South Africa’s first climate finance deal is a promising start
02 November 2021 at 6:02 pm
Climate and environmental justice groups cautiously welcome the $8.5 billion partnership announced at COP26 today, but demand transparency about the scope and conditions, and accountability by lenders, beneficiaries and the South African government.
The Life After Coal campaign, comprising environmental justice groups groundWork, Earthlife Africa, and Centre for Environmental Rights, cautiously welcomes the announcement at COP26 in Glasgow today of a partnership between the governments of South Africa, the US, the UK, France, Germany and the EU to mobilise $8.5 billion (R131 billion) over the next 3-5 years to support the implementation of South Africa’s Just Transition.
The partnership sends a strong and important political message of both the acknowledgement by Northern countries of their climate debt, and their commitment to support South Africa’s Just Transition from coal. It also affirms that South Africa is a country with the potential to transform its economy to be zero carbon and climate resilient through a Just Transition for workers and for affected communities.
“While this partnership is a step forward, it is a first step – South Africa’s need is much greater than the $8.5 billion proposed”, cautions groundWork’s Director Bobby Peek. “To achieve a Just Transition to a zero carbon economy, South Africa needs climate finance that is transformational. For Mpumalanga alone, at least $1bn is needed only for worker support and other direct Just Transition interventions,” says Peek.
“We require a lot more detail on the terms of the deal to establish whether this finance is of sufficient quality, and to determine the potential broader implications for South Africa,” says Centre for Environmental Rights Executive Director Melissa Fourie. “Some of our questions include:
- How much of this amount is, in fact, new funding? Does the deal commit South Africa to new debt?
- What are the terms of the deal, described as a “range of instruments, including grants and concessional finance”? How much is grant funding, and how much is concessional finance? For concessional finance, described as “highly concessional” in the announcement, what is the nature of the concessionality? What is the “grant equivalent” of the deal?
- Does the deal provide for the establishment of a Just Transition Fund for workers, small, medium, and micro-enterprises, and coal communities? How much will be used for on-the-ground projects?
- Who will manage the funds, including the Just Transition Fund, and how will we control how the funding is to be spent? What will be the role of local public finance institutions like the African Development Bank, the Development Bank of Southern Africa, and the Industrial Development Corporation?
- How will the Task Force to be established be composed? Will it conduct its work transparently, and how will it be accountable to stakeholders?”
“It is vital that any agreement reached is transparent, and that there are appropriate accountability mechanisms, including at least quarterly reporting by donor countries to ensure actual delivery against financial commitments; and proper governance and oversight of how the finance is allocated and spent in South Africa,” says Fourie.
The Life After Coal Campaign has declared the following as the minimum demands in relation to any climate finance deal for South Africa:
- The finance must be conditional upon the retirement and reduced utilisation of Eskom’s coal power stations at a pace and scope that allows South Africa to meet the lower bound of its nationally determined contribution, i.e. 350 Mt CO2e – with a plan for greater ambition.
- Any finance must address the issue of Eskom’s debt. Without addressing the paralysis caused by Eskom’s debt burden – beyond Eskom’s debt management strategy (of tariff increases, addressing municipal debt and cost inefficiencies) – no progress can be made towards economic and social justice, which are essential elements of the Just Transition.
- The finance must include the repurposing of Eskom coal power stations. By this we mean building renewable energy (RE) and other clean alternatives on the sites of the coal power stations, e.g. storage (not “repowering” with gas) and improving transmission infrastructure, which is essential for the rapid escalation of the RE roll-out, which is now beyond urgent. South Africa needs to build at least 5GW of RE per year to keep up with the retirement of ageing coal plants.
- However, the deal cannot only be for Eskom and its RE build. It must also be to fund:
- the rehabilitation and proper closure of coal mining areas. Without rehabilitation, coal mining areas are effectively sterilised for other local development, and massively detrimental, on an ongoing and intensifying basis, for South Africa’s climate resilience, water and food security; and
- the development of publicly owned and community owned RE.
- The deal cannot include finance for:
- Any new fossil fuels, including:
- coal: A condition of this finance must be that the South African government abandons plans to develop any new coal power;
- gas – this includes Eskom’s proposed R85 billion gas plant. Gas plants are a mature technology – if essentialfor flexibility in the power system, these can be funded by the private sector. We cannot use meagre climate finance for new gas, which is a GHG emission-intensive fossil fuel. Climate finance could instead be used to fund medium-duration energy storage to provide flexibility without locking in new gas infrastructure.
- Funding the implementation of emissions reduction plans by South Africa’s big corporate GHG emitters, including in particular Sasol and ArcelorMittal South Africa.
- Privately owned RE. We think that there is adequate private funding for privately owned RE.
- Coal communities must have agency, and a real say in how the Just Transition is designed, implemented, and financed in South Africa. We note that the political declaration refers to the “full involvement of organised labour and business in targeted programmes of reskilling and upskilling, creating employment and providing other forms of support to ensure that workers are the major beneficiaries of our transition to a greener future”. It is not only workers, but also communities in the coal affected areas, who must have a say, and benefit from the Just Transition. Women, in particular, bear the burden of coal pollution and the detrimental effects of declining employment in these areas. They, also, must have a real say, and their requirements met.
- The deal cannot be conditional on cost-reflective tariffs or other measures that impose increased economic hardship or austerity on low-income electricity users.
Separate country deals must not detract from the demands of lower- and middle-income countries for $100 billion in global climate finance, or for the setting and meeting of an Adaptation Goal. Climate finance also cannot be applied to funding project consultants based in the lending country.
In addition, developed countries should recycle their unneeded “special drawing rights”, or SDRs, into the energy transition in South Africa and other developing countries. Further, the debts of many of the poorest countries must be cancelled to make a Just Transition possible in those countries.
Life After Coal/Impilo Ngaphandle Kwamalahle is a joint campaign by Earthlife Africa Johannesburg, groundWork, and the Centre for Environmental Rights that aims to discourage the development of new coal-fired power stations and mines; reduce emissions from existing coal infrastructure and encourage a coal phase-out; and enable a broad and inclusive just transition to sustainable energy systems for the people. www.lifeaftercoal.org.za
FOR MORE INFORMATION, OR TO ARRANGE AN INTERVIEW, PLEASE CONTACT:
Alexis Scholtz-Wheeler, [email protected], +27 (0)827398687
 See https://meridianeconomics.co.za/wp-content/uploads/2021/03/Financial-support-needs-for-MP-Just-Transition_final_2.pdf page 60.
 The political declaration refers to “a combination of appropriate financial instruments, which may include but is not limited to multilateral and bilateral grants, concessional loans, guarantees and private investments, and technical support to enable the just transition, with a view to longer term engagement.” (par 18)
 The grant equivalent is an estimate, at today’s value of money, of how much is being given away over the life of a financial transaction, compared with a transaction at market terms. The grant equivalent is the grant element multiplied by the amount of money extended.
 The political declaration refers only to: “The accelerated decarbonisation of South Africa’s electricity system to achieve the most ambitious target possible within South Africa’s Nationally Determined Contribution range to the extent of available resources.” (par 17.a)