[ad_1]
South Africa can only meet its commitments to net zero emissions with the help of local and transnational financing, from both the public and private sectors
COP27 concluded with another recognition of the importance of climate finance, but questions remain about how a developing country like South Africa can transition from its current fossil fuel-intensive economy over the next two decades. This transition is necessary not only to avoid the worst impacts of climate change, but also to ensure that the country’s export market is not at risk of being left behind and crippled by its reliance on carbon-containing products. Climate action, or the lack of it, therefore has broad macroeconomic implications.
Intellidek, a research and consultancy firm specializing in capital markets and financial services in Africa, says in its Capital Markets Report 2022 that South Africa will need between R4 trillion and R8.5 trillion over the next 30 years to finance the country’s mitigation obligations climate change. This will require significant and innovative financing mechanisms and drastic changes in capital market flow structures. The World Bank says the R8.5 trillion should be roughly split between R4.2 trillion for mitigation, R2.2 trillion for adaptation and R2 trillion for Just Economic Transition (JET).
In the short term, Eskom needs an estimated R1.2 trillion in infrastructure investment by 2030 to develop a successful transition in the energy sector. This includes R990 billion for generation capacity, R130 billion for transmission capacity and R56 billion for distribution capacity.
What is climate finance and why is it limited in capital markets?
South Africa can only meet its commitments to reach net zero emissions by mid-century with the help of local and transnational financing from the public and private sectors. Unlocking the necessary level of finance cannot depend only on the state coffers, which are limited by weak growth and an increasing debt-to-GDP ratio.
New and innovative approaches will be needed that, according to the Intellidec report, “will help bridge the gap between traditional philanthropic funding, development aid and public sector funding at one end of the spectrum, to commercial investors at the other.”
Globally, the existing structure of capital markets has proven to be restrictive and insensitive to the scale of support and investment required for this transition to proceed at the required pace. President Cyril Ramaphosa told the 27th Conference of the Parties (COP) in Egypt that multilateral banks are currently risk averse and financing is generally unavailable to developing countries.
“Multilateral development banks need to be reformed to meet the needs of developing economies for sustainable development and climate resilience.” “Currently, multilateral support is out of reach for most of the world’s population due to risk-averse lending policies that carry heavy costs and conditionality,” Ramaphosa said.
The Intellidek report says that continuing blockages in existing capital markets include:
- lack of investment pipeline;
- ambiguity around the conceptualization of just energy transition (JET);
- leadership vacuum;
- lack of strategic integration of JET;
- issues related to liquidity, foreign exchange risks and weak demand;
- insufficient financial innovation;
- lack of skills;
- [a lack of] sustainable investment and ESG integration practices;
- taxonomy of green finance;
- JSE sustainability and climate detection;
- poor macroeconomic fundamentals; and
- poor quality data.
South Africa’s transition risks are geographically concentrated and come with enormous socioeconomic risks for those directly affected by the move away from coal. While the COP26 JET partnership offer of $8.5 billion by the International Partnership Group is a significant development in international climate finance, it is unlikely that this funding model could fund the entire transition; major changes are also needed in the private sector to channel the appropriate financial resources.
“The challenge for funding JET is not only how to deliver major new renewable infrastructure and associated grid and storage capacity (as well as other components of the energy ecosystem), but also how to ensure that the losers from the transition are adequately compensated or have a fair share in its success.” , as well as how these social solutions are financed,” the Intellideka report states.
South Africa has been slow to adopt newer financial instruments such as green, social and sustainability bonds. The JSE has expanded its green bond segment to include sustainability, but this remains largely underdeveloped, according to the report’s findings. The lack of pipeline projects has also meant that banks have no need to issue bonds of higher sustainability. To date, the data shows that the value of these bonds is nowhere near what is needed.
But the JSE’s transition finance segment has an important role to play in facilitating a just transition by ensuring that issuers and hard-to-cut sectors are not completely cut off from the capital markets and thus forced to close abruptly. For this to work, institutional investors must be sensitive to how this segment works.
A number of other retrieval mechanisms are also required of banks and insurers. “In order to reach the required scale, banks will have to transfer funds from their balance sheets to the institutional market,” the Intellidex report states.
To accelerate a just energy transition, the report concludes that South Africa must:
- identify gaps in the local ecosystem that need to be closed for a crowd of commercial financiers;
- identify key aspects from a technical perspective of ESG implementation that need attention, to ensure that commercial investors as well as development financiers can allocate capital to markets that most urgently need financing to achieve the SDGs; and
- identify key areas for philanthropic funders to provide catalytic capital to achieve measurable, scalable and replicable impact on JET.
