How South Africa can sustainably transition from coal

Occasional Paper 3/2025

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M A R C H 2 0 2 5

Prof William Gumede

Former Programme Director, Africa Asia Centre, School of Oriental and African Studies (SOAS), University of London; former Senior Associate Member and Oppenheimer Fellow,   St Antony’s College, Oxford University; and author of South Africa in BRICS (Tafelberg).

 Abstract

Despite evidence from climate experts that 6% of the world’s coal use must be terminated every year until 2040 to prevent a climate disaster, global coal use continues to rise. The global challenge now lies in securing a just transition from coal. Developed countries – the biggest emmitters – have made funding promises to developing countries that fall far short of what these nations need to transition and adapt, and largely take the form of loans that leave these poorer nations heavily indebted and without any power over how the transition unfolds. In South Africa, about 80% of its power is generated by coal. Mine closure will have a severe impact on millions of already poverty-stricken people. At present, South Africa has no effective plan to mitigate the transition shock on the economy, which could destabilise its financial institutions. So, how can South Africa pursue a just transition from coal that takes into consideration local realities, energy security, development and economic growth, indebtedness, and poverty, unemployment and social stability? The country has well-developed infrastructure, abundant natural resources, and critical minerals, offering opportunities to create a formidable green economy. The way forward is global funding based on grants and investment funding, a focus on technology to clean coal, a massive step-up in developing renewable energy, and a manufacturing, skills and technology revolution. But most importantly, is the need for an industrial policy based on a compact between the state, private sector, and civil society.

Introduction

Following energy shortages generated by the Russia-Ukraine war, and the Middle East conflict, many industrial and emerging powers have either returned to the use of coal for power, whether temporarily, or slowed down on decommissioning of coal plants.

A new December 2024 report from the International Energy Agency (IEA) said global demand for coal is set to hit fresh records every year through at least 2027 (IEA, 2024a). Coal demand in 2024 was about 9% higher than a forecast made a few years ago. The forecast from the IEA sees demand for coal rising to nearly 8.9 billion tons by 2027, about 1% higher than 2024 levels.

While there has been a global rise in the deployment of wind turbines and solar panels, it has not slowed down the use of coal. The IEA states: “Coal is often considered a fuel of the past, but global consumption of it has doubled in the past three decades. At the height of lockdowns related to the Covid-19 pandemic in 2020, demand declined significantly. Yet the rebound from those lows, underpinned by high gas prices in the aftermath of Russia’s full-scale invasion of Ukraine, has resulted in record global coal production, consumption, trade and coal-fired power generation in recent years” (IEA, 2024a: 3).

“Separate to the rise in the use of coal due to energy supply shortages because of the Russia-Ukraine war and the Gaza conflict, accelerating demand for electricity around the world could give coal another boost. Our models show global demand for coal plateauing through 2027 even as electricity consumption rises sharply,” Keisuke Sadamori, the IEA’s director of energy markets and security, said in a statement (IEA, 2024b).

Climate researchers have pointed out that 6% of the world’s coal use must be terminated every year until 2040 to prevent a global climate disaster (GEM, 2023).

In 2015, global nations signed the Paris Climate Change Agreement, which outlined a long-term strategy the world must adopt to keep the rise of global temperatures under 1.5C, the temperature limit compared with preindustrial times (AP, 2025; UNFCCC, 2015). The Agreement proposed that all the world’s coal plants should be closed by 2040, unless they have carbon-removal technology.

A key challenge in the energy transition is how to make renewable energy fully replace coal generation, without imperilling energy security, development, and economic growth (Dresselhuys, 2024).

G7 countries battle to reduce coal usage

In April 2024, the Group of Seven (G7) countries pledged to end what they called, euphemistically, “unabated” coal power plants by 2035 (G7, 2024). It published a pledge to “phase out existing unabated coal power generation in our energy systems during the first half of the 2030s” to curb the rise in global greenhouse gas emissions (G7, 2024).

The G7 nations – the UK, US, Canada, France, Italy, Germany and Japan –had for years struggled to reach agreement on phasing out coal. These seven countries are collectively responsible for one-fifth of global greenhouse gas emissions (Fyson et al, 2022).

