One of the main items on the agenda at COP26 is climate finance. Wealthy nations, which have contributed the most to climate change, previously agreed to mobilise at least US$100 billion a year for developing nations to help them address climate change – but have so far failed to reach that target.
Last week, SA announced that it had secured a landmark deal with the European Union, Germany, France, the UK and the US to help it reduce its reliance on coal and to decarbonise its economy. The countries pledged to provide SA with R131 billion over the next three to five years to fund a just transition, which includes protection mechanisms for workers in the coal sector . The funding will be provided through a combination of low-interest concessional finance facilities, grant funding and other risk-sharing instruments.
With the focus now shifting to negotiations around the terms of the deal, a Business Day Dialogues online discussion considered what the best possible outcome for SA would look like.
Peter Attard Montalto, head of capital markets research at Intellidex, said the funding requirements for the decarbonisation of the world economy were massive.
“The US$100 billion number has dominated headlines,” Montalto said from Glasgow, where COP26 is taking place. “The South African deal announced at COP26 is the first big commitment made to any country. The deal, valued at a little less than what SA was aiming for, will be divided between grants and concessional funding.”
While this provides new funding for Eskom, the deal will not address the state-owned utility’s legacy debt burden. “Don’t forget that between 85% and 90% of this will be concessional funding and will have to be paid back,” he said.
SA ranks as the 12th largest emitter of greenhouse gases globally, making it a priority for developed nations as they look to meaningfully reduce global emissions and avoid a full-blown climate catastrophe.
This deal, said Meridian Economics’ Grove Steyn, will be regarded as a good opportunity to demonstrate how climate finance can be applied to a developing country with a heavy dependence on coal.
“Because our renewable energy resources are so good, the economics of a transition away from a dependency on coal is very viable,” he added.
The coal-reliant Mpumalanga province will be in the spotlight as the phased just transition process gets underway. The challenge for SA is that it is stuck in an unreliable coal power system that is inhibiting economic growth, said Gove.
“To transition away from coal will require a R1 trillion investment over the next decade and SA will need to raise that finance. Eskom’s balance sheet, however, is not in any position to help raise this funding.”
Labour market policy coordinator at Cosatu, Lebogang Mulaisi, said the trade union is optimistic that SA can achieve a just transition which takes into consideration communities and jobs. Mulaisi said the deal announced at COP26 could be a positive development.
“The plan and design of this transaction will be complex and the devil is likely to be in the detail. We will be keeping a keen eye on how social plans are integrated to ensure the transition away from coal is a just one and does not impact jobs and communities negatively.”
To watch the full discussion, click here