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SOUTH AFRICA’S LOW-
EMISSION
DEVELOPMENT
STRATEGY 2050

February 2020

TABLE OF CONTENTS

ACRONYMS ..ccecssssssssessssscessseessneccanecesnecesnecesneeesnneesnneees
EXECUTIVE SUMMARY.. .. Vill
1 INTRODUCTION...
TA ‘The global:climate:Crisis scissinnscsennuinimmmcsncnon usin cionennesommunenimamn onan 1
1:2 ‘he Paris Agreement tisrcssssccsmnnsresnnnnnermn cn 2
1.3. The Science of 1.5°C and what it means for the Paris gOalS......... i eeeceeseeeeseesteeseesesteetessesneentenees 3
1.4 Methodological elements for developing LEDS ...0.....c eee 4
1.5 South Africa LEDS — a living COCUMENE.........c.eecescesceseestsseeseesesesteseeseenesueseseeesesiseesseeaeeneeeeneetentenseneeneeaes 6
2 THE SOUTH AFRICAN ECONOMY, EMISSIONS PROFILE AND POLICY LANDSCAPE .. .8
21 -South:Aftica's Econom sscscscsnscarcconn mae 8
2.1.1 — EMe@rgy SUPPLY... eseesceseeseesessesseseeseeseesesnesussnsaessesuesesensaeeaseneeueeeseesasensausaesaeseseeeensassnsensenseneeneaseesensaees 8
2.1.2 Mining and the industrial S@CtOF 0... escseeseeseeseeseeeeseseeseeseeseenesnsseeaeeseseeeteetensenseseesetstenseneateaeeneeees 10
2.1.3 Agriculture, Forestry and Land Use (AFOLU)..00.. occ eeenesieaneeesnmenesieinanansenee 11
214 Waste SOCIO «canneries neomncemimna ocean anmannamcemaramenaa 1
21:5: Other sectors cna EER 11
2.2 Greenhouse gas EMissions Profile 0... eee teseenesesteeeesnssnteeteeienneeniesiesenenssnsene 12
2.3 Policy, legislation and strategies that inform SA-LEDS....0... cece eeeeeeeseseeteeieeeenneenesianeaneenee 14
2.3.1 National Development Plan 2030 oo... eeeeeeesneeeesiesieneesesinesesnssmeetessennieaiesneeenananssne 15

2.3.2 National Climate Change Response Policy .

2.3.9 Climate Change Bill ssssssisisesesenncanoreie sername
2.4 The role of sub-national government and the private SCCtOF wees testes 17
2.4.1 Sub-national QOVErMMentt..........eccesceseesessessesseseeseeseeseeneseeeeeeesesuesnssessesseseeeteetsaseaseseneeneeeeeseneateeeeeeeees 17
2.4.2 The contribution of the private SCCtOP...... ec eeceeeesesneetesteseeniesesineenesneeieateeenneeaieeiesenaneaneene 18
2.5 Vulnerability and resilience ............cccceseeseesecesteseeseeseeseeseseeeeeeeeseeesssensseeaeeueensensaeeaseaseeeeeeeessenseneateaeeeeees 18
3 VISION STATEMENT ....ssesssecsseesssesssecsneesnessnessneesnscsnscsnscsusesusesssesssessnecsusesnsssnsesusesusesusesnsceuesneessnesneeesneeseeeseeens 9
A ‘GHG EMISSIGNS' MITIGATION MEASURES vevcosnmsscessnevarenensouemsemenrnenmserennnennrmenrnneT 21
4.1 EMmergy SUPPLY... eeeeseeseeseeseseseseesesseesessesneeteaeeneenesecsessesucsusssseenesessasensaeeaesusensseeaeenssnesneaeenseeeeeeteatensenees 21
4.1.1 Integrated Energy Plan... ccesceseeseeeceseseeseesecsesseseseesessesnssssnssesseeeesiseneseeaseeseseeeeneeeeeeseseneaneaeeeeaes 21
4.1.2; ‘Integrated RESOUrCE PIAN esses ecweusccrerereeecmeerenercommreanseeeenucereneaeanner enna eenr iene 23
41:3: Biofuelsopportunities vcesseorse sua sevemruneunner neem nra enema 26
4.2 Energy: demand esseuswsverervemner rare nememmn nen nurmermres ancien momen ne eny esmureneer 27

4.2.1 National Energy Efficiency Strategy... cece eeeeeesesesssesseseessessesseeseesuesnessiesnssesaseesesneeneeseeesease 27

4.2.2 Support for uptake of Solar Water Heaters... ese eeeeeesseseestesteseeseesesntesesnesesaneesesneeneesieeneees 31

4.2.3. National Building Regulations and Buildings Standards Act .......c..ceceeeccesesesteeeestestesteateateeeeeeees 31

4.2.4 Promotion of Cleaner Mobility ...........cccccseeessessesteseesessesesesssessesseeeeneenseeeassissseeeeteeeseseseneeteneeeeaee 32
AS INGUSUIY crvceresersys seen aerecenyrmameeurnrearerine

4.3.1 Industrial Policy Action Plan (IPAP).

4.3.2 Tax incentives for green project development ........... eesti
4.4 Agriculture, Forestry and Land Use (AFOLU)...0.....ceeceeseeseseeesseseeseesssmetssssatseneesenneeneenieeneeee 36
45 WaStC oneness iesienesesmeesesmenieeiesnienesnssenenssissnieaiesiinnnissussunenesessameaneesesnennieneenieen 37
4.6 ChOSSeCUIIG MOBSUTES sere cc ct cceseccrwenen ean reunnrecere conten eenuneresieearcerereatevtnatect ra ventet ent vesroreniecotateeneaedeecereivers 39
4.6.1 Carbon TaX sisisansusonanmpsoncnmmannennnnan ania nase ieonanaeY 39
4.6.2 Sectoral Emissions Targets (SETS) sisicsnnmnnnmninnmmmnmininmnnmnmnemmmmnn 40
4.6.3 Carbon Budgets... ccc eeesseseeseestsneseesisiesaesssemeiesssnmeaesisneenesssetaissnssnesaneesesneeanesieeneane 41
4.6.4 Phasing out of inefficient fossil fuel subSidieS/INCENtIVES occ es ceeeeseeseeseeseseseteetesneeneesteeneeee 41
5 GOING FURTHER TO ACHIEVE THE PARIS GOALS ....escssescssecsssecesnesesneeesneeess 42
5.1 Enhancing the vision for development ............cecsccccestesteseeseeeestestesteeeeeteeees
5.2 Enhancing institutional capabilities and arrangements for the transition... eects 44
5.3 Creating the right financial environment through aligning fiscal strategy with sustainable growth ......... 46
5.4 Providing broad access to fUNdS occ eeeeeeseeeeesieeieteeiesienesnsineissneenieeteeiesienssneenananeane 47
5.4.1 Climate finance flows to date oo. eensieeeeeenesisieenenmeiessemeaieeeniennesnsenaneensenee 48
5.4.2 Formalising climate finance Structures... csceeceseeseseeeesseseeseesesneeteseeieatessenneeniestesnteaneansenees 50
54.3. Climate finance opportunities: cicmnnomnenumnimanemanmmnannamummamnmaiN 51
5.5 — Driving innovation, research, and skills for future valUe CAPtUre ow... escent 54
5.6 Ensuring a just transition with jobs for all... cece ieseenmeseieeiesesnieateeesnmenieaiesenaneansene 56
5.7 Promoting sustainable development through education and culture................ 57
5.8 Enhancing information and metrics .............0+ OT
6 CONCLUDING REMARKS: PLANNING FOR IMPLEMENTATION .....essseeessee 58
6.1 Detailed sectoral work to explore transformation pathwayS ......... cscs 58
6.2 Creation of policy package roadmaps across three phases 00... cseeeeeesneseetesseeneentesneseeneeaneenee 59
7 REFERENCES ..esessssecsssecsssssessscessncssnecesnscesnscesnsscssnsessnecesusecssscesnuscsunsesansessnseesnucessnecesuseesneeesusessuneeesneeenneeesneess 63
LIST OF FIGURES

Figure 1: SA-LEDS in the context of prior climate-related work in South Africa... 7
Figure 2: Key contributors to GDP ou... ..eeseeseesecesessestesesseesesnesussnsaeeseeneenseesseeaeeaseaseeeensesensesaneneeneeieeneanentensenseneeees 8
Figure 3: Contribution of main emission categories and energy emission categories to national gross greenhouse
GAS EMISSIONS 2015 ess cescevercexcesss een ereceer cero ereceeneerann ne ceeenteerecen verre ener ee earermreneeeeenyee pene eeaner ea 13
Figure 4: Total gross national GHG emissions by economic sector . we 14
Figure 5: South Africa’s Peak, Plateau, Decline Trajectory Range...........c.sccsescesesessseeeseseeseeetsnssnseneeteeteeeeeeees 20
Figure 6: Sectoral energy deMANd oo. ce eceeeseeseesneeeeseseeseeseseeeteeesneeateeteseesessussnseenesnesnieaneesenneeaeeneesneese 22
Figure 7: Share of installed capacity in the 2019 IRP in MW... eee eesneeseeseeseeeeesesneenteeneeneenenneeniees 25
Figuiré:8: Domestic climate finahice (2015 2017) veccicceceacwmnvecerareeneeerereaveranveerinneeeeveneeronminnveernavenveneneiertarns 49
LIST OF TABLES

Table 1: Strategic interventions outlined in South Africa’s National Adaptation Strategy 0... 19
Table 2: Energy efficiency targets outlined in the post-2015 NEES oo... eeesessneseeteeseseeeenesiniesneenee 28
Table 3: Measures outlined in the post-2015 NEES .0.... cee seseeesieeessmansseneeniesisenniansenee 29
Table 4: Current institutional arrangements to address climate change response actionS.............cceseeeeeeee 45

Table 5: The three phases of the just transition ............
ACRONYMS

ADP
AFOLU
BRT
CA
CO2
CoP
CSIR
CTL
DAFF
DBSA
DEA
DoE
DSI
GDP
GHG
GJ
GTL
GTS
GWh
HySA
IDC
IEP
IGCCC

Ad Hoc Working Group on the Durban Platform for Enhanced Action
Agriculture, Forestry and Land Use

Bus Rapid Transport

Conservation Agriculture

Carbon dioxide

Conference of the Parties

Council for Scientific and Industrial Research
Coal-to-Liquids

Department of Agriculture Forestry and Fisheries
Development Bank of Southern Africa
Department of Environmental Affairs
Department of Energy

Department of Science and Innovation
Gross Domestic Product

Greenhouse Gas

Gigajoule

Gas-to-liquids (GTL)

Green Transport Strategy

Gigawatt hour

Hydrogen South Africa

Industrial Development Corporation
Integrated Energy Plan

Intergovernmental Committee on Climate Change
IMCCC
IPAP
IPCC
IPP

IRP

Kfw
LEDS
LTAS
LTMS
MACC.
&E
MINMEC
MINTECH
MPA
MRF

t CO2-eq
W
ccc
NCCRP
NDC
NDP
EES

NEM:WA

Inter-Ministerial Committee on Climate Change
Industrial Policy Action Plan
Intergovernmental Panel on Climate Change
Independent Power Producer

Integrated Resource Plan

German KfW Development Bank
Low-Emission Development Strategy

Long Term Adaptation Scenarios

Long Term Mitigation Scenarios

Marginal Abatement Cost Curve

lonitoring and Evaluation

Ministers and Members of Executive Councils
Ministerial Technical Advisory Body

itigation Potential Analysis

Material Recovery Facility

Megatonne

legatonne Carbon Dioxide Equivalent
Megawatt

ational Committee on Climate Change
National Climate Change Response Policy
Nationally Determined Contribution

National Development Plan

ational Energy Efficiency Strategy

National Environmental Management: Waste Act
NERSA

NEVA

NIPF

NPC

NTCSA

NWMS

PAMs

PCCCC

PPD

REIPPPP

REDD

SACCS

SANS

SA-LEDS

SDG

SET

SJRP

STEP

STI

SWH

UNESCO

National Energy Regulator of South Africa

National Employment Vulnerability Assessment
National Industrial Policy Framework

