The ongoing transition towards sustainability in the extractives sector in South Africa and Namibia has been spurred on by ESG (environmental, social, governance) considerations, which have become an increasingly important factor driving key operational decisions. The mounting pressures from government, lenders and consumers for sustainably sourced minerals and petroleum resources, as well as decarbonisation targets of states and companies, present a significant opportunity for the integration of renewable energy across the value chain of the extractives industry.
This article will discuss the opportunities that low-carbon energy sources may present to the South African and Namibian mining and petroleum industries, providing the industry an avenue to meet decarbonisation targets driven by ESG considerations.
Alternative energy sources to help power the extractive industry in Namibia and South Africa
The discoveries of major lithium deposits by companies serve as indications of a growing mining industry in Namibia. Along the Namibian coastline, particularly in the Orange Basin, petroleum discoveries have led to Namibia being identified as a potentially a new (and likely one of the last) frontiers of petroleum extraction. Oil giants such as Shell, Total Energies, QatarEnergy, Exxon Mobile, Galp and Chevron have now set their sights on Namibia. Once the commercial viability of these finds has been confirmed, it is estimated that the offshore deposits could hold about 3 billion barrels of oil in total, which could provide an estimated NAD 53 billion annually in royalties and taxes for the Namibian Government and double its economy by 2040.
In an age of ESG, the extractives industry is also seeking to address how it can operate with a lower carbon footprint. One of the ways the extractives industry can do this is by diversifying its energy mix with wind or solar facilities. Green hydrogen, in particular, can play a major role by decarbonising hard-to-abate industries, such as the steel industry. Green hydrogen can also solve the intermittency drawbacks of renewable energy by acting as an energy storage.
In addition to meeting sustainability goals, the ever-increasing woes of the South African electricity supply industry caused by a lack of supply and continued load-shedding, has highlighted the need for both the South African and Namibian extractives industry (which relies on a Namibian grid that mostly carries electrons imported from South Africa) to consider alternative electricity sources. South Africa's mature mining industry can also benefit from the integration of renewable energy sources into its energy mix, given the need for reliable power supply for extraction, production and beneficiation.
Beyond introducing renewable energy sources, another avenue of decarbonisation entails considering alternative fuel sources, such as hydrogen and methanol, or electrical batteries to power vehicles and machinery required during operation, or to transport staff, equipment and supplies to and from mining and offshore production sites.
Legal incentives to drive the integration of sustainable energy
The South African Government already offers various financial incentives to mining companies that adopt sustainable energy practices. These include tax breaks, reduced electricity tariffs, and grants for renewable energy projects. However, the legal framework for sustainable energy in the mining sector is still evolving.
From a Namibian perspective, no financial incentives are in place yet for either mining or petroleum companies to adopt sustainable energy practices, nor is this required by law, regulations or standard licence conditions.
Significant lessons on how decarbonisation can be driven by the legislature can be drawn from other petroleum producing countries. Over the past years, these countries have introduced requirements on licence holders to produce petroleum in a sustainable fashion. For example, the Net Zero – Stewardship Expectation 11, as published by the North Sea Transition Authority in the United Kingdom, includes various measures which could be introduced by a state against a petroleum producers. These measures include:
- at the licence application stage, providing an indicative evaluation of the greenhouse gas ("GHG") impact of the work programme and project lifecycle, and the measures that will be put into place to keep these GHG as low as possible (including electrification of offshore platforms by offshore wind turbines or connection to the state's grid by way of undersea electricity transmission cables);
- collaboration with other licensees to reduce the GHG emissions of activities (such as by way of shared seismic surveys or drilling programmes);
- introducing programmes for the re-use or repurposing of infrastructure and facilities; and
- evaluating the GHG emission profiles of different commissioning and decommissioning strategies.
The role of lawyers in driving a sustainable energy mix
As the drive towards sustainable development continues, legal practitioners have a crucial role to play in navigating the complex regulatory landscape and advising the extractives industry on compliance and opportunities presented by the regulatory frameworks. Lawyers can also support the development of more robust policies and advocate for clearer regulations, ensuring that the legal framework is conducive to sustainable growth in the extractives sector.
The shift towards alternative energy sources presents a unique opportunity for South Africa and Namibia to strengthen their economies through stable energy supply, while still managing the environmental impact. By embracing renewable or alternative low-carbon energy sources and developing and leveraging its legal framework, both countries can transition towards a more sustainable energy mix while maintaining economic competitiveness. Lawyers will play an important role in effecting this change, by helping to shape the policies and regulations that support the just energy transition.
Reviewed by Wolf Wohlers, an Executive at ENSafrica | Namibia.
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