US not keen on coal in backing South Africa

CAROL PATON

A senior US Treasury official says his government’s commitment to provide funding for South Africa’s energy transition is based solely on South Africa’s own commitments to reduce carbon emissions, and it is up to SA to decide how to do that.

The US is one of five jurisdictions that have entered into the Just Energy Transition Partnership (JetP) with South Africa, pledging US$8.5 billion in public funding to support South Africa’s move to a lower-carbon economy. The partnership aims to assist South Africa in meeting the most ambitious reduction of carbon emissions in the range of 420 to 350 megatons of CO2 set out in its nationally determined contribution (NDC) at COP26 last November.

The funding countries in the JetP, which also include the EU, UK, France and Germany, have not yet decided on the principles of which projects they will fund. It’s unclear whether gas projects, for instance, would be funded. It’s also unclear whether decisions outside of the process – such as a move by SA to build new coal power – would cause some backers to pull out.

Asked at a briefing to journalists on Thursday, whether the US government had any “red lines” that would cause it to withdraw from the deal, the official said the US was basing its participation solely on South Africa meeting its NDC.

“The north star for this partnership – which is what President Cyril Ramaphosa also supported in the political declaration – is the achievement of the lower end of the NDC. I wouldn’t call new coal “a red line” but I wouldn’t call it our north star. It’s important that we continue to work with South Africa in meeting that and new coal certainly doesn’t make that easier. We have also seen with some interest the recent announcement that there will be another look at the Integrated Resource Plan and we of course would support that, given that it is already out of date, vis-à-vis the NDC,” he said.

Projects

South Africa could meet its NDC in a variety of ways and it was up to South Africa to do it.

“We are not drawing any red lines in projects or sectors.”

The next step for the International Partner Group is to examine the investment plan, which SA is drawing up. The plan will provide an overall framework but will be made up of distinct projects, which would need to have been developed to a high level of detail. Most of these will probably go into Eskom’s transmission grid, but South Africa is hoping that projects related to electric vehicles and green hydrogen will also be funded.

The US$8.5 billion will comprise several sources and types of capital, from grants to concessionary loans to equity investments.

The complexity of this and the range of legal constraints on funder countries when lending money to a foreign country make for a complex negotiation.

He said it was not possible, therefore to outline the blend of financing and the loan terms at this stage.

“Most likely, what we will see is an investment plan in support of the lower end of the NDC which will require a variety of different investments and activities across the electricity sector. Each one will be a component of a multi-year programme. So, it is expected that there will be different types of funding for different activities over the course of the partnership,” he said. -Fin24