The G7 left space for members to continue to use coal beyond the deadline if plants are fitted with carbon-capture technology to prevent emissions from entering the atmosphere. Many G7 and European Union member countries have transitioned from coal to natural gas, which “has acted as a lower-carbon ‘bridge fuel’” (Dresselhuys, 2024).

Germany and the UK have nine coal-fired power plants each in the list of the top 30 CO2-polluting thermal power plants in the EU, according to a July 2024 report called “Europe’s Dirty 30” released today by CAN Europe, World Wildlife Fund, the European Environmental Bureau, the Health and Environment Alliance, and Climate Alliance Germany.

Germany uses more coal to generate electricity than any other EU country, while the UK comes third in absolute coal consumption for power after Poland, according to the “Europe’s Dirty 30” report.

Germany, Europe’s largest economy, was set to phase out coal by 2030. The German statistics office Destatis reported that during July and September 2022, more than a third (36.3%) of the electricity fed into the German power grids came from coal-fired power plants, compared with 31.9% in the third quarter of 2021 (Eckert & Sims, 2022).

In October 2023, to avoid winter power shortages and to replace scarce natural gas, after a sudden drop in Russian imports to Germany, the German Cabinet approved putting on-reserve lignite-fired power plants back online from October 2023 until the end of March 2024. Berlin reactivated coal-fired power plants and extended their lifespans.

In its bid to cut planet-warming emissions in the region by 55% by 2030 from 1990 levels, the European Commission in 2022 proposed a 100% reduction in CO2 emissions from new cars by 2035 (Pole, 2022).  That means it would not be possible to sell combustion engine cars from then. However, the German government refused to accept the EU ban on new fossil fuel cars from 2035. The EU has stated ambitions to reduce carbon emissions, including a pledge to become carbon neutral by 2050 (Le Monde, 2022).

In 2023, France extended the life of its two remaining coal plants, located in Cordemais and Saint-Avold, long after they were initially due to shut down (Cossins-Smith, 2023). Many countries only temporarily shut down coal-fired plants to be brought back online during high energy demands or crises. France brought back its coal plants “as a precaution” to “ensure reliable electricity production” during winter. The French government aims to completely phase out coal power by 2030 (Cossins-Smith, 2023).

In March 2023, the UK called on its reserve coal capacity to manage increased demand following a colder than expected winter (Ambrose, 2024). The UK had in the past pledged to phase out coal by the end of 2024.

Italy, Austria, and the Netherlands in 2023 started up their coal power stations. Italy’s Energy Minister told the country’s Parliament that the country was committed to stopping electricity generation from coal by the end of 2025 nationwide, except on the island of Sardinia (Reuters, 2024a). Italy will move to gas-fired plants instead. It had initially targeted to abandon coal by 31 December 2025; however, Italy’s updated National Climate Energy Plan was revised to end the use of coal only between 2026 and 2028 (Reuters, 2024a). The country is trying to coordinate coal exits until it has brought on board new gas-fired power plants (Reuters, 2024a).

In 2022, Austria announced it would reopen its Mellach power plant in the southern Styria region of the country, which was closed in 2020, over Russian supply shortages because of the war in Ukraine.

The Austrian decision, taken by a “small crisis Cabinet”, was to convert the gas-fired power plant so that it can produce electricity with coal. The Mellach power plant had been shut down but kept on stand-by for coal use when needed. 

Previously the Netherlands had capped coal power to 35% of the country’s power output. In 2022, the Netherlands activated an "early warning" phase of the country’s energy crisis plan when it lifted a cap on production by coal-fired power plants to reduce reliance on Russian gas following the war in Ukraine.

2011 Fukushima nuclear disaster pushed Japan to increase coal

Japan is the fourth-largest economy in the world. The 2011 Fukushima nuclear disaster, when a 9 magnitude earthquake caused explosions at the Fukushima Daiichi nuclear power plant, pushed Japan to increase the amount of coal and natural gas it used. Japan has increased renewable energy capacity, like solar and wind, however, shortage of land limits the expansion. Before Fukushima, nuclear power provided one-third of Japan’s power.

Coal makes up 32% of Japan’s electricity mix. Gas-fired power stations supply 34% of the country’s power. Nuclear power accounts for 10%. The country pledged that renewable energy would account for more than a third of its power generation by 2030 and it would achieve carbon neutrality by 2050 (Irfan, 2024).

