THE CLIMATE ECONOMY : Ramaphosa says climate change is an economic issue; $1bn in US grants ‘ready for deployment’

‘Climate change is as much an economic issue as it is a scientific, social justice, human rights and development issue,” said President Cyril Ramaphosa as he opened the National Treasury’s first Climate Resilience Symposium in Pretoria on Monday.

“It has a direct and material impact on activity across the economy, increasing the cost of doing business, undermining competitiveness and dampening employment growth.”

Ramaphosa’s keynote speech underscored how the impacts of climate change can have knock-on effects on the economy by pointing to the recent storms in the Western Cape, which caused substantial damage to homes, communities and infrastructure, as well as to the Port of Cape Town, the country’s second-largest container terminal that exports agricultural products.

“Having perishable agricultural products stuck in the port or in transit for an extended period results in financial losses for exporters,” said Ramaphosa, speaking at the CSIR International Convention Centre, where he addressed ministers, senior government officials, academia, the private sector and climate experts. 

“This in turn impacts the agricultural sector, and given its importance to our economy, there is a knock-on effect on the economy as a whole.”

Ramaphosa highlighted that these climate-induced disruptions would lower tax revenue while increasing expenditure on disaster relief, healthcare and social support for affected communities.

This consequential strain on public finances would require the reallocation of funds from other essential services and increased borrowing, leading to higher debt levels and interest payments.

“The National Treasury is therefore central to our response to both the shocks of climate change and the potential opportunities to use the just transition as a springboard to build a more inclusive, resilient and sustainable economy,” said Ramaphosa. 

Climate goals

The symposium, running from 15 to 17 July, is hosted by the National Treasury, the Presidential Climate Commission, the World Bank and other partner organisations to integrate climate goals into macro-fiscal and finance policy and mainstream climate change considerations into the intergovernmental fiscal system.

Deputy Finance Minister David Masondo emphasised the need for comprehensive green growth strategies and innovative financing models to support a low-carbon, climate-resilient economy.

“High debt levels and increasing debt service costs limit our capacity to invest in critical areas needed for building climate-resilient economies,” Masondo said, adding that the country’s 2024 Budget aimed to support high public and private investment while stabilising debt and reducing fiscal risks. 

“Debt stabilisation enhances investor confidence, making South Africa a more attractive destination for green investments,” he said. 

Masondo outlined various strategies to mobilise financial resources for sustainable development, including public and private sector participation and new institutional arrangements. He also highlighted the importance of combating illicit financial flows to enhance Africa’s ability to finance climate action.

Maesela Kekana, deputy director-general for the Department of Forestry, Fisheries and the Environment (DFFE), speaking on behalf of new DFFE minister Dion George – at the time in Cape Town for the budget vote – highlighted the importance of a multilateral approach to climate change, particularly for middle-income countries such as South Africa. 

He noted the work the government had already done, such as the National Climate Change Response Policy Framework which was adopted in 2011, and said the Climate Change Bill was about to be signed into law. 

Read more: Climate Change Bill heads for final stretch, but the hard slog of implementation lies ahead

He explained that the Climate Change Bill, which awaited the President’s signature, provided an overarching framework for climate action and provided tools – such as setting sectoral carbon budgets – to help SA reach its nationally determined contributions of keeping annual greenhouse gas emissions in a range of 350 to 420 megatonnes of CO₂ equivalent by 2030.

Shifting from coal

Ramaphosa acknowledged that, “Our emissions-intensive energy system is likely to increasingly undermine our competitiveness in global markets”. He was referring to the country’s energy sector of which coal provided nearly 80% of electricity produced.

“I have repeatedly said that South Africa will decarbonise at a pace and scale that is affordable to our economy and society.”

“If we act too fast, we risk damaging huge sections of our economy before we have built alternative energy and industrial capabilities. At the same time, not acting now risks our economic stability.”

To balance this, Ramaphosa said, “We must embrace a managed transition to a low-carbon economy, not only to safeguard our people and our environment, but to ensure our economic resilience and growth.”

Satu Kahkonen, country director at the World Bank Group, said in her address that SA could build a prosperous economy while responding to climate change, emphasising, “These two things are not mutually exclusive.”

“But,” she added, “this depends on the extent it shifts from coal to low-carbon fuels and addresses risks from rising temperatures.”

Referring to the findings of the World Bank’s South Africa Country Climate and Development Report, Kahkonen said South Africa could enhance growth, tackle climate change and safeguard its citizens through a “triple transition” strategy — a transition that was low-carbon, climate-resilient and just. 

“Without this kind of triple transition, climate change could drive almost one million South Africans into poverty by 2030. At the same time, for each job eliminated in the transition, two to three jobs could be created by 2050,” she noted.

International funding  

“Even as we have taken proactive measures like setting up a Climate Change Response Fund, we need to think seriously about the urgent financial and policy measures needed to address these shocks, and how to strengthen the National Treasury’s disaster financing response,” said Ramaphosa.

He added that the DFFE was working with the Presidential Climate Commission on recommendations for the Climate Change Response Fund, and an adaptation and resilience investment plan to accompany it.

“Mitigation and adaptation financing remains a challenge, and we call on our international partners to fulfil their commitments to finance both,” said Ramaphosa, mentioning the positive steps seen with the existing Green Climate Fund and the Loss and Damage Fund.

“However, we need more innovative financing solutions that mobilise private capital and incentivise sustainable practices.”

The World Bank’s Kahkonen agreed that “the cost of this transition is going to be high” – indicating that it would cost at least $500-billion by 2050, of which $140-billion was needed by 2030.

Acknowledging that financing from the international community and mobilisation of private capital would be vital – and that governments would not be able to finance this alone – Kahkonen said, “The World Bank is ready to assist South Africa in this transition, both with governmental assistance and with financing.”

The World Bank has already begun to fund SA’s Just Energy Transition in restructuring the power sector, decommissioning the first coal-fired power plant and investing in renewable energy and storage.

Read more: R9bn Komati repurposing project ‘will need to be replicated hundreds of times’, says World Bank executive

The Swiss, French and US embassies also highlighted their support for SA’s energy transition at the symposium – with American ambassador Reuben Brigety saying that through their role in the Just Energy Transition Partnership, the US was “mobilising significant financial resources to support South Africa’s progress from coal to renewable energy”, which would help the country achieve its nationally determined contributions.

Brigety said the US contribution to the JET partnership includes $1-billion, “that will not add a cent to the sovereign debt of the Republic of SA”.

This contribution is pledged in the form of loan guarantees to private sector actors to take on projects to support the just energy transition.

“This $1-billion in loan guarantees is ready for deployment today – pending only the identification of partnerships and projects jointly determined with the government of South Africa and approved for this purpose,” he said, to a round of applause from delegates.

Brigety added that this money was also meant to incentivise and catalyse further private-sector investment in this space, as Ramaphosa had previously called for.

Ramaphosa noted in his address that it was not only international funding that was required, and thus the National Treasury’s climate finance strategy was pivotal as it outlined how SA could leverage public and private finance to achieve its climate goals.

“We must not underestimate the importance of our own domestic capital and financial markets to innovatively mobilise and deploy capital towards our just transition,” he said. DM