NOT JUST… NOT A PARTNERSHIP… NOT A WAY TO ACHIEVE AN ENERGY TRANSITION!

by Dec 2, 2022Amandla 85/86, Feature

AT THE LEVEL OF THE UN, THE North long ago acknowledged its ecological debt to the South, and its responsibility to channel finance towards the South to help developing countries both reduce their emissions and adapt to a warming world. The North has nevertheless failed to honour the $100 billion annual financial commitment it made in 2009 at COP15 in Copenhagen. The International Just Energy Transition Partnership with South Africa (JETP) was unveiled on November 2nd, 2021 at COP26 in Glasgow. It has been presented as a more targeted and country-specific approach to climate finance, an approach that should be replicated elsewhere. Under the JETP, France, Germany, UK, US and EU made commitments to support South Africa’s “move away from coal and to accelerate its transition to a low emission, climate-resilient economy.” The JETP would “mobilise an initial commitment of $8.5 billion for the first phase of financing, through various mechanisms including grants, concessional loans and investments and risk sharing instruments, including to mobilise the private sector.” According to one NGO: There is currently no other mechanism which would unlock the scale of international public finance needed to retire South Africa’s multiple coal-fired power plants, reskill fossil fuel workers and support local economic development in coal mining regions.

Since COP26, JETPs have either been announced or are also being developed for Indonesia, Vietnam, Senegal and India. Others are expected to follow. Overseeing the negotiations around the different JETPs is the International Partners Group (IPG), which consists of the G7 and the EU, India, Indonesia, Senegal, and Vietnam. The launch of a collective initiative to design new JETPs in Africa was also announced at the EU-Africa summit, and it has been reported that JETPs involving Egypt, Côte d’Ivoire, Kenya and Morocco are being considered.

Coal is the leading single source of CO2. From a climate perspective it makes sense to prioritise efforts to reduce its use. Today, the developed world is burning a lot less coal than it did in the past. But coal burning in the developing world has grown dramatically during the past three decades. China is by far the world’s leading coal producer, and it burns more coal on an annual basis than the rest of the world combined. But India, Indonesia and Vietnam are also major producers and consumers of coal, as is South Africa. At first glance, the JETPs therefore look like a step in the right direction – an effort to turn vague commitments on finance into clear proposals. But on closer inspection, the JETPs amount to a repackaging of a set of policies that have a record of failure. Furthermore, they are likely to be socially regressive and ecologically ineffective.

Green structural adjustment

The JETP is not a “partnership” – It’s a “green structural adjustment” policy. It is conjured up by the same institutions (among them the World Bank and the IMF) that imposed austerity measures on the debt-burdened and cash-starved economies of the South in the 1980s and 1990s. The goals of the JETPs go beyond proposals to reduce coal dependency; their objective is to further privatise power systems, marketise SOEs, and de-regulate energy markets.

The JETP with South Africa identified the need to “create an enabling environment through policy reform on the electricity sector, such as unbundling and improved revenue collection.” Just a week after COP26 had ended, the IMF called for the breaking up of Eskom, the laying off of power sector workers, and the need for Eskom to achieve “full cost recovery.” Referencing the JETP, the IMF added, “Competition from private firms is necessary. The resulting higher level of private investment should help finance the energy transition away from coal, contributing to climate change objectives.” Today, the World Bank and its regional body, the Africa Development Bank, aggressively promote the idea that privatisation and liberalisation will “unlock” private investment, and that “Market entry in the [electricity] sector can be facilitated through the structural separation of generation, transmission, and distribution, which is lacking on the continent.”

It’s understandable that some unions may be reluctant to dismiss the JETP, especially when the discourse surrounding it is full of reassuring commitments to “leave no worker behind.” At COP27 in Egypt, World Bank President David Malpass referred to the closure of the Komati power station in Mpumalanga as an example that needed to be replicated a thousand times over. According to Malpass, Komati will be closed; but the workers will be taken care of, and the site will be converted to produce wind and solar energy. What could possibly go wrong? But even if every worker is taken care of (and they should be) it does not alter the fact that the JETP is deeply regressive, for several reasons.

Just a week after COP26 had ended, the IMF called for the breaking up of Eskom, the laying off of power sector workers, and the need for Eskom to achieve “full cost recovery.” Referencing the JETP, the IMF added, “Competition from private firms is necessary.

First, concessional financing is essentially a cheap loan, but even cheap loans must be paid back. South Africa is expected to borrow money to reduce its coal use and then carry the burden of the social costs. Any policy that requires South Africa to incur more debt and fire workers is not “just,” especially when the result is intended to produce a “global public good” in the form of lower emissions from coal. If reducing coal use is a global public good, why is South Africa financially responsible for its delivery?

Second, the JETP will do little to reduce the use of coal. South Africa may burn less coal to generate electricity, but the privately owned mining companies will sell overseas what is not burned at home—and the demand for coal is growing, as is the global coal trade. If the rich countries really wanted to reduce the use of coal, they would stop selling coal overseas. Australia exports 80% of its coal, mostly to India, Japan and Korea. The US, too, is a major exporter of coal and, we can also add, it is the world’s leading exporter of gas.

