Building capacity to help Africa trade better

COP27 outcomes – a reality check


COP27 outcomes – a reality check

COP27 outcomes – a reality check

Those who follow the climate agreement conferences of parties are now used to the emotional roller-coaster that comes with them. COP26 looked to be a real success until the last second, when the text of the agreement regarding the “phase-out” of fired power, was replaced with a text that merely mentioned its “phase down”.

In the 12 months that followed, it became clear that even a “phase down” should not be expected soon. China undertook to stop funding new coal-based power stations abroad, but is expanding its internal construction of thermal power stations at a rapid rate. “Don’t expect China’s use of coal to begin dropping before 2030” is the official word now, and it will have risen considerably before that date. Europe too has rediscovered the joys of coal – the Fukushima tidal wave had much of Europe moving away from nuclear power, and the war in Ukraine saw the loss of Russian gas, so Europe has reverted to coal. Ironically, the fuel and energy shocks spawned by the Ukraine war seem likely to have greater long-term implications for use of non-renewable energies than any COP agreements to date.

For those concerned with the South African economy, the first slide of the roller-coaster has been its inability to profit from the situation. If the world is going to burn coal, and the price is going to rise, it should at least be South African steam coal that is burned. Sadly, South Africa’s ports and railways are in such poor shape that this potential market is being squandered.

The next rise and fall of the emotional roller-coaster came with the details of support from Britain, the USA and the EU, for South Africa’s just energy transition plan. The original financing offer had looked promising. It included support for workers affected by the contraction of the coal sector, funds to help rebuild old and inefficient coal plants, converting them to more efficient gas, and ultimately replacing them with renewables. The devil, as usual, was in the detail. Not only will the promised $8.5billion be far too little, but only 4% of it is set to come as grants; and while 63% will be concessional loans, 18% will come as commercial loans and 15% as credit guarantees.

In other words, although China, the USA and Europe are all increasing their use of coal, South Africa agreed to move the other way. Since Eskom has shown itself unable to build and maintain a thermal power station, mining houses should be encouraged to use their own engineering expertise, build stations in situ at coal mines. These could burn their own coal, or to run on product gas from underground coal gasification, and feed the surplus power into the grid. To create and maintain jobs, the economy needs the cheap reliable power it once had. It is South Africa’s poor and unemployed that use paraffin, coal and wood fires to cook and to heat their homes. From their perspective, cheap electricity, no matter how it is generated, will always be an improvement, for both the local and the global climate.

A surge of excitement came when, quite unexpectedly, it appeared that the developed world might take seriously the notion of a ‘damage and loss’ fund for poor nations that suffer adverse consequences from anthropogenic climate change. Identifying which weather-based catastrophe is a natural event and which is anthropogenic in origin; or what proportion of the damage is ‘act of God’ and what proportion is outcome of human, are both far from trivial. At recent COPs the developed world had been happy to share ideas (the Warsaw International Network on Loss and Damage came at COP19, the Santiago Network on Loss and Damage at COP25), but not to provide cash. This changed at Sharm el-Sheikh with the establishment of a special fund for loss and damage. Sadly, however, the damage and loss fund has a long way to go before it can provide anything meaningful for the developing world. COP27 made no decision on the three key details: who will pay into the fund, who can benefit, and how the funds will be allocated (although the EU pushed for wording that they felt would preclude China from being a beneficiary).

In addition, promised contributions to the ‘damage and loss fund’ only total $230m, a tiny amount even if one looks only at the needs of the World’s most vulnerable nations. To give it some context, at the 15th Conference of Parties (COP15) of the UNFCCC in Copenhagen in 2009, developed countries agreed to jointly raise USD 100 billion per year by 2020 for climate action in developing countries. 17 COPs later, this annual amount has still not been realised – but $80billion was raised in 2019, and 83 billion in 2020.     

How big a problem are these shortfalls? Some of the numbers bandied about have been eyewatering. UNEP warned that just adapting to climate change could cost LDCs (most of which are in Africa) between US$160-and US$340 billion annually by 2030. The estimated costs of addressing the root cause of the problem are projected to be even higher – the Sharm el-Sheikh Implementation Plan suggested that the global transition to a low-carbon economy will need $4-$6 trillion a year; i.e. two to three times as much as the world currently spends on defence. The sceptic may well ask: “do numbers that big mean anything?”, and answers, “not much if they were simply intended to scare the world into taking the issue seriously”. As existing sources of energy wear out, they will have to be replaced, and new cost-effective technologies will emerge and be introduced. The important thing is ensuring that the incentives to promote this transition are in place. The incremental costs may be high at first, but will fall rapidly; it is only once they have fallen that we should push for their adoption in Africa.

About the Author(s)

Anthony Leiman

Emeritus Associate Professor of Economics, University of Cape Town

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