South Africa could achieve higher economic growth if it moves away from coal and adopts renewable energy sources, a report by the World Bank shows.
The Country Climate and Development Report (CCDR) for South Africa was released on Tuesday, ahead of COP27 which kicks off on Sunday, 6 November, in Sharm el-Sheikh, Egypt. The launch was co-hosted by the World Bank and the Presidential Climate Commission.
The report lays out three important transitions for South Africa – this includes a low-carbon transition whereby greenhouse gas emissions are reduced by moving away from coal. The second, a resilient transition, is about putting in place mechanisms to enable vulnerable sectors and communities to withstand or bounce back from climate impacts such as droughts, floods and heatwaves. The third is a just transition which protects the poor and vulnerable from being adversely impacted by taking steps to achieve climate goals.
Overall, the combination of these transitions is expected to cost R8.5 trillion or 4.4% of GDP per year between 2022 and 2050.
Almost half (49%) of the finance will be needed to decarbonise the economy – particularly the power or electricity and transport sectors. Over a quarter (28%) of the funding would be needed to strengthen the resilience of cities and the water, agriculture and transport sectors. Under a quarter (23%) would be needed to ensure a just transition. About R2.4 trillion is needed before 2030, the report indicated.
The World Bank noted that these are estimates that could vary depending on technological innovations and other changes to climate projections, government policies and business and household behaviours – especially beyond 2030.
Higher growth
The World Bank suggests that a low-carbon transition would also help achieve energy security, which is important for economic growth prospects.
To lower emissions, the high-emitting sectors like power generation, which is dominated by coal, will have to transition to renewables. The World Bank sees solar and wind accounting for 85% of the power supply by 2050. Natural gas or storage technologies such as batteries and pumped hydro will also be important for system stability, the report indicated.
The transport sector – the second-highest-emitting industry after power – could lower emissions by shifting to electric vehicles, which the World Bank believes is plausible by the early 2030s. Businesses and consumers will also have to do better to reduce emissions, especially in waste management and the agriculture and polluting industries.
A net-zero economy will ultimately be better for the country’s growth prospects.
“In a scenario where the country achieves net zero, the economy could expand by an average of about 2.3% of GDP per year between 2022 and 2050, which would be more than twice the rate achieved over the past decade,” the report read.
The positive growth would be linked to resolving the energy crisis and resulting in productivity gains and job creation. Higher growth is possible with “broader policy reforms”, the World Bank highlighted.
Among the other steps to improve growth in a low-carbon economy include improved energy efficiency. This is relatively inexpensive compared to investing in new infrastructure because it is a matter of behavioural change by households and businesses. The World Bank estimates this would increase GDP by 2% in 2030.
Expanding carbon pricing – such as a higher carbon tax – would create additional revenue for the government that can be used for public investments and social programmes needed for the transition. The World Bank sees the tax bringing in 1.4% of GDP per year.
The low carbon transition would also attract more foreign investment – which would also bolster the GDP.
Green hydrogen exports could also add another 6% to GDP by 2050. The World Bank noted that green hydrogen technology is still in its infancy. Production of green hydrogen would encourage further investments in renewable energy.
A low carbon transition would also “transform” the country’s GDP structure – in that industries such as renewables, green hydrogen and non-coal mining will expand, while the high-emitting sectors like coal, crude oil and chemicals will decline.
Sources of finance
To finance the hefty bill of R8.5 trillion for the transitions, the World Bank highlights the reliance on domestic private investments – through subsidies or tax rebates to encourage capital flows toward climate-related projects, among other interventions to de-risk green investments. Government can also encourage households and businesses to invest by making them aware of climate risks. Instruments like the Green Finance Taxonomy, which classifies “green” assets, projects and sectors, could also be useful for potential investors to identify these.
The World Bank noted that pension funds, collective investment funds and insurance companies could also provide finance climate action. “These investors own about R10 trillion (or 1.6 times the value of GDP in 2021) in financial assets that could be allocated toward green or climate-focused assets and investments,” the report read.
The development finance institutions such as the Development Bank of Southern Africa and the Industrial Development Corporation – known for supporting infrastructure finance with debt and equity finance – could also support climate-resilient projects.
The World Bank also flags the use of green bonds to raise funding. Blended finance – a mix of public and private finance – is another option for funds.
Public finance such as the carbon tax could raise additional revenue that can bolster public investments in the transition.
Multilateral and bilateral development partnerships are considered critical sources of funding, and would be in the form of grants and concessional finance.
So far, South Africa has only received about R38 billion per year in climate finance, and mostly in the form of loans. Only about 11% was in the form of grants, the report read.
The SA Cabinet recently approved an investment plan for US$8.5 billion from international partners France, Germany, the UK, the US and the EU to support a just transition specifically in the electricity, electric vehicles and green hydrogen industries. The plan is to be announced at COP27.
The country also recently secured about R9 billion as part of the Climate Investment Funds (affiliated with the World Bank) accelerated coal transition investment programme.
The World Bank recommends making use of additional resources from the Green Climate Fund and the Global Environment Facility.-Fin24
