Tuesday, January 18

Climate finance for a transition away from coal: an opportunity to change South Africa’s history


In the early days of the COP26 international climate conference, a funding partnership between South Africa and a consortium consisting of France, Germany, the United Kingdom, the United States and the European Union (EU) was announced.

The partnership aims to support South Africa’s just transition to a low carbon and climate resilient economy and society. Basically, a just transition is one in which no one is left behind.

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Read: Mantashe and Ramaphosa differ on just coal transition
Hear / Read: Deloitte’s Andrew Lane on whether SA can achieve a Just Transition to clean energy

The association mobilizes an initial R131 billion over the next three to five years. Part of this in the form of grants and part is concessional debt financing (cheaper than commercial debt).

The association is intended to enable a variety of results. One is to speed up the process of moving away from carbon in the electrical system. South Africa’s power generation relies primarily on coal and the country has committed to reducing emissions in accordance with the Paris Agreement. You have recently updated your nationally determined contribution to the international effort to reduce emissions. Importantly, the funding will support workers and communities that will be affected as the country shifts away from coal.

Another objective is to support a sustainable solution for the debt of the South African electricity company and ensure its long-term financial sustainability in the context of the reforms of the electricity sector.

Finally, the association will channel funding towards the development of the electric vehicle and green hydrogen sectors.

A working group that includes national and international partners will develop the details of the support over the next year.

The announcement made international headlines and it is very important for many reasons. The financing offer is wide; it has a strong element of justice; It is not just about a few individual projects; And it is for a country that has long been shaped around its dependence on coal.

This partnership represents an important opportunity for South Africa at a critical juncture if it is approached strategically and if national politics can be managed. The association’s lack of strategic engagement will waste the moment, resulting in an incremental outcome that will not unlock the just transition the country so desperately needs. Failure to dominate politics would put the entire flow of finances at risk.

Importance of financing

With an initial amount of US $ 8.5 billion, the association has the potential to be one of the largest individual financial transactions to date. Large Green Climate Fund transactions are approaching the $ 1-3 billion mark.

Your element of justice is important. It has an explicit focus on supporting those facing immediate transition impacts, such as the approximately 80,000 coal miners and the communities that depend on them.

The association foresees that climate finance will enable a energy sector transition, which is different from the usual approach to climate finance in individual green projects.

Finally, the association is significant because it has been announced despite South Africa’s coal legacy and influential headlines. The country has been building an economy for more than 100 years whose competitive advantage is based on coal as its primary energy source. Me investigate reflect on how much flows from this. The legacy of coal is evident in the physical infrastructure, the way the energy sector is organized and the way energy sector institutions. It influences the way in which financial flows and contracts in the electricity sector are drawn up. And there are powerful groups that have a vested interest in keeping it that way for as long as possible.

Ironically, it is this legacy that enables South Africa to offer the world significant and cost-effective emissions reductions globally as it changes course.

South African electricity is the most carbon intensive in the world.

Because renewable energy is now the cheapest form of energy supply, decarbonizing the country’s electricity supply by accelerating the reduction of the coal fleet will produce a large volume of emission reductions at a very low cost, especially compared to more expensive emission reduction options in other sectors. and countries.

But the political and institutional challenges to making this transition are very real.

Challenges

The global objective achieving an average of zero net carbon emissions by 2050 is a huge challenge. It requires rapid and disruptive change, as global economies and societies will decarbonize within three decades. But technology and finance are already driving the transition. This can be seen in the massive decline in cost of renewable energy and acceleration change from financial portfolios to green investments. Global capitalism is now geared towards a low carbon economy.

As a small open economy, South Africa cannot resist or control these forces. And the country is in a vulnerable starting position as one of the more carbon intensive economies. There is not much time to avoid economic marginalization as the richest and most agile economies mobilize around net zero goals. South Africa will need all the support it can get to keep up with the pace of change.

Fortunately, as studies of the National business initiative and Meridian Economics-CSIR For example, accelerated decarbonization of electricity has two great advantages. It is the cheapest way to provide a reliable power supply. to the economy. And renewable energies have the shortest construction time. Therefore, they are the fastest and cheapest way to get the country out of its current power outages.

Read: For the first time, there is a real concern about network stability.

Details

The announcement of the just transition partnership has provided a political space and implementation platform (the working group) to begin working on the supporting details. These details include the type of financing instruments, what the financing will be used for, the combination of grant and debt, and financing terms and conditions. An initial scope of supported actions, funding sources and terms will be identified within six months, with a full partnership work program and investment plan outlined within one calendar year.

Currently, there are many points of view on how the details might look. These include Eskom’s Fair Energy Transaction, Meridian Economics Just Transition Transaction and the Presidential Climate Commission.

The working group will have to find out how to:

  • Ensure that alternative, attractive and sustainable economic livelihoods are created in regions that have relied on coal.
  • prioritize spending on activities that will help fundamentally reorient South Africa’s energy sector rather than just achieve incremental change
  • Ensure that the grant and concessional financing components of the partnership are used to leverage rather than crowd out business investment.
  • achieve a transition pace aligned with South Africa’s international climate commitments.

Politics

But if the technical details are formidable, a recent speech by Minerals and Energy Minister Gwede Mantashe shows that domestic politics is even more so. In direct opposition to Ramaphosa’s vocal support for the partnership and decarbonization trajectory, Mantashe argued that South Africa should continue to exploit its coal resources, suggesting that the partnership is an attempt to pressure the country to conform to an international agenda that is not in the country. best interest.

Despite the economic realities of a highly advanced global energy transition and the increasingly obvious technical, economic and social failures of South Africa’s coal-based energy system, the political challenges in leaving the path of the coal legacy are clear.The conversation

Emily Tyler, Honorary Research Associate, African Institute for Climate and Development, University of Cape Town

This article is republished from The conversation under a Creative Commons license. Read the Original article.


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