LEANNE GOVINDSAMY: Global finance rules must change to support just transitions around the world

President Cyril Ramaphosa and his team in Sharm el Sheikh, Egypt, for COP27 will be focused on what are likely to be tough negotiations with their partners in the Global North. After the announcement of the details of the Just Energy Transition Investment Plan (JET IP) last week, it is clear that SA has a long and costly road to travel to reach its climate goals and commitments.

Decarbonising the country’s electricity sector in line with the Paris Agreement will require the closure of many of SA’s coal-fired power stations and coal mines at a time when our electricity sector is already on life support and causing immense economic and social harm. The only financially and technically feasible option is to replace these failing coal-fired plants with new renewable-energy infrastructure, and quickly. Renewable energy solutions are cheaper and faster to build than new coal or gas plants and should enable us to attract much-needed climate finance.

But while the solutions remain clear, the financing is not. The purpose of the JET-IP was to outline key priority areas for investment in our just energy transition, and to provide some information on offers that have been made by international partners to support it. The EU, UK, US, Germany and France have all been engaging with SA as part of the International Partners Group (IPG) since their COP26 declaration, and together with some multilateral development banks have made various financial offers.

Regrettably, the JET-IP has revealed the inadequacy of these offers. About 65% of the financing on offer consists of loan or concessional finance, with only about 4% constituting grant financing and the rest comprising commercial loans and guarantees. On these terms, SA risks being severely over-indebted. Last week Ramaphosa made it clear that he and his team will be negotiating for new grant financing that is at a scale that will make our ambitious decarbonisation plans a reality.

A better deal

We fully support the president’s approach and certainly hope the SA delegation can negotiate a far better deal. The Global North is responsible for a far higher share of global greenhouse-gas emissions, making it proportionately far more responsible for the climate crisis than countries like SA. In fact, developed countries should contribute to climate reparations, particularly in relation to small island nations and developing countries and to creating new and innovative finance mechanisms to support just transitions the world over. The question that then arises is whether the global finance regime can support ambitious just transitions.

Barbados Prime Minister Mia Mottley has been at the forefront of considering this question and has highlighted the need to “transform the global finance architecture and make it fit to address the climate crisis”. These ideas culminated in the 2022 Bridgetown Agenda for the Reform of the Global Financial Architecture. More recently, at a briefing ahead of COP27, SA environment minister Barbara Creecy also referenced the reform of international finance architecture as being an important objective for the SA delegation.

These reforms could involve various interventions, but we highlight two that relate to the World Bank’s role in our just transition and strike us as being potentially transformative in securing climate finance on fairer and less onerous terms.

The World Bank is playing a significant role in our just energy transition, having recently approved a $497m loan to Eskom for the decommissioning and repurposing of the Komati coal power station, but there are questions around the lending rates applicable to such loans. Since SA is classified as a developing or upper middle-income country, there are certain fixed lending rates that are applicable to loans made by the World Bank, but these can and should be adjusted for the purpose of achieving just energy transitions.

First, drawing from the Bridgetown Agenda, SA should be calling for a greater redistribution of the IMF’s special drawing rights, which refers to an international reserve asset created by the IMF and used as relief during the Covid-19 pandemic. This would involve the IMF channelling or redistributing at least $100bn of unused special drawing rights to those who need it, and to drive financial resources towards climate action, without imposing onerous debt on countries.

Second, SA should be engaging with those who have influential shareholding and voting power in relation to the World Bank’s operational decisions. This would involve engagement with the US as the largest shareholder of the World Bank, and the EU, which has significant voting power. To this end, SA could co-ordinate with other African states to call for reforms and revisions to World Bank lending rates and decisions.

If we continue to operate within the parameters of current financial systems and rules, developing and low-income countries will not only bear the brunt of climate disasters, with insufficient financing available for loss and damage caused by those disasters, but will also be forced to accept crushing debt for purposes of mitigation. These circumstances require us to think carefully about whether the current financial system can actually support just and equitable energy transitions and how best to reform such systems for meaningful social change.

Govindsamy is programme head: corporate accountability & transparency at the Centre for Environmental Rights.