Japan is the world’s eighth-largest greenhouse gas emitter. It imports 98% of its natural gas in the form of liquified natural gas. The country has large gas storage capacity, the world’s largest LNG storage capacity, which allows the country to use natural gas energy during periods of power downturns (EIA, 2024). 

Although in 2023 two new coal power stations came on board (Jera, 2023),  Japan’s target is to reduce the share of coal in electric generation from 32% to 19% by 2030. The country’s policies over the past two decades have focused on “clean coal”.

The government not only intends, over time, to get rid of old and inefficient coal power stations, but it is also prioritising developing technologies that reduce emissions from coal. Since 2023, new coal-fired power stations must come with emission reduction measures (EIA, 2024).

It is also working on increasing the efficiency of coal stations through “integrated-gasification combined-cycle infrastructure, carbon capture and sequestration, and fuel blending with ammonia and biomass” (EIA, 2024). 

To continue to keep 12 GW of coal-fired power capacity going beyond 2030, the government has proposed “adding 20% or more ammonia to the coal supply or blending 25% or more wood pellets into the coal boilers to help lower CO2 emissions and keep the plants open” (EIA, 2024). The government is offering, for 20 years, a feed-in-tariff (FIT) paying coal-fired power stations for every kilowatt hour generated by wood pellets in a coal boiler (EIA, 2024). To qualify, coal power stations must keep greenhouse gas emissions under specified limits.

Trump ascendancy to the US presidency may increase coal use

The US Environmental Protection Agency in early 2024 set new rules requiring coal-fired power plants to either shutdown before 2040 or if they stay in operation, to capture nearly all of their climate pollution. It is likely that under new US Republican President Donald Trump, who says climate change is overhype, coal use is likely to rise. Trump in his presidential election campaign promised to deregulate the energy sector, cut environmental regulations, and drill for shale gas.

Coal makes up 16% of US power generation. The US exported more than $5 billion of coal in 2023, as they shipped out more than 32.5 million metric tons of thermal coal, the second highest since 2017.

In November 2024, Texas and 10 other Republican-led states sued BlackRock, State Street and Vanguard, alleging they conspired to curtail supplies to further “a destructive, politicised environmental agenda” (Reuters, 2024b). Texas and the 10 Republican-led states said the large asset managers violated antitrust law through climate activism that reduced coal production and boosted energy prices.

The complaint was filed in the Federal Court in Tyler, Texas. Texas and the 10 Republican-led states accused the companies of exploiting their market power and involvement in climate advocacy groups to pressure coal companies to slash output and reduce carbon emissions from coal by more than 50% by 2030, driving up consumers’ energy bills (Reuters, 2024b). Republicans have used US antitrust laws since 2021 to fight what they alleged is collusion among investment managers to combat climate change.

The lawsuit cites the defendants' investments in nine coal companies, including combined respective stakes of 34.2% and 30.4% in Arch Resources and Peabody Energy, the largest publicly traded US coal producers (Reuters, 2024b). The lawsuit tries to block the companies from making any shareholder decisions that will reduce coal production. Texas Attorney General Ken Paxton, whose office filed the lawsuit, accused the companies of promoting an “illegal weaponisation of the financial industry in service of a destructive, politicised ‘environmental’ agenda” (Reuters, 2024b).

In January 2025, the six biggest banks in the US all quit the global banking industry’s net zero target-setting group, ahead of the inauguration of Donald Trump as US president in anticipation of pushbacks against climate change action from his government (Gayle, 2025). The banks that left the UN-sponsored net zero banking alliance included JP Morgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo, and Goldman Sachs.

The banking industry’s net zero banking alliance (NZBA) was established by the UN Environment Programme finance initiative but is led by banks. Members commit to align their lending, investment and capital markets initiatives with net zero greenhouse gas emissions by 2050 (Unepfi, 2024). In 2022, a number of US Republican states threatened to launch anti-trust legal action against US banks that are members of the NZBA for their commitments to reduce fossil fuels. However, the NZBA group amended the guidelines for action to soften commitments to cut fossil fuels.

In December, the Republican-led judiciary committee of the House of Representatives, the US Congress’s lower house, in a new report attacked what it called “a cartel” of global financial firms and climate activists and civil society organisations of colluding to “impose radical ESG-goals” on US companies (US Congress, 2024).