This can help address the urgent roadblocks currently limiting the finances of the country’s path to carbon neutrality over the next 30 years.
— Tunicia Phillips
Lost in jargon
According to scientists, the gap in avoiding certain future disasters is closing and the world is moving to avoid the worst. This is why it is crucial that everyone understands the language of climate change. Climate change diplomacy at large conferences such as the 27th gathering of the Community of Practice in Egypt involves technical language and shared concepts that are often unknown to the general public, but the results have huge consequences for everyone, especially the most vulnerable in society.
Climate change issues are loaded with technical terms that directly relate to dealing with and preventing the unnatural warming of our planet.
This warming is fueled by past and present emissions of greenhouse gases that trap heat in the air: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and fluorinated gases (F gases) released from various industrial, commercial and domestic activities such as electricity production, steel and cement production, transport, agriculture, refrigeration and air conditioning.
Global energy production still relies heavily on fossil fuels, which have released most of the historical emissions trapped in the atmosphere. Scientific assessments such as those of the Intergovernmental Panel on Climate Change (IPCC) in 1990 have evolved with advances in technology and scientific modeling and have consistently shown increasing evidence that this warming is occurring and that it is anthropogenic, meaning it originates from human activity.
Science
The IPCC gains its credibility through transparent, robust peer-review and a rigorous process of vetting its research and supporting data, which demonstrate the extent and risks of warming. It took eight years before it published its Sixth Assessment in 2022, warning, among other things, that our capacity to deal with current projected warming is slowly shrinking, as is the time available to avoid the worst.
The reports are a synthesis of large amounts of available data and research by hundreds of experts around the world. In the Fifth Assessment, 830 lead authors and review editors drew on the work of over 1,000 contributors. In addition, around 2,000 experts provided over 140,000 comments. The IPCC findings are largely responsible for the 1.5C warming target.
To put the warming into perspective, there is only a 2% difference in temperature between a person whose body temperature is considered normal (36 or 37C) and readings that indicate someone is seriously ill with an infection at 38, 39 and 40 degrees Celsius. In climate science, one degree of warming can be the difference between habitable land and non-habitable land. Currently, the results of the COP are not aligned with the urgency and scope of the science and recommendations of the IPCC.
Mitigation
Mitigation is the act of stopping current and future greenhouse gas emissions to limit warming to livable levels. These include decarbonizing major industries and moving towards greener sustainable development that relies less on fossil fuels. Other greenhouse gases, such as methane, are expected to rise as countries turn to natural gas for energy. Meanwhile, fossil fuels such as coal are experiencing increased demand and a boom in the global market in the short term due to global energy insecurity, and many developing countries are poised to peak their emissions only after 2025 and 2030. This may require historically high emitters to reduce emissions at a faster pace and scale to bring emissions as close to zero as possible by 2050. Afforestation and restoration are key to mitigating climate change by harnessing the natural ability of plants to absorb carbon dioxide, although there are questions about whether they can do it on their own. so it is a constant topic of debate.
To support mitigation, various financial mechanisms have been introduced, such as a carbon tax for high-emitting industries and carbon markets, which essentially trade certificates linked to emissions reduction activities. Sasol, for example, can contribute to emission reduction activities outside of its operations and count that credit against its reduction or sell that credit on the carbon market. Finance is needed to shift global energy to renewable systems and invest in CO2 capture technology in the future.
Good part
The share refers to a country’s responsibility for climate action in the context of its development and historical emissions, which are generally low for developing markets. Parties to the COP submit Nationally Determined Contributions that show how much they are willing to reduce emissions over a specified period relative to their fair share of the crisis. A country like Zimbabwe, for example, would not share the same mitigation responsibility as the US or Australia. Developing countries rely heavily on financial support to reduce emissions and developed countries have pledged to help them.
Adaptation and resilience
Adaptation and resilience are the ability of society to withstand current and future climate shocks such as extreme weather events, slow-onset disasters such as drought and sea level rise, and the health, economic and social risks associated with these events. Calls to focus on adaptation as much as mitigation at the Community of Practice level have intensified over the years, but financial targets have been missed. Rich countries already need to set a new financial target to support developing countries facing the risks of climate change – a task that COP27 failed to complete. Scientists have recommended the restoration of natural ecosystems as the key to building natural adaptation capacity to withstand current and future climate impacts. This is triggering global calls for a new deal for nature that will preserve and restore nature’s ability to continue to provide resources for humanity.
[ad_2]
Source link