National Planning Commission

National Terrestrial Carbon Sinks Assessment
National Waste Management Strategy

Policies and Measures

Presidential Climate Change Coordinating Commission
Petajoule

Peak, Plateau and Decline

Renewable Energy

Renewable Energy Independent Power Producer Procurement Programme
Reducing Emissions from Deforestation and Forest Degradation
South African Centre for Capture and Storage

South African National Standard

South Africa Low-Emission Development Strategy
Sustainable Development Goal

Sectoral Emissions Target

Sector Jobs Resilience Plan

Subtropical Thicket Ecosystem Project

Science, Technology and Innovation

Solar Water Heater

United Nations

United Nations Educational, Scientific and Cultural Organization

vi
UNFCCC United Nations Framework Convention on Climate Change
WtE Waste-to-Energy

ZAR South African Rand

vii
EXECUTIVE SUMMARY

INTRODUCTION

South Africa, like the rest of the world, is vulnerable to the impacts of climate change. In unmitigated greenhouse
gas (GHG) emissions scenarios, warming of up to 5 to 8°C is projected over the interior of the country by the end
of this century. Under a range of warming scenarios, drier conditions will be experienced in the west and south of
the country and wetter conditions in the east. Rainfall patterns will become more variable and unpredictable.
These changes will impact on water resources and food production, and increase the vulnerability of impoverished
communities, amongst others. The South African government thus regards climate change as a considerable
threat to the country and its socio-economic development. At the same time, if climate change is to be limited
through limiting the growth in global GHG emissions, with South Africa contributing its fair share to emission
reductions, there will be other implications for the country. As one of the top 20 global emitters, with a high
dependency on fossil fuels, substantial emission cuts will be required. The rapid transition that will be required

presents a potential risk to economic growth and sustainable development if not managed properly.

Through the Paris Agreement, Parties to the United Nations Framework Convention on Climate Change
(UNFCCC) have agreed to limit “the increase in the global average temperature to well below 2°C above pre-
industrial levels, and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels”. Article
4 of the Agreement sets out Nationally Determined Contributions (NDCs) as the instrument countries must
develop to present their part of the global effort to “reach global peaking of greenhouse gas emissions as soon
as possible... on the basis of equity and “in the context of sustainable development and efforts to eradicate
poverty”. To help ensure that the Parties’ national contributions can jointly achieve the collective goal, the Article
further states that “Parties should strive to formulate and communicate long-term low greenhouse gas emission
development strategies, mindful of Article 2 taking into account their common but differentiated responsibilities

and respective capabilities, in the light of different national circumstances’.

This document has been prepared in response to that Article, and presents South Africa’s first Low Emission
Development Strategy (SA-LEDS). Through submitting this document to the UNFCCC our country reiterates its
commitment to achieving the Paris goals. Implementation of the Strategy will also contribute directly and indirectly

to the meeting of Sustainable Development Goals (SDGs).

SA-LEDS builds upon years of work on climate change in the country, which has contributed to the establishment

of an important set of policy documents. Building on existing plans offers numerous benefits, such as optimizing

vill
resources and ensuring buy-in of key stakeholders. Three key climate policy documents provide the foundation
on which SA-LEDS has been developed. These are:

e The National Development Plan (NDP): With an overarching objective of eliminating poverty and
reduce inequality by 2030, the NDP outlines a set of goals and actions to meet the country’s
environmental sustainability and resilience needs, and dedicates a full chapter to “Environmental
Sustainability - An equitable transition to a low-carbon economy”.

e The National Climate Change Response Policy (NCCRP) represents government's comprehensive
policy framework for responding to climate change, including provisions for adaptation and mitigation.

e The Climate Change Bill (forthcoming) will form the legislative foundation for the climate change
adaptation and mitigation response. With respect to mitigation, the Bill provides for future review and
determination of the national greenhouse gas emissions trajectory; determination of sectoral emissions
targets for emitting sectors and subsectors; and allocation of carbon budgets. It also makes provision
for the development of plans to phase down or phase out the use of synthetic greenhouse gases - in

line with the Kigali Amendments to the Montreal Protocol.

Various other strategies, policies and sector plans have been developed for individual sectors of the economy,
which will all contribute to driving emission reductions. These are detailed in later sections of this document to
outline the set of discrete measures which serve as a starting point for implementation of the LEDS. At the same
time, many of these plans were developed prior to the adoption of the Paris Agreement and do not consider the
long-term, global goals in a coordinated manner and address a shorter timeframe than mid-century. Keeping SA-
LEDS as a dynamic and flexible document is important to ensure it keeps pace with domestic policy
developments, research, development and innovation, and declining costs of emissions mitigation technologies.
Notable here is a process being undertaken by the National Planning Commission (NPC) to develop a common
vision for the country in 2050. This vision will be instrumental in driving harmonisation of government plans and

policies and so it is important that the NPC process and vision takes into account the Paris goals.

In addition to policies and measures being implemented by national government, many sub-national (provincial
and local) government departments are undertaking activities that contribute to the national mitigation, adaptation
and resilience efforts. Sub-national activities have, however, not yet been aligned or coordinated, and different
geographical locations see different levels of activity. A diverse range of actions that contribute to GHG emissions
mitigation is also being seen across the private sector, with significant gains having been made in certain sectors

on both energy efficiency and emissions mitigation.
Although this strategy focuses primarily on greenhouse gas emissions mitigation, the vulnerability to climate
change impacts, as well as the need to build resilience to these impacts is noted, and will be further elaborated
in future iterations of SA-LEDS. South Africa has developed a National Climate Change Adaptation Strategy that

highlights nine key vulnerability areas for the country which acts as a complement to this document.

VISION STATEMENT

The stated vision for SA-LEDS is as follows:

South Africa follows a low-carbon growth trajectory while making a fair contribution to the
global effort to limit the average temperature increase, while ensuring a just transition and

building of the country’s resilience to climate change

In the absence of an agreed quantitative articulation of the vision, the Peak, Plateau, Decline Emissions Trajectory
Range, as reflected in the NCCRP and NDP, is used as the benchmark against which the performance of SA-
LEDS will be measured. The Climate Change Bill, described later, makes provision for regular updates of this
trajectory, through which it can be better placed within the context of the Paris Agreement. The outcomes of the
National Planning Commission process to develop a common vision for the country in 2050 will be used to update
SA-LEDS once released. In the development of the vision, South Africa will give due consideration to the IPCC

Special Report on 1.5°C, which represents the latest available science regarding this goal.

GHG EMISSIONS MITIGATION MEASURES

The strategy centres on measures currently being implemented by government to address mitigation across the
four key sectors of the economy, namely energy, industry, AFOLU and waste. It also presents planned cross-
sectoral measures that will contribute to driving mitigation action. As indicated previously, many of the measures
address only the short term, and are not considered transformational. South Africa puts these forward as a starting

point from which to ratchet up our future ambition towards more integrated, transformational strategy.
Energy supply
Decarbonisation of energy supply will largely be driven through the:

e Integrated Energy Plan, which analyses current energy supply and demand trends within the different

sectors of the economy, across all energy carriers. It then uses this information along with assumptions
about future demand and technology evolution to project the country’s future energy requirements under
a variety of different scenarios, including those with emissions limits and carbon prices.

Integrated Resource Plan, which guides the evolution of the South African electricity supply sector, in
that it identifies the preferred electricity generation technologies to be built to meet projected electricity
demand. It thus provides a mechanism for Government to drive the diversification of the country’s
electricity generation mix and promote the use of renewable energy and other low-carbon technologies.
Biofuels Opportunities, offered through the Biofuels Industrial Strategy of 2007 (yet to be implemented)
and second and third generation biofuels technologies that could potentially increase the volumes of

biofuel that could be produced, without competing with food products for feedstocks.

Energy demand

SA-LEDS supports the implementation of a selection of measures to reduce energy demand, or limit growth in

energy demand, as the economy and population grows:

The National Energy Efficiency Strategy: In 2005, the Department of Energy launched the first National
Energy Efficiency Strategy (NEES). Building on this document, the Department of Minerals and Energy
is finalizing the post-2015 NEES, which outlines a set of goals for energy efficiency improvements across
the economy to 2030. The NEES also identifies a set of measures to be implemented in each sector to
achieve the stated targets. The Post-2015 NEES makes provision for a review every five years.

Support for increased uptake of Solar Water Heaters: Solar Water Heaters (SWH) partially offset use
of electricity for water heating in middle- and high-income households, and can service low-income
households that did not previously have ready access to hot water or used fuels other than electricity for
water heating. Since 2005 a number of goals have been set, and associated support programmes have
been established to drive uptake of SWH, with the NDP introducing a goal of five million SWHs by 2030.
The National Building Regulations and Buildings Standards Act: To further efforts to decrease
energy consumption and associated GHG emissions of new commercial and residential buildings, the
government has implemented energy efficiency and energy consumption standards under the National
Building Regulations and Buildings Standards Act. The first of these is South African National Standard
(SANS) 204 - Energy Efficiency in Buildings. This standard “specifies the design requirements for energy
efficiency in buildings and of services in buildings with natural environmental control and artificial
ventilation or air conditioning systems.” The second, SANS 10400-XA — Energy Usage in Buildings,

includes the provisions of SANS 204 and others, providing a standard for energy efficient buildings.

xi
e Promotion of cleaner mobility: Emissions from energy supply in the transport sector are addressed
through a number of policy documents. The 2007 Public Transport Strategy sets out an action plan for
accelerated modal shifts and for the development of integrated rapid public transport networks. Since
then, the successful implementation of the bus rapid transport (BRT) system in Johannesburg has led to
it being adapted and implemented in other major South African cities, with further roll-outs being planned.
In 2018 the Green Transport Strategy (GTS) to 2050 was launched. The GTS provides the strategic
direction for the transport sector regarding the reduction of GHG emissions, the contribution of transport
to the green economy and the promotion of sustainable mobility. The Strategy aims to support reductions
in the contribution of the transport sector to national greenhouse gas emissions through interventions that
include local electric vehicle and battery production and roll out of solar powered charging stations;
continued use of fuel economy norms and standards for fuel efficiency and GHG emissions of vehicles;
and facilitating a shift of freight from road to rail. In September 2010 a COz tax was introduced on the
selling price of new motor vehicles that exceed a certain emissions limit.

Industry

Two sets of policies that directly and indirectly support emissions reductions in the industrial sector are identified,
beyond those that target energy efficiency. The Industrial Policy Action Plan (IPAP), the implementation plan
for the National Industrial Policy Framework, is revised at various intervals. The most recent revision, which covers
the period 2018/19 to 2020/21, provides updates on key focus areas within the industrial sector, one of which is
green industry investment. The implementation of technologies with potential for contribution to emissions
reductions in the industrial sector is also supported by various tax incentives, contained in the Income Tax Act.
Agriculture, Forestry and Land Use (AFOLU)

Mitigation actions identified in the AFOLU sector include Policies and Measures developed by line departments
including the Department of Agriculture Forestry and Fisheries (DAFF)'. These include the draft Climate Change
Adaptation and Mitigation Plan for the South African Agricultural and Forestry sectors, the Conservation

Agriculture Policy and the Agroforestry Strategic Framework for South Africa.

