A landmark $8.5 billion deal to help wean South Africa off its dependence on coal is hanging in the balance amid fraught negotiations with rich donor countries over how the funds should be spent.
The climate finance deal, unveiled at UN-led talks in Glasgow last year, was hailed as a prototype for helping other coal-dependent developing countries transition to cleaner energy sources. Its success or failure could have a knock-on effect at next month’s COP27 summit in Egypt, which is expected to focus on the financing needs of poorer countries adapting to a warming atmosphere.
South Africa, which relies on coal for more than 80% of its power and is the world’s 13th-biggest source of planet-warming gases, is pushing for cheaper money in the form of grants and low-interest loans, people familiar with the talks said, declining to be named as negotiations are private and ongoing.
One key factor holding back the deal is the lack of detail South Africa has given on how it will spend the money its partners – the US, UK, France, Germany and the EU – will invest, the people said.
Negotiators have been aiming for the UN summit as a deadline, mindful that climate deals often come down to the wire. Key stakeholders are privately expressing confidence that some version of the South African finance plan will be ready.
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“There’s legitimate criticism and debate on whether or not this is the kind of best model, but a decent amount of political capital has been invested,” said Jake Schmidt, senior strategic director of the international climate program at the Natural Resources Defense Council, a US non profit. “We need to make it succeed because others are watching it.”
In theory, a deal with South Africa, which has a mid-sized power sector and elderly fleet of coal-fired plants, should be easier to conclude than those for bigger countries like Indonesia, which has recently commissioned new facilities, or India, the world’s No. 2 coal user.
Negotiations are underway on a similar energy transition package in Indonesia with the goal of unveiling that in November, and donor countries are hoping to use the model to spur similar shifts in India, Senegal and Vietnam.
It’s also key at a time when Russia’s invasion of Ukraine has seen gas supplies to Europe fall, prompting some countries to turn back to coal plants that were being decommissioned as part of international commitments to cut emissions and limit global warming to 1.5 Celsius above pre-industrial levels.
Despite ever more strident climate warnings, however, coal use is set to rise 0.7% this year to eight billion tons, the record level it reached almost a decade ago, according to the International Energy Agency.
Countries that are backing the South African deal, such as Germany, are using more coal themselves to stave off a winter energy crisis. Coal use in Europe will likely rise 7% this year after a 14% jump last year, according to the IEA.
