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South Africa: The double-edged sword of a ‘just transition’: Investing in the coal economy can be done responsibly

As climate and environmental concerns start to shift energy policy away from fossil fuels, the economic opportunities for communities in coal-rich areas are under threat. Government should consider that it is possible to tap into the coal economy at the same time as it fulfils its ambition to reduce carbon emissions at the aggregate level — and still harness socioeconomic advantages for disadvantaged areas.

The Eastern Cape, with an expanded unemployment rate of 52%, has a long history of migrant workers being shipped to Johannesburg mines, hundreds of kilometres away. The negative consequences of the migration patterns have long been understood and were evident in the Marikana turmoil of almost a decade ago. The region’s underperformance in economic activity and the associated decline in socioeconomic indicators is a continuing challenge for those who live there.

There is now a rare opportunity to change the migration and unemployment situation, particularly the Emalahleni municipality of the Chris Hani District in the Eastern Cape, through the Molteno-Indwe coalfield development which has been investigated by the Council for Geosciences. According to the Eastern Cape Socio Economic Consultative Council (2020), agriculture (1.6 %) and mining (o.3%), the primary economic sectors in the Eastern Cape, have not been strong. In the fourth quarter of 2020, it accounted for 1.9% of Gross Value Add (GVA), with the tertiary (trade, transport, finance, personal services, government services) and the secondary (manufacturing, electricity, construction) sectors leading at 80.8% and 17.3%, respectively.
Tapping into the advantage offered by the Molteno-Indwe coal belt could be a game-changer for Eastern Cape’s primary economy, particularly in the towns and districts where the coal deposits are located. Preliminary results for the Molteno-Indwe coalfield show an estimated economically exploitable coal tonnage of around 320 million tonnes, with a value beneath the ground of R122-billion calculated using a conservative price estimate of R350 per ton.

The evidence for the positive socioeconomic spinoffs in towns where mining is currently taking place is significant. Two districts in Mpumalanga province, Nkangala and Gert Sibande, are worth considering. Coal mining is the nucleus of the economic activities in the area, where more than 80% of coal mining in the country is concentrated.

About two thirds of local economic output in Emalahleni municipality comes from coal mining and coal-power generation. The remainder is directly linked to the wider coal value chain as noted by the Trade and Industrial Policy Strategy (Tips) policy brief. About a third of employment in these areas is directly linked to the mining of coal and plants for power generation.

In total, the coal value chain directly employs about 150,000 people countrywide. About 72% are employed within the production and transportation section of the coal ecosystem. According to Tips, these jobs are spread across Sasol, Transnet freight rail-linked jobs, Richards Bay coal terminal trucking, petrochemical, steelmaking and Eskom.

Decent jobs have been created within the coal value chain, with indirect beneficiaries among the dependents of the 150,000. We have to consider that a single employee can feed up to nine mouths, according to research from the Minerals Council of South Africa, and sometimes more. However, all these jobs are already at risk in the face of the policy shift taking place within major global economies and in South Africa. The “just transition” path emanating from the realities imposed by climate change is already reflected in South African energy strategy blueprints such as the Integrated Resource Plan (IRP2019), among others.

It also features prominently in private-sector plans as they seek to attract global capital whose requirements are investments towards clean energy and green economies. The newly revised South African Nationally Determined Contribution to the United Nations Framework Convention on Climate Change reaffirms the Paris Agreement signed by countries, but inserts some constraining elements in South Africa.

The IRP outlined how coal energy is going to be scaled down in the country. For instance, 11,000 MW will be decommissioned by 2030 following a reduction of 5,200MW by 2022, and 35,000 MW by 2050. Undoubtedly, this phenomenon will fundamentally shift the energy mix in South Africa with negative social and economic consequences if not carefully planned. As this economic activity is altered, there will be massive disruptions for both vertically and horizontally linked investment and employment, including for communities dependent on these economic activities, such as those in Emalahleni, Steve Tshwete, Govan Mbeki and Msukaligwa.

Previously, the prospect of investment in coal mining would have been a win for the Eastern Cape. However, policy shifts on the use of fossil fuel work against these developments. In fact, the world is moving in a direction where it would be very difficult to fund a new coal mine. Local private funders have recently been announcing their investment plans and they make it vividly clear that they will not be financing any greenfield coal projects. Recently, the G7 climate and environment ministers stated categorically that they will not be funding any new coal activities as they seek to reduce global emissions and achieve the 2050 net-zero roadmap as published by the International Energy Agency in May.
This might be welcomed as very progressive by environmental activists or anyone concerned about climate change. However, for Emalahleni and the Eastern Cape, these developments are a setback to economic growth.

In essence, these developments mean that the Molteno-Indwe coalfield in the Eastern Cape might struggle to attract sufficient funding for further development unless a proper project plan is in place. Perhaps the government needs to immediately initiate engagements with investors who exploit these resources using clean coal technologies as committed in the IRP.

There are so many countries that are still using coal as a source of energy today. For example, the Asean region is still largely powered by coal-fired energy sources. Furthermore, countries like India still have plans to build new coal-fired power stations on top of the already existing ones and, therefore, could potentially partner with South Africa in developing this prospect.

China’s 14th five-year plan (2021-2025) includes building hundreds of new coal-fired plants and they still run their smelting industries in inner Mongolia and around the country using coal-fired energy. In addition, IEA member countries such as Japan and Australia have also launched a fightback on these developments, even disputing the IEA findings on reaching the net-zero goal by 2050. Australia has critically affirmed that its “coal-fired recovery” response to Covid-19 will be public-funded.

These developments require that South Africa is objective about its actions towards energy security and the much-publicised move towards a just transition, so that the country’s energy security and broader economic ambitions are not compromised.

Our just transition should be deliberate and be considerate of the realities that greenhouse gas-related climate change effects have on the lives of the people and the resultant negative effects on the ability of the globe to produce products such as food, among others. It would be ideal and strategic for the government to have a clear netting plan to roll up new mining projects. This plan should require investors to table their reachable goals and contribution towards limiting emissions. These could be in the form of investments in renewable energy in the mining communities or anywhere in the host country, for example.

Overall, because the Molteno-Indwe coalfield contains low-grade coal, it should be feasible to utilise it for domestic power generation. Otherwise, the option of tapping into export markets still exists if it meets export-market standards. Even with all these possibilities, there are nonetheless global environmental and climate change movements that threaten the long-term sustainability of the potential of this project.

A national framework on carbon netting must be developed so that investments in projects such as Molteno-Indwe can receive private funding while the country is reducing carbon emissions at the aggregate level. There is a lot of funding that could be attracted from global funders, but South Africa might be left behind if local progress is too slow. DM

https://www.dailymaverick.co.za/opinionista/2021-07-12-the-double-edged-sword-of-a-just-transition-investing-in-the-coal-economy-can-be-done-responsibly/

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