- To transition to a low carbon economy, South Africa needs a rapid expansion of renewables, according to senior fellow at the think tank, Brookings Institution.
- Amar Bhattacharya says that the estimate for capital required for South Africa's transition over three decades is $300 billion (around R4.4 trillion).
- Meanwhile, developed nations have committed $100 billion per annum to the developing world to assist in their transitions.
To transition to a low-carbon economy, South Africa has an estimated capital requirement of $300 billion (around R4.4 trillion) over three decades, the bulk of which is meant for the rapid expansion of renewables.
This is according to Amar Bhattacharya, a senior fellow in the Centre for Sustainable Development at think tank Brookings Institution.
Bhattacharya, who is a former director of the intergovernmental group for developing country finance ministers and central bank governors - Group of 24 - was speaking on Friday during a Presidential Climate Change Commission dialogue on financing the just transition. Bhattacharya previously worked at the World Bank.
Bhattacharya explained that, to enable a just transition, a comprehensive and long-term finance package is needed.
"In the case of South Africa, in particular, as I understand it - the orders of magnitude we are talking about, is investment requirements in the order of [$]300 billion over these next three decades," he said.
In order to reduce emissions and help keep global temperatures from rising beyond 1.5 degrees Celsius, coal-fired power must be phased out and there must be a transition to renewables.
The investment in renewables is estimated at about $250 billion (around R3.6 trillion). Although large, it could yield development dividends, said Bhattacharya. It is envisioned that all areas of the economy will be electrified - such as transport, agriculture and households - and that the electricity will be generated by renewables, a better option than coal and associated emissions.
"The demand for electricity will increase and we need to ensure all demand is met by renewable energy," Bhattacharya said.
But infrastructure needs to be built to enable this new low carbon economy, he explained. This could be infrastructure for integrating renewables into the grid, or infrastructure to support electric vehicles or hydrogen powered vehicles.
Another element of the transition involves getting power utility Eskom, with a debt burden of over R400 billion, on a sound footing. Eskom is plagued with operational challenges as its plants have been hit by unplanned breakdowns. In the past week it implemented load shedding and rolled out repairs to the system to avoid power cuts for the municipal elections on 1 November, Fin24 previously reported.
In support of a just transition, the power utility is planning no new investments in coal projects. It has a pipeline of renewable projects - and planned expansion of its transmission and distribution networks - which could cost about R400 billion. It has established a Just Energy Transition financing facility in order to attract concessional finance for this purpose.
Foreign lenders have expressed interest in the facility given its simplicity, according to Eskom's head of the just energy transition office, Mandy Rambharos.
At a national level, South Africa can't bear the cost of the transition alone, said Bhattacharya. There must be commitment from the international donor community to provide concessional resources, necessary to finance the transition, he added.
"There is the issue of climate justice, the emissions out there were not put there by the developing world," said Bhattacharya. In order to cut emissions rapidly comes at a cost and it is fair to ask the international community to contribute to the "burden sharing," he said.
So far, developed countries have committed to deliver $100 billion per annum by 2020, but are falling short of even that commitment, according to Forestry, Fisheries and Environmental Minister Barbara Creecy. Instead, rich nations should mobilise $750 billion, Creecy said previously.
Managing the just energy transition cost will mean that the $100 billion commitment is fulfilled, that concessional finance is provided, and that development finance institutions and other public finance are deployed to de-risk the investment environment and further attract private investment, he explained.
In turn, South Africa would commit to actions that are aligned to its own development path.
Several South African ministers, including Creecy, Deputy Finance Minister David Masondo and Trade, Industry and Competition Minister Ebrahim Patel - met with envoys from the US, UK, France and EU to discuss possible climate funding of R76 billion. This funding is needed to end the country's dependence on coal, Bloomberg reported.
Speaking during a virtual stakeholder discussion on the UN's climate change conference COP26, to be held later this month, Creecy explained that the envoys were made aware that South Africa is a developing country with a large debt burden and can’t "willy nilly" add to that burden.
For this reason the country is looking to a mix of financing solutions such as donor funding, concessional finance o as private sector investment.
"As far as the mitigation side of this is concerned, what South Africa is proposing is absolutely the poster child for financing support from the international community," said Bhattacharya.
"We have been pressing that developed countries must up the game in terms of their financing," he said.
Bhattacharya said that it is possible for developed countries to increase bilateral climate financing too. "We believe that a significant component of that must be dedicated to support climate mitigation. South Africa should be a target country for that."
According to the Presidential Climate Change Commission, the transition in South Africa will have to address the decarbonisation of the electricity sector, the chemical and coal-to-liquid petroleum sector, the development of electric vehicles and the hydrogen sector, the expansion of solar PV and wind generation, the expansion of the electricity grid, as well as establishing a just transition fund aimed at lessening the negative impacts of the transition on workers and communities.