South Africa desires and needs to ensure that a shift to a low-carbon economy does not negatively impact workers, communities and broader society
Introduction – The reality of climate change
Climate change is one of the gravest crisis facing the world today. Climate change refers to long-term shifts in temperatures and weather patterns. Warmer temperatures over time are changing weather patterns and disrupting the usual balance of nature. This poses many risks to human beings and all other forms of life on Earth. Climate change is expected to raise temperatures in South Africa by 2-3 degrees Celsius by mid-century, and 3-4 degrees Celsius by the end of the century in an intermediate scenario. Impacts will also include changing rain patterns and increased evaporation, increasing the likelihood of extreme droughts. Extreme weather like floods and droughts are driving food insecurity, displacing populations, causing damage to infrastructure and leading to the loss of livelihoods. African economies are losing between 3% and 5% of their GDP due to the effects of climate change.
Ironically, human behaviour is largely to blame for climate change through the release of harmful gases into the atmosphere as a result of industrial activity, agriculture and the use of fossil
fuels such as coal, petrol and diesel. For this reason South Africa has embarked on a far-reaching journey needed to be managed through a Just Transition, which calls for the facilitation towards a low-carbon economy, while ensuring that no one in society is left behind.
The Presidential Climate Commission (PCC), ably guided by South African President Cyril Ramaphosa, is spearheading our country’s transition to the green economy. The Just Transition operates under a framework of dealing with practical issues relating to jobs, local economies, skills, social support, and governance.
Such a transition will set the country on target in meeting its Nationally Determined Contribution of reducing country’s carbon emissions, thus limiting the effects of global warming and prevent the worsening effects of climate change
The importance of energy transition
As mentioned, climate change is a reality that needs to be tackled head-on. South Africa is called upon to re-examine how it produces energy to power our homes and industries. Energy transition involves a shift from fossil-based sources of energy – including oil, gas and coal – to renewable energy sources like wind, solar, hydro and storage. It is part of the broader transition to a low-carbon economy. In South Africa, one of the main actions of the energy transition is to phase out old coal power stations that have reached the end of their design life. They will be decommissioned in a phased and controlled manner while new renewable energy generation capacity is built.
Energy transition has many economic benefits. South Africa’s exports need to remain competitive in a global economy where goods from countries with high carbon emissions will attract high tariffs. Unless we reduce our emissions, many of the goods we want to export will find key markets closed to them. Our economy will struggle to grow and create jobs.
Additionally, we need to access finance for infrastructure development and industrialisation at a time when more and more banks are not investing in high emission industries. Our companies will struggle to get financing for infrastructure, factories and other projects.
What is a Just Transition?
All of society , including government and labour , business and community social partners, realises that such a shift to a low-carbon economy does not negatively impact on workers, communities and broader society. In other words, the country needs a Just Transition. For example, there’s a realisation that new jobs and opportunities need to be created for workers in the old power stations that are being decommissioned and those in the coal mines that supply them. The workers in these old power stations and coal mines need to be skilled and reskilled to take up positions in new industries.
The Just Transition seeks to also benefit the community at large. Affected communities need to benefit from the building of new renewable energy plants and new industries that produce materials for renewable energy, electric vehicles, green hydrogen and mining for minerals needed in the new economy.
What does Just energy Transition aim to address?
Energy transition involves a shift from fossil-based sources of energy to renewable energy sources like wind, solar, hydro and storage. It is part of the broader transition to a low-carbon economy. This is to reduce the emission of the greenhouse gases that cause global warming and climate change.
In South Africa, one of the main actions of the energy transition is to phase out old coal power stations that have reached the end of their design life. They will be decommissioned in a phased and controlled manner while new renewable energy generation capacity is built. But South Africa is not shutting down all of its coal plants. In terms of the Integrated Resource Plan 2019 (IRP19), several coal-fired power stations are due to be decommissioned between now and 2030. This is necessary not only to reduce carbon emissions, but to address the deteriorating performance of older coal plants which are nearing their end of life. Several newer coal-fired power stations will remain in operation for some time to come, including Medupi and Kusile.
Energy security is the backbone of the economy, driving economic growth and transformation. The move towards renewable energy generation is an opportunity for independent energy producers who can feed their electricity into the national grid and help the country lower incidents of loadshedding. What’s more, renewable energy production will make electricity cheaper and more dependable, and will allow our industries to remain globally competitive. Investments in electric vehicles and hydrogen will equip South Africa to meet the global clean energy future.
Challenges to a low-carbon transition
The PCC’s community engagements in the early part of 2022 identified the hardships that many South Africans are experiencing. Workers, job seekers, and community members have spoken passionately and articulately about the unfairness of their current situations, the inequalities they experience, and their visions for a more equal and more inclusive society.
