World Bank: This is why climate sceptics should support a just energy transition

At COP27 in Egypt earlier in November SA positioned itself as the “champion of the South” in the global effort to curb carbon emissions. The country not only announced the decommissioning of its first coal-fired plant (the so-called Komati project), but President Cyril Ramaphosa unveiled an ambitious investment plan for a just energy transition.

The cost of the plan, estimated at about $97bn over the next five years, raised some eyebrows in national and international communities. Though this cost is substantial, we argue that the just energy transition should be implemented urgently, for the following reasons: it would bring considerable benefits to the country’s economy and its people, and the required financing would become available with the right set of domestic policies and external assistance.

Despite scepticism about the climate benefits of reducing carbon emissions, a just energy transition would be economically justified for SA. In fact, by 2030 it is likely to yield economic gains at least double the costs projected above. Most of these gains would come as the country shifts away from coal towards low-carbon energy sources (mainly renewables), already the least-cost option for SA due to its ageing and unreliable coal power plants.

In addition, by investing in renewables (and transmission), the country can quickly increase electricity supply, which will help eliminate the extensive load-shedding that is projected to cost at least $24bn in 2022. The country could therefore save about $192bn by 2030 ($24bn per year for eight years) by eliminating load-shedding.

A just energy transition would also improve the country’s competitiveness on global markets by reducing the carbon intensity of its exports. Should the EU introduce a carbon tax at the border, about a third of SA’s exports would be at risk — a potential loss of $8bn per year, or $64bn by 2030. A third benefit would be lower air and water pollution, which would reduce the risks of early deaths and improve workers’ health and productivity.

The combination of these three benefits would accelerate SA’s economic growth and help create jobs in several green and low-carbon sectors such as renewables and batteries. We estimated, in the “Country Climate & Development Report” recently published by the World Bank that the just energy transition could create as many as 1-million jobs from 2023 to 2050, which will be several times higher than the nearly 300,000 jobs projected to be destroyed. SA will need to implement adequate safety nets and active labour programmes to mitigate negative effects on dismissed workers and local communities.

The just energy transition should also be supported as its costs are not insurmountable: SA can find the resources to finance it. The costs of the transition fall into the following main categories:

• New investment in power generation, primarily in renewable energy — about $66bn until 2030: given the age and condition of the existing coal-fired power plants, renewables are the least-cost option to expand the generation sector;
• New investment in power transmission and distribution — about $11bn until 2030; and
• New measures and investment to cope with the economic and social damage to workers, local communities and municipal governments associated with the decommissioning of coal-fired plants (including mines) — about $20bn until 2030.

SA can arguably attract private domestic and foreign resources to finance new investment in power generation. Developers have been keen to invest in renewables, as demonstrated by the success of the different renewable energy programmes: as much as 6,000MW in renewables were added to the grid between 2012 and 2022. More could come if the country were to unleash the potential of the private sector by streamlining administrative and regulatory procedures and opening the market to greater competition. By taking this approach, Vietnam attracted more private investment in solar energy than the entire Sub-Saharan Africa in 2020.

This would leave the country to find about $31bn ($3.9bn per year). The government spent about $3bn in 2021/2022 to support the financially distressed national electricity company Eskom. This assistance could be cut by half should the government successfully implement a plan to return Eskom to its path of historical excellence, saving as much as $12bn in taxpayers’ money in 2023-2030.

Financing gap

Another source of financing could be advancing and broadening the carbon tax, which the National Treasury has scheduled for 2026. Eliminating the current exemptions and gradually increasing the tax rate could yield about $8bn in additional revenue by 2030.

The financing gap would therefore be about $11bn in 2023-2030, which could be raised from external sources. The international community is ready to provide concessional finance to support SA’s decarbonising effort, as it is partly a global public good. Five donors (the EU, US, Germany, France and the UK) have committed to allocating $8.5bn for this purpose over the next five years, while international finance institutions (particularly the World Bank and African Development Bank) stand ready to assist SA through, for example, budget support and blended financial instruments to reduce the risks for private investors.

Against this backdrop, we hope even climate sceptics would support the implementation of the just energy transition. This would clearly help lower global carbon emissions, but the primary benefit of a rapid energy transition is to the country itself. The gains for SA’s economy and its people would significantly exceed the cost of the transition, and the required financing can be leveraged from available domestic and external resources.

• The authors are senior World Bank economists.