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• MA: Michael Avery – TV and radio personality and Business Watch host on Business Day TV
• OR - Olivia Rumble, Director Climate Legal and recent inductee into the M&G 200 Young South Africans
• MS -  Professor Mark Swilling, Centre for Sustainability Transitions, Stellenbosch University
• GMC - Gaylor Montmasson-Clair Senior Economist at TIPS 

• 00:00 Introduction

  MA: Welcome, you're watching Climate Conversations here on Business Watch with me Michael Avery.

  COP26 has come and gone, and we've been discussing whether we're turning the tide on climate change brought to you by Investec.

  It's been an eye-opening eight-week journey, to say the least through the world of climate science and climate politics. We've cut through a lot of the hype to some of the real issues. 

  So far in this series, we've debated the race to near zero, whether or not the science is actually congruent with all of the promises and the greenwashing.

  The climate finance fight and how this is shaping up. Responsible investing. And I guess "we'll always have Paris'", the classic Casablanca quote, certainly isn't landing for global leaders after COP.

  Lawmakers’ executives and activists from almost 200 countries met to help keep the 2015 Paris Agreement alive.

  The target to cap global warming at one and a half degrees Celsius above preindustrial levels. While the UN said the world is way off track in stopping rising temperatures, some new pledges could at least help.

  We had 100 plus countries vying to slash methane emission levels by 30% by 2030. That was led by the US and the EU.

  We had 100 countries representing 85% of the world's forests agreeing to end and reverse deforestation by 2030 backed by almost R20 billion in public and private funding.

  And India, the second-most populous country after China vowed to hit net zero emissions by 2070 and use 50% renewable energy in its mix by 2030.

  China, earth's largest polluter unexpectedly promised to finalize a plan to reduce its methane emissions this decade without any concrete details though.

  And Ford GM and Volvo committed to phasing out fossil-fuelled vehicles by 2040, as did some countries too, but the US, China and Germany were notable omissions.

  While South Africa appears to be the big winner with the eight and an eight and a half-billion-dollar Just Transition Agreement.

  MA: To review COP26 I'm joined by Olivia Rumble, Director Climate Legal and recent inductee into the M&G 200 Young South Africans though a little less younger than yesterday, happy birthday for yesterday, Olivia.

  Professor Mark Swilling a distinguished Professor of Sustainable Development at the Centre for Sustainability Transitions at Stellenbosch University, and Gaylor Montmasson-Clair Senior Economist at TIPS.

  Professor Swilling perhaps you can kick us off here, South Africa was very pleased to announce early on in the COP the provision of that eight and a half billion US dollars in support for the Just Transition, but also supported India's last-minute opposition to the use of the term, phase-out of coal.

  And this Indian intervention in the final plenary led to the more diluted phasedown of coal in the text of the Glasgow Climate Pact. Is this not mixed messaging from the South African perspective?

  MS: No, I don't think so at all. I mean firstly the 8.5-billion-dollar figure is an offer by the international community it's not necessarily an agreement.

  The details are not clear exactly where it's going to come from. It's basically a political pledge, that's how we should understand it.

  Secondly, South Africa has never ever suggested closing down coal-fired power stations tomorrow. So contrary to what we've been hearing from the Department of Mineral Resources and Energy is that we're going to switch off the lights in order to breathe clean air, there's nothing like that.

  It's a phased transition over the next 20, 30 years.

  And thirdly the phrasing has clearly upset quite a lot of people internationally, but it is fairly pragmatic in the sense that a number of countries that are deeply dependent on coal like India, like South Africa, etc, have to go through a carefully managed transition to renewables.

  And South Africa has made it clear that this is what we are going to do because we have no choice.

  We can't build new coal-fired power stations and we have to close the old ones. There is no other option to do this other than transitioning to renewables over the next 20 years.

• 04:30 What are the positives?

  MA: And that's why a phase-down as opposed to a phase-out. And I guess when one looks at it, it has to be done in a context where we are still a highly energy-constrained economy and we are all well aware of that.

  But I want to zoom out a little bit first, maybe just go around the panel.