1 Note that with a government restructure Forestry and Fisheries has now been combined with Environmental Affairs, while Agriculture
has been combined with agriculture and the department of rural development and land reform. The implications of this restructuring on
policy implementation has not yet been considered.

xii
Waste

Waste management activities are legislated through the National Environmental Management: Waste Act, with
further policy direction being provided through the National Waste Management Strategy (NWMS). The Strategy
adopts the waste management hierarchy of waste avoidance and reduction, re-use, recycling, recovery, treatment
and disposal, activities which potentially contribute to a reduction in emissions from material life cycles2.
Subsequent to the Waste Act and NWMS, twenty national waste management initiatives and annual targets have
been established through a process known as the Waste Phakisa. Of the initiatives, five are likely to have direct
and indirect impacts on the total national greenhouse gas emissions. The importance of circular economy thinking

in guiding the Waste Phakisa initiatives is recognised.
Cross-Cutting Measures

In addition to the measures specific to individual sectors described, four cross-cutting measures that will support

low carbon development are in various stages of being implemented.

e Carbon Tax: The Carbon Tax Act was brought into effect from 1 June 2019, which gives effect to the
“polluter pays principle” and aims to price carbon by internalising the negative costs of emitting GHGs.
The tax rate is set at R120 per tonne of COz-eq. To allow businesses time for transition, a basic tax-free
allowance of 60% will initially apply to all emissions, with further allowances depending on the activities.
The tax structure will be revised post-2021 to align with the proposed mandatory carbon budgets.

e Sectoral Emissions Targets (SETs): The national emissions trajectory will be translated into Sectoral
Emission Targets or SETs, which are quantitative greenhouse gas emission targets allocated to an
emitting sector or sub-sector, over a defined time period. Individual national government departments will
be tasked with developing and implementing Policies and Measures (PAMs) to ensure emissions from
within a sector or sub-sector remain within SET limits.

e Carbon Budgets: Carbon Budgets set a maximum volume of emissions from certain activities that
individual entities are allowed to emit over three rolling five-year periods. By assigning a Carbon Budget
to an entity, a signal is provided as to the degree of GHG mitigation that is required within a specific time
period, with a penalty being imposed if the budget allocation is exceeded. Furthermore, by providing

entities with an understanding of how budgets are likely to be assigned in future phases to keep overall

2 Emissions savings achieved through actions in the waste sector will not all be reflected in that sector's inventory, however they may
contribute indirectly to national emissions savings.

xill
national emissions within the bounds of the national emissions trajectory, which will continue to be revised
downward in keeping with the Paris Agreement, they are sensitised to how mitigation requirements may
change in the future. The system thereby provides an opportunity for entities to plan ahead.

e Phasing out of inefficient fossil fuel subsidies/incentives: As a member of the G20, where countries
have committed to phasing out inefficient fossil fuel subsidies, South Africa has indicated willingness to
identify and minimise their harmful impacts, taking cognisance of its developmental state. South Africa
should consider participating in a fossil fuel subsidy peer review within the G20 framework to facilitate
the sharing of experience and mutual learning among G20 members as the next step in identifying

inefficient fossil subsidies within the economy.
GOING FURTHER TO ACHIEVE THE PARIS GOALS

A set of stand-alone, sector-based policies and measures as well as a selection of cross-cutting interventions that
government is busy implementing has been presented above. However, a broad range of structural changes will
be necessary, in order to ensure the global economy achieves carbon neutrality within the second half of the
century. Changes will be required in terms of service demand, technology fleet, infrastructure, operating practice,
and energy sources, for all sectors of activity. As South Africa continues to strengthen its response to climate
change as part of a global effort, it will increase its focus on a range of strategic elements that will together promote
the change to low carbon growth, while continuing to align with the goals of the Paris Agreement. These relate

to:

e Enhancing the vision for development, including revising the emissions trajectory to reflect a fair
contribution to the global achievement of the Paris Agreement

e Enhancing institutional capabilities and arrangements for the transition

e Creating the right financial environment through aligning fiscal strategy with sustainable growth

e Providing broad access to funds

e Driving innovation, research, and skills for future value capture

e Ensuring a just transition with jobs for all

e Promoting sustainable development through education and culture

e Enhancing information and metrics

Each of these is elaborated upon in the main body of the document.

xiv
CONCLUDING REMARKS: PLANNING FOR IMPLEMENTATION

SA-LEDS sets out a direction of travel for South Africa as we refine our low carbon emission development pathway
to meet our commitments to the international community and address our developmental agenda/priorities and
needs. We know that success will require decades of dedicated effort. Therefore, this Strategy is a living

document, the beginning of our journey towards ultimately reaching a net zero carbon economy by 2050.

The first step will thus be to ensure national targets are aligned with the Paris Agreement. Thereafter, planning
teams with analytical and sectoral expertise will engage in detailed scenario work to develop transformation
pathways towards achieving the national targets. Building a scenario is, however, not enough to plan for its
delivery. The work of translating such a plan to policy is a challenge which all Parties will have to grapple with
over the coming months and years. South Africa aims to inform rollout plans through the use of a dedicated
change framework. SA-LEDS will thus be reviewed at least every five years or earlier, should there be significant
changes in sectoral or national plans/programmes that can result in a big structural changes, growth or decay of

the economy and major global events that impact on its content or implementation.
Detailed sectoral work to explore transformation pathways

The Paris Agreement sets out the long-term climate change goals for the international community. While countries
establish their own goals in a nationally determined manner, sectoral details will have to be analyzed in significant
detail, laying out different scenarios to understand trajectories of investment, technology take-up, emissions

reduction, and market change. This work has already commenced in South Africa through a number of studies:

e The Mitigation Potential Analysis (MPA), the overall objective of which was to conduct an updated,
bottom-up assessment of mitigation potential in key economic sectors to identify a set of viable options
for reducing GHGs. Marginal abatement cost curves (MACCs) for key sectors and subsectors were
constructed. The MACCs provide estimates of mitigation potential and marginal abatement costs for
broad mitigation measures. Estimates of national mitigation potential have been derived from the sectoral
MACCs and ranked in terms of level of implementability at national level for each of the technologies.

e The Pathways study to explore the impact of alternative economic growth trajectories on the country’s
emissions trajectory, looking at the implementation of structural changes rather than the implementation
of purely technical interventions. This study, which also used the single national emissions model, had

not been released at the time of writing of this document.

XV
e The Policies and Measures (PAMs) analysis, which explored the impact of existing PAMs, many of which

were identified previously, on the emissions trajectory.

Itis recognized that detailed forecasting is unlikely to accurately predict the evolution of markets. However, “failing
to plan is planning to fail’, which is why systematic planning is recommended for all sectors. Common
characteristics between scenarios that succeed and those that do not will help policymakers identify those
conditions which must be met in order for the transition to succeed, aligned with Paris in a manner consistent with
the latest science from the IPCC. Based on the sectoral pathways work, which will identify the requirements of
the different sectors, a cross-cutting analysis of such pathways will help identify common needs. An aggregate
understanding of the evolution over time of such critical factors such as levels of capital investment, consumer
prices of different energy options, and requirements for skilled workers in various industries (increasing and

decreasing), will set out the parameters for the cross-cutting strategies described previously.
Creation of policy package roadmaps across three phases

The likelihood of policy action leading to long-term transformation results would require the application of new
planning techniques. Pathway planning is an analytical tool that can inform national policy development over time
towards objectives that sit beyond a typical policy horizon. Pathways visualize the whole timespan between the
present and the time for which a target is set, seeking to establish what steps make sense now in the context of
reaching the long-term goal. When establishing potential pathways, the desired end-state should be linked to the
present, by “backcasting” rather than forecasting. This means that requirements for intermediate steps between
today and the long-term goal are deduced not on the basis of how compatible they may be with the current
context, but rather in terms of what is required for the end-state to be achieved. This leads policy-makers to
consider the question “what would have to be true” regarding short and medium-term checkpoints, deriving the

answer from the evolution to the goal.

Once pathways are clearly drawn out, regulatory, institutional, or other structural changes which are required for
the transformation can be identified, from which necessary changes can be deduced and used to suggest
concrete policy action. In this manner, a rigorous pathway analysis towards a long-term target can produce a
number of concrete actions which must be carried out by a certain time, to enable other actions. It can be helpful
to structure the time interval into three parts: short, medium and long-term, organising and communicating such

actions on a three-stage timeline. These stages are:

xvi
e Starting Right (to be completed prior to end of 2021 financial year)
e Turning the Corner (to begin in parallel with the Starting Right stage and continue to 2025)
e Massive Rollout (2025 to 2050)

“Starting Right’ will focus on actions relating to the current government administration, or perhaps also address
the initial years of the following one. The most important aspect of this stage is to ensure that a true transition is
kicked off. On the one hand, rapid implementation must begin in all areas where pathways to achieving the Paris
Goals are already clear while on the other, steps taken will need to enable future action at scale, as much as (or
perhaps more than) drive immediate emissions reductions. Clearly, “Starting Right” cannot be successfully
executed without a long-term pathways analysis to provide confidence on the Paris-compatibility of implemented
measures as well as the overall direction of travel. Indeed, the search for immediate emissions reductions in the
short-term can often lead to investments in technologies or business models which, while emitting less than
traditional options, are not on track to drive the large reductions demanded by the long-term transformation.

Avoiding decisions which will lead to emissions lock-in is thus a core priority of the “Starting Right” stage.

“Turning the Corner” would typically take five to seven years. This phase will begin to be implemented in parallel
with the “Starting Right” stage, where appropriate, and continue to 2025. This period is decisive, since within it
new decision and investment criteria are broadly applied, bringing about changes to the day-to-day operation of
many sectors of the economy at the same time. Resistance to change can become challenging if not well handled,
and must be anticipated and addressed with social acceptance and just transition actions. It is at this stage that
multiple policies will need to work in concert for the new technological options to make economic sense for
businesses and consumers. An overall understanding of the sectoral narratives of change and how they

collectively feed into the national vision will be core to the success of this stage.

“Massive rollout” is the final phase, in which low-emissions climate resilient options have become the new normal.
The constant application of transformative action will drive large volumes of investment towards transformational
change. Perseverance on the application of all aspects of change will be required to avoid imbalances or injustices
which will compromise the change, and sectors which achieve important milestones must not be allowed to
become complacent, but rather contribute to the broader change by supporting areas of natural synergy.
Examples of activities that might be taken during the three phases of implementation of the transition are shown
in the Table below. All along the way provision needs to be made for regular review of the Strategy and the

implementation plan, and M&E of implementation.

xvii
Table E1: The three phases of the just transition

Starting Right
(start immediately
and complete by
end of 2020/21
financial year)

Start the process of developing long term plans for each sector, to avoid lock-in to emissions
intensive infrastructure and establish the basis for transformation at scale

Develop approaches for allocation of Sectoral Emissions Targets (SETs) and carbon budgets to
high emitting entities

Develop Sector Jobs Resilience Plans (SJRPs) to support the transition to the low carbon
economy and climate resilient society in a Just manner

Identify the institutional, legislative, finance and other changes required to achieve the
transformation

Develop an understanding of the relevant government decisions which need to be taken to
achieve the long-term plans

Develop a monitoring plan

Turning the corner
(start immediately,
as _ appropriate,
and complete by
2025)

Develop and begin to implement detailed transformation plans for each sector, which is
supported by the implementation of the SETs, carbon budgets and SJRPs

Develop investment pathways to support the transformation

Implement foundational changes to drive down the national trajectory

Implement the institutional changes to accelerate the rate of transformation and remove barriers

Massive _ roll-out

(to 2050)

Roll-out the implementation plans for each sector along with measures to support changes until
they become the new reality
Refine strategies as required, to account for changes in technologies, society and markets

Successful rollout across the three stages will require policy action to be taken in a coordinated manner. It is

helpful to present policies not as stand-alone actions but rather as parts of policy packages, combinations of

measures which may include planning, regulatory, financial, and other instruments to collectively drive towards

the desired outcome, providing capabilities and overcoming barriers to change. Complementarity and sequencing

are both crucial to building effective policy packages. Proposed components of policy packages could include

those that focus on planning; institutional / regulatory considerations; project implementation; financing;

acceptance, skills and just transition; and avoiding lock-in. Policy packages should be built up in sequence over

time to ensure the full implementation of the pathway, in the form of a policy pathway which is required to

implement the low-carbon transition.

xviii

1 INTRODUCTION

1.1. The global climate crisis

Robust scientific evidence shows that the earth’s climate system is changing as a result of anthropogenic
greenhouse gas (GHG) emissions. Concentrations of GHGs in the atmosphere have been rising steadily since
the industrial revolution (circa 1760), mainly as a result of the burning of fossil fuels, industrial processes,
deforestation and agricultural activities. An extensive global body of research from climate scientists has
confirmed the relationship between human-induced GHG emissions, higher global average surface temperatures
and changes to the earth’s climate system (IPCC, 2014; IPCC, 2018).