Third, the idea that the JETPs will help accelerate the deployment of renewable energy in South Africa and other coal-using developing countries is based on wishful thinking. This is because the JETP is gambling on the private sector to fill the energy gap vacated by coal. The experience of the REI4P tells us that, a decade after it was started, the renewables sector has grown very slowly. The for-profit independent power producers (IPPs) complain about government “red tape,” but the IPPs are currently struggling to finance new projects because their costs are rising and profit margins are narrowing. There is a real danger, then, that load-shedding will worsen because of the JETP, because the loss of coal-fired power will not be replaced by power generated from renewable sources.

Enable what?

This draws attention to the flawed logic behind the JETP. For more than a quarter of a century, neoliberal climate policy has been fixated on “unlocking” private sector investment to finance the energy transition. At first, the prophets of “green growth” believed that the transition to a low-carbon future would turn out to be a money-making bonanza for private investors. Green companies would be more competitive than “brown” companies because they would be reducing their use of expensive and increasingly scarce fossil fuels. 
That theory went out the window when new deposits of coal, oil and gas were discovered. Then the growth of hydraulic fracturing of shale rock (“fracking”) brought large volumes of oil and gas into the global energy system. 
Oil, gas and coal are not going to run out. As long as the demand for energy increases at around 2%-3% per year on average, reducing emissions will be entirely dependent on political commitments, not on economics. 
When viewed against this background, “an enabling environment” in South Africa is expected to lure North-based multinationals in wind, solar, battery storage, electric vehicles, hydrogen, and a range of auxiliary technologies.

According to one source, policy must “build a pipeline of ‘bankable’ projects – that is, projects with an acceptable risk/return profile for investors and lenders.” 
What makes a wind or solar project bankable? In a word: subsidies. These subsidies take the form of power purchase agreements (PPAs) that are structured in ways that guarantee revenues to private companies for 20 years or longer. These subsidies are then passed on to end users, or they contribute to Eskom’s debt…and frequently both.

An enabling environment for private capital means a further disabling of Eskom. Suppose the “investor community” got the slightest sense that the government might be giving serious consideration to issuing Eskom a new public mandate to restore it so that it can be a major player in the energy transition, by directly procuring sources of low carbon energy and reconstituting prudent energy planning. Those investors would make a dash for the exits just as soon as they had made their red carpet entrance. 
The perceived need for external finance (which in part reflects a reluctance to impose fair taxes on high earners and corporations) has put the government in a weak position. In the 1990s, the World Bank and the IMF refused to finance public energy in the South; only governments that agreed to privatise their power systems were eligible for funding. Today the threat is more implicit. But there can be no doubt that, if the government made a commitment to restore the national utility, then the partnership would quickly fall apart.

Leveraging private finance 
is a myth


But if the policy goes forward, South Africa will likely pay a heavy price. Announced in October 2022, the Government’s Just Energy Transition Investment Plan (JET-IP) notes that the initial financing: will be deployed as catalytic investments…the JET IP’s priority focus for investment in state-owned infrastructure is to upgrade the transmission grid and the distribution networks to enable them to take up the renewable energy that will be generated largely by the private sector in the coming five years.

It is hoped that this “will leverage large-scale private investment in renewable energy, supporting both energy security and decarbonisation.” In other words, South Africa will borrow money and incur more debt in order to upgrade the infrastructure so that private IPPs and investors in the renewables sector can make money.

But will the private sector show up? Will the environment be enabling enough to turn $8.5 billion in debt-creating JETP finance into the $65 billion in investment the government says is needed for the power sector to transition? And then there’s an additional $32 billion that is needed for the other dimensions of the transition (such as electric vehicles and green hydrogen)If recent history is any guide, the prospects of $8.5 billion “catalysing” that kind of money are extremely poor. In 2015, the World Bank was concerned that private investment in the energy transition was far below the levels required to reach climate goals. So it pivoted towards using public-sector development funds to
spur additional private investment—so-called “blended finance.” The Bank was confident that blended finance would lead to a situation where billions of dollars of development finance would “unlock” trillions of dollars from private investors.

This policy has been a total failure. A 2019 report by the Overseas Development Institute (ODI, a London-based think tank) has called for a “reality check” and the need to “bridge the current disconnection between policy rhetoric and the operational reality.” Analysing development finance data, the report concluded that a dollar of public investment might be expected to mobilise just $0.37 in private finance in low-income countries (LICs), and marginally more in middle-income countries.
This is a far cry from the “billions to trillions” scenario presented by the World Bank. Not surprisingly, the ODI recommended that “policy-makers need to rein in their expectations of the potential of blended finance.” Going further, the ODI report concluded that because “the public sector picks up much of the cost…blended finance does not mitigate risk but merely transfers it from the private to the public sector.”

The Government of South Africa should take a long hard look at these numbers. It should think twice about further undermining Eskom in the hope that this might mobilise private investment.

The JETP with South Africa is certainly not “just.” It won’t generate the finance needed to achieve the transition away from coal. And it’s not a genuine “partnership.” In the shadows of the JETP lie conditionalities that promote privatisation and deploy public finance in ways that make profitable what would not otherwise be profitable.

Sean Sweeney works for Trade Unions for Energy Democracy.

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