Countries faced a February 2025 deadline for updated country climate change plans. The outgoing Joe Biden administration in December 2024 proposed a climate change plan for the US in which greenhouse gas emissions will be cut by more than 60% by 2035 (Daly & Borenstein, 2025). On 21 January 2025, US President Donald Trump signed executive orders directing the United States to again withdraw from the Paris Climate Agreement (Daly & Borenstein, 2025). Trump also signed a letter to the United Nations stating the US withdrawal from the 2015 Agreement.

BRICS country coal consumption steady

Coal has dropped to only 4.4% of Brazil’s energy mix in 2023, with its use falling 5% between 2022 and 2023. Brazil ranks 25th in the world for coal consumption, accounting for about 2.4% of the world’s total consumption, and imports 89% of its coal.

Renewable energy sources account for 49% of Brazil’s energy mix, whereas the global national average for use of renewable energy is 15% (Argus, 2024). Natural gas has averaged around 10% of energy used.

Renewable energy – wind, solar, water, biomass, biodiesel, ethanol, green diesel, carbon capture and storage, sustainable aviation fuel and green hydrogen – is the largest energy component in Brazil’s new energy transition policy, making the country a leader in clean energy production.

Brazilian President Lula da Silva (2024) asked recently: “People respect us, because we can go anywhere and say: 80% of our electricity is renewable and 51% of our total energy matrix is already renewable and we can reach 100%. Who would have thought, 30 years ago, that we’d be talking about biomass, biodiesel, ethanol, that we are going to make the energy transition, that we are going to have wind, solar and green biodiesel?”

China enjoys new coal power construction boom

Fossil fuels now make up under 50% of China’s power generation capacity, whereas a decade ago, fossil fuels made up two-thirds. China’s share of coal power generation is around 60%, with its usage reaching an all-time high in 2024 (Slav, 2024).

Coal-fired power is enjoying a construction boom in China, the world’s biggest emitter may be turning a corner (Harvey & Hawkins, 2024). China constructed more coal-fired power plants in the first half of 2024 than any other country, presenting 90% of the world’s new coal plant construction last year (GEM, 2023).

China has been building the equivalent of two new coal plants per week, more than at any time in the past seven years, according to the Centre for Research on Energy and Clean Air and the Global Energy Monitor (GEM, 2023). In coal producing areas in northern China, such as Shaanxi, coal employs more than 8% of the workforce (Tridimas, 2024).

China repositioned coal as a source of continuing use following the 2022 drought the country experienced, which reduced the country’s hydroelectricity capacity, causing factory closures, and the war in Ukraine, which caused global energy shortages and price fluctuations. China sees coal as not only a backup for renewables during weather crises or high energy demand, but also as a form of energy security (GEM, 2023).

China’s grid has many inefficiencies – the country struggles to share power across regions during shortages, energy production is itself often inefficient, and it lags behind on storage capacity. However, the country has recently made big strides in building energy storage capacity (Xinhua, 2025). In China, some regions, cities and districts provide subsidies for energy storage power stations (WEF, 2024).

China’s energy strategy is based on the country’s leader Jinping Xi’s speech to the Chinese Communist Party Congress in 2022, when he said the government led by “the principle of building the new before discarding the old” (Harvey & Hawkins, 2024). This means that the Chinese government tries to reduce emissions in a way that will ensure energy security.

India vowed to ensure its coal sector remains “vibrant”

Although India in recent times has expanded its renewable energy capacity, the country’s coal fleet is still the second largest in the world after China. More than 70% of India’s electricity needs are met by coal. India grew its renewable energy – wind and solar power – by 25 times in the past decade, to 195 gigawatts.

Peak electricity demand in May 2024 reached 250 gigawatts – and it is expected to rise to 300 gigawatts within two years. The Indian government wants to install 500 gigawatts of wind and solar power by 2030. However, the growth of renewable energy installation slowed after 2016. Between 2022 and 2023 the government only installed less than 15 gigawatts a year. It needs between 50 to 60 gigawatts of new wind and solar power per year to meet future demand. The decline has been due to delivery failures, policy inertia, and supply chain challenges (Arasu, 2024).

