TIPS
Annual Forum 2008
“The Sustainability of South Africa’s Energy
Resources: The Impact of International Trade”
… Marcel Kohler
Research Motivation:
• SA’s competitiveness is largely dependent on
country’s abundant natural resources.
• Mining and resource based industries have
benefited from SA’s policy of subsidising
industrial energy prices.
• Reason to believe that SA’s trade has a significant
impact on the country’s energy resources.
Research Funded By: ERSA/DME
Four Questions:

How do trade patterns effect energy use: what
does this imply for SA?

How do SA’s energy prices impact on the
competitiveness of industrial goods?

What is the value of energy services embodied in
SA’s exports and imports? Does this impact on the
country’s energy resources?

What factors are responsible for the changes in
the energy intensity of SA exports and imports?
Research Funded By: ERSA/DME
Question 1:
How do trade patterns effect energy use?
Trade theory suggests TWO alternatives:

Factor Endowments Hypothesis
(FEH)...energy use is influenced by
competitiveness based on resource endowments

Pollution Havens Hypothesis
(PHH)...energy use is influenced by
competitiveness based on government policy
(“intervention”)
Research Funded By: ERSA/DME
Energy use effects?
FEH:

DCs rich in capital (energy) and hence export energy-intensive
products

LDCs rich in labour and hence import energy-intensive
products
PHH:

DCs have strict environmental standards (eg: energy taxes)
and hence import (dirty) energy-intensive products

LDCs have lax environmental standards (eg: energy subsidies)
and hence export (dirty) energy-intensive products
Research Funded By: ERSA/DME
Implications for South Africa?
FEH:

SAs trade should SAVE energy resources??
ie: as a LDC, should:
export labour-intensive products &
import capital (& energy) –intensive products
PHH:

SAs trade should increase USE of energy resources??
ie:
as a LDC, should:
export dirty (energy-intensive) products &
import clean (energy-saving) products
an empirical issue!!
RESULT? ...depends on source of SA’s competitiveness.
Research Funded By: ERSA/DME
Question 2:
How do SA’s industrial energy prices
compare Internationally ?
these are very cheap in
comparison!!
Industrial Energy Prices in South Africa and trading partners
(in 2000 in US$ using PPPs)
Heavy Fuel Oil
for industry
Country
China
Germany
India
Japan
South Africa
South Korea
United Kingdom
United States
(tons)
n.a.
167.28
280.96
156.10
203.84
413.80
200.10
168.80
Natural Gas Steam Coal Electricity
for industry for industry for industry
(107 Kcal GCV)
(ton)
(kWh)
n.a.
187.90
n.a.
315.00
237.06
n.a.
109.30
171.00
27.28
n.a.
24.38
25.31
14.21
82.60
55.50
34.97
n.a.
0.045
0.080
0.100
0.017
0.077
0.058
0.046
Source: IEA(2006)
Research Funded By: ERSA/DME
SA Local Coal Prices:
“Real prices remained very
stable particularly in the case
of bituminous coal”
Coal Prices: Bituminous & Anthracite
South Africa
Bituminous
ZA R/ton
100
Anthracite
ZA R/ton
600
500
80
400
60
300
40
200
20
100
nom bitcoal
real bitcoal (1995)
nom antcoal
Source: DME (2005) &
Xavier Prevost, DME
2005
2000
1995
1990
1985
1980
1975
0
1970
0
real antcoal (1995)
Research Funded By: ERSA/DME
“ SA electricity prices
amongst cheapest in
the world ”
SA Electricity Prices:
Industrial Electricity Prices:
South Africa
Real prices rel.
unchanged since
1995 !
ZA c/KWh
20
Nominal
prices
15
remained
10
artificially
low !
5
nom elec
2005
2000
1995
1990
1985
1980
1975
1970
0
real elec (1995)
Source: DME (2005)
Research Funded By: ERSA/DME
Energy Intensity Comparisons
SA is energy intensive by international standards (IEA):
Selected Energy Indicators: 2004
Region
TPES/Pop
(toe/capita)
TPES/GDP TPES/GDP(PPP)
(toe/000
(toe/000
2000$)
2000$ PPP)
Elec Cons/Pop
(kWh/capita)
World
OECD
Africa
1.77
4.73
0.67
0.32
0.20
0.86
0.21
0.19
0.29
2515
8204
547
China
India
Brazil
SA
Thailand
1.25
0.53
1.11
2.88
1.52
0.85
0.99
0.31
0.87
0.65
0.23
0.18
0.15
0.28
0.20
1607
457
1.58
4976
1865
Source: IEA(2006)
Research Funded By: ERSA/DME
SA’s rising Industrial Energy Prices
Industiral Energy Price Deflator Relative to
Industrial Output Deflator
weighted coal, oil, gas &
electicity ppi rel to
(2000=100)
manufacturing and mining ppi
125
100
75
50
25
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0
Source: Author’s own calculations
Research Funded By: ERSA/DME
Implications for SA’s competitiveness?

