LOUISE NAUDÉ: Just transition finance should be grants, not loans

The cabinet announced its approval of the Just Energy Transition Partnership Investment Plan (JETP-IP) in a statement after its October 19 meeting. The plan is SA’s pitch for spending the $8.5bn promised by Germany, the UK, France, the EU and the US at the UN COP26 climate conference last year. This initial tranche of JETP monies (€8.6bn or R154bn on October 24) is intended to fund a socially just energy transition in SA and lays the basis for more funding.

In response to the pitch donor governments are making finance offers. Public information about these offers comes from a statement on a German government website and a leaked summary. The statement tells us Germany “has now pledged additional funds totalling €320m for the next two years to support the energy transition and its social cushioning, of which €270m will be in the form of low-interest loans and €50m as a grant”. Much of this will go to the construction of solar, wind and biomass plants, and investment in the grid to fit it for renewable energy transmission. Eskom is committed to doing this, but is hamstrung by debt.

It is concerning that 84% of this piece of the JETP is in the form of loans. This flies in the face of the UN Framework Convention on Climate Change principle of “common but differentiated responsibilities and respective capabilities”. The principle enjoins those countries historically most responsible for climate change to take the lead on deeply reducing their own greenhouse gas emissions and supporting developing economies, which are less responsible and have fewer resources, to follow suit. 

Commenting on the JETP-IP, forestry, fisheries & environment minister Barbara Creecy said it was critical to ensure any deal would not increase “sovereign indebtedness”. SA has a debt to GDP ratio of about 70% and public electricity utility Eskom is riven with debt of about R400bn, which the fiscus has to bail out. Loans fail to meet the intention of supporting a socially just energy transition. Climate action and development are mutually interdependent and should never be made to be mutually exclusive through the introduction of adverse effects such as interest-bearing loans.

The summary would seem to indicate that the overall the picture is even worse: reportedly, only 2.7% of the offers are grants, with the other 97% in the form of loans. Of the loans, 54% is concessional loans and 43% a mix of commercial loans and investment guarantees to attract private investors. Altogether it appears that less than 1% is directly targeted for social investments.

WWF SA offers three reflections in response to this skewed loans/grants funding mix:

• First, in line with the common but differentiated responsibilities and respective capabilities principle, climate finance to developing countries should come mainly in the form of grants. We urge the developed country partners in the JETP to reconsider and minimise the use of loans. Putting developing countries into further debt merely perpetuates geopolitical and geo-economic injustices.
• Second, rather than adding debt, one way to support developing countries would be to write off existing debt using debt-for-climate swaps, a variant of the tried-and-tested debt-for-nature swaps. The OECD estimates that between 1991 and 2003 debt-for-nature swaps generated almost $1.1bn for conservation measures, in return for debt with face value volumes of almost $3.6bn. 

The Commonwealth Secretariat proposed using climate finance pledges to write off multilateral debt in exchange for investments in climate-change adaptation and mitigation initiatives. Debt-for-climate swaps involve a bilateral or multilateral donor, private investor or NGO writing off or paying a portion of a country’s foreign debt in exchange for the country financing climate-change adaptation and mitigation projects, using local funds.

Holding about 1% historical responsibility for climate change, SA must do its own fair share of climate action and could be rewarded by having debt written off.

• Third, it would seem some JETP monies are envisaged to derisk or subsidise the private sector in the transition. Loans to private-sector entities are appropriate, but should those not be raised commercially? We are way past the point where renewable energy and electric vehicles can be considered risky investments. Companies and lenders should stand or fall by their own return on investment judgment; isn’t that how free enterprise works?

Germany has long been a good climate partner to SA, funding much of this country’s climate change policy and other work via grants. We owe Germany great thanks and have trust in its bona fides — we now ask it to continue on the same grants path, and for the other donor countries to follow suit.

At stake is not just what unfolds for SA. The JETP is being watched as a pilot for climate finance. What we settle for will have consequences for other developing countries. While we need the money — the government estimates that about R1-trillion over the next eight years is needed to effect the transition — we urge our Presidential Climate Finance Task Team to stand firm for the right financing terms.

• Naudé is WWF SA senior manager: climate change portfolio, and a presidential climate change commissioner.