Sasol Climate Change Report 2022 - Book - Page 49
INTRODUCTION
RISKS AND OPPORTUNITIES
CLIMATE ADVOCACY AND POLICY
Regulatory developments
GOVERNANCE
OUR FUTURE SASOL STRATEGY
Our international operations are less carbon-intensive and have been operating for some time in advanced GHG regulatory regimes.
Globally, we are seeing an increasing regulatory focus on issues relating to the environment, human rights, environmental justice and climate
change. As a result, we are operating in a complex and potentially more punitive policy and regulatory environment.
Global
United States
Sasol attended the United Nations Framework Convention on Climate Change (UNFCCC) COP26 in Glasgow
in 2021. Many stakeholders expressed a view that the conference did not achieve all its intended goals,
nevertheless the resulting outcomes presents significant opportunities and risks for Sasol.
These include:
greater ambition through the trading of credits especially from
regions where mitigation is limited but reductions are required.
• The US$8.5 billion JETP facility, which is in the process of being
operationalised focusing on funding decarbonisation of the
• Global methane pledge: Over 100 countries signed the United
grid, increasing electric vehicle usage and stimulating the green
States and EU-led pledge to reduce methane emissions by 30%
hydrogen sector. It is critically important that priority be given
by 2030 from 2020 levels. Methane is a short-lived GHG with a
to decarbonising and transforming the grid and the focus on
high GWP requiring mitigation interventions to address its impact
green hydrogen is welcomed.
in the short-term. This reinforces the need to ensure responsible
• The EU-Catalyst partnership between the European Commission,
sourcing of gas and to implement best-in-class technologies and
the European Investment Bank and the Bill Gates Breakthrough
approaches to minimise methane leakages. The development of
Energy initiative seeks to mobilise US$1 billion in public and
an audited methane emissions baseline for existing operations
private investments between 2022–2026. The partnership
was prioritised and concluded this year, with a view to identify
aims to accelerate deployment and rapid commercialisation
further opportunities for methane reductions.
of innovative technologies to assist in delivering the EU Green
•
Coal phase-down and phasing-out fossil fuel subsidies:
Deal and its associated climate targets. Focus is placed on
This decision solidifies the need to reduce our consumption of
high potential products and technologies, such as SAF, clean
coal. The global pressure to reduce coal usage will continue to
hydrogen, DAC and long duration energy storage. This offers
increase, highlighting the importance of continued execution
a promising opportunity for Sasol to leverage SAF projects in
against our emission-reduction targets and roadmaps to reduce
Europe where investigations are underway.
risk exposure over time.
• Paris Agreement, Article 6: The long-awaited rules for a global
carbon trading system between countries and entities are being
finalised. A robust international trading system encourages
South Africa
Draft Climate Change Bill: In March 2022, Parliament tabled the
draft Climate Change Bill for public comment. Once enacted, the
Climate Change Act will be the country’s framework to support an
effective climate change response and enable a long-term just transition
to a more climate resilient, low-carbon economy. Sasol has been publicly
supporting a dedicated climate change act that puts forward a common
climate change vision and offers harmonisation of policies in support of the
vision. In our submission to Parliament in May 2022, Sasol advocated for:
• recognition of mitigation potential and feasibility as criteria to be used
when allocating a carbon budget;
• clarification on how the existing authorisation process will incorporate
carbon budget allocations;
In the United States, the administration’s renewed focus on combating climate
change on both a global and local level has led to initiatives and legislation across a
broad spectrum of government agencies, including: a proposed rule on the disclosure of
climate change-related information for both United States public companies and foreign
private issuers; increased enforcement of environmental violations; and implementing a
comprehensive environmental justice enforcement strategy. The United States is moving swiftly
on enacting new policies, regulations and enforcement strategies related to climate change.
Proposed amendments to the SEC disclosure rules to enhance and standardise requirements for
ESG disclosures will make these disclosures mandatory, with the new reporting standards needing
to be implemented on a short timeline. We are actively preparing for mandatory reporting and will
do so once implemented.
