Sasol Limited Climate Change Report 2021 - Book - Page 26
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A NET ZERO AMBITION
Sasol's climate scenarios (CONTINUED)
Our qualitative robustness testing is reflected alongside
and revealed the following key focus areas that directly
shaped our strategy:
• Fossil fuel feedstock acceptability is constrained
as you move from the Current Pathway to the
Accelerating to 1,5°C scenario. In response, Sasol
is reducing our coal feedstock exposure over time,
contributing to a lower emissions profile from our
existing operations. We are also focusing on a flexible
strategy that incorporates incremental gas, with an
ability to pivot to green hydrogen, when affordable.
• Local market demand for liquid fuels, while
slowly declining in the Accelerating to 1,5°C
scenario compared to the Current Pathway,
is still relevant to 2030. In response, Sasol is
choosing to be a partner of choice for mobility and
commercial customers to preserve returns. We
are also considering taking positions in advanced
mobility aligned to our strengths. Progressively over
time, we will expand opportunities into growing the
local green hydrogen economy and participating in
the global economy. Examples of areas of interest
include, green hydrogen for long distance freight
transport and own use, and green ammonia
production, locally and for export.
Accelerating
to 1,5°C
Cooperative
MARKET
SENSITIVITY
Coal is not a growth area in any of our scenarios. Further investment in
the coal mining value chain does not take place with a commensurate
reduction in the volume of mined coal. Gas and coal remains challenged
in the Accelerating to 1,5°C scenario and its continued use within the
value chain continues to garner negative sentiments. In both the
Current Pathway and the Cooperative World, gas is expected to create
growth opportunities. Here, gas is used to balance the flexibility of
renewables. The Accelerating to 1,5°C scenario considers renewable
energy with energy storage as a more favourable option. In South
Africa, gasoline and diesel market demand for Sasol's products remain
robust in the Current Pathway and the Cooperative World. However,
these products face challenges due to their carbon footprint in the
Accelerating to 1,5°C scenario. South Africa’s chemicals are likely to face
carbon border tax adjustments when exporting to certain regions, which
limit product competitiveness. Chemical products are able to be placed,
but experience margin impacts.
Quantitative robustness testing of Sasols 2030
earnings relative to today (with mitigation)
Highly
positive
FY21 Profitability index = 100
Positive
Energy
Business
(including
South African
Chemicals)
Fuels
Chemicals
Neutral
Negative
Current pathway
Oil price index
Cooperative world
Accelerating to 1.5°C
Profitability index
The analysis highlighted several areas that we will track
and monitor to reduce vulnerabilities in our strategy.
These areas or signposts are indicated below (for
additional risk information, see page 44):
• Pace of technology development and implementation,
access to new technologies and an enabling
environment;
• Carbon tax design uncertainty, especially in the South
African context;
• Multiple sustainability obligations and associated costs
or investments required; and
• Macro-economic drivers, such as oil and rand/dollar
exchange rate.
The introduction and implementation of GHG reduction
targets for our affected value chains, particularly in
South African mitigates vulnerabilities of our business
into the future.
Chemicals
There is continued growth in the Chemicals value chain, with increased
environmental emphasis on recycling, re-use and downgauging. The
differentiated and specialty aspects of our portfolio, particularly with
regards to products that increase efficiency, reduce waste and conserve
resources, are complementary to these considerations. Additionally,
products within our portfolio facilitate lightweighting, and are also utilised
in food packaging and care chemicals in which a focus on personal hygiene
is expected to drive consumption. Demand for chemical products grows in
all scenarios. Physical risks of climate change are lower than in South Africa
due to existing preparedness and greater local support.
Chemicals
Sasol is in a strong competitive position in this business area with over
70 years of innovation and operational experience, a differentiated
technology, strong partnerships and a track record of delivering value in
FT technology licensing. SAF shows good growth potential to assist with
decarbonisation in the aviation industry.
FT
sustainable
solutions:
Sasol ecoFT
Carbon pricing at Sasol
Sasol believes that carbon pricing is a critical part of the suite of policy interventions required to achieve the
transition to a low-carbon future and the Paris Agreement. An effectively designed, nationally determined and
efficiently implemented carbon pricing signal is a suitable mechanism to 'justly transition'. A global carbon price
has been mooted by the climate negotiations. However, internal analysis indicates that regional carbon prices are
more than likely to persist, especially in a COVID-impacted environment.
As such, Sasol has applied a tailored carbon price assumption for the South African context in our scenario
assessment. One of the considered inputs was the IEA SDS carbon price for developing countries, which we found
to be unrealistic for the current national context as it shocked a fragile economy and did not support the muchneeded just transition. For the South African segment of our assessment, we had to factor in the lack of pricing
certainty given the Carbon Tax: Phase I ends in 2022. Government has yet to confirm the carbon tax design and
therefore the rate in 2022 escalated in real terms to 2030 was used; progressively removing existing rebates. This
started at a price of R19/tonne in 2020, increasing to R170/tonne by 2030 in real terms.
APPROXIMATE
TEMPERATURE
TARGET (oC)
In addition, carbon price forecasts are used in our Decision-Making Framework to inform project and strategic
choices, as well as in investment decisions and asset valuations.
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This potential business relies on legislated blending mandates to
assist in adoption of new products. There is also reliance on availability
of incentives to assist business. It takes time to decrease costs of
production and to increase product demand levels. Production costs will
remain at multiples of fossil fuel alternatives until renewable energy and
green hydrogen cost curves reduce. There could also possibly be some
execution risks, which are considered normal for new business ventures.
This business would enjoy the benefits of utilising greener feedstocks and
significantly lower emissions. The new industry sector has the potential
to contribute to South Africa’s future economic growth and employment
base.
Sustainable
Fuels and
Chemicals
Sasol Climate Change Report 2021
1,5-1,7
Our annual stress test aimed to provide steer on the
robustness of each business and the overall portfolio.
It was inclusive of our 30% scope 1 and 2 emission
reduction target, the physical impacts of a changing
climate on our business and Sasol's opportunities in a
low-carbon future.
2030
Qualitative robustness testing relative to today (with mitigation)
1,7-2
These lenses tie back to our risk management approach
detailed on page 44.
• The physical impacts of a changing climate on
production loss, infrastructure damage and supply
chain interruptions are fewer in the Accelerating
to 1,5°C scenario compared to the Current Pathway
(see 2021 CDP, www.sasol.com). Our resilience in the
Accelerating to 1,5°C scenario is higher resulting in less
sustenance capital expenditure.
Using the Sasol scenarios, we undertook a quantitative
evaluation to assess the financial impact of the various
outcomes on Sasol’s business. This evaluation is indicated
below.
2,5-3,2
Sasol undertook robustness testing of the businesses
within our portfolio. The framework we used tested our
resilience across key lenses, namely:
• market demand;
• consumer preferences;
• stakeholder acceptance;
• affordability and ability to mitigate;
• feedstock acceptability;
• executability of the strategy; and
• just transition implications.
Current
Robustness testing against our scenarios to 2030
Market sensitivity to climate change
Overall attractiveness for investment
Market declining
Focus for investment
Market growing
Maintain with limited investment
Neutral market
Maintain with no further investment