Rich Nations Head to South Africa Seeking Coal Exit Deal

15. September 2021

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Four of the world’s richest nations will send a delegation to South Africa as soon as next week to seek a deal to begin closing the country’s coal-fired plants, according to people familiar with the matter.

Officials from the U.S., U.K., France and Germany are looking for an agreement with Eskom Holdings SOC Ltd., which generates almost all of South Africa’s power from a fleet of 15 coal plants. Any deal struck could be announced during the United Nations climate talks known as COP26, set to start in Glasgow, Scotland, on Oct. 31, one of the people said.“The developed economies have a responsibility to fund the just transition to a low carbon economy and climate resilient society,” said Albi Modise, a spokesman for South Africa’s environment department. He confirmed that John Murton, the U.K.’s envoy to COP26, will visit the country “to assess opportunities for enhanced cooperation” but added that the dates are still being finalized.

Alok Sharma, the COP26 president, has said he wants to use the summit to “consign coal to history.” But he’s met resistance from a number of middle-income countries that rely on coal. A Group of 20 meeting in July failed to reach an agreement on phasing out coal.

South Africa’s use of coal has made it the world’s 12th biggest emitter of greenhouses gases, ahead of the U.K. which has an economy eight times its size. Eskom alone accounts for more than 40% of South Africa’s emissions.

Debt Burden

While the utility has laid out plans to start closing down its coal plants and having them at least partially replaced with renewable energy, gas-fired generation and battery storage, its debt burden of 402 billion rand ($28 billion) hinders it from borrowing more money to pay for the energy transition.

With about 20,000 power plant workers, 90,000 coal miners and many thousands more involved in the transport of the fuel, there are also social implications to take into account.

In July, Eskom Chief Executive Officer Andre de Ruyter suggested a facility from development-finance institutions that would be paid over a number of years. In an August presentation to the government, the company said it was in initial talks to raise 33 billion rand from five such organizations. Mandy Rambharos, the head of Eskom’s Just Energy Transition department, has previously said the phase-out could cost more than $10 billion.

Multilateral development banks including the World Bank are under pressure from the United Nations to speed the green transition. Earlier this year the Asian Development Bank became the first to announce plans to help pay for the early retirement of coal plants.

Funding Options

A range of funding options will be discussed during the South Africa visit, the people said. One potential option is access to as much as $2 billion that the U.S., France, the U.K. and Germany pledged at June’s G-7 meeting to help phase out coal globally.

John E. Morton, the U.S. Treasury’s first Climate Counselor, will also attend, according to one of the people, who asked not be identified. The U.S. Treasury declined to comment. A spokesman for the French environment ministry confirmed discussions are talking place.

“One of the major challenges of COP 26 will be the decarbonization of the electricity mix throughout the world, particularly in the major emerging countries,” they said.

The U.K. and German governments didn’t immediately respond to requests for comment.

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