The voluntary agreement form of environmental regulation is assessed for its applicability to energy efficiency regulation in the context of these characteristics of energy efficiency in industrial settings. South Africa's Energy Efficiency Agreement (hereinafter the Agreement) is an example of a voluntary agreement signed in 2005 between the South African Department of Minerals and Energy (DME) and 30 companies and industry associations in South Africa1.
Research Problem and Chapters Outline
Respondents from business interest groups include the administrators of the Accord, the NBI and Business Unity South Africa (BUSA)3. 4 Respondents consulted in South Africa for nine weeks in 2004 and 2005, working on a voluntary energy efficiency framework for NBI, which formed the basis for the development of the agreement.
Environmental Regulation
- The Evolution of Environmental Regulation
- Regulating for Energy Efficiency
- Arguments in Support of Voluntary Agreements
- Conclusions
Surveying companies to find out how they approach the issue of energy efficiency makes it possible to understand the role of the agreement in decision-making. The specific case of energy efficiency in industrial settings is examined here to explore these issues and examine the suitability of a voluntary agreement form of regulation. Over time, the rationale for pursuing energy efficiency has evolved to include both resource conservation and environmental protection aspects.
From the opposing views on the potential for energy efficiency in industry, it is not clear what the real prospects for improvements are. The different interests invested in energy efficiency are also reflected in different opinions about the possible savings opportunities. This property of energy efficiency makes regulating it in the industry a complex process to say the least.
This limitation on the feasibility of developing technical regulations for energy efficiency in certain industrial environments has not been stated explicitly enough in the literature. Relatively small improvements in energy efficiency can be achieved by backfitting into existing industry (Johansson et al., 1983:356). The price of energy is a potentially crucial factor to take into account when driving energy efficiency in industry.
A discussion of the role of energy price in determining energy efficiency returns the focus to the firm as the site where innovation occurs. The appropriateness of the Voluntary Agreement regulation form for energy efficiency does not mean that its adoption will necessarily lead to energy savings.
Industry and Electricity in South Africa
The Form of Industrial Development in South Africa
The dominance of firms such as Sasol resulted in the exercise of significant market power in downstream industries, ultimately hampering their competitive growth prospects (p. 15). The political transformation that took place in South Africa in the mid-1990s was, at face value, of the order that had the potential to be accompanied by profound changes in the economy. Fine and Rustomjee (1996) describe the transition from apartheid to democracy in the mid-1990s as a process in which “the apartheid regime... attempted to guarantee the interests of large-scale capital.
However, the initial signals given by the movement in the form of its "growth through redistribution" approach were "heavily censored by mainstream economists and in the media" (p.149). Recent work by Roberts and Rustomjee (2008) argues that Sasol's dominance in the upstream liquid fuels industry has strengthened over the past 15 years as it has been able to seize the initiative from its Trans-National Corporation rivals in the oil industry. Fine and Rustomjee (1996) argue that political and cultural elements have played a key role in the expansion of the electricity sector and its linkages with industry.
Is there continuity in the relationship between the electricity sector and industry to date? Some have argued that the political transition in the 1990s signaled a realignment of priorities for electricity provision towards a set of social development objectives and away from the motivations of the past. Increasingly frequent power outages have characterized the South African economy in recent years.
Review of Arguments
Environmental Policy and Regulation in South Africa
The Energy Efficiency Accord
Support within industry for a voluntary approach to energy efficiency has been growing since the draft strategy was published in April 2004. The responsibility for tackling the environmental issue of energy efficiency is shared between government and business. Business commitments include "encouraging the development of strategies and objectives in cooperation with the government that will contribute to the achievement of the overall energy efficiency target set by the government" (NBI, 2005a:2).
As a result, human and technological resources specific to individual companies must be included in solving the problem of energy efficiency. In terms of access to funds for energy efficiency projects, the agreement promotes access to DSM funds managed by Eskom. The purpose of the agreement is to H • • •support this specific goal of the energy efficiency strategy" (NBI, 2005b:1).
One striking comment in the text of the agreement reads: "The parties recognize the national imperative to achieve higher rates of economic growth and agree that improvements in energy efficiency should be considered. The Energy Efficiency Technical Committee (EETC) is the key institutional mechanism of the agreement through which members meet regularly to discuss various issues. It brings together representatives from industry, government and electricity companies to discuss policy proposals and other developments in the field of energy efficiency.
Presentation of Findings
Arguments Against Effective Regulation of Energy Efficiency in Industry by Traditional Means
The Limits Imposed by Technological Heterogeneity
Outlining the Motivations for Firms to Take Action on the Environment and Participate in Accord Activities
Energy-Intensity
Price Matters
Testing the Assumptions
Many industry respondents are skeptical of the government's ability to formulate technical regulations for energy efficiency. There is an understanding that realizing energy efficiency savings requires knowledge of the latest technological advances and the means at the enterprise level to upgrade the capital machinery. It also appears from the answers that the motivations to pursue energy efficiency are found at company level.
This speaks to the question of whether or not it is necessary to regulate to encourage energy efficiency among large, energy and capital firms. The heterogeneity of the industry also illustrates the difficulty of formulating a standard approach to regulating energy efficiency in this type of heavy industry, and. Some firms revealed a particular strategy of improving and maintaining relations with the government and the energy company through participation in the Agreement.
It is also appropriate to give the impression that participation in the agreement does not necessarily provide companies with guidelines regarding energy efficiency as such due to existing environmental goals and capabilities independent of the agreement. This development of relations should provide additional advantages in terms of the possibility of influencing energy efficiency policy and regulation. This is thought to be important for large, energy-intensive businesses in the South African context.
Conclusions
The role of energy price is another important factor that shapes decisions and motivates the pursuit of energy efficiency. This factor is argued to be decisive in determining the range of firms that are actively involved in the pursuit of energy efficiency, and as a factor that will determine the nature of participation in Agreement activities as an example of the Voluntary Agreement for energy efficiency in industry. Currently, energy prices are relatively low in South Africa (although they have increased recently), and the lack of interest in the Agreement from all but a small group of very large and energy-intensive firms is argued to illustrate the importance of energy price in determining interest in energy efficiency issues.
Therefore, the current patterns of participation in the agreement are not driven by a need to improve energy efficiency capacity, but by strategies for positioning in the economy and in relation to the government and electricity supply. Small and medium-sized businesses, which may not be familiar with energy efficiency and other environmental issues, can benefit most from participating in an information sharing initiative such as the agreement. The Canadian experience of a voluntary agreement approach to energy efficiency regulation appears to have benefited from the funding and breadth of activities of its wider membership and the greater demand that exists for information sharing and the provision of conceptual tools.
Because current patterns of agreement participation are motivated by non-technical factors, such as developing and maintaining stakeholder relationships, the ability to gather and disseminate information on the technical aspects of energy efficiency efforts is likely to be still in its infancy. The limited set of energy efficiency improvement regulations currently on the table is industry-wide or "horizontal". The Voluntary Agreement approach to the regulation of energy efficiency in industry is argued here as the most appropriate choice in the universe of environmental regulation and should therefore remain at the heart of efforts to regulate and promote energy efficiency in South Africa.
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