South Africa needs roughly R900 billion to meet its emission reduction targets by 2030, estimates from the Presidential Climate Change Commission have shown.
But while funding could be sourced from the public and private sectors as well as international public funding, there was an annual funding gap of about R19 billion, according to Dr Crispian Olver, a director at the commission.
Olver was one of the keynote speakers of the Banking Association of South Africa’s Sustainable Finance Conference 2021. The virtual event is being held over two days.
South Africa recently adopted a lower emissions targe or Nationally Determined Contribution (NDC) of between 350 and 420 megatons (MT) of carbon dioxide equivalent by 2030 – this ahead of the UN Climate Change Conference (COP26) that was held earlier this month.
Olver said what allowed the government to sign off on this target was that the existing suite of government policy was aligned to this trajectory.
While there is room to improve and be more ambitious with the target, there is a risk it would be growth negative and shave off a bit from the GDP.
He added the commission had been working hard to find numbers to work with. But at the least, about R86 billion per annum is needed.
About R30 billion can be sourced from international public funding, R35 billion from the domestic private sector and about R2 billion from the government.
“There is an annual funding gap of at least R19 billion, probably more, to get the full implementation of the emissions trajectory set out by the NDC,” Olver said.
Of the some R900 billion needed to meet the 2030 target, about R400 billion is likely to be directed to transition the energy mix, R150 billion is needed for electric vehicles and R150 billion is needed to kick-start investment in the hydrogen economy.
Citing data from NPO GreenCape, he said South Africa did get quite significant climate finance flows – about R35 billion per year, most of it, or 81%, goes towards mitigation projects, such as clean energy.
Other mitigation efforts such as the hydrogen economy and electric vehicles, still needed attention, added Olver.
Adaptation projects – concerned with adjusting to the effects of climate change that already exist – however, only account for 7% of the funds.
Just transition elements of this finance were probably “close to zero,” he said.
Finance is often provided in the form of debt, equity, or concessional debt.
Barriers to scaling up
Olver added the historical scale of climate finance was inadequate and it needed to be scaled up. But there are barriers to scaling up – for example, there are gaps in the policy and regulatory environment.
“… Not least, government ministers talking at cross purposes,” he said.
Mineral Resources and Energy Minister Gwede Mantashe has spoken out against rushing the transition from coal, and often promoted the continued use of coal, coupled with carbon capture storage.
Olver had described the concept of clean coal as a “fantasy”, given the lack of economic feasibility.
Sasol, which has looked into the matter, also previously said the costs of carbon dioxide sequestration were too high and it was not economically viable.
Other issues included a lack of policy coherence in South Africa, said Olver.
South Africa recently reached a R131 billion agreement with the EU, US, UK, Germany and France to shift away from coal. However, the government is still allowing exploration of oil and gas reserves, which can be harmful to the environment.
Achieving the target would require all stakeholders working together, Olver said, adding a lot more work was needed in aligning different policy and regulatory measures which informed the system changes needed.
More work needs to be done on climate disclosure, as well as tracking and reporting on climate finance flows.
There also needed to be a revision of carbon pricing and incentives, he said.
South Africa’s carbon tax came into effect in 2019 – it had been set at a low R120 per ton with the aim of scaling it up, Fin24 previously reported.
Olver added there also needed to be a diversification of capital markets for climate finance – for example use of green bonds, saying there needed to be a focus on the just transition – projects needed to also respond to social and economic issues.