Just transition transaction in South Africa: an innovative way to finance accelerated phase out of coal and fund social justice

ABSTRACT

A just transition transaction (JTT) in South Africa aims to address complex challenges of financing a transition away from coal, and social justice. Accelerated decarbonisation of electricity is essential for mitigation globally and in SA. However, the national utility Eskom, a state-owned enterprise, is in crisis with major operational, structural and financial problems, including legacy debt of €25bn. How and to what extent can a just transition transaction catalyse deep, structural change that is required in SA’s electricity system and promote social justice? What can we learn from the case study of a JTT about transition finance? The architecture of the JTT includes a blended finance vehicle, combining international concessionary and domestic commercial finance. Finance enables transition if it respects certain principles, promotes ambitious decarbonisation and assures compliance. A tough problem is whether such finance is provided at activity – or entity-level. We explore options for watertight remedies to ensure compliance with ambitious climate change action, though these merit further research. The innovation proposed to fund social justice is that concessional value provides significant and predictable flow of funds into a Just Transition Fund. The JTT partially addresses Eskom’s financial challenges, and thereby the strain on the country’s fiscus against a background of increasing public debt. Significant mitigation on the scale of 1–1.5 Gt CO₂-eq over thirty years is achievable. The transaction may be of wider interest: Emerging economies with high coal dependence and socio-economic risk during energy transition might translate lessons from South Africa’s JTT for their own contexts.

KEYWORDS:

• Just transition transaction
• transition finance
• social justice
• South Africa
• electricity
• climate change mitigation
• sustainable development

Acknowledgements

The authors are grateful for the support to the SNAPFI team at the University of Cape Town. All errors are the responsibility of the project.

Conflict of interest declaration

One author, Tyler, works with Meridian Economics, who developed the just transition transaction (as a deal, rather than this academic article about the proposed deal); however, she participates in this academic article in her academic capacity, though with the knowledge of Meridian. There is no conflict of interest in this regard.

Notes

1 A Web of Science literature research of the term ‘transition finance energy’ on the 28th October 2020 revealed only 120 records subsequent to 2015, of which only a handful were of relevance.

Additional information

Funding

Support for the research for the article was undertaken under the project ‘Strengthen national climate policy implementation: Comparative empirical learning & creating linkage to climate finance – SNAPFI’, supported by the International Climate Initiative (IKI) of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), Germany.