On the campaign trail in April 2024 ahead of the elections, Prime Minister Narendra Modi said India had achieved an “historic milestone” by reaching the production of one billion metric tons of coal and lignite. Modi said it was proof of the country’s “commitment to ensuring a vibrant coal sector” (Arasu, 2024).

India is planning to build even more coal plants. In 2023, India’s coal demand rose 10%, the biggest of any country. Coal demand in China in 2023 rose 6%, according to the International Energy Agency, and India’s electricity demand is projected to grow 6% annually.

India also suffers from a shortage of energy storage capacity to allow the country to use available energy more efficiently, with less than 4 gigawatts of power storage (Arasu, 2024). India subsidised fossil fuels to the tune of $350 billion per year, according to the IMF. The country exempted coal mining equipment from customs duty, gave knockdown rates for coal transport on long-distance rail, and provided low interest loans to build coal plants (McFarlane, 2023).

South Africa’s coal use

South Africa in 2023 relied on fossil fuels for 83% of its electricity generation. The country’s coal value chain forms a large part of the domestic economy and energy generation infrastructure.

About 80% of South Africa’s power is generated by coal. Its well-developed infrastructure, abundant natural resources such as wind and sun, and critical minerals offer lots of opportunities for the country to create a formidable green economy. South Africa’s coal mining is 160 years old. It directly employs 100 000 people, and its ecosystem and indirect jobs and industries are multiples more.

Five coal-fired power plants and 15 coal mines will likely close by 2030 in South Africa, and another four plants and 23 mines by 2040. This will impact the livelihoods of 2.5 million people, most of them in Mpumalanga. 

There are 66 operating coal mines in South Africa, most in Mpumalanga and KwaZulu-Natal, owned by 32 private companies, with the five largest companies – Seriti, Sasol, Exxaro, Thungela and Glencore – producing 77% of the country’s coal. Coal mines produced 231 million tons of coal in 2022, which translated into earnings of R28 billion and employment of over 91 000 people. And earnings would have been higher, if not for the crisis at state-owned entity, Transnet, which has resulted in lost export revenues of R22.7 billion in 2022.

Research published in the Journal of the Southern African Institute of Mining and Metallurgy said the closure of 15 mines by 2030 will withdraw 29.5 million tons a year (mtpa) from South Africa’s coal production, followed by a further 106 mtpa as an additional 23 mines are closed by 2040. This will have an impact on 69 mining communities and 21 municipalities.

“The impact of mine closure on the 2.5 million residents of host communities will be significant, particularly as levels of income, employment, and education are already very low and many municipalities are in financial distress,” according to the Journal of the Southern Africa Institute of Mining and Metallurgy article authors, Megan J Cole, Mzila Mthenjane and Andrew Van Zyl.

The Journal’s authors say coal mining communities are concentrated in the western part of Mpumalanga and north-western KwaZulu-Natal, where just under 40% live below the poverty line of R19 600 annual household income, and over 39% are unemployed. Mine closures will impact on these poverty-stricken communities; and will reduce the funds for municipalities, businesses and income tax depending on income from mine companies and employees.

Renewable energy investment around the world has produced double the number of jobs compared to fossil fuels. “Many of these communities have experienced mine closures and do not have the skills and opportunities to take advantage of the inevitable transition, let alone the transition to clean energy”.

A recent South African Reserve Bank paper warned that South Africa has no effective plan to mitigate the transition shock on the economy, the drastic cut in coal production and utilisation that the country’s commitments to climate change goals requires (Monnin, Sikhosana & Singh, 2024).

Six industrial sectors are disproportionately exposed to climate change transition risks: the fossil fuel, utilities, energy-intensive, transport, housing and agriculture sectors. Around R980 billion of corporate credit loans of South African banks are tied up in sectors, called “transition-sensitive economic sectors”, which are vulnerable to the global energy transition.

The South African Reserve Bank warned that the transition shock, unless it is mitigated with adequate policies, currently absent, could destabilise South Africa’s financial institutions.

“Losses in some segments of the financial sector, even compensated by gains in others, may affect the system at large and trigger a degree of financial instability,” said the Reserve Bank researchers.