  And if we look at this from a good COP, bad COP perspective, you're never going to please everyone at one of these massive multilateral multi-country events.

  Let's go around the panel and first tease out what was the good from this COP Professor Swilling let's start at that point.

  What was the good to take out of this COP as we head into Egypt?

  MS: Well, there's not a lot of good I should add, but what good there was, is a reference to fossil fuel and the talk of phase-out.

  So I think that's the good stuff. There is the second good stuff would be the high-level commitments of finance and business to doing what they say they can do.

  I'm not sure there's all that much substance to it but at least the right noises were made.

  MA: Gaylor what would you say was good if we were to look at this from a good COP bad COP perspective?

  GMC: Yeah, I think as Mark has said, you know, you really have to kind of look for the good stuff, in between a lot of the noise.

  There was a lot of political pledges, you know, voluntary commitments and that's what they are, they voluntary commitments but on the emitable front, you know, coal phase down even the phasing out of some fossil fuel subsidies was agreed upon.

  Some progress of course, you mentioned in your introduction around methane emissions as well and quite a number of deals that were actually announced.

  And really, I think the South African being the highlight of the COP. And I think that says a lot about the COP itself.

  If you think that the South African deal is one of the highlights if not the highlight of the COP.

  Then I think on the more technical front, there were some minor progress that we made certainly around transparency, around reporting, around kind of fleshing out some of the rules of the game if you want of the Paris Agreement.

  And I think that will help in making the Paris Agreement a bit more real and avoiding that maybe countries kind of double count and do things like this.

  So there's been some technical progress, and then some political voluntary pledges. I mean, these are the two kinds of positives that I can take out.

• 07:17 Methane gas reductions and more meat given to Paris agreement

  MA: And we mustn't forget how difficult these things are when you're talking about the global public good and the global public relies on Earth as our life support system.

  But you're dealing with sovereign nations with their own political, real political context as well. These things are always very difficult tensions to manage.

  From a good COP perspective, Olivia, what do you take out of it?

  OR: I agree with everything Gaylor and Mark were saying. The methane pledge for me is particularly a game-changer. They put some numbers around that, as we mentioned earlier, 30% by 2030, you won't see that in the decision text itself but the fact that we are talking specific numbers is really encouraging.

  And it's one of the first times where we've singled out a non-carbon dioxide emission, and really focused attention on it.

  And I was really encouraged by the numbers from the IEA. They're very disputed numbers, but if we take together all these side pledges that happened during the time of the COP that haven't been brought into the text yet, maybe we get to a 1.8- or 1.9-degree future.

  This is still not great but it's better than where we're currently standing.

  Another good thing you could maybe argue it's a bad thing is that we revisiting our NDCs next year to try and ramp up ambition.

  You could say that's kicking the can down the road but at least there's the political appetite to go through that onerous and rigorous process of revisiting targets and coming together again, to see if there sufficient ambition.

  So I was actually very encouraged by a lot of the things that came out.

  The rulebook is a huge one, we've been negotiating that for about at least four years. So to have an actualized text that gives texture to the agreement is hugely important.

• 09:15 Paris rule book getting more detail, making it harder to use loopholes

  MA: Let's touch on that for a while and, you know, the carbon market implications of agreements on the Article Six rulebook, what does that in effect mean, Gaylor?

  GMC: Well, I mean, you know, Article Six is really around how to integrate a lot of the instruments that countries use to mitigate their emissions, and particularly in carbon markets.

  And I think for the global agreement it was mostly technical progress as Olivia was mentioning.

  It's around this rulebook about setting the rules. What can be counted as an emission reduction? How do you count this, making sure you don't double count? And you don't have two countries that end up counting the same emissions?

  And so it was very technical.

  I think from a South African perspective at this point it has fairly limited implications in the short term because it links to previous mechanisms around the Kyoto Protocol to the new mechanisms.

  We didn't play a big part in that.

  And then going forward, we have mostly structured our mitigation interventions around the carbon tax.

  Which doesn't necessarily link too much to the international mechanisms. Of course, there is a linkage particularly offsets, and that's where we have to be quite careful on how we integrate with the rulebook.

