The South African Government’s $8.5 Billion Financing Plan To Reduce The Country’s Dependence On Coal

The South African Government's $8.5 Billion Financing Plan To Reduce The Country's Dependence On Coal

There’s a lot of excitement at the Cop26 climate negotiations in Copenhagen about a financial package to help South Africa shift away from coal. Glasgow, the UK, has been the scene of a flurry of announcements aimed at encouraging poor nations to move away from using the worst kind of fossil fuel.

Coal plants will be phased out and renewable energy will be deployed more quickly thanks to an $8.5 billion package of grants and concessional financing from France, Germany, the United Kingdom, the United States, and the EU. For coal-mining districts, electric car manufacturing and renewable hydrogen production are among the possible new jobs that may be created.

A “watershed moment” was characterized by South African president Cyril Ramaphosa. A “just transition” in emerging countries must be supported by industrialized economies, South Africa has advocated for years. When it comes to making these promises a reality, this is a first-of-its type alliance and a model for such collaboration throughout the world,” he added.

The “signal to a change towards a future where financing is available to assist in the transition away from coal,” according to the statement by Leo Roberts, research manager for think tank E3coal G’s transition team. With a plethora of promises to abandon coal, this model might be replicated by others.

New Financing Plan

By signing on to a pledge to not develop or invest in new coal power plants, Indonesia, Vietnam, and Chile join a group of 18 nations that have agreed to phase out coal plants by the year 2040.

Sri Mulyani Indrawati, Indonesia’s finance minister, indicated earlier that the government might phase out coal power by 2040, with the help of the international community. This is a significant departure from the country’s prior climate submission to the UN, which projected coal to meet 38% of energy demand in 2050.

Communities in Indonesia, like those in South Africa, are heavily reliant on coal mining and may suffer as a result of a shift to renewable energy if there is no economic recovery. As part of the deal, like it’s shown here, the Climate Investment Funds (CIFs) announced that they will invest $500 million of the $2 billion Accelerating Coal Transition (ACT) program in South Africa. US, UK, Germany, Canada, and Denmark are among the donors to a new international fund to assist poor nations transition away from coal.

As part of a plan to help developing countries shift from coal to renewable energy, Indonesia, India, the Philippines, and South Africa are the first to benefit. Moreover, 15% of the world’s coal-related emissions come from these two sources.

As a result of Eskom’s request for $10 billion in foreign financing, South Africa made a bid for the money to assist close most of its coal-fired power facilities by 2050.

An estimated 87% of the country’s power comes from coal, and it accounts for 20% of its liquid fuels.

In order to reach South Africa’s climate goals, it is significant to make the country’s energy system decarbonized. Beyond reducing coal’s impact on the environment, the agreement aims to provide new opportunities for people to earn a living.

Energy policy analyst Jesse Burton, who studies the South African coal industry, said the plan might assist solve some of the technical issues that have been hindered by Eskom’s enormous debt.

“However, the details of how the pot of money would be divided must be worked out.” There can’t only be a focus on renewables, but on a just transformation,” she remarked.

South Africa Economic Outlook

The economic prognosis for South Africa in 2022 and beyond is quite unpredictable. A robust global economy and fewer draconian lockdown restrictions over the coming year will help the country, but it will also see a rise in local immunization rates.

On the other hand, numerous issues from 2021 still need to be addressed. As a result, there is a lot of strain on municipal budgets, as well as on the global supply chain. 

According to the plan, the stimulus that was put in place two years ago has begun to be reined in. Interest rates in South Africa have begun to rise as the country’s budget deficit continues to shrink. Fiscal and monetary policies will progressively become less accommodating during the next three years.

After Nigeria and Egypt, South Africa is Africa’s third-biggest economy. About US$ 302 billion was South Africa’s GDP in 2020. In spite of being predominantly mining-based, the nation has developed world-class manufacturing capabilities: exports are increasing and diversifying from raw materials to industrial goods. Nearly one-fifth of all exports are vehicles and equipment. The country’s booming service sector accounts for roughly 73% of GDP.

As a result of this, South Africa’s GDP shrank by a remarkable 7% in 2020, making it the largest economy to decrease in the world at that time. Three waves of COVID-19 infections and the pandemic’s structural limitations were to blame for the economic collapse. South Africa’s long-term economic trend may be returning after a slowdown in global growth and some encouraging indicators in the first quarter of 2021.