SA’s energy policies have lowered the cost of industrial
energy inputs substantially in particular coal and electicity
costs (IEA, 2006)

Coal is responsible for 75% of SA’s industrial energy
requirements (DME, 2006)

Globally viewed, SA industrial activities are uniquely
dependent on electicity derived from coal (Fine, 1996)

This includes: mining & minerals processing and
manufacturing activities closely related to MEC such as
iron&steel, base metals and chemicals (Fine, 1996)

SA’s rising energy prices should act as a catalyst for
implementing energy-saving technologies.
Research Funded By: ERSA/DME
Question 3:
How much energy is embodied in SA’s
exports and imports?
Methodology:

Study adopts a “structural input-output”
approach in order to quantify the energy
embodied in SA’s trade in industrial goods

Study then applies “shift-share” analysis to
energy use patterns in SA traded industrial
goods, to decompose the factors driving
changes?
....ie,
are
these
structural,
technological or input-output factors?
Research Funded By: ERSA/DME
Methodology: “The Mathematics”

The decomposition relies on the standard Leontief
I/O identity:

Given certain assumptions:
Research Funded By: ERSA/DME

“the value of output
= value of all inputs
Industy output:
plus value added”
X = A.X + F or X = (1-A)-1.F, where:
 X is vector of outputs of industry
 A is matrix of intermediate purchases of industry
 F is vector of industry final demands, allocated to households,
buss inv, government & foreign trade

Energy use by industry:
E = C.X , where:
 C is a vector of energy intensities of industry

Inter-industry energy use is thus:
E = C(1-A)-1.F
Research Funded By: ERSA/DME
Energy Content of SA Industrial Trade:
1993-2005
Embodied Energy (millions R2000)
Figure 2: Embodied Energy of SA Industry Exports, Imports and
Domestically Goods, 1993-2005
15,000
10,000
5,000
0
1993
1998
exports
2002
imports
2005
dom cons goods
Source: Author’s own calculations
Research Funded By: ERSA/DME
Aggregate Mining and
Manufacturing Goods (millions R2000)
Figure 3: Real Value of SA Industry Exports, Imports and
Domestically Consumed Goods: 1993-2005
1,100,000
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
e xpo rts
im po rts
do m c o ns go o ds
Source: Author’s own calculations
Research Funded By: ERSA/DME
Embodied Energy per Rands of
SA Industrial Goods:
 The energy intensity of exports exceeds that of imports
Real Rands (2000)
Figure 4: Embodied Energy Intensity of SA Industry Exports, Imports and
Domestically Consumed Goods, 1993-2005
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0.00
1993
1998
e xpo rts
2002
im po rts
2005
do m c o ns go o ds
Source: Author’s own calculations
Research Funded By: ERSA/DME
Embodied Energy per Rands of
SA Industrial Goods:

The energy embodied in traded goods exceeds that of
domestically consumed goods

The energy intensity of exports and imports falls by
approx. 2c/Rand over the period 1993-2005
Source: Author’s own calculations
Research Funded By: ERSA/DME
Energy Intensities of SA Industries:

Non-ferrous metals and iron & steel are by far the most
energy-intensive SA industrial sectors
Source: Author’s own calculations
Research Funded By: ERSA/DME
Industrial shares of Embodied Energy
Exported (%): 1993-2005

Exports of iron & steel industry are responsible for a significant
increase in demand on SA’s energy resources.