  But I think there was some good progress made on actually avoiding firms and countries trying to bypass or cheat the system basically. And that's what the rulebook really has enabled us going forward.

• 10:59 Carbon border adjustment mechanisms will start to bite

  MA: Professor Swilling, what would you add on the rulebook there because we're having this conversation in the context of looming carbon border adjustment mechanisms.

  Clearly, there is going to be a lot of real politics around green protectionism. To say well we're not going to accept your steel or your cement anymore because of its carbon intensity. So we need to have a firm grip on what the rules of the game are here.

  MS: I think what we need to recognise is-  we face a global crisis and we have the world coming together in an unprecedented way, to essentially put in place governance processes.

  Which is what has been referred to as the rulebook for governing trade and financial transactions in a way that is consistent with the commitment.

  And obviously, that is what is needed. So the real devil is in the detail. And we basically made progress with the devil, you can put it that way.

  So what we now have to worry about is how the lawyers, with due respect to Olivia, are going to try and play the game.

  And everybody's going to try and find loopholes and interpretations that is going to have implications for their respective country.

  And for me, what really matters is who's the watchdog of those protests, and those interpretations and the kinds of deals? 

  If you can afford large, expensive lawyers, you're going to find the loopholes, little countries like us need to step up and play the game.

   

• 12:39 Low IRRs on renewables disincentivises investment

  MA: One hopes that it isn't then a Faustian pact to build on your analogy there, Mark.

  I want to come back to the eight and a half-billion-dollar transaction and what Gaylor said is 100% correct in terms of the publicity it's received following COP.

  It's being held up as the one real, tangible example of a deal that wasn't signed amongst all attending countries.

  It was a much smaller, more multilateral type of pledge agreement, call it what you will.

  And I know you've been working behind the scenes on this, give us some more insight into what this effectively means for South Africa, in terms of helping us transition away from fossil fuels.

  GMC: I think it's a critical move and again the rules are important. The pledges are important but what really is going to matter now is the financial investment in making it happen.

  But more importantly is the alternative. Because if we don't, there's a massive withdrawal of finance from fossil fuel, in particular coal.

  There's a build-up of cash in energy funds but there are not enough projects.

  So we're not really locked in the alternative and if that continues.

  You're going to have the refrain that we've been hearing recently in South Africa.

  The Europeans are going back to coal. So those are the kinds of things I think we really need to put greater focus on, which is the financing of the alternatives to make happen, what we're talking about.

  MA: And you know one needs to understand that and just to come back to the eight and a half-billion-dollar agreement.

  Where do you see those funds being deployed? Because it's quite clear it's not there to take off debt or to repay debt from Eskom's balance sheet.

  It's not there as an Eskom balance sheet issue. It's a sovereign- Just Transition pledge. So where do you see these funds being deployed?

  MS: Hopefully, they will be mainly deployed in extending and strengthening the grid.

  The biggest obstacle to loading new renewable energy onto the grid at the moment especially the 100-megawatt concession type framework of implementation is the weakness of the grid.

  The best solar is in the Northern Cape. The maximum you can put onto the grid in the Northern Cape is 100 megs, so we need a massive expansion and transfer of capacity from northeast to the southwest, which is where our renewables read off the power.

  So hopefully the majority of that funding goes into the enabling framework of grid extension.

  But obviously Eskom would like to repower a couple of its own power stations that it's closing down. But that funding shouldn't be used to do what private sector investments could do in renewables.

  So, the real issue here is Eskom is presenting this as a commitment by funders to Eskom. But the government is presenting it as a sovereign level transaction with a foreign government. So I think there's quite a lot of detail to work out.

  MA: And that is going to happen over the next six to 12 months as we got the workstreams that have been formed. And I'm sure that detail will become clearer as we move on.

  And obviously, there has to be a lot of transparency given the years of state capture and as to how those funds are going to be deployed.

  I think that's going to be an important component of this.

  And we've seen through the REIPPPP Bid Window 5 that these projects are already coming through with IRRs that are around 10, 11%.

