DAVOS: South Africa calls on donors to plug $250bn needed for its energy transition – SYSTEMIQ

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New report identifies $250 billion investment needed for South Africa’s just energy transition; calls on donors to provide catalytic climate to finance critical transition costs

Produced by the Blended Finance Taskforce and Stellenbosch University’s Centre for Sustainability TransitionsMaking Climate Capital Work” finds around two thirds of the capital required will be needed in new energy infrastructure – and can be financed by the private sector.

The remaining third will need to be concessional funding. This can be from public sources like multilateral development banks, development finance institutions and international climate funds to accelerate the build-out of enabling infrastructure like transmission, distribution and flexibility.

Grant capital from donors and philanthropy will also be critical to support a just transition, ensuring that workers and coal-dependent communities are not left behind and tackling issues of energy security and affordability.

Lord Nicholas Stern, Chair of the Grantham Research Institute at London School of Economics said at the launch of the report in Davos: “We must remember not to view the energy transition as a cost, but rather as an investment towards a different growth model: one that sets South Africa on a sustainable development path. We have seen that the old model is no longer viable. If we fail on climate, then we fail on poverty, unemployment, and energy access. We need to frame this as a development narrative and we need to use today’s leadership across G20, G7 and COP to move faster”.

The report lays out a framework and principles for the capital requirement and identifies the type of capital to be deployed – including the $8.5 billion which was committed by a handful of rich countries for South Africa in Glasgow at COP26 in November 2021.

The seven core principles in the report are aimed at the donor countries who pledged the $8.5 billion and other providers of climate finance. They include transparency, better coordination, scaling the use of catalytic instruments and ensuring climate finance is demand-driven and responds to a country’s specific transition and development needs.  Applying the principles set out in the report will ensure that capital deployed is ‘fit-for-purpose’ – matching financing with the country’s needs and priorities.

Professor Mark Swilling, Director of the Centre for Sustainability Transitions said: “Though it is only a fraction of the capital requirements for the transition, the $8.5 billion commitment could be catalytic if the cost of this capital is lower than sovereign borrowing rates, if it includes ‘de-risking’ instruments like guarantees and if it is made up of a substantial grant component to address the climate justice element of the overall challenge”.

Andrew Johnstone, CEO of Climate Fund Managers added: “Using existing blended finance models, the $8.5 billion could leverage additional capital to meet $40 billion or more of South Africa’s just energy transition investment needs”.

Getting it right in South Africa is of global importance. Donors are already negotiating the next set of climate finance ‘deals’ in Indonesia, India, Vietnam, and Senegal. As the report emphasises, failing to decarbonise these energy systems would kill any chance we have of meeting the climate goals of the Paris Agreement. Catalytic climate capital can help, but only if it is fit-for-purpose.

Achieving rapid decarbonisation in coal-dependent middle-income countries is critical to meeting global climate targets set under the Paris Agreement. Conflict in Ukraine continues to exacerbate energy security and affordability crises. At the same time, natural disasters like the recent floods in South Africa’s Kwazulu Natal Province are increasing in frequency and intensity. International and emerging economies cannot afford for these climate ‘deals’ to fail.

Endorsement for the report

Patrick Dlamini, CEO of the Development Bank of Southern Africa added that: “The just transition is the global growth story of the 21st century. It requires coordinated action and courageous leadership to make it a reality.” He said: “The partnership for South Africa’s Just Energy Transition should serve as a proof point of COP26 commitments turning into action. With six months to go before the next COP, we have no time to lose.”

Amar Bhattacharya, Senior Fellow at the Centre for Sustainable Development at Brookings said: “This is a whole of economy transition. It is a multi-decade journey which will rely on greater collaboration between international and domestic development finance. But done right, this can be the blueprint for how we unlock capital for transitioning economies.”

Catherine Koffman, Group Executive Project Preparation at the Development Bank of Southern Africa, said: “It is difficult to conceive of a path to 2050 that doesn’t account for people – we must not only talk about the energy transition, but about transitioning the whole economy including sectors and jobs currently linked to the coal value chain.”

Namibia’s Minister of Finance, H.E. Iipumbu Shimii agreed and said: “We need to take a regional approach to decarbonization.”

Eliza Macmillan-Scott, lead author of the report and Country Transition Director at the Blended Finance Taskforce said: “The commitment made at COP26 created a sense of optimism in the potential for multilateral negotiations to accelerate energy transitions globally. With less than six months to go until COP27, we need to prove that this optimism was not misplaced by shifting to implementation”.

To read the paper, please visit https://www.systemiq.earth/wp-ontent/uploads/2022/05/Making-Climate-Capital-Work.pdf

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