Standard Bank, Africa's biggest lender of assets, has defended its investment in fossil-fuel projects, saying the continent's energy needs have to be balanced with climate concerns (Burkhardt, 2023). Africa accounts for only 4% of global greenhouse gas emissions. Standard Bank’s exposure to coal mining, oil and gas, and power generation from fossil fuels rose 21% in 2022. The bank’s lending to green-power initiatives rose 84% over the same period. Standard Bank’s lending to coal mining, oil and gas, and power generation from fossil fuels was still five times that of its investment in green power (Burkhardt, 2023).

“It is not possible for Africa and many of the African countries to ignore the shortage of electricity supply,” according to Kenny Fihla, Chief Executive Officer of Standard Bank’s corporate and investment banking unit, said in an interview in 2023 with Bloomberg news agency. “Today's challenges are not going to be resolved overnight and therefore a much more balanced approach is required.”

Industrial countries increased fossil-fuel subsidies

Many industrial countries have also increased fossil-fuel subsidies for their domestic companies and households to reduce energy prices (Black, Parry & Vernon-Lin, 2023; IMF, 2023). The OECD (2022) found that total global subsidies for fossil fuels doubled in both 2021 and 2022.

Industrial countries and emerging powers collectively paid out $7 trillion in 2022, for producing coal, oil and natural gas, in the form of subsidies such as tax breaks and price caps (IMF, 2023). The fossil-fuel subsidies increased by $2 trillion over the past two years.

Fossil-fuel subsidies rose during the global increase in energy prices caused by Russia’s invasion of Ukraine and the country’s economic reboots following the Covid-19 pandemic. The subsidies were the equivalent of 7.1% of global gross domestic product. China is the biggest subsidiser of fossil fuels, followed by the US, Russia, India, and the EU.

Climate change funding needs to be sustainable for recipient developing countries

The UN estimated that combined developing and emerging countries, including Africa, need $2 trillion annually by 2030 to deal with climate change. In 2009, in the New Collective Quantified Goal for climate finance, devised at the Copenhagen Climate Summit, developed countries promised $100 billion annually by 2020 to support developing countries to meet their climate change targets.

At the 2015 Paris Agreement, developed countries extended the commitment to 2025. However, developed countries only met the $100 billion yearly target in 2022. African countries have called on industrialised countries to “scale up climate finance to make up for the shortfall caused by failure to deliver $100 billion per year by 2020 and through 2025”.

If countries like South Africa are to make good on their climate target objectives, annual climate financing commitments from developed countries need to increase more than tenfold to “at least $1.3 trillion (R23.02 trillion)” annually, according to South African Forestry, Fisheries and Environment Minister Dion George, speaking at the National Stakeholder Consultation on South Africa’s negotiating mandate ahead of the UN Climate Change Conference (COP29) in Baku, Azerbaijan.

At COP29 in 2024, rich countries pledged $300 billion a year for climate finance, however, the funding promises from these nations were criticised by developing and African countries as too little. The climate finance that is available often does not include funding for climate adaptation – dealing with the floods, fires and hurricanes caused by climate change.

“Without a dramatic upscaling of international support, developing country governments may not be able to implement the necessary pace and scale of emissions cuts to keep 1.5°C in reach, nor to put in place adequate adaptation measures to cope with the worsening impacts of climate change” (Fyson, 2022:5).

The G7, for example, has been criticised for the fact that “none of the G7 members are providing sufficient support for decarbonisation measures in developing countries” (Climate Action Tracker, 2021).

However, even where promised climate change funding from developed countries has been given to developing countries, it has been based on the outdated development aid model of developed country loans with conditions, including using advisors, companies and plans from donor countries, which in an overwhelming number of cases are misguided.

Such climate finance allows donors to claim they have contributed, but the donor money is recircled back to the donor countries, with high interest rates, with companies, experts and ideas – with little knowledge of local needs – from donor countries used as part of the conditions.

This is the classic development model, which has caused developing countries so much harm, with little positive impact, and with massive loans to repay, while doing hardly anything for combating climate change. Very little of the funding is fit for purpose.

An Oxfam analysis of developed country funding for climate change concluded that only a small amount of the promised funding has been delivered. And where money was given, it was mostly in the form of punishing loans, with very few grants. Not much has been provided to help developing nations with adapting to climate change. Worse, many developed nations have been dishonest in the way they report their financial contributions, exaggerating the amounts they have given.