  You're not profiteering off these projects. It's very difficult to really motivate even at those levels. One wonders where some narratives are coming from that you are seeing in the press here. Tim Cohen, I have to call him out here, one questions the article he wrote in Daily Maverick the other day.

  MS: That was a very unfortunate article. There are 11% IRRs on average, this is a real disincentive, for in particular, South African investors to get involved.

  So I think and the small number of BEE players some of whom are a little suspect, are is really an indicator because the real losers are the BEE investors.

  When those kinds of margins are in place. But it also disincentivizes manufacturing.

  Because the only way you can deliver renewables with those levels of return is by importing the equipment from China.

  Whereas what we really want is for renewables to drive upstream industrialization, i.e. manufacturing the stuff that we need in order to build our renewables infrastructure.

  So I really think celebrating the low level of prices is actually celebrating importing all the equipment we need, with DTI kind of being a bit soft and allowing exemption from local content requirements.

  That's not the future we want. That's not a Just Transition.

• 17:56 More finance to be geared towards adaption

  MA: Absolutely, especially when you're dealing with project risk that usually demands higher rates of return.

  You're talking here about returns that are maybe acceptable in a secondary market when you've de-risked the project.

  You've got the power purchase agreements, and everything has been established. These are first risk, first funder returns we talking about, which are not much more than what you get in an RSA retail savings bonds.

  So I do think we need to examine that.

  Olivia coming back to what this means for business. What do the outcomes of Glasgow actually mean here for the implementation and the direction here of climate policy and business in South Africa over the medium and long term?

  OR: Good question. I think we're still trying to work that out. But we know that for sure that South Africa will be revisiting its NDC.

  Whether that we will increase our ambition is yet to be determined. And I'd be interested to know to what extent that political discussion behind the 8.5 billion did relate to our NDC and the level of ambition we had.

  If we do increase our ambition, that would obviously have cascading effects down on the rest of the economy around our national carbon budget.

  Potentially also in how we design our proposed mechanisms for carbon budgets at a company level, and our sectoral emission targets for the energy sector, transport sector etc.

  So it all depends on the national government's appetite to revise its NDC ahead of the meeting in Egypt next COP, COP27 at the end of next year.

  Countries have agreed that they all going to try and really make a hard push to get their NDCs aligned with 1.5 degrees, but we'll have to see over the next couple of months.

  A good thing coming out of the COP is that we've seen a lot more ambition for adaptation finance.

  So the US committed to double its adaptation finance pledge. There's a lot more sensitivity around some of the struggles that developing countries, including South Africa are facing in trying to access that finance.

  And I think this COP whilst it had a lot of issues around finance, the good thing is that we know that adaptation finance will hopefully flow a bit more to countries like South Africa.

  We have huge adaptation costs and that, in turn, is a cost that we're internalizing within business, the government's internalizing it, and that has knock-on effects on the rest of the macroeconomy.

  So to see more, ideally, grant and donor finance coming into the country would be fantastic.

   

• 20:35 The global north needs to invest in adaption but also damage costs

  MA: Gaylor, building on that- the challenge remains when you talk about adaptation funding and finance. And we've discussed this in previous shows- it's very difficult to adequately measure and monitor and evaluate what donor funds are going to be getting in exchange for projects that they investing it in, in the adaptation space.

  It's still an area that needs a lot of work technically.

  GMC: It does you know, and we've been having the fight for decades now.

  But what is climate finance you know? How do you define this? It's relatively clear, I would say in the mitigation space.

  The bulk of the money goes to renewable energy. But then when it comes to adaptation and an extension of that, which is the funding for loss and damage as well, those vulnerable countries have been fighting for, it becomes yes, a lot more difficult to define.

  But what is sure is that we need to channel a lot more funding into adaptation and into loss and damage.

  We need to be having a discussion about what kind of finance. And it's the same story about, you know, the 8.5 billion deal for South Africa.

  What is the finance going to be? Is that going to be grant? Is that going to be loans, is it going to be private investment?

  It's all on the table at this point. But of course, when it comes to adaptation and loss and damage, you're more looking at public funds, in many cases.

