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Energy and climate change

The Exxaro brand is built on a strong vision: everything we do and deliver today will allow others to realise their vision tomorrow. At Exxaro, we look beyond the current commodities and operations and see the impact we have on people and the planet.

Exxaro recognises that to remain competitive and sustainable, it is critical that potential energy shortages; the rising costs of energy; climate change and its related environmental concerns are dealt with as a strategic imperative.

Exxaro’s carbon footprint represents almost 1% of South Africa’s total emissions. This is depicted in figure 1 for 2006 to 2009, divided by the source of the emissions.

Figure 2 shows the updated baseline for 2006, the first year for which a detailed carbon footprint was calculated. In line with the international carbon reporting protocol, the baseline is updated to show data (accuracy), the inclusion of additional sources of greenhouse gas or GHG emissions, and the inclusion of a new business unit purchased after 2006.

South Africa’s approach
South Africa has developed long-term mitigation scenarios, the basis of which was accepted by cabinet in July 2008 as a framework to manage the country’s greenhouse gas emissions. The mitigation policy adopted by cabinet includes:

Increasing the price on carbon through an escalating CO2 tax, or an alternative market mechanism
Setting targets for electricity generated from both renewable and nuclear energy sources by the end of the next two decades
Laying the basis for a net zero-carbon electricity sector in the long term
Incentivising renewable energy through feed-in tariffs
Exploring and developing carbon capture and storage for coal-fired power stations, and not approving new coal-fired power stations without carbon-capture readiness.

Energy and climate challenges are broad; solutions are enormously challenging, and Exxaro recognises the need to address all three imperatives, namely energy security, economic productivity and environmental impact.

These issues are increasingly being incorporated as part of Exxaro’s long-term business strategy. A dual approach is currently being implemented:

Firstly, an energy and carbon management programme has been implemented, dealing with both mitigation and adaptation issues
Secondly, after careful consideration, Exxaro is evaluating and developing a growth pipeline of environmentally friendly energy projects.

These two programmes are linked by Exxaro’s drive to become carbon neutral and the need to thrive in a low-carbon economy.

The energy and carbon management programme

Purpose: to be recognised as a leader in energy management by minimising energy intensity while working towards becoming a carbon-neutral business.

In recent years, Exxaro has consolidated its approach to clean energy at group level. The formation of a strategic map in 2007 included initiatives around the regulatory environment, energy efficiency, the implementation of cleaner technologies and reputational issues to thrive in a low-carbon economy. In 2009, this map was further refined and now includes a strong supporting programme. The programme focuses on operational management and energy project development and implementation.

Exxaro’s green timeline

2010		Exxaro is developing renewable energy projects, one solar and two wind Exxaro’s budget for the energy and carbon management programme is approximately R9 million This programme is broadened to focus on climate change and associated risks Exxaro becomes involved in industry engagement on future policies
2009		Exxaro pays a large amount for electricity (more than R600 million) and forecasts electricity costs for 2011 to be some R1,3 billion Exco approves energy and carbon strategy framework Exxaro participates in SA Research Centre for Carbon Capture and Storage with local and international partners Exxaro score in CDP leadership index improves by 9 percentage points Special budget approved to enable comprehensive response to energy, carbon and climate change management to enable and achieve the group’s vision
2008		South Africa realises the extent of its energy crisis Exxaro starts energy efficiency forum with champions at each business unit Dedicated manager appointed to focus on energy projects and opportunities Exxaro placed fifth in South Africa’s CDP leadership index chapter for the energy-intensive sector Exxaro sponsors UNISA Chair in Business and Climate Change for three years Exxaro spends R460 million on electricity
2007		Exxaro forms clean energy forum Group reports on carbon emissions for the first time (1,9 million tonnes of CO2e) Exxaro spends R358 million on electricity
2006		Electricity is highlighted as a major cost to the group At inception, Exxaro chooses green as a corporate colour as a symbol of sustainability and growth Exxaro adopts the Energy Efficiency Accord signed by Kumba Resources

We elaborate on the most advanced of these focus areas below:

Focus area: Energy and carbon footprint data

Purpose: to enable the production of consistently auditable and verifiable energy and carbon footprint report for Exxaro by:

Implementing effective energy- management processes and systems
Developing effective organisational roles and responsibilities.

A more effective reporting system for energy data has been developed and implemented at all business units. This will become the basis of reporting on carbon disclosure and carbon footprint statistics. Phase 1, electricity and fuel data, will be extended to include other energy sources in future phases.

Focus area: Energy consumption management

Purpose:

To enable efficient and timely control of energy consumption at the operational, commodity business and Exxaro level
To optimise energy consumption at current operations by applying sound operational principles.

Updated metering equipment is being installed at our business units to facilitate:

Consumption management (including managing Eskom’s power conservation programme allocations)
Tracking and verifying electrical efficiency initiatives
Verification of electricity accounts.

