COST OF SOUTH AFRICA’S JUST ENERGY TRANSITION

The term Just Energy Transition (JET)’s main focus is to transition South Africa’s energy sector in an effort to move away from coal to a more cleaner and environmentally healthy source of energy. It is part of the Presidential Climate Commission’s work, which is focused on achieving a “Just Energy Transition” to make sure that communities and people who depend on high-emitting energy sources like coal are not left behind as society transitions to a low-emissions economy.

So how much will this transition cost? It is estimated that the cost of South Africa’s just energy transition will be around R1.5 trillion ($97 billion) and would be spread out over the next 5 years. This is in effort to reduce carbon emissions. The estimated amount to be invested in the Just Energy Transition is substantial, but in the long run, will boost South Africa’s economy and will yield great results and gains by the year 2050, if its implementation runs smoothly. Below is a breakdown of the cost of South Africa’s Just Energy Transition.

Cost of Just Energy Transition (JET) in 2023-2030

As stated above by 2030, the Just Energy Transition will bring about economic gains for South Africa. In fact, if it is implemented correctly the $97 billion used for the Just Energy transition will be regained, even doubled. The Just Energy Transition will reduce carbon emissions, which means gains in trade for South African Exports. It will also reduce the amount spent to curb load-shedding.   

As the country moves away from coal and to mainly using renewables, the more noticeable these gains would be. This will also be in South Africa’s best interests in the sense that this investment in Just Energy Transition will replace South Africa’s unreliable and old coal power plants. Renewables can help reduce loadshedding, which is already costing the country an estimated $24 billion as of 2022. If the country can overcome this and reduce loadshedding, it is expected to save about $192 billion by 2030, that is $24 billion for 8 years. That amount can be used to cover the $97 billion used for the JET. 

The Just Energy Transition would also reduce the carbon intensity of the country’s exports, by improving the country’s competitiveness on global markets. About one-third of South Africa’s exports would be at risk if the European Union implemented a carbon tax at the border, which could result in a loss of $8 billion annually or $64 billion by 2030. Reduced air and water pollution would also improve the health and productivity of workers while lowering the danger of premature death.

The sum of these three advantages would spur economic expansion in South Africa and support the creation of new jobs in a number of low-carbon and environmentally friendly industries (such as batteries and renewable energy). In the recently released Country Climate and Development Report by the World Bank, it was calculated that the JET may generate up to 1 million jobs between 2023 and 2050, which is a significant increase over the estimated 300,000 jobs that will be lost. However, in order to lessen the negative effects on fired employees and the surrounding communities, South Africa will need to create both sufficient safety nets and active labour programmes.

Financing sources for the Just Energy Transition

Due to Eskom’s failing power, the government had spent about $3 billion, between 2021 and 2022 to keep it standing. If Eskom can be restored back to its historical excellence, through the Just Energy Transition then the amount could be cut in half. Thereby saving $12 billion in taxpayers’ money from 2023 to 2030. Bringing forward the carbon tax expansion, which the National Treasury has targeted for 2026, might be another source of funding. By 2030, eliminating the current exclusions and gradually raising the tax rate may bring in an extra $8 billion. 

The finance gap would thus be roughly $11 billion in 2023-30, which may be obtained from outside sources. Given that it contributes to a global public benefit, the international community is prepared to offer concessional financing to support South Africa’s decarbonization efforts. Five donors—the European Union, the United States, Germany, France, and the United Kingdom—have agreed to contribute a total of $8.5 billion over the next five years for this purpose. And other international financial organisations, in particular the World Bank and the African Development Bank, are prepared to support South Africa by providing budget support and blending financial instruments to lower risks for private investors, among other means.

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