  So we need the global north to effectively commit to that money. As Olivia has indicated, there's been some pledges to look at that into the future and to increase the commitments.

  But we're very far from what we really need in the global south in terms of mitigating climate change of course, but importantly increasingly adapting to it, and compensating for the loss and damage that those countries have suffered, really not being their fault.

  MA: And as Minister Creecy said yesterday, those unresolved issues of the recognition of Africa's special needs and circumstances must be kept alive for substantive discussion at the African COP next year.

  And we've got a couple of minutes left Professor Swilling, what is our focus now as we head into Sharm el-Sheikh next year and COP27 in Egypt?

  Where do you see us going after COP26?

   

   

   

• 23:08 Where should SA be focussing ahead of Egypt COP27 next year?

  MS: Well, firstly, we must turn the 8.5-billion-dollar political pledge into a real financial transaction with real substance without any shavings that don't land up in South Africa.

  Secondly, it's not enough, there needs to be a complimentary deal at a sovereign level that helps us deal with the legacy debt in Eskom.

  And we can't do that with more guarantees. We can't do that on the budget.

  So we're going to have to find another creative mechanism using local and international finance.

  Thirdly, we are going to have to have a much clearer focus on what Enoch Godongwana calls energy security for the country, an SA Inc. perspective rather than fixing Eskom perspective.

  He's completely right in that regard. So we need a systemic perspective and that does not exist at the moment.

  The Integrated Resource Plan is out of date. The Energy Policy Framework is, you know, the Integrated Energy Policy Framework is far out of date.

  So there's a lot of work to be done. And I see DMRE is starting to pick up the Just Energy Transition way of thinking, which is good news, but they need to move a lot faster to catch up and stop sending out mixed messages.

  MA: Well, that is encouraging that we are starting to see a bit of a change in attitude at one of the most critical government departments when it comes to this because it has in the public eye been giving a divergence of attitudes into how we approach this.

  Olivia what do you see as the next steps from here into Sharm el Sheikh?

• 25:05 More investigating how SA is to be impacted by carbon border mechanisms

  OR: I've been following quite a lot of what's been happening prior to this year's COP.

  So in the preceding negotiations at the G20, the G7, there's been a lot of focus on using alternative instruments to try and ratchet ambition prior to the COP.

  So there's been huge attention on carbon border adjustment mechanisms, which you mentioned earlier and I'm really curious to see how discussions will play out after this year's COP in advance of COP27.

  And to see whether there will be any leeway for developing countries in negotiating some of the finer text around those mechanisms.

  I know it's relatively final at this stage. And we as a developing country need to do a lot more homework on what the impact of those mechanisms is going to be on our exports and our trade and ultimately our balance of payments.

  And I know some sectors of academia are looking at what those impacts might be, but I think we need to have a much stronger dialogue around what the impact might be for South Africa and to unpack how it influences us on a day-to-day basis.

  I know Gaylor is doing a little bit of work on that so he could be possibly better placed than me to speak on it.

  But I think we will start seeing things like alternative compliance instruments where people start getting fed up with the transparency process and try to use more meaty instruments to ratchet ambition.

  MA: Well, at least we have seen the changes in terms of IFRIS and the way we're going to be accounting for this as well. You teed Gaylor up, but I've got to end it there because we've run out of time.

  OR: Ah sorry Gaylor.

  MA: Olivia, thank you very much.

  Thank you all of our speakers Olivia Rumble Director at Climate Legal; Professor Mark Swilling, distinguished Professor of Sustainable Development at the Centre for Sustainability Transitions at the University of Stellenbosch.

  Gaylor Montmasson-Clair, Senior Economist at TIPS. We're at least keeping 1.5 alive as has been the phrase that's been used to end COP26.

  It's been a real pleasure bringing you this series over the last eight weeks brought to you by Investec.

  We've been discussing whether or not we're turning the tide on climate change, there is some positive, but also a lot of hard work still to achieve some of those pledges and some of those aims that we set ourselves at COP26.

  We're going to keep focusing on the issues as we build into COP27 in Egypt next year.

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