A centralised view of business unit consumption is a future requirement.

Focus area: energy efficiency improvement projects

Purpose: to co-ordinate the identi-fication, assessment and imple-mentation of projects to improve energy efficiency at current operations.

Improvements in energy efficiency are needed to remain competitive while dealing with climate change and its related environmental concerns.

In particular, Exxaro commits to:

Reducing costs by reducing energy consumption from 2006 baseline by 10% by 2012
Increasing energy efficiency
Promoting the use of sustainable and renewable energy
Promoting the use of clean technologies.

During 2009, the electricity baseline was established for all business units in preparation for Eskom’s power conservation programme (PCP). The consequences of PCP and recent electricity price increase forecasts have added impetus to the group’s drive to achieve energy-efficient production.

Modelling the impact of electricity price increases over the next three years is an exercise absorbing much corporate time across South Africa, especially given the quantum of approved increases and the impact on most companies’ bottom lines. Exxaro has invested in this exercise, which forms the business case for much of the strategy.

Focus area: energy and carbon management guidelines for capital projects

Purpose: to develop guidelines:

To govern the Exxaro process in the asset life cycle for optimal energy use
To ensure energy optimisation is aligned with the project management process.

To reach our goal of leadership in energy management, we are further developing synergies between Exxaro Technology, the project management office and individual business units, focusing on:

Guidelines, responsibility matrices, procedures and checklists for the project office to establish and maintain an energy focus during all phases of a project life cycle, from concept phase, through the feasibility process to detail design and implementation
Guidelines to ensure project specifications and quality assurance plans have specific energy-related content
Maintaining energy benchmarks for all operations
Identifying and maintaining energy comparison tables of major equipment
Guidelines to ensure energy considerations are included in planning and executing maintenance
Guidelines to ensure all relevant training is available so that staff are aware of the risks and opportunities related to energy
Guidelines to ensure business improvement considers all energy-related issues when evaluating projects, PCP, carbon credits, tax incentives.

These guidelines were tested on a comprehensive evaluation of energy-efficient alternatives and renewable energy types versus equivalent conventional products. Results are now included in the financial model for further pre-feasibility studies.

Focus area: becoming carbon neutral

Purpose: to develop the roadmap to becoming carbon neutral by:

Determining carbon footprint — determine baseline, restate and update annually (footprint calculated since 2006 — ISO 14064)
Reducing carbon footprint — becoming more energy efficient, buying renewable electricity, bio-diesel, reducing consumption, and using the carbon market
Offsetting remaining emissions — carbon market transactions, social responsibility investment
Developing renewable energy projects, eg solar and wind.

Exxaro is making progress with a feasibility study on co-generation to produce some 15MW of electricity from waste energy at our Namakwa Sands operation. This project has a potential saving of almost 150 000 tonnes of CO2e per annum and offers significant financial benefits via carbon credits.

Further co-generation studies are under way for projects at our own and other organisations’ operations with a potential 150MW generation capacity, equating to a potential 1,5Mt CO2e per annum.

The objective is to minimise energy waste, thus increasing energy efficiency. The carbon footprint of electricity from these sources is virtually zero. Such co-generation projects would also qualify under the Clean Development Mechanism project under the Kyoto protocol.

While the global economic slowdown has delayed the implementation of co-generation, Exxaro remains committed to reducing its carbon footprint by implementing these projects as well as renewable energy initiatives which are subject to the roll-out of an enabling policy environment.

The group is also committed to participating in carbon capture and storage developments through:

Playing an active role in the establishment of the South African Centre for Carbon Capture and Storage (SA Centre for CCS)
Co-sponsoring the 2009 CCS Conference, organised by the SA Centre for CCS at which world experts were the leading speakers
Preparing for its coal bed methane project.

Vegetation of Namakwa Sands site

Globally, soils are estimated to contain approximately 1 500 gigatonnes of organic carbon, more than the total carbon in vegetation and the atmosphere.

Modified agricultural practices with increased biodiversity is a recognised method of carbon sequestration as soil can act as an effective carbon sink, offsetting as much as 20% of carbon dioxide emissions annually.

In tandem with the CDP reporting process, a vegetative study was conducted during 2009. The study revealed a baseline for the impact of the Exxaro group of 29Mt carbon (enhanced 32Mt carbon). Given that 2,6Mt carbon enhancement equates to 10Mt CO2e, a ten-year rehabilitation plan could potentially yield 1Mt CO2e per annum. Further investigation and planning is under way.

Governance

The various working groups tasked with energy initiatives report to a steering committee headed by the executive general manager, business growth, who is also a member of the executive committee.

Shortly after the 2009 year end, the executive committee confirmed its support for the energy and carbon management programme and recommitted to saving 10% on energy efficiency and carbon emissions by 2012. This pledge was formalised and communicated to each business unit, with energy savings targets becoming a measurable indicator in senior management performance contracts, and part of the annual business planning process.