The imperative of a low-carbon transition that is just and inclusive is particularly important for developing economy countries, which are the worst affected by climate change. Although Africa carries the least responsibility for
climate change, the continent experiences much of its harshest effects.
South Africa’s position and interventions
One of the first tasks of the PCC, which was formed in 2020, was to develop a framework for a Just Transition, which presents an opportunity to start dealing with practical issues relating to jobs, local economies, skills, social support, and governance. The Just Transition Framework places the needs and interests of vulnerable communities at the centre.
The framework is positioned at the nexus of climate and development issues in South Africa. The framework, therefore, supports South Africa’s broader efforts to redesign the economy to the benefit of most citizens to enable deep, just, and transformational shifts (that is, addressing the triple challenges), in the context of delivering an effective response to climate change (that is, improving resilience, making substantial cuts to greenhouse gas emissions, and protecting and promoting the health of communities).
The PCC unanimously adopted the Just Transition Framework at its Sixth Meeting on 27 May 2022, following months of research and intense consultations with various social partners and communities across the country.
On behalf of government, President Ramaphosa accepted the Just Transition Framework in July 2022. “We have been consistent that we are developing country that must be allowed its developmental space, and that no-one should be left behind. As this Just Transition framework underscores, combating climate change is not only an environmental imperative, but an economic one as well,” the president said.
Creation of a Just Energy Transition Partnership (JETP)
The sad truth about climate change is that developing countries, including South Africa, are the worst affected by climate change. Although Africa carries the least responsibility for climate change, the continent experiences much of its harshest effects. The same is true for vulnerable countries and communities in other parts of the world, including small island states.
South Africa has long argued that developed countries have an obligation to fund a just transition in developing countries given their historical contribution to climate change. However, we should not have to fund this investment on our own, especially given our limited resources. In line with this principle, South Africa established a Just Transition Partnership (JETP) with the governments of France, Germany, UK, US and the European Union through which partner countries committed to mobilise an initial R140-billion through a combination of grants and concessional loans to support South Africa’s just transition.
Any loans mobilised by partner countries (in addition to grants and other funding) will be provided on concessional terms that would not be available on the commercial market.
Concessional loans have an interest rate of between 1% and 3%, compared to approximately 10% which National Treasury pays to borrow on the market.
The funding received will be used in line with South Africa’s own home-grown investment plan. The projects outlined in the investment plan will boost economic growth and job creation through a massive increase in
investment in electricity, green hydrogen, electric vehicles and just transition initiatives.
Unveiling the Just Energy Transition Investment Plan (JET-IP)
On the eve of the United Nations Climate Change Conference, commonly referred as COP27, which took place in Egypt at the end of November 2022, President Ramaphosa unveiled government’s Just Energy Transition Investment Plan (JET-IP).
The investment plan recognises that fossil fuel-dependent countries such as South Africa require significant support for a Just Energy transition, aligned with developed economies’ obligations to support developing economies under the United Nations Framework Convention on Climate Change and the Paris Climate Agreement.
The investment plan outlines government’s comprehensive priority investment and financing interventions required to achieve decarbonisation commitments and ensuring an equitable and just transition. Set to run for five years — between 2023 and 2027 — the JET-IP sets out the scale of need and the investments required to achieve the decarbonisation commitments in our Nationally Determined Contribution (NDC), which outlines the rate at which South Africa plans to reduce greenhouse gas emissions and represents South Africa’s fair contribution to the goals of the Paris Agreement. The JET IP seeks to decarbonise SA’s economy to within the Nationally Determined Contribution (NDC) target range of 350-420 Mt CO2 eq by 2030 in a just manner.
JET IP calculates that South Africa will need around R1.5-trillion over the next five years to meet these goals. This money will need to come from various sources, including the funding that industrialised countries have promised to developing countries and from the private sector. The desired outcomes for JET IP investments are focused around decarbonisation, social justice, economic growth and inclusivity and governance.
The Investment Plan supports South Africa’s goal of achieving a low carbon economy and a climate resilient society through the following interventions:
- Creating quality jobs in new sectors like electric vehicles, green hydrogen, renewable energy, built on a re-imagined manufacturing intervention.
- Increasing our energy security and ending load shedding through a massive roll-out of new, sustainable energy sources.
- Addressing the risks of climate change and positioning South Africa to be an important global player in the green economy of the future.
- Boosting economic growth through more than R1-trillion of new investment in the South African economy and broad-based participation.
The portfolio of investments and other interventions in the investment plan reflect an intersectoral and just transition approach and focuses on location and sector-specific vulnerabilities.