If current trends continue, global average temperatures are likely to increase by at least 1.5°C above pre-industrial
levels between 2030 and 2052. The impacts associated with such temperature increases are significant and far-
reaching; threatening people and ecosystems. The impacts, which become more severe the greater the
temperature increase, include sea level rise as a result of melting polar ice and glaciers, increases in the frequency
and severity of extreme weather events, changing ecosystems and desertification, ocean acidification, and loss
of biodiversity. The knock-on effects on human populations include health risks due to increasing temperatures
and heatwaves, water shortages, food insecurity, increased spread of diseases and pests as well as damage to

infrastructure due to extreme weather events. All of these impacts have economic repercussions (IPCC, 2014).

The severity of impacts is not only a function of the magnitude and rate of warming that is experienced, but also
geographic location and levels of development and vulnerability. Along with other developing nations, South Africa
is particularly vulnerable to the impacts of climate change. In unmitigated GHG emissions scenarios, warming of
up to 5 to 8°C is projected over the interior of the country by the end of this century. Under a range of warming
scenarios, drier conditions will be experienced in the west and south of the country and wetter conditions in the
east. Rainfall patterns will become more variable and unpredictable. These changes will impact on water
resources and food production, and increase the vulnerability of impoverished communities, amongst others
(DEA, 2013). For this reason, the South African government regards climate change as a considerable threat to
the country and its socio-economic development, having the potential to undermine many of the advances made
in recent years. At the same time, if climate change is to be limited through limiting the growth in global GHG
emissions, with South Africa contributing its fair share to emission reductions, there will be other implications for

the country. As one of the top 20 emitters globally, with a high dependency on fossil fuels, substantial emission
cuts will be required. The rapid transition that will be required presents a potential risk to economic growth and

sustainable development if not managed properly.

1.2 The Paris Agreement

The international community has a long history of working to address the climate challenge. The United Nations
Framework Convention on Climate Change (UNFCCC) was adopted in 1992 to "stabilize greenhouse gas
concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the
Climate system". All 197 member states of the UN are parties to the Convention, and South Africa ratified the

Convention in August 1997.

Annual Conferences of the Parties (or COPs) have achieved different milestones since the first meeting in 1994.
The Kyoto Protocol, adopted in 1997, set out the first concrete emissions reductions targets, which were adopted
by some Annex | (developed) countries. However, these reductions were insufficient to stop climate change. A
global deal, seeking to involve all countries, was pursued at COP 15 in 2009 but was not achieved, leaving many
Parties concerned about the complexity of agreeing such a deal. At COP 17, held in Durban, South Africa in 2011,
the “Ad Hoc Working Group on the Durban Platform for Enhanced Action” (ADP) was established to "develop a
protocol, another legal instrument or an agreed outcome with legal force under the Convention applicable to all
Parties". The work of the ADP culminated in the drafting of the text which was negotiated and ultimately adopted

in 2015 by the Parties to the Convention, including South Africa, as the Paris Agreement.

In the Paris Agreement, Parties collectively agree to limit “the increase in the global average temperature to well
below 2°C above pre-industrial levels, and pursue efforts to limit the temperature increase to 1.5°C above pre-
industrial levels”. Article 4 of the Agreement sets out Nationally Determined Contributions (NDCs) as the
instrument countries must develop to present their part of the global effort to “reach global peaking of greenhouse
gas emissions as soon as possible, recognizing that peaking will take longer for developing country Parties, and
to undertake rapid reductions thereafter in accordance with best available science, so as to achieve a balance
between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of
this century, on the basis of equity and “in the context of sustainable development and efforts to eradicate poverty”
(UNFCCC, 2015).

In order to help ensure that the Parties’ national contributions can jointly achieve the collective goal, the Article
further states that “Parties should strive to formulate and communicate long-term low greenhouse gas emission

development strategies, mindful of Article 2 taking into account their common but differentiated responsibilities
and respective capabilities, in the light of different national circumstances”. This document has been prepared in

response to that Article.

1.3 The Science of 1.5°C and what it means for the Paris goals

At the time of adoption of the Paris Agreement there was limited scientific literature available regarding the goal
of 1.5°C, making it difficult for Parties to gauge the effort required of their NDCs to achieve it. Parties therefore
invited the Intergovernmental Panel on Climate Change (IPCC) to provide a special report on the impacts of global
warming of 1.5 °C above pre-industrial levels, and the related global greenhouse gas emission pathways. This
Special Report, published in 2018, sets out the latest available science for countries to refer to when planning

their implementation of the Agreement (IPCC, 2018).

The Special Report makes clear the scale of the challenge facing all Parties in achieving the objectives of the
Paris Agreement. With regards to the temperature goal, it shows that every tenth of a degree centigrade in
warming makes a significant difference to the impacts on people and ecosystems, making 1.5°C of warming much
more closely aligned with the objective of the Convention, than 1.6°C, 1.6°C preferable to 1.7°C, and so on.
Furthermore, the Special Report shows that, to be consistent with 1.5°C, global CO2 emissions by 2030 must be
about 45% lower than those of 2010, reaching net zero emissions around 2050. Since global emissions have
continued to grow practically every year since the convention was signed, despite climate efforts to date, anumber
of important in-depth changes will have to take place very quickly around the world for this to be credible. The
IPCC describes these as “deep emissions reductions” in energy, industrial, urban, agricultural, and land
management systems, which will transform key aspects of the world economy (IPCC, 2018). For this to succeed,

the coming decade will be decisive.

The challenge of incorporating this rapid transformation into country plans must be resolved in a nationally
determined manner. Developed countries, which have committed to take the lead, must rapidly change the nature
of their investments both nationally and internationally to avoid locking in emissions. At the same time, the scale

of the reductions required means developing countries must also start to implement transformational changes.

For example, if a developing country were to commit to the target of 45% emissions reduction in double the time
recommended by the IPCC (which could be consistent with the IPCC global scenario provided developed
countries acted much earlier), and at the same time maintained a dynamic economic growth to reduce poverty,
that country’s emissions intensity per unit of GDP by the year 2042 would need to be under a quarter of its present

value. This has very clear implications: for developing as well as developed countries, before 2050 the core
technologies in operation must be fundamentally different from today’s. This is because there is no technological
scenario possible which achieves such a reduction while maintaining electric power primarily generated from coal,
oil or gas (without carbon capture), or in which passenger transport is provided primarily by petrol/diesel internal
combustion engine vehicles. Fossil fuel participation in power generation, where still present, will be only a minor
share of the total, and will continue to decline. Urban infrastructure and planning will have reduced the demand
for passenger kilometers travelled per person for a broad range of activities, and these will be provided far more
through shared platforms than today (be these traditional public transport, or new asset types serving through
innovative business models). The majority of these passenger kilometers will be provided by zero-emissions

vehicles/platforms, with energy supplied from renewable sources.

The availability of sustainable bioenergy and biomaterials will be limited by global constraints of forest coverage,
biodiversity, and food security. These products must be channeled to applications with limited alternatives (such
as long-haul aviation), reducing their potential availability as a drop-in substitute for fossil fuels in the bulk of
traditional power, energy, or transport applications. Industrial and commercial energy use will incentivise resource
efficiency at every turn, with service fulfilment models and product specification, design, and production processes

all re-engineered to practically eliminate emissions.

1.4 Methodological elements for developing LEDS

The broad scope of change required to achieve the Paris Agreement presents several important planning
challenges and opportunities. The LEDS planning process provides a space for Parties to use to reflect upon how
their national plans can achieve emissions pathways consistent with the Paris Agreement, within their common
but differentiated responsibilities and respective capabilities. While the timelines, targets and sectorial details of
the transformation will vary by country, the expectation is that all targets should follow a downward trajectory. To
achieve such a trajectory, transformational rather than incremental change is needed: while most national policies
aim to effect limited change within one area of national life over a timeframe of one to five years, the transformation
described in the IPCC Special Report on 1.5 degrees will require planning over a 30-year timeframe to ensure

broad-based change across all sectors in a coordinated manner.

The decisive change of operating technologies requires a concerted, planned effort if it is to occur in an
economically rational manner over such a short timeframe. The timing dimension is crucial. While 2050 may seem
a long way off for citizens going about their daily life, or indeed in terms of changing government administrations,

the speed of technological change is determined by the lifetime of assets and their rate of replacement. If we
consider power generation plants which consume coal, many of these can operate 30 or 40 years after
commissioning, and while an internal combustion engine vehicle lifetime may extend to 15 years in the
industrialized world, vehicles of 25 years of age or more can be regularly seen on the streets of Africa. Investments
in city and transport infrastructure are also built with the expectation they should last for over 30 years. This means
that the investments made today and during the current NDC period will determine much of the activity, and

associated emissions, of 2050.

Creating a LEDS which aligns with the Paris Agreement thus requires new planning approaches and tools. Clear,
ambitious long-term targets must be set, consistent with the Paris goals. From these, policy makers must establish
what are the medium and short-term requirements needed to ensure the achievement of the long-term goals, to
inform actions taken on a much shorter timeframe so they can help rather than hinder success and avoid long-

term lock-in to emissions intensive options.

Transformation pathways, which show how changes must occur over time, must be developed, linking the desired
end-state with the current economic and technological structures. Enough is known about the direction of travel
required in all sectors to identify some key components of such trajectories in parallel to the process of agreeing

the long-term targets.

Specialist analytical work should feed into the transformation pathways across all sectors of activity, so the
credible projections of national emissions can be made, and to allow clear visibility of the trade-offs which will
emerge. Once the technology scenario options have been outlined, specific policies must be considered to guide
the transformation. Single policies will not be enough to effect such change, however: policy packages including
regulatory, financial, planning, project execution, social justice, and lock-in considerations must be built up so
their coordinated impact can achieve the transformation. In addition, Parties must identify the enablers of the
transition which are required but cannot be provided by the country alone, but rather by the international

community through collaboration.

The implementation of the policies and interventions can be thought of three stages. In the first stage, the in-
depth plans and changes which will be required in order for the transformation to take place will be identified, and
the most pressing lock-in threats avoided. The second is the inflection stage (beginning in parallel with the first
stage where appropriate) in which climate policies become an ongoing consideration in an ever-larger number of
decisions, changing the character of investments and policy decisions to leave behind development models which
imply GHG emissions. The final rollout stage follows during which climate-compatible modalities are fully adopted

in all sectors, and implemented continuously to achieve the transformation through ongoing technology
replacement. The benefits of economies of scale and the global transition will provide a positive feedback to the

rollout, making Paris-compatible options the most viable throughout this stage.

1.5 South Africa LEDS — a living document

This document presents South Africa’s first Low Emission Development Strategy (SA-LEDS) generated after the
adoption of the Paris Agreement. Through submitting this document to the UNFCCC our country reiterates its
commitment to achieving the Paris goals. It also highlights that implementation of the Strategy will contribute

directly and indirectly to the meeting of Sustainable Development Goals (SDGs).

SA-LEDS builds upon years of work on climate change in the country, which has culminated in the establishment
of an important set of policy documents (Figure 1). Building on existing plans, policies and aligned research, and
particularly the work that is supported by robust analytical and domestic engagement processes, offers numerous
benefits, such as optimizing resources and ensuring buy-in of key stakeholders. At the same time, many of these
plans were developed prior to the adoption of the Paris Agreement and therefore do not consider the long-term,
global goals embedded therein in the coordinated fashion that is required. Furthermore, most of these pre-existing

plans and policies address a shorter timeframe than mid-century.

