Financing Local Climate Action in South Africa

21/12/2017

In a recent V-LED vertical dialogue event, Sustainable Energy Africa (SEA) set out to deepen the discussion around the opportunities, innovations and constraints, governance and institutional issues in regard to local governments accessing much needed climate finance for the mainstreaming of climate response into its service delivery functions. Key questions addressed at the meeting were:

  • How do cities finance low carbon interventions?
  • To what extent can municipalities draw on existing income sources to finance climate change response action?
  • Where are the gaps?
  • What can be done to leverage critical change that is required?

A range of key stakeholders were brought together from National Treasury, the Independent Power Producer’s Procurement Programme Office, Development Bank of Southern Africa (DBSA); the City of Joburg, Ekurhuleni Metro, City of Tshwane, City of Cape Town, as well as George Local Municipality, GIZ; USAID; Palmer Development Group (PDG); OneWorld Sustainable Investments and SEA.

Cities have huge mitigation potential

„A Business as Usual path in the largest 27 South African cities would entail a doubling of energy by 2034 and a doubling of emissions in these cities by 2040. This is not a sustainable option.”

At the outset of this dialogue session, SEA set the context by outlining the type and scale of climate change response action required by South African cities to significantly shift the carbon emission trajectory of the country. SEA presented the city-wide mitigation potential study it had recently undertaken of South Africa’s 27 large cities including the 8 metros. These cities are home to 53% of the national population, produce 76% of the national GDP and account for 39% of the country’s carbon emissions. Comprehensive carbon emissions scenarios modelling undertaken in this study revealed that the implementation of feasible carbon emission reducing interventions at scale by these cities would result in a lowering of GHG emissions by 38% off the Business as Usual trajectory, by 2050.  Following a Business as Usual path shows that energy consumption will double by 2034 and emissions double by 2040. This is not a sustainable option. The carbon emission reducing interventions include energy efficiency in all sectors - the built environment, municipal own operations, transport including non-motorised transport and spatial planning, energy access – as well as the introduction of local electricity generation from large-scale renewable energy and small-scale embedded generation (rooftop photovoltaic power station).

How can local climate action be financed?

“Energy efficiency in all sectors and the introduction of local electricity generation, both large and small-scale, are cheaper in the long run and renewable energy technology costs are becoming increasingly favourable.”

It is these interventions that need to be funded. Where does the financing come from? Who pays the upfront costs? It is clear that energy efficiency is cheaper in the longer term in other words if you use less you pay less. Indicative costs show that most mitigation efforts are cheaper in the long run and that renewable energy technology costs are becoming increasingly favourable.

With this in mind, key authorities on local government financing, National Treasury, PDG and DBSA, provided an overview of the current sources of municipal funding available to support municipalities in delivering on their core mandate of service delivery. There are no intergovernmental transfers/grants that explicitly fund climate change response action at the local level other than the Energy Efficiency Demand-Side Management Grant. In part this may be due to the fact climate change response is not mainstreamed into municipal planning and operations. Climate change response is often seen as separate and stand-alone, unlike reducing employment, building development and poverty alleviation which are encompassed within all government policies.

The DBSA, an internationally accredited regional climate financing entity, shed light on the mechanisms in place for municipalities to access the Green Climate Fund (GCF). The GCF is a financial mechanism of the United Nations Framework Convention on Climate Change (UNFCCC) to promote low-emission and climate-resilient pathways. DBSA highlighted that the processes and procedures are very involved in accessing the GCF, and urged municipalities to think outside of the box when developing their climate response project funding proposals so that they are robust enough in terms of bankability.

“Cities are acting to secure local climate financing. City of Cape Town has received funding on the strength of its robust climate responsive policy direction, Ekurhuleni’s council approved the Energy and Climate Change Strategy, allowing the city to secure budget allocation for mitigation projects and the City of Johannesburg raised levies to fund its large solar water heater programme for low-income households.”

The second session of the meeting showcased some of the remarkable climate responsive innovations occurring at the local level despite the constraints. City of Cape Town, Ekurhuleni Metro and City of Johannesburg shared the different approaches used in leveraging funds for mitigation implementation despite the challenges. City of Cape Town has received funding on the strength of its robust climate responsive policy direction, Ekurhuleni’s council approved their Energy and Climate Change Strategy which enabled them to secure budget allocation for the implementation of mitigation projects and City of Joburg’s raised levies to fund its large solar water heater programme for low-income households.

“In fact, much is happening even without specific financing and without the legislative and policy frameworks in place.”

The last session of the meeting addressed the issue of taking climate mitigation to scale in order to reach the required carbon emission reduction target as described at the outset of the meeting. Municipalities are hampered in taking renewable energy initiatives to scale given the current regulatory environment is not explicitly clear about how they  generate or purchase renewable energy from Independent Power Producers. How municipalities can leverage change/opportunities despite all the constraints and challenges becomes a crucial question.

It was recognized that in fact much is happening even without specific financing and without the legislative and policy frameworks in place.  Whilst smaller municipalities do not have the same level of capacity and resources as the larger metros, there is a possibility for them to possibly work at the district level.  It was noted that the Energy Intensive Users Group and the metros account for 80% of national energy consumption, thus the climate change mitigation focus should be on the large municipalities. This is where change can take place. 

“Municipalities need to continue doing their work and pushing the boundaries. In particular there is a need to have climate change response mainstreamed into all government work, to align and integrate the issues, to see them as part of government’s mandate and not placed in a silo.”

Creativity and holistic thinking needed for the way ahead

The discussion led to a potential new way of approaching and framing the problem of climate mitigation.  South Africa is faced with the triple challenge of poverty, growth and unemployment and this is perhaps the starting point.  For example the question to ask is: ‘Will this job creation project be undertaken in a sustainable manner? Or is this climate change project going to create jobs?’ By concentrating attention on these areas and working within a sustainable and environmentally benign manner, climate change mitigation will occur. Finding creative solutions to the funding problem and focusing on development, the rest will follow.

We need to frame the question and approach in a different way.  In other words how do we find solutions to the unemployment problem in a manner that addresses the green economy? This method brings about an integrated approach to solutions. Can we look at packages and solutions and not just individual projects – in other words a holistic approach? Can we see the opportunities that are out there that are good for government, good for the consumer and good for the country? 

It was acknowledged that we need a paradigm shift in our thinking. Municipalities need to continue doing their work and pushing the boundaries. In particular there is a need to have climate change response mainstreamed into all government work, to align and integrate the issues, to see them as part of government’s mandate and not placed in a silo.