Moving from coal towards renewables is in SA’s best interest, says World Bank

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South Africa can deliver an effective response to the risks of climate change without undermining its socio-economic goals by backing three interconnected transitions. This is according to a new report by the World Bank which lists the three as low-carbon, resilient and just transition.

The combination of the three is expected to cost R8.5-trillion or 4.4% of GDP a year between 2022 and 2050. The new Country Climate and Development report set out how the country can develop a low-carbon, climate-resilient and inclusive economy.

To achieve such transitions there must be structural reforms (such as increased competition, including in sectors dominated by state-owned entities), a more flexible labour market and improvements in fiscal and financial policies, the report found. This would need a much stronger effort to address political and economic challenges in the country.

Both the domestic private sector and external financing, including grants and concessional loans, will have an important role to play in these transitions.

Low-carbon transition

South Africa is one of the most carbon and energy-intensive economies in the world, at 5.6 times higher than the Organisation for Economic Co-operation and Development average, 1.7 times higher than China and 3.2 times higher than the global average in 2019.  

“Moving away from coal toward renewable energy would be in the national best interest,” the report said. “It will help the country address its current energy crisis most urgently and cost-competitively, while lowering greenhouse gas emissions and delivering substantial local health, environmental and economic competitiveness co-benefits.”

Solar and wind are projected to provide about 85% of South Africa’s power supply by 2050. “This shift should start immediately to address the ailing generation capacity, accompanied by an enhanced regional energy market. Using natural gas, battery and pumped hydro storage in later years will provide system stability.”

In transport, which is the second-highest emitting sector, a shift toward electric vehicles is expected from the early 2030s, which will be aligned with the increase in the supply

of more reliable and cleaner electricity. Businesses and consumers will need to change their behaviour, “especially in polluting industries, waste management and agriculture”.

The resilient transition

Climate change, the report said, hurts the country’s infrastructure, productivity, human capital and scarce water resources. “South Africa is vulnerable to rising temperatures and variable precipitation that result in droughts, floods and heatwaves. This vulnerability undermines the country’s ability to achieve its long-term development goals. 

“Extreme weather events are expected to become more frequent and put billions of dollars in public and private assets at risk. Agriculture is directly exposed but the manufacturing and service sectors are also vulnerable through the expected impacts on cities, where over 66% of people and 80% of economic activities are concentrated.”

Most adaptation measures will be needed in the water and agricultural sectors, as well as in cities. These will include investments in irrigation, agronomic practices, sustainable land management and ecosystem restoration. 

“Similarly, land-use planning and compact urban development policies are important to encourage settlements away from flood-prone areas and optimise resilient infrastructure to benefit the poor. Retrofitting existing assets and infrastructure, as well as new investments, will need to be combined with strengthening early warning systems … and post-disaster assistance.”

Poor people will also be disproportionately affected by extreme climate events, such as floods, droughts and heatwaves, particularly in agricultural areas and in informal urban settlements. “Without taking action, it is estimated that about 1-million South Africans will be driven into poverty by 2030 because the highest poverty rates are reported in the most climate-vulnerable regions.” 

The poorest households in cities will, too, be the worst affected by climate risks, as demonstrated by the recent flooding in Durban. “Protecting poor people from

climate shocks will require targeted investments and financial assistance, including in the 

Northern Cape and North West (water stress) and in Limpopo (heat stress). 

In the longer term, their resilience could be supported by introducing aquaculture, high-value crops and agro-processing in rural areas, while the development of sustainable land management and ecosystem restoration could bring climate co-benefits to poor people in urban settlements.

Just transition

Specific actions are needed to mitigate the potential negative effects of the low-carbon transition on poor people, the report said, which could include targeted subsidies to compensate for higher electricity tariffs. 

“More importantly, the government will need to support the 300 000 workers who would lose their jobs in high-emitting sectors (coal, fuel and heavy industries) between 2022 and 2050.” 

Recent estimates for South Africa find this number could be double and that around 600 000 jobs could be lost in the transition. “The government could leverage and strengthen social assistance, labour market intermediation and reskilling and upskilling programmes. More support is also needed for micro, small and medium enterprises and for self-employed businesses (in both the formal and informal sectors). 

The report noted that for each job eliminated, an estimated two to three jobs could be created. “The challenge is that these new jobs will be gradually created over time in non-coal mining activities, renewables and green manufacturing and services, while the job losses will mainly occur in the mid-2030s.”

The government will have to address these two challenges — timing and location — by ensuring the availability of workers with the right skills and “encouraging them to move across sectors and regions”. 

Holistic approach in Mpumalanga

A holistic approach is required immediately in Mpumalanga, the province most affected by the closure of coal mines and coal-fired power plants, the report said.

Bekele Debele, the World Bank’s programme leader for sustainable development and infrastructure, who led the compilation of the report, cited how more than 80% of the country’s coal mining and its coal-fired power plants are in Mpumalanga, where more than 150 000 people are employed in the coal value chain.

“It’s not only employment but also local communities and the local government that get revenues from these high carbon-intensive activities,” he said, “and a transition to a low-carbon economy is going to affect all of that. 

“This means that the government, as a whole, needs to think through what will be Mpumalanga beyond coal. This is not going to be a one-year strategy or a five-year strategy, this is something where the government needs to look forward in the next five to 10 to 20 years. 

“If these are the workers who are going to be losing jobs, could you retrain those employees to get jobs in a different sector, hoping that in those different sectors, just green jobs are going to be created? If they are of an age that they are not going to be retrained or they prefer to retire, what kind of package can the government provide them?”

The transition is going to be a complex process but is “inevitable”, he said. “I think what we’re finding in the report is that it is an urgent action that the government needs to take because this is inevitable — it will happen,” Debele said.

Climate finance

The report notes how, without external support, the domestic financing effort could reduce the resources available for investing in physical and human capital. 

“As climate change is partly a global public good, grants or long-term concessional financing should be made available to support efficient measures toward a low-carbon economy and stronger climate resilience.”

South Africa has not yet become a major recipient of climate financing from donors, having received only about R38-billion a year in climate financing in recent years, primarily in the form of loans. Only about 11% was in the form of grants.