The 'just transition' for South Africa

Time of article published Aug 2, 2020

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By Miyelani Mkhabela

JOHANNESBURG – Supporting business, governments and society in their transformation to deliver on the Energy and Materials future, while ensuring resilience for today’s challenges. Today’s global energy and materials industries are characterised by significant shifts, which are creating new opportunities.

How is South Africa positioned with energy preparation to support the industry’s producing raw materials?

New trends and technologies are changing the way energy is produced, delivered and consumed. In parallel, and under the current production-consumption model, world demand for raw materials could double by 2060.

Who will benefit from this world demand for raw materials anticipated to double and what plan’s do we have as a nation, to be a global supplier of selected materials in huge quantities?

How is our current Production Possibility Frontier and how can we change resources and materials to respond to future demands?.

South Africa's manufacturing production crashed 49.4 percent year on year in April of 2020, following an upwardly revised 5.5 percent slump in March. The downturn in manufacturing output was extended for an 11th consecutive month and was the sharpest on record, reflecting the strong impact of the global pandemic and a nationwide lockdown to control it.

Output declines were seen across all categories, primarily motor vehicles, parts and accessories and other transport equipment (-98 percent vs -8.3 percent); glass and non-metallic mineral products (-83.4 percent vs -16.7 percent); textiles, clothing, leather and footwear (-75.5 percent vs -11.9 percent); furnishings (-83.5 percent vs -3.3 percent); basic iron and steel, non-ferrous metal products, metal products and machinery (-65.4 percent vs -8.3 percent); coke, petroleum products (-63.9 percent vs -21.7 percent) and rubber products (-77.2 percent vs -9 percent). On a seasonally adjusted monthly basis, manufacturing production plunged at a record 44.3 percent, after falling 1.2 percent in the prior month.

Boosting the South African manufacturing industry will benefit the economy with jobs and gross domestic product (GDP) per capita. The beginning of turning around the South African economy, starts will solving the energy crisis and investors will be attracted to entrust their assets in a country that has a good future and that has learned from its own mistakes of poor governance and accountability principles leading to the economy to collapse.

Investment, innovation and public-private collaboration are needed to accelerate the transition to a more sustainable, secure and affordable energy system, while optimising the net social and economic value delivered by materials. Strong partnerships and commitments within the energy and materials industries and across their value chains are essential to galvanise these actions.

A just transition secures the future and livelihoods of workers and their communities in the transition to a low-carbon economy. It is based on social dialogue between workers and their unions, employers, government and communities.

A plan for just transition provides and guarantees better and decent jobs, social protection, more training opportunities and greater job security for all workers affected by global warming and climate change policies. Documenting best practice in social dialogue processes through interviews, videos, reports and case studies.

Starting and supporting social dialogue processes involving unions, communities, government and business, with participation from investors and experts. Strategic input to national and global policy dialogues and planning on just transition.

Ensuring energy access is a human imperative, as highlighted by the United Nations Sustainable Development Goals, “Be it for jobs, security, climate change, food production or increasing incomes, access to energy for all is essential.” The 1 billion people without access to reliable, modern electricity and the 3 billion people who lack access to modern cooking solutions need the energy necessary to overcome poverty, join the modern economy and attain better living standards.

Ensuring universal access to affordable electricity by 2030 means investing in clean energy sources such as solar, wind and thermal. Adopting cost-effective standards for a wider range of technologies could also reduce global electricity consumption by buildings and industry by 14 percent. This means avoiding roughly 1 300 mid-sized power plants. Expanding infrastructure and upgrading technology to provide clean energy sources in all developing countries is a crucial goal that can both encourage growth and help the environment.

Enabling clean energy access is also a climate imperative, developing countries such as South Africa and the Rest of Africa markets must meet their Paris Agreement targets and that will realize the aspiration of leaving no nation behind from the just transition. Accelerating access to sustainable energy in the developing world is central to the energy transition.

Bank of England to measure financial firms’ exposure to climate change as it warns “risks are already starting to crystallise”. The report has estimated that the economy could lose up to $20 trillion due to climate change risks. There is still a significant amount of analytical work to be done in order to equip central banks and supervisors with appropriate tools to identify, quantify and mitigate climate risks in the financial system. The Bank of England has warned that the risks posed by climate change to the financial sector must be dealt with in order to maintain its stability.