Carbon disclosure project reporting

In 2009 Exxaro again participated in the Carbon Disclosure Project (CDP). The CDP is the leading proponent of climate change and carbon disclosure, with a strong and growing history of corporate disclosure through its annual questionnaires and database of corporate responses. In 2009 the CDP represented more than 475 investors with US$55 trillion of assets under management; a total of 1 800 companies participated worldwide, including 77% of the FTSE Global 500. Companies listed on the JSE have participated for the last three years; in 2009 68% of the top 100 companies (by market capitalisation) on the JSE responded, compared with a global average response rate of 55%.

As a stakeholder in the mining industry, Exxaro actively participates in shaping appropriate policies in South Africa through many channels, including:

The Chamber of Mines
NERSA (National Energy Regulator of South Africa)
EIUG (Energy Intensive Users Group)
NERT (National electricity response team)
Energy efficiency accord through the technical committee facilitated by the National Business Institute (NBI)
Industry energy policy-influence workshops
World Wildlife Fund (WWF) round table event
South African Chamber of Commerce and Industry’s (SACCI) electricity dialogue
National trade delegation to the UK in March 2010.

Exxaro is also involved in the initiatives of:

South African Independent Power Producers Association (SAIPPA)
Coaltech 2020
Fossil Fuel Foundation
Peace Parks Foundation
SA Centre for Carbon Capture and Storage with international and local partners
Clinton Foundation.

Three years ago, Exxaro began sponsoring the Chair in Business and Climate Change at Unisa. The vision is to create a centre of excellence in business and climate change research, education and advocacy. In practice, one of the early landmarks of this project was the publication of Climate Change: A Guide for Corporates by Unisa Press in 2009.

The research includes a review of the impact of the Copenhagen meeting, delineating green economies, and quantifying the opportunities for green jobs as well as critically evaluating the relationship between business and climate change.

Risks and opportunities of climate change

Exxaro is exposed to physical risks from climate change. These include excessive rain, droughts, disrupted transport infrastructure and increased vulnerability of local communities and workforces.

An independent physical climate-risk assessment of Exxaro’s operations in southern Africa was carried out in early 2009.

The report details preliminary work to assess the risks climate change pose to Exxaro’s operations. In doing so, a standard risk approach was taken, ie risk is a function of both the natural climate hazard and vulnerability of the underlying infrastructure, population and socio-economic activities to these hazards. Consequently, it sources information on both hazards and vulnerability to assess which combinations of these could pose the greatest risks.

The next steps in addressing these challenges have been initiated by prioritising the impacts in conjunction with the group’s risk manager. A roadshow to all business units by the second quarter of 2010 will highlight these risks, raise awareness and start the process of developing and implementing appropriate action plans.

Climate variables and their potential impacts

Variable	Derived variable	Potential impacts
Day-time temperature	Average temperature	Increased evaporation impacts on mine water balance Increased cost of cooling and chilling Dust control impacts – scrubbing, sensitive equipment
Day-time temperature	Number of days per year exceeding 30,2°C	Worker fatigue Load on chilling plants too high
Rainfall	Annual rainfall	Water availability to mine
	Seasonal timing of rainfall	Need for increased dam storage
	Average storm size	Operational interruptions
	Average storm size	Erosion of roads and slimes dams
	Frequency of traditional 100-year storm	Mine flooding Infrastructure damage Slimes dam breakage
	True size of 100-year storm	Mine design, plant protection and drainage
Wind speed	Frequency of high wind speeds	Structure design
Wind speed	Average wind speed	Dust control impacts — scrubbing, sensitive equipment

Case study — Carbon offset project

Exxaro undertook to offset the environmental impact of this annual report and the internal group newsletter. Accordingly, the carbon footprint of the paper, printing and distribution was quantified under the international greenhouse gas reporting protocol

To ensure the integrity of an offset project, five criteria as set by the World Bank must be followed:

1 The project must be additional (making sure the project is not claiming reductions that would
already occur)

2 It must result in real emission reductions (making sure project activity is monitored and emission
reductions claimed are verified)

3 Emission reductions from the offset project must not be double-counted (making sure the same
emission reductions are not sold to several buyers at the same time)

4 Emission reductions must be permanent (making sure the emission reductions are not temporary)

5 The offset project should result in community benefits.

Exxaro’s annual report and newsletter emissions were offset by installing a 300-litre solar geyser and additional monitoring and verification equipment at a cost of over R40 000. In line with our commitment to socio-economic development, we looked for an organisation, such as an old-age home, hospice or children’s home, that could benefit most from this initiative. Olievenhoutbosch is a low-cost housing area close to Exxaro’s Pretoria head office and Badimorogo is a home in the area offering full-time care to eight elderly residents. The solar geyser will reduce the home’s monthly running costs.