The National Planning Commission (NPC) is currently undertaking a process to develop a common vision for the
country in 2050. This vision will be instrumental in driving harmonisation of government plans and policies and so
in order to make these more aligned with the methodological elements of developing a LEDS presented in Section

1.4, itis important that the NPC process and the vision it develops takes into account the Paris goals.
UNFCCC

Paris Agreement

Low Emissions
Development
Strategy (LEDS)

National Planning
aE alta cy

Mer me rE

Analytical Studies

ning and

National Development Plan (NDP)
NPC vision process (ongoing)

Ne een Cun ele re

National Policy (MPA)
(EIR realest) D

National Climate Change
Response Policy (2011)

Carbon tax
Climate Change Bill (forthcoming)
Other departments’ policies

UNFCCC: Has an objective to "stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with
the climate system"

Paris Agreement: Refers to post-2020 climate actions countries intend to take under the Agreement

Low Emissions Development Strategy (LEDS): Communication of mid-century long-term low GHG emissions development strategies, towards the goal of limiting
global warming to well below 2°C and to pursuing efforts to limit the increase to 1.5°C

National Development Plan (NDP): Long-term development plan that aims to eliminate poverty and reduce inequality by 2030. Recognises the need for a just low
carbon transition

NPC vision process (ongoing): Process to develop a low-carbon vision for the country to guide mitigation and adaptation action

National Climate Change Response Policy (2011): Framework for South Africa’s climate mitigation and adaptation response

Carbon Tax: Sets a price on greenhouse gas emissions from certain activities

Climate Change Bill (forthcoming): Establishes the legal framework for implementation instruments to drive mitigation and adaptation

Other departments’ policies: Other government policies across many departments either increase or decrease GHGs

Mitigation Potential Analysis (MPA): Projections of National Greenhouse Gas emissions under “technically feasible” mitigation action

Pathways study: National emissions trajectories under alternative economic futures and enhanced/step change mitigation action

Policies and Measures (PAMs) study: Impact of existing PAMs on the national emissions trajectory

Figure 1: SA-LEDS in the context of prior climate-related work in South Africa

Despite being based largely on current knowledge and legislative context, SA-LEDS will be updated as new and
critical areas of work are completed by relevant government departments. Keeping SA-LEDS as a dynamic and
flexible document is important to ensure that it keeps pace with domestic policy developments, research,
development and innovation, and the declining costs of emissions mitigation technologies.
2 THE SOUTH AFRICAN ECONOMY, EMISSIONS PROFILE AND POLICY LANDSCAPE
An overview of the local economy, greenhouse gas emissions profile and relevant policy, legislation and strategies

is provided to set the context in which SA-LEDS has been developed.

2.1 South Africa’s Economy

South Africa has the second largest economy in Africa, after Nigeria, with a nominal 2019 GDP of US$ 371.298
billion and nominal GDP per capita in that year of US$ 6,331 (IMF, 2019). Figure 2 shows the sectoral
contributions to GDP. At the same time, South Africa is amongst the most economically unequal countries in the
world, as reflected by the Gini Coefficient of 0.63 in 2014 (World Bank, 2019).

Agriculture, 3% Other, 3%
Construction, 4%

Finance, real estate and
business services, 22%

Trade, catering and
accommodation , 15%

Government services,
17%

Transport, 7%

Personal services, 8%

Mining , 8%

Manufacturing , 14%

Figure 2: Key contributors to GDP

Source: (Stats-SA, 2017a)

2.1.1. Energy supply

In 2016, the country’s total primary energy supply was approximately 5,880 Petajoules (PJ), with fossil-fuels (coal,
crude oil petroleum products and natural gas) supplying about 88% of the energy needs (IEA Bioenergy, 2018).
According to the 2018 Energy Sustainability Index, developed by the World Energy Council, South Africa is ranked
85! on the Energy Sustainability Index out of 125 countries. Low performance in environmental sustainability in
this index is due to the electricity sector's heavy reliance on coal, while increasing petroleum prices, coupled with
rising electricity tariffs, contributed to the low score on energy equity (WEC, 2014). While approximately 84% of
households in South Africa are electrified, energy poverty is still a significant challenge. As many as 2 million
South African households are still without access to electricity (Stats SA, 2017b). Universal access is a key priority

for the South African government.

More than 90% of the country’s electricity is generated from coal by the national utility, Eskom. In recent years,
a number of Independent Power Producers (IPPs) have entered the electricity market, predominately generating
renewable energy. The main driver of growth in IPPs is the Renewable Energy Independent Power Producer
Procurement Programme (REIPPPP). The REIPPPP is a competitive tender process that is designed to
incentivise renewable energy project development. By the end of June 2019, the REIPPPP had achieved the
following (DoE, 201 9a):

e 6,422 MW of electricity had been procured from 112 Renewable Energy Independent Power Producers
(IPPs) in seven bid rounds;

e 3,976 MW ofelectricity generation capacity from 64 IPP projects has been connected to the national grid;

e 35,669 GWh of energy has been generated by renewable energy sources procured under the REIPPPP

since the first project became operational.

Eskom also has an active research programme which looks at renewable energy development amongst topics.
Eskom’s efforts in this regard have mainly been centred on the development of wind energy, pumped storage
and PV projects. The Ingula Pumped Storage Scheme is in commercial operation with four 333 MW generators.
Furthermore, Eskom’s Sere Wind Farm became fully commercially operational in 2015, with a capacity of 100
MW (DoE, 2019b).

A number of South Africa’s existing coal-fired power stations will be retired between 2030 and 2050, and so large
investments in additional generation capacity will be needed in order to meet the projected electricity demand
and sustain economic growth. Across the country favourable conditions for wind power are found, and the high
levels of solar irradiation make it ideal for solar power. Biomass opportunities are available, many of which are
along the east coast which is tropical and characterised by large wood and sugar plantations. There is also some

potential for small and micro scale hydropower.
South Africa's liquid fuels requirements are met through local refining of imported crude oil, sourced mainly from
the Middle East and other African countries, through synthetic fuel produced from coal-to-liquids (CTL) and gas-
to-liquids (GTL) processes and through refined product imports. The six main liquid fuel producers are Sapref,
Enref, Natref and Chevref (refining crude oil) and Sasol and PetroSA (producing synthetic fuels from coal and
gas) (SAPIA, 2017). Apart from the production of liquid fuels, crude oil and coal are both used to produce a variety
of petrochemical products such as lubricants, bitumen and solvents. Being a net crude oil importer leaves South

Africa vulnerable to price fluctuations and volatility on global oil markets.

Natural gas plays a relatively minor role in the primary energy supply. Local production is mainly from the
Bredasdorp Basin, which lies offshore on the southern coastline. This basin supplies natural gas to PetroSA’s
Mossel Bay GTL facility. The bulk of the country’s natural gas demand is, however, met through imports from
Mozambique’s Temane and Pande gas fields. The gas is imported via a high-pressure pipeline and supplied to
Sasol and other industrial and commercial customers mainly within Gauteng Province. The finalisation of the Gas
Utilisation Master Plan, which has been under development for a number of years, will help to provide policy

certainty on the role that gas will play in the energy mix moving into the future.

2.1.2. Mining and the industrial sector

South Africa accounts for a substantial proportion of the world’s mineral resource reserves, with non-energy
minerals having an estimated value of approximately US$ 2.5 trillion (DMR, 2011). Key mineral outputs include
gold, coal, manganese, chrome, platinum and diamonds (dti, 2015). Domestically, coal provides over 70% of the
country’s primary energy supply (South African Government, 2012). South Africa is also major producer of non-
ferrous metals (aluminium, copper, brass, lead, zinc and tin). Non-ferrous metals and stainless steel accounts for
about a third of all the country’s manufactured products output. Minerals represent an important source of export
revenue. Having said that, coal prices and markets are demonstrating volatility due in part to global

decarbonisation efforts. This is likely to become even more relevant moving into the future.

The chemical industry is dominated by the emissions-intensive synthetic coal and natural gas-based liquid fuels
industry, as well as the petrochemicals industry. South Africa has the largest chemical industry in Africa and is
the world leader in coal-based synthetic fuel and gas-to-liquids (GTL) technologies. Other chemicals produced in

South Africa include ammonia, nitric acid, carbide, titanium oxide and carbon black.

South Africa also has an active manufacturing sector. However, liberalisation of the markets at the end of

apartheid resulted in manufacturing industries in South Africa struggling to remain competitive against more
diversified manufacturing industries in countries such as China, Vietnam and Bangladesh (Bhorat and Rooney,
2017).

2.1.3 Agriculture, Forestry and Land Use (AFOLU)

South Africa’s agricultural sector is diverse, with distinct farming regions that vary with climate, soil type and
farming practices. The sector includes field crops, horticulture and animal products. Animal products currently
generate the highest proportion of gross farm sector income, although the contribution from horticulture products
is growing (DAFF, 2017a). Commodities produced include maize, wheat, sugar, deciduous fruit and citrus, wine,
beef, dairy, lamb, pork, poultry and game. Livestock farming is the biggest contributor to the sector, and also the
largest contributor to AFOLU GHG emissions. Even though its contribution to total GDP is relatively small, and
has declined over the years due to the rise of other economic sectors, agriculture, forestry and fishing remains a

key provider of rural employment and export earnings (DAFF, 2017a).

2.1.4 Waste sector
As in many other countries, a growing population, a growing middle class and increased rates of urbanisation are
putting pressure on solid waste and waste water management facilities. Waste streams are also becoming

increasingly diverse in their composition, which affects the complexity of management processes.

The amount of waste landfilled in South Africa significantly exceeds the amount that is diverted, either through
reuse or recycling. The recently published Draft South African State of Waste Report shows that around 42 Mt of
general waste was generated in South Africa in 2017 (DEA, 2018a). Only about 11% of this was recycled, with

the remainder being disposed of to landfill.

Several landfills in the eight larger metropolitan areas are close to reaching their available air space or have
already reached their limits. Rapid urbanisation and high costs of building new engineered landfills has led to less
suitable landfill space being available. Moreover, the practice of landfilling is becoming less socially acceptable.
As such, government is pursuing initiatives to reduce waste generation and divert waste from landfill. These

initiatives are discussed further in Section 4.5 .

2.1.5 Other sectors
Tourism remains a priority growth area due to it being highly labour intensive, supports for small businesses and

generation of foreign direct investment (dti, 2015, South African Government, 2012). The trade sector is made up
of several divisions, including retail and wholesale, motor, accommodation and catering, food and beverages (dti,
2017). The remaining sectors contributing towards the economy are finance, real estate and business services,
government services, personal services and construction (dti, 2017). Finance real estate and business services

in particular continue to contribute positively to GDP growth.

2.2 Greenhouse gas emissions profile

The latest National Greenhouse Gas Inventory Report (2015) shows that South Africa’s total gross GHG
emissions (excluding forestry and other land use) increased by 23% from 439 Mt CO2-eq in 2000 to 541 Mt CO2-
eq in 2015 (DEA, 2019a). Forestry and land use are a CO2 sink and reduced gross emissions by 5% in 2015.
South Africa’s net GHG emissions are 512 Mt COo-eq.

The Energy sector accounted for 79.5% of the total gross emissions for South Africa in 2015 (Figure 3), with the
percentage contribution of this sector to overall emissions growing by 25% between 2000 and 2015. Energy
industries (which includes electricity generation and liquid fuels production from both crude oil and coal) were the
main contributor, accounting for 60.4% of emissions from the energy sector and almost half of gross emissions.
This was followed by transport, other sectors, and manufacturing industries and construction. Fugitive emissions
from fuels contributed another 5% to overall emissions in 2015. Agriculture, Industrial Processes and Product

Use and Waste contributed 9.0%, 7.7% and 3.6% to gross national GHG emissions in 2015 respectively.
aisle) Melee toi)

AFOLU (excl. FOLU)
%

ae ENERGY
79%
Manufacturing Industires and

construction 7%

Bie-lasjecenam ley

Le) iT -TeeS Les oleh)

Fugitive emissions from fuels 5%.

Figure 3: Contribution of main emission categories and energy emission categories to national gross greenhouse gas emissions
in 2015

If national emissions are expressed in terms of economic sectors rather than emission categories (see Figure 4),
electricity generation contributes 42% of gross national emissions. Industry accounts for 27% of national
emissions, with approximately a third of industry emissions associated with process emissions and the other two
thirds are as a result of energy use. Emissions from transport and agriculture contribute 10% each, with the
residential, commercial and waste sectors making up the remainder. Figure 4 also shows that 85% of greenhouse
gas emissions in 2015 are in the form of COz. Methane (CHa) contributes 9%, with over half of these emissions
being from agriculture.

