017. Ning is still wanted for arrest, for asset stripping Bindura Nickel Corp and Freda Rebecca gold mine, within ASA Resources (then Mwana Africa). Elsewhere in Sub-Saharan Africa, most countries have in recent decades suffered negative ANS, especially during the rapid commodity-related rise in gross national income (GNI) beginning in the early 2000s (Figure 1). By adding North African countries where mineral wealth is poorly managed – especially Libya since 2011 – the overall African depletion of wealth is formidable, given that natural capital ranges between 40 and 55 percent of Africa’s overall wealth (Figure 2, but noting that World Bank researchers left out platinum and diamond markets from the calculations, hence dramatically underestimating the wealth and depletion process in some countries, including South Africa). Even with neglected platinum and diamond extraction caveats, since 2000 between two and three percent of the region’s reported income has been depleted without offsetting compensation, an amount typically exceeding $100 billion (Figure 3). In 2008, for example, the sub-continent’s GNI hit $1 trillion, but the natural resource depletion account (the second bar category below zero) was negative 15 percent, i.e., $150 billion. Likewise at the point of least net natural resource depletion (6 percent), in 2015, as commodity prices crashed, GNI was $1.5 trillion so the total net outflow on resource accounts was at least $90 billion (Figure 4). To conclude, the MMSEZ’s EIA failure to follow Gaborone Declaration guidelines and to calculate the trajectory of natural capital depletion associated with project’s anticipated drawdown of mineral resources is a major shortcoming. The MMSEZ will not only contribute to climate catastrophe, but will also impoverish South Africa by depleting sovereign wealth without adequate reinvestment. The EIA’s failure to properly acknowledge, much less calculate this damage, is a profound reflection of the practitioners’ limited environmental skills and ecological consciousness. For any current residents of South Africa, and future generations dependent upon a stable climate and well-managed resource extraction, the MMSEZ EIA will have to be redone to take these vital factors into account.
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Fig 1: Sub-Saharan Africa’s Gross National Income, $, 1960-2018
Source: World Bank Fig 2: Regional Composition of Wealth by Types of Capital, 1994 and 2014 (percent)
Source: Lange et al, 2018, 51. Fig 3: Adjusted Net Saving (as share of Gross National Income) by Region, 19952015
Source: Lange et al, 2018, 63. (Middle East/North Africa have data gaps, thus broken lines) 19
Fig 4: Adjusted Net Saving for Sub-Saharan Africa, 1995-2015 (percent of GNI)
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