Oxfam uncovered that many developed countries are guilty of misleading accounting, reporting funding for climate change to developing countries, when the funding never actually reached the supposed beneficiaries. Rather, the funds were being used to pay donor country consultants, agencies and plans.

Global private companies are reluctant to finance high-risk climate projects in developing countries. Firstly, private investors demand that African governments, or private companies, provide ‘bankable’ projects, often meaning low-risk projects with high or immediate returns. International funding for climate change should prioritise high-risk, low-return climate projects, for which developing countries struggle to secure funding. For another, funding should also prioritise start phase project preparation and development, as many developing countries lack project preparation capacity, resources and funding.

South Africa’s climate change funding from developed countries will leave the country indebted, without a sustainable transition  

South Africa received $11.6 billion in climate change funding from developed country donors to shift to renewable energy, and to prevent economic decline during the movement away from coal. Sadly, the overwhelming majority of the funds were old-style development aid-type loans, with conditions including the use of consultants, organisations and ideas from donor countries. Grants make up only $676 million of the total.

This means that South Africa will be indebted, while the ‘funding’ is recycled to donor organisations, consultants, and to generate donor-country ideas. Very little of the money is likely to go to South African organisations, expertise or South African-generated ideas, or to local communities. Furthermore, by ‘giving’ donor funding to developing countries, donor governments dictate to developing countries how they should pursue their climate change transitions – often without consideration for the context of these countries.

Yet, developing countries do not have the same power to dictate to developed countries – the major emitters – how they should pursue their climate transitions. Global climate financing from developed countries to developing countries therefore entrenches the existing skewed power inequalities in favour of developed countries.

Of the money, so far, $1.9 billion has been spent, mostly as policy-based loans to the government; the other large proportion has gone to agencies, consultants and organisations from the donor countries. Even funding that ostensibly goes to projects to revive the coal belt province, Mpumalanga, went to consultants, donor development agencies, or to support donor-originated development ideas. A planned green hydrogen hub, skills training and community development similarly went largely to consultants, donor development agencies, and donor country origin ideas.

In 2019, South Africa enacted a carbon tax, which industry has criticised as too onerous. Furthermore, Eskom, the state power utility, has been criticised for passing the cost of the transition to renewables on to customers.

It was revised recently and will come into effect in 2026. A National Treasury policy paper released in November 2024, indicated that the carbon offset allowance for combustion emissions will be increased to 25% in 2026, from 10%. This will be counterbalanced by cutting tax-free allowances from 60% to half in 2026 and by a further 2.5% annually until 2030 (National Treasury, 2024). The amended National Treasury proposal in the policy paper replaced a 3.5c/kW levy on non-renewable power with the carbon tax. The big challenge will be how to prevent Eskom from passing on the cost of the transition to renewables to customers.

Way forward for South Africa

The challenge for South Africa is to secure a just transition from coal. A just transition “is a process aimed at ensuring the benefits of a green economy shift are shared widely, while supporting those who may lose out economically, whether nations, regions, industries, communities, workers or consumers” (Teixeira, 2022).

Global funding for climate change to South Africa must be in the form of grants and concessional financing that can be allocated to create enabling environments for climate change investments. The funding for the just transition must not be in the form of loans, as is currently the case, but rather, it must be based on grant and investment funding.

South African Forestry, Fisheries and Environment Minister Dion George said that by “de-risking investments and creating new asset classes for clean technologies, we can unlock and leverage greater amounts of public and private finance” for climate change.

South Africa must either renegotiate the terms of the $11.6 billion climate change loans it received from developed countries’ donors, or change them to grants, and change the provision that says donor country agencies, staff, ideas and ideologies must be used in the design of South African just transition projects.

Countries have specific timetables to transition from fossil fuels to renewable energy, based on their domestic circumstances. South Africa must identify a timetable that takes into account local contexts, one which ensures energy security, development needs, and stability.

“The South African approach to the just transition needs to take local realities into account, and the narrative must support an effective transition that does not undermine energy security and economic growth,” rightly argues the authors from the Journal of the Southern African Institute of Mining and Metallurgy.

South Africa must pursue a triple energy generation strategy: coal, gas and renewables. This can be done by collaborating with African neighbours to apply comparative advantages. Sadly, many of South Africa’s neighbours are politically unstable, with autocratic governing parties and leaders mismanaging their countries, meaning their economies are also unstable, so it will not always be practical to partner with energy producing neighbours to leverage comparative advantages. 