13
42%

__ Methane(CH,
Nitrous Oxide (N,Q) ~

’ HRstoy,
HFCs, PFCs

27% . Carbon dioxide (CO,)

10% 10%
5%
3% 4%
ii ZZ ian
Electricity Industry Transport Agriculture Commercial Residential Waste
generation

Figure 4: Total gross national GHG emissions by economic sector

The carbon intensity of the economy (tonnes CO2-eq per R1,000) and the energy intensity of the economy (tonnes
oil equivalent (toe) of energy per R1,000) have decreased between 2000 and 2015, by 18.7% and 12.4%
respectively. This is attributed to growth in the less energy intensive services and financial sectors together with
a decline in manufacturing and mining (DEA, 2019a).

2.3 Policy, legislation and strategies that inform SA-LEDS

Three key climate policy documents provide the foundation on which SA-LEDS has been developed. These are:
e The National Development Plan (NDP)
e The National Climate Change Response Policy (NCCRP)
e The Climate Change Bill (forthcoming)

In addition to these three central documents, various strategies, policies and sector plans have been developed

for individual sectors of the economy, which will all contribute to driving emission reductions. These documents
are detailed in later sections to outline a set of discrete measures which serve as a starting point for

implementation of the LEDS.

2.3.1 National Development Plan 2030

The overarching objective of the National Development Plan 2030 (NDP) is to eliminate poverty and reduce
inequality by 2030. Climate change impacts and mitigation are highlighted as critical issues throughout the
document. Chapter 5 is dedicated to “Environmental Sustainability - An equitable transition to a low-carbon
economy” and addresses both the use of natural resources and mineral deposits to support the transition of the
economy to a diverse, inclusive and low-carbon future, and tackling developmental challenges towards building
resilience to the impacts of climate change, particularly in poorer communities. In Chapter 3, economic
development and the key drivers of change are discussed — one of which relates to the need for a just transition
to a low carbon economy. Chapter 4 focuses on infrastructure, including energy infrastructure, noting the need

for diversification of energy supply and for cleaner coal technologies (South African Government, 2012).

The NDP outlines a set of goals and actions to meet the country’s environmental sustainability and resilience

needs. Those that contribute to climate mitigation include:

¢ Achieving the peak, plateau and decline trajectory for GHG emissions (See Section 3);
¢ Entrenching an economy-wide carbon price by 2030;
¢ Implementing zero emission building standards by 2030; and

¢ Achieving absolute reductions in the total volume of waste disposed to landfill each year.

The Plan also highlights co-benefits of mitigation action which include increasing energy security and enhancing

socio-economic and environmentally sustainable growth.

2.3.2 National Climate Change Response Policy

In 2011, the South African government published a National Climate Change Response Policy (NCCRP), which
represents government's comprehensive policy framework for responding to climate change (DEA, 2011)?. The
two key objectives of the NCCRP are:

3 Note that this document was published as a white paper but is now considered as a policy document
Effectively managing inevitable climate change impacts through interventions that build and sustain
South Africa’s social, economic and environmental resilience and emergency response capacity; and

Making a fair contribution to the global effort to stabilise greenhouse gas concentrations in the
atmosphere at a level that avoids dangerous anthropogenic interference with the climate system, within
a timeframe that enables economic, social and environmental development to proceed in a sustainable

manner.

The Policy presents a vision for an effective climate change response and the long-term transition to a climate-

resilient, equitable and internationally competitive low carbon economy and society. This vision is premised on

government's commitment to sustainable development and a better life for all.

In support of achieving these objectives and achieving the vision, the Policy outlines a strategic approach to both

mitigation and adaptation. The mitigation components of the strategic approach were later captured in the Climate

Change Bill, as discussed in Section 2.3.3 below.

The four key principles that underpin the approach are that actions need to be:

Needs driven and customised: Employ a wide range of adaptation and mitigation approaches, policies,
measures, programmes interventions and actions, including those that meet the special needs and
circumstances of those most vulnerable;

Developmental: Prioritise climate change responses that have both mitigation and adaptation benefits
and that also have significant economic growth, job creation, public health, risk management and poverty
alleviation benefits;

Transformational, empowering and participatory: Include policies and measures to address climate
change at a scale that enables and supports the required level of innovation, sector and skills
development, finance and investment flows needed to realise the full benefit of a transition to a low
carbon, efficient, job-creating, equitable and competitive economy; dynamic and evidence-based; and
Balanced and cost effective: Incorporate a balanced approach to both climate change mitigation and
adaptation responses in terms of cost-benefit, prioritisation, focus, action and resource allocation; and
provide for the integration of sector-related climate change responses into the relevant sector planning

processes and their developmental policies and measures.
The Policy was the culmination of an iterative and participatory policy development process started in October
2005, that involved a wide range of stakeholders, including national departments, provincial and local

governments, parastatals, academia, research institutions, business, civil society and labour.

2.3.3 Climate Change Bill

The South African government is finalising its Climate Change Bill. Upon adoption, the Bill will form the legislative
foundation for the climate change adaptation and mitigation response. With respect to the mitigation response,
the Bill provides for future review and determination of the national greenhouse gas emissions trajectory;
determination of sectoral emissions targets for emitting sectors and subsectors; and allocation of carbon budgets.
Sectoral emissions targets and carbon budgets are discussed further in Section 4.6.3 and 4.6.4. The Bill also
makes provision for the development of plans to phase down or phase out the use of synthetic greenhouse gases

— in line with the Kigali Amendments to the Montreal Protocol.

2.4 The role of sub-national government and the private sector
In addition to the policies and measures being implemented by national government, sub-national government

and the private sector also have a role to play in achieving the vision of SA-LEDS.

2.4.1. Sub-national government

Many of the sub-national (provincial and local) government departments are already undertaking activities that
contribute to the national mitigation, adaptation and resilience efforts. Such activities include the development of
urban low emissions development strategies and broader climate change strategies, and the implementation of
a wide range of projects from embedded generation installations on their own buildings to implementing local

building codes that support energy efficiency to interventions in the waste sector.

Sub-national activities have, however, not yet been aligned or coordinated, and different geographical locations
see different levels of activity. The Climate Change Act will seek to address this consideration. In terms of the
Act, provincial and district municipality intergovernmental forums will be required to serve as Provincial Forums
on Climate Change. The Forums will be responsible for coordinating climate change response actions and
reporting in their jurisdictions. Furthermore, provinces and district and metropolitan municipalities are required to
prepare climate change needs and response assessments (which are updated every five years), and thereafter

develop and implement a climate change response implementation plan, which also requires five yearly updates.
A number of Cities are also members of global City movements relating to climate action and city networks that
contribute to the climate change agenda such as 100 Resilient Cities, ICLE! Local Governments for Sustainability,
and C40 Cities Climate Leadership Group. Many have internal (through their statutory planning documents) and
global carbon commitments and targets that apply to the functions of Transport planning, Urban development and
Spatial planning, Infrastructure investment and service delivery. Furthermore, there is increasing regional
coordination and horizontal integration of climate change responses as municipalities are sharing practice and

learning with one another, such as through the Kwazulu-Natal Climate Change Compact.

Some of South Africa’s metros are pioneering Net Zero Carbon Building policy and regulations. This requires that
buildings exceed the country’s energy efficiency and energy consumption standards, and that their remaining
energy demand is met by renewable energy. These initiatives are expected to scale the market for zero emission

buildings and support the national pathway to net zero carbon buildings.

2.4.2 The contribution of the private sector

A diverse range of actions that contribute to GHG emissions mitigation is being seen across the private sector in
South Africa, with significant gains having been made in certain sectors on both energy efficiency and emissions
mitigation. The private sector action is being driven by a growth in understanding of the business opportunities,
local and global market pressure and existing and forthcoming legislation. Actions range from adopting new
products and processes to new service offerings to retrofitting of existing operations to make them more energy

efficient and less emissions intensive. With suitable support this growth in action will continue.

2.5 Vulnerability and resilience

Although this strategy focuses primarily on greenhouse gas emissions mitigation, the vulnerability to climate
change impacts, as well as the need to build resilience to these impacts is noted, and will be further elaborated
in future iterations of SA-LEDS. South Africa has already developed a National Climate Change Adaptation
Strategy that highlights nine key vulnerability areas for the country (DEA, 201 9b):

e Unreliable and uncertain access to water;

e Risks to agricultural productivity and livestock;

e Human safety from climate related extreme events;
e Poor service delivery in human settlements;

e Vulnerable energy systems and other infrastructure;
e Diminished labour force productivity through exposure and health impacts;

e Risks to markets due to supply and demand volatility;

e Economic risks due to carbon intensity and dependence of the economy; and

e Impacts on ecosystems and challenges for conservation.

The National Adaptation Strategy also outlines a set of six strategic interventions that will contribute to the vision

of a climate resilient South Africa. The interventions and target outcomes are shown in Table 1.

Table 1: Strategic interventions outlined in South Africa’s National Adaptation Strategy

Intervention

Target outcome

Achieve an effective adaptation planning regime that

adequately responds to climate change threats

Achieve an effective adaptation planning regime that
covers at least 80% of the South African economy by
2025

Define adaptation practice that integrates biophysical
and socio-economic aspects of vulnerability and

resilience

Define an adaptation vulnerability and resilience
framework implemented from 2020 across 100% of

key adaptation sectors

Establish effective governance & legislative processes

to integrate climate change in development planning

Define and legislate for adaptation governance
through the Climate Change Act by 2019

National and sectoral implementation of adaptation
actions

Achieve a 100% coverage of climate change

considerations in sectoral operational plans by 2025

Achieve adequate and predictable financial resourcing
of adaptation actions and needs, from a variety of

sources

Achieve 80% resourcing of national adaptation
needs, primarily from national fiscus, including

international sources

Develop an M&E system that tracks implementation of

adaptation actions and their effectiveness

Development of a national M&E system to track
vulnerability, resilience, implementation and resource
allocation by 2025

3 VISION STATEMENT

SA-LEDS is grounded in South Africa’s climate change response as encapsulated in the documents described in

the previous section, while taking cognisance of the country’s international climate change commitments and

aspirations. The stated vision for SA-LEDS is as follows:

“South Africa follows a low-carbon growth trajectory while making a fair contribution to the global effort to

limit the average temperature increase, while ensuring a just transition and building of the country’s

resilience to climate change”.

In the absence of an agreed quantitative articulation of the vision, the national GHG emissions trajectory, as
reflected in the National Climate Change Response Policy (NCCRP) and the NDP, is used as the benchmark

against which the performance of SA-LEDS will be measured. The GHG trajectory, also referred to as the peak,
plateau and decline (PPD), shown in Figure 5 below, indicates that SA’s GHG emissions should peak in the period
2020 to 2025 in a range with a lower limit of 398 Mt CO2-eq and upper limits of 583 Mt CO2-eq and 614 Mt CO2-
eq for 2020 and 2025 respectively. Emissions will then plateau for up to ten years after the peak within the range
with a lower limit of 398 Mt CO2-eq and upper limit of 614 Mt CO2-eq. From 2036 onwards, emissions will decline
in absolute terms to a range with a lower limit of 212 Mt CO2-eq and an upper limit of 428 Mt CO2-eq by 2050.

The Climate Change Bill makes provision for regular updates of this trajectory, through which it can be better

placed within the context of the Paris Agreement.

MtCO,-eq

1000
900
800

700
2025,... 2035, 614

2020, 583

600

2050, 428

500

400

2025, 398
300 2035, 398

200
2050, 212
100

0
2015 2020 2025 2030 2035 2040 2045 2050

Figure 5: South Africa’s Peak, Plateau, Decline Trajectory Range

20
As indicated previously, a process is currently being undertaken by the National Planning Commission to develop
a common vision for the country in 2050. The vision will be used to update SA-LEDS once released. In the
development of this vision, South Africa will give due consideration to the IPCC Special Report on 1.5°C, which
represents the latest available science regarding this goal. This report sheds new light on the global rate of
emissions reductions required to keep warming to 1.5°C with no or low overshoot. While it is agreed that
developed countries must take the lead in reducing emissions, in is also imperative that global totals not be
exceeded, because developing countries will suffer most from the negative impacts of such a collective failure to
limit global emissions. These challenges — which the IPCC Special Report has presented so clearly to the
international community — will play a key role in setting our national goals. We thus commit to ultimately moving
towards a goal of net zero carbon emissions by 2050, which will require various interventions to reduce
greenhouse gas emissions. This goal, how it will be achieved to ensure a just transition, and how the economic

advantages of the transition will be maximised, will be formally communicated in future iterations of this strategy.