The recently passed Inflation Reduction Act (IRA) of 2022 will invest US$369 billion in energy
security and climate change programmes over the next ten years. The bill provides a range of
incentives to relieve the high costs of energy, support energy reliability and cleaner energy
production, reduce emissions in every sector of the economy, while driving investments into
disadvantaged communities ensuring that rural communities are at the forefront of climate
solutions. We are monitoring the IRA outcomes to assess impacts (risks and opportunities) for
Sasol. One potential impact we are assessing is that the IRA amended the Clean Air Act to define
several GHGs as air pollutants. The increased scope of the Clean Air Act and the expansion of the
EPA powers could have an impact on Sasol. Where possible, mitigation opportunities are being
accelerated to achieve reductions sooner and provide more sustainable products to the market.
Carbon tax: Phase 1 has been extended to 31 December 2025,
with the following elements of relevance to Sasol:
• Extending the 12L energy efficiency incentive is welcomed as it
encourages investment into cleaner technologies that improve energy
usage. Sasol continues to participate in this scheme and since its
inception, we have received ~R16 billion1 in rebates from this incentive.
• Extending the electricity price neutrality commitment assists in
reducing pass through costs of the carbon tax to consumers. Sasol’s
purchased electricity price will continue to be neutral for this source
of emissions in the interim until renewable energy is sourced.
• Adjusting the trade exposure allowance threshold upwards results
in a lower rebate for our products that are trade exposed.
• A US$20 carbon tax by 2025 and US$30 by 2030 will have an
adverse financial impact on Sasol. This suggested increase is still
subject to public input. In a conservative scenario, assuming all
allowances fall away and the increase in price is applied, Sasol
• further clarity on the operationalisation of the integrated carbon budget and
tax system and its alignment with an enabling policy and regulatory framework; would need to consider trade-offs to balance the people, planet and
profit agenda. At this stage, there is still uncertainty on what rate,
• carbon budget deviations to be penalised through a carbon tax as opposed
trajectory and allowance phase-out will be applied. We are engaging
to being criminalised; and
National Treasury for further clarity. Sasol's net carbon tax payment
• enabling provisions to ensure entities that are subject to carbon budgets
for 2022 on calendar year 2021's GHG emissions, after offsets and
will not be further penalised through sector emission targets applied at
electricity levies, is R758 million2.
government level.
• adequate inclusion of incentives and other similar measures to drive
desired GHG outcomes;
1. Shareholder value of ~R4.5 billion.
DATA AND ASSURANCE
2. Sasol’s full carbon tax liability was ~R1,5 billion.
SASOL CLIMATE CHANGE REPORT 2022 48
EU
The Fit for 55 package of the EU Green Deal is being tracked to assess
opportunities for accessing this market. The package includes a
revision of the EU trading system, a Carbon Border Tax Adjustment
Mechanism (CBAM) to prevent carbon leakage and revision of the Energy
Efficiency and Renewable Energy Directives. Work on the impact of CBAM is
underway for disclosure next year as climate-related export control laws are
likely to become more prominent into the future.
Early in 2022, the EU proposed two Delegated Acts to the RED II that are intended to
accelerate green hydrogen investments in the region and globally but in practice are not
delivering on the EU’s stated intention. These draft Acts have been analysed and show
significantly negative implications for Sasol’s ability to access the EU market and in turn
could hinder South Africa’s just transition.
South Africa’s envisaged approach for a much-needed gradual transition from coal to a
green economy is likely to be impaired in the absence of EU policy and regulatory changes.
Of importance is the need for the proposed Delegated Acts to recognise:
• co-processing of fossil fuel and sustainable feedstocks in FT facilities through a
flexible LCA approach, allowing allocation of GHG benefits to specific products in the
transition. This would allow SAF producers to maximise product volumes and access
markets that can afford to pay a premium to counter high production costs, while
green hydrogen is still prohibitively expensive; and
• fossil CO2 feedstocks as sustainable carbon sources beyond 2035. As it currently
stands, this transition period is not sufficient for developing countries such as South
Africa nor does it align with projected green hydrogen cost curves.
