South Africa’s ambitious investment plan for a Just Energy Transition (JET) has been global hit. This new plan will fund South Africa’s switch to cleaner and greener ways of getting energy, like using the sun and wind. But the change also presents some challenges. Some people may lose their jobs if we stop using coal immediately, and South Africa is adamant that the change must be fair to all.
Let’s make sense of it:
What is a JET and why will it be difficult to achieve?
The just energy transition means the whole world must shift away from planet-warming fossil fuels to cleaner forms of energy. South Africa’s current primary source of electricity generation is coal. And coal’s dirty emissions is leading to destructive climate change.
Our global target for a zero-carbon economy is 2050. This means that in 27 years’ time, no nation will be allowed to generate power from fossil fuels. It’s a long walk to carbon freedom.
Abandoning coal will have ramifications for South Africa’s economic development, if not managed correctly. This switch will not be easy, SA has been dependant on coal for almost all its electricity needs since power came to its shores. There will have to be firm political backing to abandon coal in a fair and just way.
To ensure that inequality in the country is not exacerbated President Cyril Ramaphosa’s special committee for the energy transition, the Presidential Climate Commission (PCC), is leading with a mantra of with “no one left behind.”
The new green economy that the transition envisions must be more inclusive and the coal sector – which stands to lose a lot in this transition – must be reskilled.
Why should South Africa abandon coal when we can use it to power our economy?
Yes, developing countries contributed negligibly to the historical emissions that have created the current climate crisis, but everyone needs to participate to limit the damage we’ve done to the planet.
Even worse is that these poorer countries are more vulnerable to extreme weather events associated with climate change and can least afford the adaptation measures that will be required to survive climate change.
At international climate conferences funding to help developing countries both fund their transition and adapt to climate change, have become a mainstay.
Two years ago, South Africa signed a deal – the $8.5 billion Just Economic Transition Partnership (JETP) – with rich countries to help fund our just transition away from coal.
This partnership is widely viewed as ground-breaking and offers an ambitious solution. South Africa’s pioneer work has sprouted other similar deals since, but it also holds the bragging rights of being the first to develop a roadmap on how to use the pledged, the Just Energy Transition Investment Plan (JET-IP)
Leaving coal behind sounds too painful for our economy. We have so much of it, can’t we just continue to use it?
Mzansi can’t afford to continue its coal path, even though our historic emissions are negligible. Nations that do not comply with the 2050 goal will face increasing penalties and their economies will become dead zones as investors move away.
Energy analysts agree that change is coming, whether South Africa and the pro-coal lobby is ready for it or not. Drawing up a JET-IP helps South Africa to chart a roadmap that will deal with this change and ensure that the economy benefits from the change.
While the pro-coal lobby might try to delay the change to extract the last profit from coal, coal will have to die.
The sooner South Africa accepts this, the better off we will be.
How much will this cost?
JET-IP estimates about $97 billion (R1.5 trillion) over the next five years.
Our JETP was announced at the 2021 UN Framework Convention on Climate Change Conference of Parties (COP26) and focuses on decarbonising and developing three key sectors: electricity, new-energy vehicles, and green hydrogen.
In this agreement the US, the UK, France, Germany, and the EU pledge to mobilise $8.5 billion (R131 billion) over the next three to five years to wean South Africa off its coal addiction.
What risks will South Africa face if it fails to transition?
Coal is economically out of fashion.
Investing in a new green economy with renewables brings opportunities. Many countries and companies around the world are transitioning to low-carbon economies, with a growing focus on renewable energy and sustainable development. If South Africa fails to keep up with this global trend, it could face declining demand for its coal exports and lose out on opportunities for investment and economic growth in new, sustainable industries.
South Africa will also be facing regulatory penalties such as a heavy international carbon tax. Economic analysts have warned that the European Union carbon tax at the border will put a third of South Africa’s exports would be at risk—a potential loss of $8 billion per year, or $64 billion by 2030.
Governments around the world are increasingly imposing penalties and regulations on companies and countries that contribute to climate change. South Africa could face penalties and restrictions on its exports and other economic activities if it fails to take action to reduce its carbon emissions.
What happens is SA aligns its climate commitments to its developmental agenda?
If done right, a JET actually brings new opportunities and a chance to deal with South Africa’s inequality issues.
The World Bank estimated that a JET would be economically justified for South Africa and is likely to yield economic gains at least double the projected costs in our energy transition by 2030.
Apart from the growth in our economy, the change will create as many as 1 million jobs from 2023 to 2050, which will be several times higher than the number jobs projected to be destroyed (about 300,000).
Investing in renewable energy, energy efficiency, and sustainable infrastructure is a boon to attract investment and stimulate innovation.
Are companies and financial institutions still spending on fossil fuels?
Worldwide, financial institutions have less of an appetite for any fossil fuel projects. The cost of doing business with coal has shot up as a result. China has also pledged to not fund new coal power stations abroad, making access to capital for fossil fuel projects extremely difficult.
South Africa’s five major financial institutions; Standard Bank, Absa, Rand Merchant Bank, and Nedbank, have either set targets to limit their involvement in coal projects or made ambitious plans to divest completely from coal in the next decade or two.
In March 2021, FirstRand, one of South Africa’s largest banks, announced that it would stop funding new coal power plants and would phase out lending to existing coal plants by 2040. Nedbank has committed to reducing its exposure to coal mining.
In 2019, the University of Cape Town became the first African university to commit to divesting from fossil fuels, pledging to sell its investments in coal, oil, and gas companies.
What risks are associated with stranded assets in fossil-based economies like SA?
Stranded assets are investments in assets that may become obsolete or lose value due to changes in technology, policy, or market conditions. In the case of South Africa, this mean that we could end up with a fleet of power stations that are not allowed to operate post 2050.
With coal out of favour there is potential for an oversupply and a decline in the value of coal-related assets. This could leave unused and unprofitable assets that are difficult to repurpose or decommission.
The already expensive and delayed Kusile and Medupi projects – both not operating at capacity – are in danger of becoming stranded assets in two decades.
TL/DR:
By transitioning to a low-carbon economy and investing in renewable energy and other sustainable industries, South Africa can mitigate the risks of clinging to coal and seize new opportunities for economic growth and social development. This will also ensure energy security for years to come.