4 GHG EMISSIONS MITIGATION MEASURES

This section describes measures currently being implemented by government to address GHG emissions
mitigation across the four key sectors of the economy, namely energy (supply and demand), industry, AFOLU

and waste. It also presents further planned cross-sectoral measures that will contribute to driving mitigation action.

It is recognised that many of the measures presented here address only the short term, and are not considered
to be transformational. South Africa puts these forward as a starting point from which we will be able to ratchet
up our future ambition towards more integrated, transformational strategy, through the approach described in
Section 5 and 6 of this document.

4.1 Energy supply

Energy supply is the mandate of the Department of Mineral Resources and Energy. Decarbonisation of energy
supply will largely be driven through the Integrated Energy Plan, the Integrated Resource Plan and the Industrial
Biofuels Strategy, issued by the Department of Energy, the predecessor of this Department.

4.1.1 Integrated Energy Plan

Energy planning is guided by the Integrated Energy Plan (IEP). The White Paper on Energy Policy of the
Republic of South Africa of 1998 identified the requirement for development of the IEP, with the National Energy

21
Act of 2008 further defining the objectives thereof. The Energy Act also mandates the Minister of Energy to
develop, review and publish the IEP.

The IEP approach analyses current energy supply and demand trends within the different sectors of the economy,
across all energy carriers. It then uses this information along with assumptions about future demand and
technology evolution to project the country’s future energy requirements under a variety of different scenarios,
including those with emissions limits and different carbon prices. Based on an analysis of the scenario outcomes,
the IEP can define the future trajectories for electricity, liquid fuels and gas in the country.

The current IEP dates from 2003, and the Department of Energy has been working on updates thereof, with a
draft IEP outlining various energy scenarios having been issued in 2016 (DoE, 2016a). The draft IEP provides an
indication of the sectoral energy demand, as shown in Figure 6. This breakdown is relevant in this document in
that it helps to contextualise the mitigation measures presented below. The IEP update with a clear trajectory for
the energy sector is critical to guiding overall energy planning for the country, including in the context of this

document to support a just transition away from fossil fuels towards a low carbon future.

Transport
32%

Residential
14%

Mining
. 7%
Commerce Agriculture

7% 3%

Figure 6: Sectoral energy demand
Source: DoE, 2016a

4.1.2 Integrated Resource Plan

The Integrated Resource Plan (IRP) guides the evolution of the South African electricity supply sector, in that it
identifies the preferred electricity generation technologies to be built to meet projected electricity demand. It thus
provides a mechanism for Government to drive the diversification of the country’s electricity generation mix and
promote the use of renewable energy and other low-carbon technologies.

The 2019 IRP represents South Africa’s current policy position, an update on the 2010 IRP (DoE, 2019c). The
2019 update includes:

e Extension of the period of analysis to look at the period to 2050 (the IRP 2010 only looked to 2030),
however 2019 IRP only provides a build plan to 2030;

e Updated demand projections; and

e Updated technology costs.
By extending the coverage to 2050, the impact of decommissioning Eskom’s coal fired generation capacity on
the long-term requirements for new capacity is clearer. According to the IRP, the decommissioning schedule
shows that about 10,599 MW of Eskom’s coal generation capacity will be decommissioned by 2030, with the
figure increasing to 35,000 MW by 2050. For reference, the installed capacity in in 2018 was 37,149 MW.

The IRP is developed by first projecting the country’s long-term electricity demand, taking into account the impact
of both population growth and economic development, and the role that energy-efficiency and demand-side
interventions can play. It then presents a base case and a number of scenarios‘ which all provide an electricity
generation supply mix which can meet future electricity demand at least cost, taking into account the need for
ensuring security of supply. To explore how the build plan could contribute to a decline in South Africa’s GHG

4 Scenarios explored included those which have no cap on annual build on renewables, changes to gas prices and the application of a
carbon budget

23
emissions in line with the current commitments, modelling of the base case included a carbon constraint to
account for the electricity sector's proportional contribution to meeting the PPD trajectory. A scenario was also
tested in the 2019 IRP where the emissions space available to the sector under the PPD (5,470 Mt COz) is divided

into three ten-year carbon budgets.

Drawing on the scenarios analysed in the IRP 2019, an “emerging long-term plan” to 2030 has been developed.
The IRP proposes a set of policy adjustments to ensure “a practical plan that will be flexible to accommodate
new, innovative technologies that are not currently cost competitive, the minimization of the impact of
decommissioning of coal power plants and the changing demand profile.” It is noted that although demand
projections and decommissioning profiles to 2050 are discussed, the 2019 IRP only provides an indicative

generation build plan to 2030. This is attributed to technology uncertainties beyond that time frame.

For the first time, a provision for embedded generation is included in the IRP. Embedded Generation (also referred
to as distributed generation) refers to electricity generation installations of capacities of between 1MW and 10MW
that are connected to the national grid. Embedded generation using renewable technologies is attracting
substantial investment and funding in both the private and public sector (with the latter typically being at sub-
national government level), and is set to grow exponentially. In recognition of this growth potential, a provision for
4,000 MW of other generation by 2030 is made, which includes embedded generation as well as co-generation,
biomass and landfill gas generation. Government, through the National Energy Regulator of South Africa
(NERSA) has been in the process of finalising the regulations governing embedded generation for an extended
period, an activity which requires urgent resolution. Although this has not yet been resolved at the national level,

number of individual municipalities have already put in place grid feed-in tariffs.

The IRP also proposes a set of research and analysis activities to be undertaken to support the low carbon
transition of the electricity supply sector. These include detailed studies on the impact of gas supply options on
electricity supply, the appropriate level of penetration of RE in the South African national grid, the cost and
economic benefits associated with other clean energy options as well as socio-economic impacts of communities
affected by the decommissioning of coal fired power stations. Such activities can help contribute to low emissions

transformation of the electricity sector in a manner that is informed, feasible and just.

Transformation of the electricity supply sector
The IRP (2019) makes provision for renewables being added to the electricity supply mix, both to meet growing
demand and to replace power stations that will be decommissioned. Short-term additions to the mix include:
e 2,500 MW of new hydro capacity being built by 2030
e 6,814 MW of new PV capacity being built between 2019 and 2030
e 15,762 MW of new wind capacity being built between 2019 and 2030
e 4,000 MW other generation being added to the grid between 2019 and 2030
e 300 MW of Concentrated Solar Power to be built in 2019
Provision is also made for 1,500 MW of new coal-fired power station capacity, beyond that which has already
been committed to. The resulting electricity supply mix in 2030 is shown in Figure 7.

Coal
a Hydro
Nuclear
44% Storage
a Pv

23%

B wind
csP

a Gas/diesel

7% 2% 3%

Figure 7: Share of installed capacity in the 2019 IRP in MW®

Through regular updates to the IRP, and making early commitments to deep transformation of the sector post
2030, ambition can be increased. However, including new coal-fired power stations in the build plan will result

in further lock-in to carbon intensive electricity supply, or the potential for stranded assets in the sector.

5 Note that the figure excludes embedded generation, due to a lack of information on how much has already been installed.

25
The 2019 IRP is based on the current articulation of the PPD trajectory. Future updates to the IRP will need to
take into account any future modifications to the emissions trajectory. In this way electricity supply planning will

be aligned with the country’s increasing national ambition.

4.1.3 Biofuels opportunities

The Biofuels Industrial Strategy of the Republic of South Africa (DMR, 2007) outlines Government's approach to
the development of a biofuel sector in the country. The primary aim of the Strategy is to address poverty and
unemployment, although the role in climate change mitigation in the liquid fuels sector is recognised. The Strategy
proposed a 2% penetration of biofuels in the national liquid fuel supply (400 million litres per annum), within five

years of its publication.

In support of the strategy, the Regulations Regarding the Mandatory Blending of Biofuels with Petrol and Diesel
were published in the Government Gazette in August 2012. The Regulations describe the eligibility and process
for purchasing biofuels for blending and specify the type of records that need to be kept. The Regulations also
specify that (i) the minimum concentration to be allowed for biodiesel blending is 5% by volume; and (ii) the

permitted range for bio-ethanol blending is between 2 and 10% by volume.

Although the regulations were published in 2012, implementation has not yet begun. However, in 2019 the Energy
Minister signalled a commitment to implementing the biofuels regulatory framework to support a local biofuels

industry. Through inclusion in SA-LEDS the intention to support implementation of the Strategy is signalled.

Since the development of the Strategy, advancements have been made on second and third generation biofuels
technologies. These process routes could potentially increase the volumes of biofuel that could be produced in

South Africa, without competing with food products for feedstocks.

6 Second generation biofuels are made from lignocellulosic feedstocks, and thus do not compete with food crops for feedstocks. Third
generation biofuels are made from algae.

4.2 Energy demand

SA-LEDS supports the implementation of a selection of measures to reduce energy demand, or limit growth in
energy demand, as the economy and population grows:

e The National Energy Efficiency Strategy;
e Support for increased uptake of Solar Water Heaters;
e The National Building Regulations and Buildings Standards Act; and

e Promotion of cleaner mobility.

These measures not only contribute to reductions in emissions associated with fossil fuels, but also to energy
security and energy access.

4.2.1 National Energy Efficiency Strategy

In 2005, the Department of Energy launched the first National Energy Efficiency Strategy (2005). Building on this
document, the Department of Minerals and Energy is finalizing the post-2015 National Energy Efficiency Strategy
(NEES), which outlines a set of goals for energy efficiency improvements across the economy to 2030 (DoE,
2016b). Table 2 captures the targets included in the NEES, with the explanation of how each of these targets was
established being provided in the NEES document.

27
Table 2: Energy efficiency targets outlined in the post-2015 NEES

Sector/subsector

Goal

Public buildings sector

- 50% reduction in specific energy consumption (measured as GJ annual energy

consumption per m2 of occupied floor area), by 2030.

Municipal services

- 20% reduction in the energy intensity (measured as energy consumption per
capita of population served) of municipal service provision, by 2030. The
specific services included are street lighting, traffic lights, water supply and
waste water treatment.

- 30% reduction in the fossil fuel intensity of municipality vehicle fleets
(measured as total fossil fuel consumption by municipal vehicles per capita of

population served), by 2030.

Residential sector

- 33% reduction in the average specific energy consumption of new household
appliances purchased in South Africa, by 2030.

- 20% reduction in the average specific energy consumption of the residential
building stock, by 2030.

Commercial sector

- 37% reduction in the specific energy consumption (measured as GJ annual

energy consumption per m? of lettable/habitable floor area), by 2030.

Industry sector

- 16% reduction in the weighted mean specific energy consumption for the
manufacturing industry, by 2030
- 40 PJ cumulative total annual energy saving from specific energy saving

interventions undertaken by in the mining subsector.

Agriculture sector

1 PJ verified electricity saving from officially supported projects, annually

Transport sector

20% reduction in the average vehicle energy intensity (measured in MJ/km) of
the South African road vehicle fleet, by 2030.

The NEES also identifies a set of measures to be implemented in each sector to achieve the stated targets. These

are shown in Table 3.

