Taking stock of South Africa's environmental journey in the wake of COP27

In South Africa, about 80% of its electricity was generated from coal in 2022, according to the CSIR. However, the aim is to close more than half of its old and unreliable coal-fired power stations and replace them with new solar and renewable sources, by the end of 2030.

Eskom, has, and continues to, struggle with the provision of consistent electricity. With any planned sharp and material reduction in the reliance on coal, despite the climate benefits, citizens and miners fear the plan may end up costing hundreds of thousands of jobs, resulting in unintended social consequences for the nation. 

The issue of the energy crisis and ensuring a continuous supply of electricity has been a prominent topic in South Africa, particularly during the 2023 SONA in February. The focus of the speech was on addressing Eskom's debt burden and providing incentives to promote the use of renewable energy sources for electricity generation.

After almost a decade of mismanagement and accusations of corruption, Eskom is struggling to keep the lights on. Despite providing over 80% of South Africa's intermittent electricity, the company's two newest coal-fired power stations, the Medupi and Kusile facilities, are facing issues with cost overruns and design flaws. More than 10 years after construction began, the combined 9GW capacity of these power stations still does not flow to the grid.

The purpose of COP27 - 'the Africa COP'

The 27th session of the annual Conference of the Parties (COP27) took place in Egypt in November 2022. The objective of the conference was to map out a sustainable path to reduce carbon emissions and limit the effects of climate change. At the conference there were high hopes that the African continent would move towards using more renewable energy resources. It provided delegates with an opportunity to review the progress made in achieving the objectives set out in the Paris Agreement, an international treaty on climate change signed by 196 Parties at the COP21 in 2015. These commitments aim to deliver on several environmental goals, including reducing emissions to net-zero by 2050 and limiting the global temperature rise to 1.5 degrees Celsius by the end of the century. 

Importantly, holding developed countries accountable for their role in climate change and encouraging investments in technologies that would decrease carbon emissions are expected to facilitate the shift from fossil fuel-based energy production to sustainable alternatives, such as wind and solar. 

What progress is expected in the wake of COP27?

Many argue that the conference did not achieve the desired impact with regards to the requisite commitment. Nor did it evidence a material draw down in global emissions.  This appeared to be the biggest failing of the conference. It failed to emphasise the need for a more aggressive approach in cutting emissions given the time constraint in achieving the goal of limiting the temperate rise.

One key breakthrough was announced regarding the joint commitment by members towards loss and damage funding for vulnerable countries impacted by climate disasters.  

Where does South Africa stand with regards to its commitments?

Figure 1 below shows South Africa’s historical carbon emissions from 1990 to 2020 on the left, in black. Thereafter, the colour bands show the forecasted rating categories in achieving the global temperature rise target by 2100. There are two potential pathways of action that can be taken in reducing emissions – the current trajectory of policies and action or the implementation of planned policies. Based on the current policies and actions, South Africa’s progress is considered “insufficient” in meeting its commitments:

Figure 1: SA’s GHG emissions (MtCO2e/year) and scenario projections up to 2030.

As it stands, and evident in figure 1 above, the rate at which South Africa’s current policies and frameworks are being implemented are not sufficient to meet the ambitious goal of reducing carbon emissions over the short term. The structure of SA’s fossil fuel-dependent economy and the slow switch over to renewable energy sources are some of the main reasons the country is not on track to meet its commitment. If the planned policies are implemented, we expect South Africa to fall within the target set by the NDC. This is estimated to rate SA’s temperature contribution at <2 degrees Celsius which is “almost sufficient”. To align to the goal of 1.5 degrees, policies need to be reviewed and a more aggressive approach adopted. 

Despite the above, there has been progress:

South Africa has made progress towards reducing its greenhouse gas emissions. One of the important initiatives it took was implementing the Climate Change Bill. The Bill aims to reduce carbon emissions by 45% by 2035, compared to the 2010 levels. The country also adopted the Integrated Resource Plan (IRP) to phase out coal and switch to renewable energy production. Such measures showed South Africa is committed to achieving the goals set by the Paris Agreement.

In the recent national budget speech, tax incentives were put in place to encourage businesses and households to turn to renewable energy sources. Businesses will be able to reduce their taxable income by 125% of the cost of renewable energy investments for the next two years. Individuals can claim a rebate of 25% for solar panels only and are limited to R15 000 spend. This is in line with the key interventions noted by the President at the February 2023 State of the Nation Address that are aimed at addressing the issue of restoring South Africa’s energy security, namely: 

• Fix Eskom’s coal-fired power stations and improve the availability of existing supply;
• Enable and accelerate private investment in generation capacity;
• Accelerate procurement of new capacity from renewables, gas and battery storage;
• Unleash businesses and households to invest in rooftop solar; and
• Fundamentally transform the electricity sector to achieve long- term energy security.

Encouragingly, South Africa's plan to phase out coal was endorsed at the COP27 climate conference. Pledges of $8.5 billion were signed by officials from UK, France, Germany, the US, and the EU to assist in funding the country's initial steps. 

What more can be done and how can this be fast tracked?

Developed countries, who are responsible for the vast majority of carbon emissions to date, need to provide the leadership, innovation and funding required to ensure a smooth transition to a low-carbon future.

The South African government must do more to incentivise renewable energy production and focus on widening access to renewable energy sources. The urgency of the climate crisis demands bold political action and collective responsibility. Leaders must act decisively to reduce greenhouse gas emissions, promote clean energy, and support climate resilience in vulnerable countries. To fast-track progress, South Africa requires strong policies and practical frameworks that enable and support the transition to a low-carbon future. Raising awareness, collaborating, and educating the market may encourage behavioural change, which, in turn, would contribute towards creating a sustainable world for future generations.

Further to this, successfully restricting our energy provider and dealing with corruption and theft will go a long way in terms of improving the energy situation in South Africa, which would then allow us as a country to focus on our planned reduced reliance on fossil fuels.

While initiatives like COP27 are designed to bring governments together to accelerate global efforts to confront the climate crisis, the implementation and investments into key areas are crucial. Notwithstanding the progress made in tackling climate change, South Africa has a long way to go. Structural reform and the deployment of funds to alternative energy sources are crucial to achieving this transition to a new climate future. Thus, by implementing sustainable approaches towards energy production, South Africa will be able to reap the benefits of a cleaner environment while enhancing economic growth. DM/BM

Author: Alyssa April – Quantitative Analyst at Prescient Investment Management.

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