The Best Agreement Out Of Glasgow

By Seth Owusu-Mante and Kelly Sims Gallagher

This blog was originally authored for and published by the Climate Policy Lab at Tufts University.

If COP 26 is to be assessed using the summit’s listed goals, one of its major flaws is undoubtedly the failure to deliver on accelerating the phase-out of coal to keep the Paris 1.5-degree ambition alive. As it stands, the world remains off track to beat back the climate crises.  With a weaker commitment to “phase down” rather than “phase out” coal, the $8.5 billion “Just Energy Transition Partnership” launched by the EU, UK, France, Germany, and US to help South Africa finance a quicker transition from coal stands tall among the agreements reached at COP 26.

South Africa is the world’s 7th largest coal producer. The massive use of coal in the domestic economy led by the country’s state power company Eskom makes South Africa the lead carbon dioxide (CO2) emitter in Africa and the 13th biggest emitter in the world. While details about how much coal will be phased out and how much new clean energy will be built are yet to be known, the concrete and specific nature of the partnership and the clarity of its goals make it a new blueprint for future north-south climate cooperation, given all the uncertainties about developed economies committing to providing financial resources to help developing countries navigate the climate crisis.

Among others, this partnership aims at supporting South Africa’s pathway to low emissions and climate resilient development. Accordingly, the partnership is to accelerate a just transition and the decarbonization of the country’s electricity system while developing new economic opportunities such as green hydrogen and electric vehicles. The partnership is expected to prevent up to 1-1.5 gigatons of emissions over the next 20 years. Approximately $8.5 billion is to be committed over the next three to five years through a combination of multilateral and bilateral grants, concessional loans, guarantees and private investments, and technical support.

Is $8.5 billion enough for South Africa to be fully committed to decarbonizing its coal addiction? Clearly not, as Eskom’s just energy transition could cost between $30 billion and $35 billion, according to CEO André De Ruyter. However, this partnership is a step in the right direction. Importantly, the effective utilization of the funds will determine how South Africa can leverage the partnership to attract both domestic and more donor funds to accelerate the country’s quest for a just transition.

Over the next 12 months, an all-inclusive task force is to pursue a political dialogue on the just transition, identify potential financing instruments and policies that will act to improve Eskom’s long term financial sustainability, and develop a full program of work to determine the scope of supported actions. To make this partnership a success story and a sustainable model for other climate finance partnerships, a lot of agency and control must be given to South Africa to set the path for the full operation and management of the funds.

This is not to suggest that the funders should not have a say in the management of the funds. Safeguards and robust evaluation mechanisms must be in place, but the funding stipulations must not create control imperatives likely to dictate the just transition policy goals and utilization of funds to South Africa. This may weaken the overall objective of the partnership as has been the case with national climate funds in other developing countries including Bangladesh and Ethiopia. The big question that arises is what kind of institutional arrangement will be best suited to deliver the goals of this partnership? Or should this partnership be operated on a bilateral government to government basis?

Whatever institutional arrangement is adopted, the funders must fully commit to disbursing the funds as promised within the stated timeframe. Clear and quantifiable targets must be agreed upon by both sides for the management and utilization of disbursed funds. The debt financing component of the deal must be creative, long-term, and flexible in order not to burden the already stressed South African economy in the long run. The primary success factor of this partnership will, however, depend on the South African government’s true commitment to the deal.

Strong opposition from labor unions, coal mining communities, and some government officials keep growing against the country’s energy transition aspirations. Some media reports suggest that the government saw the recent surge in coal prices as an opportunity to inject capital into the economy as about 28 percent of South Africa’s coal production is exported. The ability of the South African government and Eskom to effectively navigate these competing interests will therefore be instrumental to the success of the partnership.

South Africa’s long held policy objective, reiterated in its updated NDC to COP26, is to peak GHG emissions between 2020 and 2025, plateau for a decade, and decline afterwards. The government seeks to implement a range of policies and measures including the Green Transport Strategy, the introduction of a carbon tax, and the ambitious power sector 2019 Integrated Resource Plan (IRP), which aims at reducing the share of fossil fuels from 80 percent to about 51 percent and increasing renewables from 11 percent to about 41 percent by 2030. The country has, however, struggled to mobilize the needed funds to implement these bold targets. The Just Energy Transition Partnership comes at the right time to accelerate South Africa’s climate ambitions to create a win-win outcome for the South African economy and global efforts to mitigate the dire consequences of the climate crisis.