In the run-up to COP26, which will take place from 31st October to 12th November 2021 in Glasgow, the discussion about South Africa’s coal exit has become somewhat heated. At the latest, since Gwede Mantashe, South Africa’s Minister for Mineral Resources and Energy, argued that “rich nations shouldn’t force South Africa to ban new coal-power projects and impose other conditions as a requirement for funding to help reduce its environmental footprint”, some controversy has been created with regard to the country’s position on the energy transition. Whereas Mantashe has been criticized for calling nuclear the solution to decarbonization, South Africa’s president Cyril Ramaphosa has reemphasized the importance of green energy next to its potential to promote infrastructure development.
Promoting a Just Transition Financing Facility
Pretoria, 28th September 2021- About a month ahead of COP26, the South African delegation discussed opportunities for the promotion of a ‘just energy transition’ with climate representatives from the UK, the EU (i.e. France and Germany) and the US. Despite the fact that the latter has proven the country’s will to transform itself into a low-carbon and climate resilient society, a clear commitment can only be negotiated in Glasgow, as Barbara Creecy, South Africa’s Minister of Forestry and Fisheries and Environmental Affairs, said. As experts have argued, South Africa’s hesitation may have to do with its lack of resources and it lacking the capacity to invest into renewables. Even if South Africa’s potential for wind and solar power is remarkable, giving up on coal literally means that the country will lose the last decade’s worth of investments. Particularly in light of the sacrifices required to tackle climate change, the question remains as to which sustainable financial choices are available to support a just transition in South Africa.
Learning from the Past, Investing into South Africa’s Future
From Eskom to Boegoebaai
Back in 2010, South Africa received a $3,75 billion coal loan from the World Bank in order to build one of the most gigantic coal-fired power plants in the world. Despite that a 2021 report by Trade & Industrial Policy Strategies (TIPS) states that foreign and domestic investors limited or ended their contributions to coal-fired projects as early as in 2010, this report also emphasizes that Chinese companies remained an exception to this scenario. Even in 2018, three years after the Paris Agreement was signed, Xi Jinping festively announced the delivery of a huge sum of investments into South Africa including a $2.5 billion injection for the state-owned public utility Eskom from the China Development Bank.
Ironically, the same projects which were funded by Chinese investors since 2010 and provide most of South Africa’s energy, are currently running negative headlines. According to the Centre for Research on Energy and Clean Air (CREA), Eskom is “the world’s most polluting power company”, which caused about twice as many SO2 emissions as China’s or the US’ power sector in 2019 equalling three times the amount of the EU’s power sector’s SO2 emissions. Whereas, both the Chinese, US and the EU’s power sectors have lowered their SO2 emissions significantly between 2010 and 2019, Eskom’s SO2 emissions have remained at a stable rate of around 1700 kt in 2020. In addition, Eskom emitted 18500405,03 tons of CO2 in June 2021, which makes the company the biggest emitter of greenhouse gases in Africa.
Especially because the company produces 90% of South Africa’s energy from coal and because yearly emissions of 213 million tons of CO2 are no longer tolerable, Eskom suggested a $10 billion plan this June to close down most of its coal-fired plants by 2050 and step aboard the pathway towards a renewable future. A move, which comes at a time, when South Africans have had enough of Eskom’s load shedding, which seeked to prevent another major power blackouts recently. As critics remarked, without pressure from the South African government (i.e. through punitive taxation), it is hard to believe that both Eskom and Sasol will follow through with their renewables ambitions.