In his address to the Commission, President Ramaphosa stated that South Africa’s JET IP outlined the scale of need and the investments required to achieve the country’s decarbonisation commitments, “and to do so while promoting sustainable development and ensuring a just transition for affected workers and communities. It is about addressing the global risks of climate change while creating jobs and driving more rapid and inclusive economic growth.”
Significantly, the JET IP builds on from the National Development Plan, the NDC, the Just Transition Framework and the enabling policies under development and in implementation.
Priority sectors for the Plan
The JET-IP covers three priority sectors – the electricity sector, electric vehicles and green hydrogen.
The electricity sector: This sector is single biggest contributor to South Africa’s carbon emissions. It will receive majority of the funding. Significant investment into Just Transition initiatives. Primarily focused on
Eskom decommissioning, expanding and strengthening transmission grid and distribution, new renewable energy and Just Transition needs.
The transport sector: The transport sector is the second biggest contributor to South Africa’s carbon emissions after electricity. The sector supports about 500 000 jobs, and is a major contributor to South Africa’s GDP and balance of payments. The JET IP focuses on decarbonising the automotive sector and supporting supply chain transition towards green sustainable manufacturing.
Green hydrogen sector: Although the GH2 sector is still nascent, it has huge growth and investment potential. Globally, the demand for green hydrogen and green hydrogen-based products, such as ammonia and synthetic jet fuels, is rising significantly, presenting South Africa with a unique opportunity to link its mineral endowment with its renewable energy endowment to drive industrialisation. At the same, it will create jobs, attract investment, bring development to rural provinces and support a just transition from fossil fuels. It is estimated that South Africa has the potential to produce 6 to 13 million tons of green hydrogen and derivatives a year by 2050. To do so would require between 140 and 300 gigawatts of renewable energy.
The financial model and its impact on South Africa’s economy
The JET IP will be a massive boost to the country’s economy.
The electricity sector: Over five years, this sector will need an investment of R1 030-billion. The portfolio comprises infrastructure, just transition measures in Mpumalanga and sector-wide, and municipal support measures.
The transport sector: This sector will need R128.1-billion over five years. The aim is to transition the automotive sector value chain to protect sector employment and promote sustainable manufacturing. It will encompass industrial development and innovation, public transport, mobility emissions abatement, early adoption and innovation, technical assistance, and support for new energy vehicle deployment.
Green hydrogen sector: Aimed at positioning South Africa to be a leading exporter and to utilise domestically for hard to abate sectors, the green hydrogen sector includes provision for port infrastructure and will need R31-billion over five years.
It will be money worth investing as it will create opportunities for South Africa such as enabling the transition of key carbon-based and trade-exposed sectors; protecting the competitiveness of downstream industries; enhancing exports; boosting GDP; supporting domestic decarbonisation; and creating jobs.
Guiding principles of financing JET IP
Financing South Africa’s JET IP must be done in the context of our fiscal realities and development priorities. Finance should follow the principles for support to developing countries established under UNFCCC whereby developed countries commit to provide finance to developing countries to advance their climate response. Finance should be additional to existing climate and development commitments, and not divert critical development assistance away from existing development funding.
The composition of financing instruments should reflect South Africa’s unique needs as reflected in the JET IP, taking account of the need for fiscal sustainability, and incorporate appropriate risk-sharing arrangements.
Financing of the just transition components should be mainstreamed into the design of all JET IP projects and programmes. Any debt-related terms for the sovereign should be more attractive than South Africa’s National Treasury could secure in the capital markets without unduly onerous reporting requirements.
Finance flows from partner countries should be predictable and certain, to avoid delays and enable a sustained momentum of the broader investment plan. Finance flows should be channelled through the institutions which are best placed to manage them for the intended outcomes and in the most cost-efficient manner
Implementing an Investment Plan for all
President Ramaphosa established the Presidential Climate Finance Task Team (PCFTT) in February 2022 to support government in mobilising finance for the just energy transition, develop South Africa’s investment plan, and make recommendations on to government
The PCFTT is located in the Presidency and supported by an independent technical secretariat, working collaboratively with the National Planning Commission, the Presidential Climate Commission and other state departments and social partners, in the development of a detailed implementation plan of the JET-IP
In the initial stage of developing the JET-IP, the PCC facilitated consultations with societal groups, such as youth, business, civil society, labour, faith-based groups, and local and involved relevant technical experts on the framework of the JET-IP
As called upon by President Ramaphosa, the PCC is initiating consultations on the JET-IP Implementation with and intention to consolidate inputs into a set of recommendations to the President and government by the Commission.
Further information regarding planned stakeholder engagements will be communicated in due course and stakeholders who wish to make further written submissions on the JET-IP are encouraged to do so by email to jet-ip@climatecommission.org.za
