Saliem Fakir is Executive Director of the African Climate Foundation
Climate finance is largely viewed as a form of finance that is locked in narrow negotiations at the UNFCC Paris process and climate talks revolving around the $100 billion/annum target. This target is still to be met but it is also clear it will be a trickle compared to the needs for energy transitions and global resilience investments that need to be put in place.
Also, it has largely been treated as a form of aid support, particularly for adaptation work in Africa, rather investment support needed for economic transformation on the continent. Climate finance needs to be linked to the development pathways that Africa needs for the next two decades; particularly around sustaining reasonable and balanced economic growth – meeting the need for increasing national income and income for households.
Such economic growth should unlock potential in other low carbon economic sectors such as in renewables, electric vehicles and batteries amongst other things. In the long run this should reduce dependency on the export of raw commodities and helps to diversify African economies through a structured process of industrialization and for that matter exports of high value agricultural products and services. It ought to also reduce imports of fossil fuels.
The work of the African Climate Foundation as a philanthropic foundation is to identify a pipeline of initiatives, which we refer to as country platforms to support energy and resilience transitions. One example of this is the Just Energy Transition Transaction (JETT) for South Africa that has secured a pledge for $8.5 billion worth of climate finance from bilateral and multilateral sources of funding (largely public funding).
Climate finance needs to be linked to the development pathways that Africa needs for the next two decades; particularly around sustaining reasonable and balanced economic growth
The $8.5 billion package is currently being negotiated between the South African government and international partners who have committed to ensuring that this deal will support various infrastructure financing needs for South Africa’s energy transition. The deal is meant to provide blended finance options and facilities that catalyses on a much larger scale South Africa’s transition to clean energy and a managed phase out of coal.
South Africa needs much more than $8.5 billion for the transition but the idea would be that additional domestic public and private finance would be mobilized on the back of international climate finance.
The deal is meant to steer support for scaling in three areas:
- Scaling of renewables, linked to the repurposing of coal plants and doubling the current provisions within the Integrated Resource Plan (IRP).
- Supporting the scaling of electric vehicles in South Africa
- Building a stronger green hydrogen economy, which South Africa has potential to exploit.
This deal that South Africa and its partners announced in Glasgow is a unique type of climate finance package, which is tied to South Africa’s nationally determined contributions. It is a way in which advanced economies, in accordance with Article 9 of the Paris agreement, have the historical responsibility to assist developing countries in their transitions.
The deal is aimed at reducing the country’s dependency on coal and de-risk South Africa’s economy from the problem of having coal stranded assets that could pose systemic risk to financial sector, but also the electricity utility Eskom and the South African economy.
Crucial matters that need still be resolved is unpacking what the pipeline of projects look like – how much of public finance is needed and the cost of that public finance. It is also recognised that the $8.5 billion is insufficient where $30 – $35 billion is needed and a large part of that will have to be financed from other sources.
More importantly, the financing package needs to reduce debt, not increase it, and it must also support the ‘just’ dimensions of the transition.
The JETT sets a framework of how to use climate finance across the African continent. There is a growing interest beyond South Africa to do a South African-type deal. This is also the case for other emerging economies like Indonesia, Vietnam and the Philippines where there is dependency oil, gas and coal to generate electricity.
This model of country platforms, like the one for South Africa, is a recipe that sets a useful framework for designing catalytic financing initiatives in other parts of the world. It is an interesting model to turn climate finance as an instrument for strengthening investments in energy transitions on the continent and crowding in other sources of finance.
ABOUT THE ACF
The African Climate Foundation is a new philanthropic re-granter on the African continent. Its primary aim is to support the achievement of climate and development nexus outcomes. The key is to understand climate risks as well as opportunities and use philanthropic support to drive new investment pathways that climate-proof African economies and increase investments in new infrastructure as well as protection of climate vulnerable sectors important for jobs and exports.