Chair of the NGFS Frank Elderson says: “Climate-related risks are a source of financial risk and it, therefore, falls squarely within the mandates of central banks and supervisors to ensure the financial system is resilient to these risks.”

Developing nations need to understand their infrastructure development structures and mitigate risks as countries with small fiscus such as South Africa, cannot afford to transition without a clear medium- and long-term planning. The South African banking industry must work with public sector on a just transition plan suitable for the South African economy, we must apply benchmarking tools to ensure we are doing things at the reasonable planning pace affordable for our economy.

South Africa is expected to have its own energy transition that mindful to the current infrastructure development we have, with newly established infrastructure megaprojects at Eskom, acknowledging that South Africa has unique challenges to most developed nations will assist our banking industry to remain relevant to the market while working with the government on the just transition for South Africa.

The critical levers to accelerating sustainable energy access portrays improvement, The past 15 years, an estimated 650 million people gained access to electricity. In fact, 2017 was likely the first year in human history that less than 1 billion people lacked access to electricity. The increase in the percentage of the population throughout many developing countries, highlighting the dramatic increase in electrification rates.

South Africa has done well the first 10 years of democracy in electricity rollout mainly in underdeveloped areas and deep rural areas. That progress clearly shows that South Africa can do better in energy infrastructure development and the just transition.

Policymakers must recognise that the traditional approach to universal access – the extension of centralized solutions such as electricity or gas grids – is only one piece of the puzzle. The historical centralised-only approach will become increasingly inadequate as the electrification challenge focuses on reaching the millions of rural households and businesses throughout South Africa and the rest of Africa markets.

Independent and financially healthy public and private utilities are critical to maintaining the sustainability of the system and to attract private capital. Today, a minority of public utilities in sub-Saharan Africa are financially solvent. Utilities must have an independent investment from the private sector to increase governance and accountability principles.

Utility governance, investments and operations need to follow sound commercial and economic viability criteria, and that will be a great solution for Eskom, which needs high attention to quickly turnaround for the nation to build industries that will produce the most expected materials boom between 2040 and 2060. Improving regulatory models that enable innovative partnerships between distributed and off-grid energy providers can improve the financial health of electric utilities while expanding clean electricity access.

To create the enabling environment for new business models and technologies to flourish, an innovative and holistic view towards regulation should be incorporated. The right regulatory environment must exist for distributed energy access to emerge at scale. Where helpful, a lean, nimble and independent regulator can increase certainty to investors.

Financial innovation can unlock energy access investments. This includes mechanisms for managing jurisdictional and currency risk, enabling greater levels of local and foreign financing. There are multiple models that can be showcased with risk mitigation instruments or early-stage riskier exposures. Specific programmes to support local project development – technically and financially – can be very effective in catalysing investments.

The pace of the energy transition is accelerating beyond what many industry analysts and observers have forecast or even acknowledge, and past assumptions may no longer hold true when it comes to projecting the energy future. We acknowledge that South Africa is not on track to meet the Paris Agreement goals.

The South African government approved its Integrated Resource Plan (IRP2019) in October 2019, confirming the trend change in power sector planning indicated in the draft for comment from August 2018. The plan reduces the role of coal compared to previous planning and increases the adoption of renewables and gas. Unlike earlier drafts, the IRP2019 proposes extending the operational lifetime of South Africa’s sole nuclear power plant by 20 years, up to 2044.

The final plan marks a major shift in energy policy, which is remarkable for a coal-dominated country like South Africa. It aims to decommission over 35GW (of 42GW currently operating) of coal-fired power capacity from state-owned coal and utility giant Eskom by 2050.

Policymakers, business leaders and investors must address four key issues to enable these solutions to flourish. These are:

Governments and utilities companies must adapt planning processes to recognize the central role of distributed energy solutions.

Governments must allow – and utilities companies must strive – for the financial sustainability of the public utility sector.

National regulatory environments must encourage solutions, such as mobile money and distributed energy.

Concessional capital and fiduciary capital must partner to manage jurisdictional and foreign exchange risk to enable greater capital flows.

It must also continue to create innovative funding solutions for infrastructure Megaprojects domestically and necessitate the future deployment of blended finance solutions, whereby development finance, philanthropy and commercial finance each take on the level of risk/returns that are commensurate with their ability to absorb potential losses for a given level of impact.

Miyelani Mkhabela is a CEO and Economic Strategist at Antswisa Transaction Advisory Services, contactable at www.antswisa.co.za , [email protected] and tweet @miyelani_hei

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