/ 18 February 2022

Fossil subsidies take the bulk of finance needed for an inclusive renewable energy sector

Mineral Resources Minister Gwede Mantashe.
Mineral Resources Minister Gwede Mantashe. (Masi Losi/Sowetan/Gallo Images)

Minerals and Energy Minister Gwede Mantashe says the green energy sector should do more to move the country from job opportunities to permanent employment and greater manufacturing capacity.

He was speaking at the ​​2022 Solar Power Africa Conference this week, where he conceded that renewable energy is now cost competitive, as seen in the latest bid window in the government’s independent power producer programme. Bid window 5 of the Renewable Independent Power Producer Programme (REIPPP) showed that new solar and wind projects cost just 47c/kWh on average.

Mantashe called for equitable ownership in the growing renewable energy space, which he said should create employment for women and youth. 

“Black South Africans are said to, on average, own 34% of the renewable energy

projects that have reached financial close. This includes black people in local

communities that have ownership in the IPP [Independent Power Producer] projects that operate in or nearby their vicinity. There is a further, on average, 21% shareholding of engineering, procurement, and construction [EPC] contracting companies involved in the

construction of IPP projects, and 34% of shareholding in operating companies of IPPs,” he said. 

The minister confirmed that government departments are developing a renewable energy master plan to advance industrial development for manufacturing capacity of renewable energy components. 

He also acknowledged the role of renewable energy in diversifying South Africa’s energy mix and reducing the carbon intensive economy. 

A rapid scale-up of renewable energy is needed to realise new industries like green hydrogen and fuel cells, which is seeing early investment by Anglo American and Sasol. The presidency says the green hydrogen economy is a potential game changer for provinces such as the Northern and Eastern Cape where the sector is kicking off. President Cyril Ramaphosa said South Africa will be positioned as a global leader in the new market during his State of the Nation Address last week. 

But the government’s energy subsidies are still an indication of where public money is flowing. 

Banking on dirty fuel 

​​The world is spending at least $1.8-trillion every year, equivalent to 2% of GDP, on subsidies that are destroying nature, new research released on Thursday has found. 

The study, titled Protecting Nature by Reforming Environmentally Harmful Subsidies: The Role of Business, was co-funded by The B Team and Business for Nature, and is the first estimate in 10 years of the total value of environmentally harmful subsidies (EHS) across key sectors including energy, agriculture, transport and forestry.

Christiana Figueres, former executive secretary of the United Nations Framework Convention on Climate Change and member of The B Team, said nature is declining at an alarming rate. 

“And we have never lived on a planet with so little biodiversity. At least $1.8-trillion is funding the destruction of nature and changing our climate, while creating huge risks for the very businesses who are receiving the subsidies,” she said, stressing that in the meantime, “we still have not met the Paris Agreement climate finance target of $100-billion per year. Harmful subsidies must be redirected towards protecting the climate and nature, rather than financing our own extinction.”

The study’s authors said that globally, $640-billion of support a year is received by the fossil fuel industry, contributing to climate change, air and water pollution, and land subsidence.

Mark Gough, chief executive of Capitals Coalition, said: “Public money now finances the destruction of the planet to the tune of $1.8-trillion every year. By redirecting these financial flows we can ensure that public money is rightly delivering value to society and contributing to the achievement of societal goals. To be successful, it is crucial for governments and businesses to work together to eliminate harmful subsidies & develop incentives that deliver value to nature and people.” 

Capital Coalitions is a global multi-stakeholder collaboration that brings together initiatives and organisations to harmonise approaches to managing natural, social and human capital.

The International Institute for Sustainable Development (IISD) said fossil fuels still take up the bulk of South Africa’s energy subsidies.

“Fiscal policies, subsidies, taxes, and grants—are key tools that governments can use to reach their energy and climate targets, but right now in South Africa, billions are spent propping up the existing fossil fuel system,” said the IISD’s Chido Muzondo, co-author of the organisation’s report, South Africa’s Energy Fiscal Policies. 

“These subsidies represent an enormous cost to the public budget and take a heavy toll on people’s health and the climate.”

The same research estimated that pollution from fossil fuel use costs South Africans R550-billion each year in harm to public health and the natural environmen.

Another study, titled Assessment of New Coal Generation Capacity Targets in South Africa’s 2019 Integrated Resource Plan for Electricity by the Energy Systems Research Group (ESRG) at the University of Cape Town, found that the department of mineral resources and energy’s plans to add 1 500 megawatts of new coal-fired power to the grid would cost at least R23-billion more than a least-cost resources plan. It would also push up electricity prices, weigh on GDP and result in 25 000 economy-wide job losses by 2030. 

Aside from its effect on the climate, coal is no longer cost competitive when compared to solar and wind energy. The latest bidding round of the REIPPP showed that the average cost of solar and wind projects has fallen to just 47cents per kilowatt hour.

The analysis by the ESRG shows why the government’s energy policy must be updated.

Part one of scientific red alert did little to turn the tide 

So why is the government continuing to invest in dirty fuels despite conceding to all the benefits of the energy transition?

“The talk-left walk-right dance is so well practised, that only a slight adjustment is needed, to talk-green walk-dirty,” development economist Patrick Bond said.

Despite updated proof of weather disasters linked to greenhouse gas emissions and temperature rises in one of the most elaborate assessments of the crisis, industries most responsible for the problem are in for growth. 

Part two of the Intergovernmental Panel on Climate Change (IPCC) assessment will be released on 28 February by a global network of scientists after an eight-year review of data on climate changes. 

It is the sixth assessment from the scientific authority on climate change. The first part of the new report, published in August last year, was another red light for humanity. UN chief António Gutterres told the World Economic Forum that emissions from greenhouse gases causing the problem were still rising despite the need to cut emissions by 45% this decade. 

“Emissions must fall, but they continue to rise,” he said, “as coal-fired power generation is surging towards a new all-time record. Even if all developed countries kept their promises to drastically reduce emissions by 2030 — and all developing countries achieved their nationally determined contributions as written — global emissions would still be too high to keep the 1.5 degree Celsius goal within reach.”

In addition, scientists say that after last year’s climate talks, COP26, in Scotland, the goal of limiting global warming to 1.5 degrees Celsius above pre-industrial levels is alive, but barely. 

Scientists have developed a carbon budget that sets out the exact level of drops in emissions needed to keep the globe’s temperature from rising beyond the current damage. 

Sixth Assessment working group one showed that the world would reach the 1.5 degree Celsius target 10 years earlier than initially planned, making this decade a final opportunity for country’s to prepare and avoid further damage. 

The authors said countries had a limited amount of carbon that could be emitted for the most ambitious target of the Paris Agreement to be met. 

In working group two’s report later this month, the near decade-long assessment will detail the effects of climate change, from a world-wide to a regional view of ecosystems and biodiversity, and of humans and their cultures and settlements. 

The IPCC said it will consider their vulnerabilities and the capacities and limits of these natural and human systems to adapt to climate change, thereby reducing climate-associated risks. 

Part one of the reports was unprecedented in its findings but academics, civil society groups and research institutions have shown that it made little difference to the trajectory of collective action that is needed as a matter of urgency. 

Tunicia Phillips is a climate and economic justice reporting fellow, funded by the Open Society Foundation for South Africa