Whether or not one might believe such criticism, Sasol, which was listed among the 100 largest emitters of greenhouse gases in 2017, has recently announced that it will lead a feasibility study to explore the Boegoebaai project’s potential for exporting green hydrogen and ammonia. Signing a memorandum of agreement (MOA) with the Northern Cape Development Agency (NCEDA), it has made advancements to lead a two-year project as part of South Africa’s National Development Plan located in the Namakwa Special Economic Zone (SEZ) in the Northern Cape. Particularly, because the mining, agriculture and renewables industries have offered most opportunities for economic growth and development in the Northern Cape, promoting renewables instead of mining projects in this region could send a message to the international community with regard to South Africa’s decarbonization goals. As a recent article in the Mining Weekly has argued,
“[t]he South African mining sector can remain internationally competitive and support socioeconomic development only if it drives decarbonisation and adapts to the global shift in commodity demand towards minerals used in green sectors such as renewable electricity and electric vehicles (EVs)” (Terence Creamer, Mining Weekly, 13th October 2021)
The latter arguably proves that a ‘just transition’ must not only include a view for the short-term (i.e. fuel shortages, power blackouts), but also for the long-term (i.e. renewables infrastructure, cross-sectoral cooperation, local expertise). Moreover, innovating the renewables sector constitutes a process, which necessitates room for trial and error. In this context, Thyssenkrupp’s and Wismut’s recent exploration of South Africa’s gold mines and their work on a “pre-feasibility study for a renewable underground pumped hydroelectric energy storage (RUPHES) project” might at least be worth observing.
In general, the South African government, businesses, employees and civil society should make sure that future infrastructure, technologies and networks shield the country, if not the entire region of Africa, against future losses. Most importantly, the country might have to learn from its failure to step on the renewables path early on in 2010. One solution to attracting sustainable investments could be the diversification of South Africa’s renewable energy mix. Since the latter might lead to attracting a wide range of investments in renewables projects as well as in research and development across multiple sectors, it could safeguard South Africa from collapsing again based on the reliance on one singular energy source.
Cross-Sectoral Benefits of Renewables
Multi-sectoral investments, which start in the renewables sector, should actively be regarded as a chance to economically push South Africa towards a new high and equip the country with the tools for providing its population with energy security, access and efficiency, but also with chances for an active involvement in other sectors such as agriculture. Whereas South Africa is the 5th largest exporter of gold (15,5%) worldwide with the country’s exports of other natural resources, such as platinum (8,86%) and iron ore (6.19%), having been a cornerstone of its economic progress, its 2019 employment rates in agriculture (5,28%) and industry (22,31%) also demonstrate a potential for economic and cross-sectoral growth.
The fact that most South Africans were employed in the service sector (72,41%) in 2019, next to South Africa’s skyrocketing unemployment rate (Q2 2021: 24,4%), reemphasizes that expanding the country’s industrial and agricultural sectors could be key to improving life quality in South Africa overall. The link between promoting innovation in the renewables sector and increasing agricultural productivity has also been evidenced by the International Renewable Energy Agency’s (IRENA) Coalition for Action’s joint statement on “advancing renewables in agriculture to meet SDGs and climate objectives”. Among others, the adverse weather conditions which have resulted from climate change, demand novel solutions from the renewables industry for the agricultural sector (i.e. solar irrigation). While South Africa has been talking about stocking up agricultural production, growth in this sector has been hampered by various aspects (i.e. weather conditions, land distribution, commodity prices, global competitiveness, theft and issues at its ports).
Whereas higher agricultural commodity prices “can also boost prices of nondurable goods such as bread and hamburgers”, as business economist Kevin L. Kliesen argues in a recent article, it may also contribute to making South Africa less competitive for agricultural exports on the global market. However, this is not where South Africa should give up. The Netherlands, which is the second-largest agricultural exporter worldwide, has for instance established partnerships with South African stakeholders to promote the use of climate smart agriculture (CSA) technologies in the region. CSA could not only be a solution to expanding South Africa’s agricultural potential, but also to work towards making the agricultural sector in South Africa a part of formal sector employment. Whereas small-scale black and women farmers could especially profit from investments into agriculture, it must also be observed how companies such as FarmSol, could be included in public-private initiatives at the intersection of renewables, smart tech and agriculture.
Feel free to contact the Energy Transition Centre today for questions.
· Julius Moerder, Head of Energy Transition Centre julius.moerder@centurionlg.com
· Oneyka Ojogbo, Head of Energy Transition Centre, Nigeria & West Africa oneyka.ojogbo@centurionlg.com
· Leon van Der Merwe, Head of Energy Transition Centre, South Africa leon.vdmerwe@centurionlg.com