Exports of mining industries are responsible for a significant
decrease in demand on SA’s energy resources.
Industry Share of Exported Embodied Energy [(ext/ex) x 100]
1993
1998
2002
2003
2005
Non-ferrous metals
13.24
13.75
13.29
14.60
11.25
Iron & steel
21.77
24.50
29.91
27.47
34.61
1.11
1.29
1.88
1.94
1.36
47.78
41.56
27.91
29.61
33.27
Non metals
1.10
1.05
0.57
0.55
0.69
Chemicals
7.35
9.74
16.18
15.95
10.71
Electrical machinery
0.44
0.47
0.60
0.59
0.44
All other manufactures
7.22
7.63
9.67
9.29
7.68
Metals products
Mining
Source: Author’s own calculations
Research Funded By: ERSA/DME
Industrial shares of Embodied Energy
Imported (%): 1993-2005

Imports of chemicals sector and ‘other manufacturing’ sectors
help save a significant proportion of SA’s energy resources
through the implicit importation of embodied energy services
from abroad.
Industry Share of Imported Embodied Energy [(ext/ex) x 100]
1993
1998
2002
2003
2005
Non-ferrous metals
8.83
12.37
14.21
15.12
11.43
Iron & steel
14.89
14.36
16.53
11.26
14.81
Metals products
1.32
1.79
2.41
2.31
1.86
30.08
19.84
11.53
12.14
19.13
2.29
2.64
1.18
1.14
1.70
20.50
24.00
31.34
31.51
24.16
Electrical machinery
2.75
2.59
1.94
2.40
2.03
All other manufactures
19.35
22.41
20.86
24.12
24.88
Mining
Non metals
Chemicals
Source: Author’s own calculations
Research Funded By: ERSA/DME
Question 4:
What factors are responsible for the changes in
the energy intensity of SA exports and imports?

Changes in industry energy use are decomposed as
follows:
E = [C(1-A)-1.F]
= (C.L.F)
= C(L.F) + C(L)F + (C.L)F + interaction
terms
where:
 C = change in energy intensity (“technology effect”)
 L = change in inter-industry structure (“i-o effect”)
 F = change in final demands (“composition effect”)
Research Funded By: ERSA/DME

The decomposition is then applied to trade
components:
E = [C.L(X)] ...equation (1) and
E = [C.L(M)] ...equation (2)
where:
 X or M is a vector of industry exports or imports and
replaces the final demand.
Research Funded By: ERSA/DME
Decomposition Results of Embodied Energy Intensity of
South African Industry Trade Components: 1993-2005

the technology or intensity effect is the main driver of
the approx. 2c decrease in energy expenditure per
Rands worth of industrial exports and imports.
IMPORTS
EXPORTS
Change
Change
Components of Change
0.0050
0.0050
0.0000
0.0000
-0.0050
-0.0050
-0.0100
-0.0100
-0.0150
-0.0150
-0.0200
-0.0200
-0.0250
Energy
-0.0250
Intensity
Input-Output
Composition
Energy
Components of Change
Intensity
A change in the
composition of
imports is resp for a
0.5c/Rand decrease
Input-Output
Composition
in energy
expenditure
Source: Author’s own calculations
Research Funded By: ERSA/DME
Findings of Research:

SA industrial exports are on average more energy intensive
than her imports for the period 1993-2005.

SA is adding significantly to her domestic energy
requirements by being a net exporter of energy services
embodied in industrial traded goods.

Energy resources along with other natural resources are a
significant source of SA‘s industrial competitiveness.

In the decomposition of changes in energy intensity in SA‘s
traded goods: the technology or intensity effect is the main
driver of the decreases in energy intensity recorded.
Research Funded By: ERSA/DME
Policy Suggestions?

SA can decrease demand on her domestic energy resources
by:
– exporting industrial goods that are less energy-intensive
(e.g.: higher value added goods which are less materials
intensive)
– importing industrial goods that are more energy-intensive
This will require a significant change in the composition of
the goods traded

An increase in the price of SA’s energy inputs can result in
signif. investments in energy-saving technologies which will
help conserve her domestic energy resources.
Research Funded By: ERSA/DME
Thank You
Research Funded By: ERSA/DME