Unlike many of the G7 countries, South Africa is struggling with gas resources. Mozambique, with its gas resources, has been run autocratically for years by the liberation movement Frelimo, and the country is facing a civil war. Sasol, the petrochemical giant, for example, has said the company will have to recalculate its carbon emissions target, set in 2021, for a 30% reduction in emissions by 2030, as it may not be achievable due to gas shortages (Faku, 2024). 

Given South Africa’s coal bounty, there has to be more focus on technology to clean coal. Japan is a good example of a country that prioritised a policy of producing “clean coal” over the past two decades. South Africa can also fit its coal plants with carbon-capture technology, as many G7 nations have been given the option to do, to prevent emissions from entering the atmosphere.

There are lessons to be learnt from Japan’s “clean coal” strategy (Hakko & Petersen, 2024). Japan has focused on “efficient coal power”, which gets more energy from less coal through advanced technologies and coal plants (IEA, 2020). In 2007, Japan introduced the abatement technology of carbon capture and storage (CCS), which can secure 90% emission reductions. The country also introduced co-firing coal and ammonia, to reduce emissions.

Ultimately, for South Africa, there has to be a massive step-up in the development of renewable energy, wind and solar. Brazil is a great example of how to develop the full spectrum of renewable energy – wind, solar, water, biomass, biodiesel, ethanol, green diesel, carbon capture and storage, sustainable aviation fuel, and green hydrogen.

South Africa needs a manufacturing, skills and technology revolution linked to renewable energy. Green hydrogen is a key source of renewable energy in which the country must invest. Any laws or regulations, ideologies and policies inhibiting the development of renewable energy will have to be abolished.

The South African government must provide substantial incentives to families and business to install solar technology, like Vietnam did to kickstart its renewable energy programme (Govindarajan, Bin Mohideen Batcha & Bin Abdullah, 2023). Consumers who have excess power must be able to channel it back into the power grid and get compensated for it.

Coal power stations that have been decommissioned could also become sites for renewable energy generation and energy storage (Dresselhuys, 2024). Coal power stations can be adapted for renewable energy generation.

“These legacy coal assets offer an opportunity. Instead of abandoning coal-generating sites, many are good candidates for conversion to clean energy hubs where the large tracts of land and existing grid connections can rapidly connect renewable capacity without the need for new transmission infrastructure” (Dresselhuys, 2024).

South Africa will have to establish greater energy storage capacity. Kristen Panerali and Zhang Xun write that the industrial energy storage sector offers promising opportunities (WEF, 2024). “On the one hand, the market potential is vast, with an increasing number of industrial users recognising the importance of energy storage and showing a growing willingness to install storage systems. On the other hand, industrial companies are confronted with high costs of the procurement and deployment of energy storage systems, such as land acquisition, grid connection and financing” (WEF, 2024). In China, different levels of government provide subsidies for energy storage power stations (WEF, 2024). South Africa can learn from this.

To make it all happen, there has to be an effective industrial policy to make the shift from fossil fuels to renewables that involves the state, private sector, and civil society in a compact. Corruption, cadre-deployed state managers overseeing state implementation, and giving tenders to politically connected businesses based on patronage will have to be eliminated.

The just transition policy must be put together by local expertise, entities and groups, and with local ideas, not based on the outdated development aid model where foreign funding comes with foreign companies, foreign expertise and foreign ideas.

Conclusion

The challenge for South Africa is how to pursue a just transition from coal that takes into consideration local realities, which means not undermining the country’s energy security, development and economic growth, not leaving it highly indebted to developed countries, and not multiplying poverty, unemployment and society instability.

Many G7 and emerging powers have specific timetables to transition from fossil fuels to renewable energy, based on their domestic circumstances. South Africa must identify a timetable that takes into account the local context.

A prerequisite for any successful just transition framework is the absolute need for an industrial policy that is not based on fundamentalist ideology, wishful thinking or state control, but rather, it must be compact driven, involving the state being in partnership with the private sector, public institutions, professionals and civil society.

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This report has been published by the Inclusive Society Institute

The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals.

Email: info@inclusivesociety.org.za

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