Data trends: 🟠 COP26 Progress: 🟢 2022 Momentum: 🟢
2021 witnessed a series of diplomatic moments when political leaders discussed coal exit for the first time. The G7 and G20 both agreed to end international coal finance. COP26 saw a last-minute global agreement to phase down coal. These discussions at the highest level were typically focused on what governments were going to STOP doing.
But COP26 also hosted an unprecedented announcement from Leaders of what they are going to START doing in order to accelerate the transition from coal to clean energy. Presidents Biden, Macron and von der Leyen joined Prime Minister Johnson and Chancellor Merkel to launch a political declaration with South Africa titled the Just Energy Transition Partnership (JETP). President Ramaphosa was unable to travel to Glasgow, so sent a video message instead.
Extensive work over the past year(s) by local think tanks and electricity company Eskom have been joined by unprecedented levels of inter- and intra-governmental coordination. The result is a ground-breaking model for just transition designed and led by the national government and supported by donors. An analysis in Foreign Policy proclaimed that “South Africa’s Coal Deal Is a New Model for Climate Progress. The agreement is the most impressive thing to come out of the COP26 climate summit”.
A pioneering financial commitment to support South Africa’s energy transition
South Africa has the most coal-intensive economy of the G20, depending on coal for 87% of its electricity. In Eskom it has a debt- and crisis-ridden utility struggling with rapidly evolving power sector economics. The country has enormous socio-economic development challenges and mass unemployment. Recognising this context, the JETP was launched as an initial $8.5bn to support South Africa through just transition interventions, power sector decarbonisation, and economic diversification into future energy sectors, including electric vehicles and green hydrogen.
2021 has seen interest in climate change grow in South Africa, with political commitments to climate action and just transition at the highest levels of government. A Presidential Climate Commission was formed and the NDC updated, including absolute emissions reductions over the next decade and a 1.5oC aligned lower-range goal for 2030.
Achieving this will mean accelerating the implementation of the official power plan (IRP) in the short term and doubling the planned rollout of renewable energy by 2030. Meanwhile, Eskom is struggling to keep the lights on and finance grid expansion amid widespread concerns about the impacts of coal plant and mine closures. Macroeconomic fragility makes it essential to build a new low-carbon development pathway: the JCPT is not simply a coal closure deal.
Opportunities and risks – the devil is in the detail
JETP represents an unprecedented opportunity to align country development objectives with international climate finance donor support, and as such is ground-breaking. Opportunities include:
- Space for South Africa to delineate its own energy transition needs and shape the investment and funding landscape.
- A focus on wider socio-economic development, protecting workers and communities.
- A foundational 3 to 5-year approach on which longer-term support can be built.
- A potentially replicable model for comparable countries.
Several significant challenges must be overcome to succeed:
$8.5bn is a significant sum, but the need for mitigation, adaptation and just transition is far greater. Estimates include $30bn for Eskom, $60bn for power sector investment by 2030, plus support for Just Transition, industrial policy interventions, Small, Medium and Micro Enterprise development, and more.
Developed countries have historically failed to deliver on their climate finance promises and responsibilities, with much of it disbursed as loans rather than the necessary grants. Donors are now on the hook to deliver $8.5bn, which should be new and additional.
The quality of finance flows is as important as the scale. Much of the $8.5bn will need to be as a grant or concessional finance, with publicly available terms. Additional debt for an already debt-laden utility would hinder rather than help the transition. Just Transition finance must plug holes for innovative or new sectors that existing financial instruments don’t service. Technical assistance is essential but is insufficient alone.
The way forwards
JETP partner countries have promised to use the next twelve months to progress the details of the deal. A successful partnership is contingent on delivery of the money, but progress must be made by South Africa in three urgent areas:
- Clearly define investment needs and packages, scale of investment, sectoral investment needs, concessional vs standard financial needs, and a plan to resolve Eskom’s debt (including potential refinancing). This must be reflected in an explicit financing plan for meeting the low range of the NDC.
- Detailed plans and financial assessments are needed for Just Transition, including relocation, retirement and retraining packages for workers, and financial packages for the closure of abandoned and existing mines.
- A proposed Chinese-backed plant, MMSEZ, is unlikely to go ahead following China’s commitment to end overseas coal finance. Confirming its cancellation would indicate strong commitment to an accelerated coal exit and just transition. It would also provide a route for China to pivot from coal-intensive investment to clean alternatives.
The JETP offers a potentially transformational model for just transition in middle-income countries: Indonesia and India are watching JETP closely. Success could provide the foundations for similar approaches, but failure would send the opposite message. Insufficient donor support, transparency and coordination would leave climate action facing a huge political risk from communities and organised labour being left behind. Progress in South Africa could unlock a just coal-to-clean transition model for the world. All partners in the JETP are now under pressure to get it right.