A just transition must unlock new economic activities in coal boom areas, such as Mpumalanga, to ensure South Africans are not displaced or financially burdened as the country made its green transition – a COP27 side event highlighted.

Financing the Just Transition in South Africa, unpacked South Africa’s novel Just Energy Transition Partnership (JETP) and highlighted the types of investment needed, finance options and the role of the JETP towards mobilising and scaling up climate finance to meet the country’s just transition needs.

The session heard that South Africa’s Just Transition must be done together with the country’s development. Secondly, it was critical that the just transition gave South Africa an opportunity to redress deep inequalities and social challenges in its society, and thirdly it was critical to prepare, fund and implement the plan in such a way that supported multi-stakeholder participation.

Ground-breaking deal

The ground-breaking deal, labelled as one of the biggest achievements of COP26, saw the International Partners Group (IPG) pledge $8.5 billion of funds to accelerate South Africa’s transition from coal to renewable energy. The funds are earmarked to help South Africa shut its coal plants quicker than scheduled while supporting an equitable, inclusive transition. The “just” means they aim to look after the coal workers whose jobs are under threat from the transition from coal to clean energy.

The JET-IP gives South Africa a way forward in its energy transition, delegates were told during the side event hosted by the African Climate Foundation and Presidential Climate Commission. However, it was said that because South Africa’s blazing a trail with this unique deal, there will be hiccups.

If successful in South Africa, there was hope that it could spark further north-south co-operation to help other developing countries in their green transition by reducing emissions quicker. Indonesia, Vietnam, India and Senegal were seen as countries that could duplicate the deal.

Panellists reiterated however that the just transition must be done together with the developmental agenda in developing countries and that the international community must provide support by structuring finance for investment plans in ways that provide the support that’s needed.

A year’s hard work

When the deal was announced there was little detail available, but South Africa has worked hard in the past year to plan its JETP.

Prior to COP27, President Cyril Ramaphosa unveiled a 200-page blueprint for South Africa’s economic transition, in which the JETP played a starring role in. The blueprint planned to end the blackouts plaguing South Africa through investment in renewables, green hydrogen and electric vehicles.

South Africa will use the $8.5billion as a catalyst. Ramaphosa said South Africa had set three priorities for the money: accelerating the transition from coal, shifting its car making industry to electric vehicles and starting a green hydrogen industry.

On 8 November at COP27 South Africa, France and Germany announced they had signed loan agreements for France and Germany to each extend €300 million in concessional financing to South Africa for the envisioned transition.

But Ramaphosa admitted the $8,5 billion “is not sufficient to meet the scale of our ambition”. He estimated there was a $39bn shortfall over the next five years, but that the JETP funds could spark further investment. A huge concern in the plan remained that South Africa could take on too much debt, with only 4% of the $8.5bn package coming as grants.

If the plan succeeds and heralds a new green economy, the interest in the loan would not matter that much. But a concern remained that phasing out the coal industry and the jobs lost there would not be profitable.

Type of financing

Speakers discussed what types of financing would be most financial in the JETP deal. Key questions discussed around financing included how best could South Africa use concessional and grant finance? The session also debated which projects could be financed privately and what publicly.

John Murton of the IPG, who endorsed South Africa’s just transition plan this week, questioned “who should receive concessional finance? Where is investment most needed and where will it be most impactful?”

The South African private sector is eager to participate in financing the just transition for two reasons, delegates heard. The first is to rebuild infrastructure, create enabling environments and create jobs. The second is that investment comes with a return. South Africa needed to build project pipelines as step one.

Yet, Amar Bhattachrya from Brookings Institute said that South Africa had deep needs. Attendees heard that “the cost of capital in South Africa is three times of that in the UK”. South Africa needed to tackle that, and the best source was development finance institutions.

“Just Transition finance must be catalytic, coherent and country led,” Bhattachrya added. South Africa needed clarity on a roadmap for finance.

Social Justice

Infrastructure development would be crucial to lure investors in the energy transition and attract finance.

But youth representative Yasirah Madhi from the Institute for Economic Justice explained that investment beyond mere infrastructure was needed. “We need investment in social justice. We need an intentional pathway towards job and skills development.” She further urged the architects of the JETP deal to listen to the people who are most affected.

There is an imperative in the JETP programme that financing will be key to ensure workers who might be negatively impacted are adequately provided for. The PCC were adamant that labour unions be included in any negotiations because of the potential job losses in the coal sector, believing that the transition had to be done in a socially and economically responsible way that build new sectors in South Africa’s economy at a pace that can absorb people as the other sectors downsize.

Lebogang Mulaisi, PCC Commissioner and Head of Policy at Cosatu said South Africa had to structure innovative financing decisions as well as plans to address the legitimate concerns of labour and traders in transitioning sectors and in the informal sector. “This is the great opportunity of the just transition.”

Mpumalanga potential

Mpumalanga – a critical transition area – has so much more potential than merely as the heart of South Africa’s coal sector, Mulaisi said. Mine rehabilitation for example can be a serious intervention, while agriculture could also play a significant role in the transition.

“It’s not just about moving workers from one sector to another, it must be about fair wages and creating better new opportunities. Listen to the people that will be affected.”

Youth expectations are also critical in defining the vision of our future, Madhi said.

“Youth representation in decision making forums is essential, adding that more intentional decision making to ensure finance is dedicated to skills development and to address social needs more broadly are addressed.”

Daniel Mminele, Head of the Presidential Climate Finance Task Team, said the next step would be to develop a comprehensive implementation plan after COP27 to be finalised in the first quarter of next year.