28
Table 3: Measures outlined in the post-2015 NEES

Sector Measures fae
rame
Introduce mandatory Energy Performance Certificates in all rented properties and 2
: : 7 years
publicly accessible buildings
Develop the public sector awareness raising campaign to facilitate the “leading by 5.Vears
example” approach y
Publie Introduce standards and labelling relevant for public sector appliances and
sector : 2 years
equipment
Announce a 15-year trajectory for the successive tightening of the energy B years
performance component of building standards and successively tighten standards y
Roll-out the provision of energy and activity data to the public sector 1 year
Municipal _| Develop municipal energy efficiency strategies 3 years
sector Support the implementation of energy savings measures 5 years
Announce a 15-year trajectory for the successive tightening of minimum energy
performance standards for household appliances and successively tighten | 5 years
standards
Develop a strongly branded energy performance certification mark for household
appliances (modelled on the “Energy Star“ brand), in addition to the planned | 5 years
energy efficiency labels.
Residential | Announce a 15-year trajectory for the successive tightening of the energy
sector performance component of building standards for residential buildings and | 5 years
successively tighten standards
Build on the existing awareness-raising activities targeting households and the 5 years
school curriculum y
Roll-out the provision of energy and activity data from the residential sector 1 year
Support technology innovation and dissemination of energy efficient cookstove 5 years
technologies y
Introduce mandatory Energy Performance Certificates in all rented properties and 2
; 5 7 years
publicly accessible buildings
Commercial | Revise 12L to ensure it provides an incentive to commercial property owners 4 years
sector Introduce standards and labelling relevant for commercial sector appliances and 9 vests
equipment y
Roll-out the provision of energy and activity data from the commercial sector 1 year
Adjust the 12L tax incentive scheme 4 years

Time
Sector Measures frame
Develop minimum energy performance standards for motors and motor-driven 4
years
systems
Provide targeted support and advice on energy efficiency to enterprises 3 years
Incentivise enterprises to introduce Energy Management Systems and achieve errs
Industrial 1$050001 certification standards y
sector Roll-out the provision of energy and production data from the manufacturing sub- 4 year
sector y
Develop standardised tools for voluntary reporting of energy savings from 2
eee th ts as years
initiatives in the mining sector
Create technology/ learning hubs for energy efficiency 2 years
Explore the potential for savings in agricultural vehicle use, and develop 2 Weare
appropriate awareness-raising material y
Agricultural | Develop targeted awareness-raising and training material on potential savings in 9 years
sector motor-driven systems y
Provide direct grants to small farmers / smallholders for all or part of the cost of 4 years
interventions
Develop fuel efficiency standards for light and heavy vehicles to improve the 5 years
Transport overall efficiency of the vehicle stock
sector Improve systems for ensuring road worthiness 5 years
Roll-out the provision of energy and activity data from the transport sector 1 year
Production | Develop the enabling framework for cogeneration and trigeneration 3 years
and
ost ibution | Expand intemal efficiency programmes for producers 3 years
sector

The Post-2015 NEES makes provision for a review every five years.

30
4.2.2 Support for uptake of Solar Water Heaters

Solar Water Heaters (SWH) provide the opportunity to partially offset use of electricity for water heating in middle-
and high-income households, and to service low-income households that did not previously have ready access
to hot water or used fuels other than electricity for water heating.

Since 2005 a number of goals have been set, and associated support programmes have been established, to
drive the uptake of SWH in South Africa, with the National Development Plan introducing a goal of five million
SWHs by 2030. In 2015 Department of Energy (DoE) took over responsibility for the National SWH programme
from Eskom, making 5,000 subsidies available (further to those that had already been granted). The DoE aims to
roll out new, fully subsidised low-income installations as part of their Social Programme, and is seeking to drive
an increase in localised manufacture to have the positive co-benefit of local economic development. In addition
to government programmes that act as drivers, the uptake of SWH continues to be supported by rising energy
prices and electricity supply challenges.

4.2.3 National Building Regulations and Buildings Standards Act

To further efforts to decrease energy consumption and the associated GHG emissions of new commercial and
residential buildings, the South African government has implemented energy efficiency and energy consumption
standards under the National Building Regulations and Buildings Standards Act. Compliance with the Standards
is required in order to ensure compliance with the Act.

The first of the relevant standards is South African National Standard (SANS) 204 — Energy Efficiency in Buildings.
This standard “specifies the design requirements for energy efficiency in buildings and of services in buildings
with natural environmental control and artificial ventilation or air conditioning systems.” It includes provisions for

orientation, maximum energy demand and the maximum annual energy consumption for various kinds of buildings

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in various climate zones across the country, and design provisions for all parts of buildings’ construction. The
second standard, SANS 10400-XA — Energy Usage in Buildings includes the provisions of SANS 204 and other
standards, towards providing a standard for energy efficient buildings.

4.2.4 Promotion of Cleaner Mobility

Emissions from energy supply in the transport sector are addressed through a number of policy documents. The
Public Transport Strategy of 2007 set out an action plan for accelerated modal shifts and for the development of
integrated rapid public transport networks (DoT, 2007). Since then, the successful implementation of the bus rapid
transport (BRT) system in Johannesburg has led to it being adapted and implemented in other major South African
cities, including Cape Town, Rustenburg, Ekurhuleni and Tshwane, with further roll-outs being planned.

In 2018 the Green Transport Strategy (GTS) for 2018 to 2050 was launched (DoT, 2018). The GTS provides the
strategic direction for the transport sector regarding the reduction of GHG emissions, the contribution of transport
to the green economy and the promotion of sustainable mobility. The Strategy aims to support reductions in the
contribution of the transport sector to national greenhouse gas emissions by at least 5% by 2050.

Some examples of the measures in the GTS that are relevant to SA-LEDS include:
e Exploring the potential for local electric vehicle and battery production, and growing the number of public
charging stations, powered by solar panels, by 40 stations per year’;

TItis recognised that for the full mitigation benefit of electric vehicles to be realised, concurrent electricity grid decarbonisation is required.

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e The continued use of fuel economy norms and standards for fuel efficiency and GHG emissions of
vehicles. Baseline studies on the adoption of more stringent fuel standards will help to provide a platform
for introducing cleaner fuel standards; and

e Facilitating a shift of freight from road to rail. This is in recognition that freight transport was previously
moved off rail onto road as a result of constraints in the country’s rail service, with road-based freight
transport currently accounting for around 75% of total freight moved. The road-to-rail shift will be
supported by the implementation of Transnet’s® Market Demand Strategy. The Market Demand Strategy
aims to create a more balanced and appropriate market between road and rail freight transport, thereby
reducing overloading of the road network and road infrastructure deterioration and contributing to a
reduction in GHGs associated with rail transport.

In September 2010 a COz tax was introduced on the selling price of new motor vehicles that exceed a certain
emissions limit, in order to increase the move towards lower emissions vehicles. The levy has grown incrementally

over time, and offers an established instrument that government could use for ratcheting up ambition in the

transport sector.

4.3 Industry

Two sets of policies that directly and indirectly support emissions reductions in the industrial sector are identified,
beyond those discussed in Section 4.2.1 that target energy efficiency. These are the Industrial Policy Action Plan
(IPAP) and tax rebates for green project development.

8 Transnet is the state-owned entity responsible for managing rail infrastructure and operation, ports and pipelines

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4.3.1 Industrial Policy Action Plan (IPAP)

The National Industrial Policy Framework (NIPF) was adopted as a broad framework governing industrial policy
in South Africa, and thus articulates the overarching approach to industrial development (dti, 2007). The
implementation plan for the framework is contained in the Industrial Policy Action Plan (IPAP), which is revised
at various intervals. The most recent revision of the IPAP, which covers the period 2018/19 to 2020/21, provides
updates on key focus areas within the industrial sector, one of which is green industry investment. Some of the
green industry Action Programmes that will contribute to climate mitigation in the short term included in the IPAP

are:

e Developing a Policy Roadmap for Climate-Compatible Industrial Development;

e Systemised resource efficiency data collection and reporting;

e The Industrial Water Efficiency Project (which has a primary focus on water savings which is a resource
efficiency/adaptation focus, but will have a mitigation benefit through saving energy associated with water
supply);

e The Industrial Energy Efficiency Project;

e Resource-efficient and cleaner production skills development; and

e Specialist skills development in resource-efficiency and cleaner production.

The IPAP also supports fuel cell industry development.

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4.3.2

Tax incentives for green project development

The implementation of technologies with potential for contribution to emissions reductions in the industrial sector

is supported by various tax incentives, contained in the Income Tax Act of South Africa:

Section 12B allows companies to deduct the cost incurred from investing in assets that are used directly
for the production of renewable energy from their taxable income;

Section 12I offers support for both capital investment and training related to Greenfield (new) and
Brownfield (expansions or upgrades) projects within South Africa’s manufacturing sector. A mandatory
requirement for qualification for this incentive is that projects demonstrate use of energy efficient
equipment (in the case of greenfield projects) or at least 15% energy improvement relative to a baseline
(brownfield projects)

Section 12K provides for tax exemptions on proceeds gained from the disposal of certified emission
reductions derived from activities registered with the Clean Development Mechanism. The tax window
runs up to 31 December 2020, in line with termination of the second commitment period of the Kyoto
Protocol;

Section 12L provides for a tax incentive to support implementation of energy savings. Since its inception
in 2013, major benefits have been realised in terms of energy savings of approximately 5.9 GWh, with
associated avoidance of GHG emissions, through a spend of ZAR 3 billion by government. Major
beneficiaries have been the mining and manufacturing subsectors. This incentive has been extended
until the end of the first phase of the carbon tax (31 December 2022) in line with requests from
stakeholders; and

Section 37B allows companies to deduct the costs, incurred due to expenditures on environmental

pollution control and monitoring equipment and/or disposal sites, from their taxable revenues.

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4.4 Agriculture, Forestry and Land Use (AFOLU)

South Africa’s land cover is dominated by open ecosystems in the form of shrublands (covering just under 40%
of the total land area), savanna woodlands (33%) and grasslands (27%). Both indigenous forests and exotic forest
plantations make up the remainder, with indigenous forests occupying less than 0.3% of South Africa’s land area

(GeoTerralmage, 2013) and forest plantations occupying 1% of the overall land area.

Changes in land use can result in the release of carbon stocks. The National Terrestrial Carbon Sinks Assessment
(NTCSA) (2015) indicated that transformation of land through land uses including crop agriculture can reduce soil
carbon by 40 to 60% from what existed in a natural grassland and savannah. Further, urban expansion and mining
reduces above and below ground carbon, as does degradation, which increases soil erosion. In terms of total
carbon sequestration, despite the small overall land coverage by forests, over 90% of CO2 absorbed in 2015 was

attributed to forest land, with the remainder being absorbed by grassland and savannah.

Mitigation actions identified in the AFOLU sector include Policies and Measures developed by line departments
including the Department of Agriculture Forestry and Fisheries (DAFF). These include the draft Climate Change
Adaptation and Mitigation Plan for the South African Agricultural and Forestry sectors, the Conservation
Agriculture Policy (DAFF, 2017b) and the Agroforestry Strategic Framework for South Africa (DAFF, 2017c).

In terms of the draft Climate Change Adaptation and Mitigation Plan, for mitigation in the agricultural sector it is
proposed that a strategic and integrated approach is taken that addresses sustainable agriculture more broadly
and “to build synergies and avoid conflicts between climate change mitigation and other policy objectives, and to
avoid offsetting mitigation efforts through intensification of production or land use change." In the forestry sector,
there is a specific objective to reduce GHG emissions through afforesting 100,000 hectares of land in the Eastern
Cape and KwaZulu-Natal as well as strengthening and expanding current initiatives including forest rehabilitation,
working for woodlands and the Subtropical Thicket Ecosystem Project (STEP). The implementation of the national
Reducing Emissions from Deforestation and Forest Degradation (REDD) will lead to conservation of forest carbon
stocks, sustainable management of forests and enhancement of the forest carbon stocks. Protecting and
preserving existing carbon stocks in other ecosystems (those with high organic soil carbon, wetlands and some

grasslands) is also identified as a mitigation priority.

9 Note that with a government restructure Forestry and Fisheries has now been combined with Environmental Affairs, while Agriculture
has been combined with agriculture and the department of rural development and land reform. The implications of this restructuring on
policy implementation has not yet been considered.

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The DAFF Draft Conservation Agriculture Policy (DAFF, 2017b) provides a basis for national and sector policy
support for increasing the uptake of conservation agriculture (CA), including no-till, conservation till, precision
agriculture and meat production efficiency. GHG emission reduction occurs by reducing fuel consumption of farm
vehicles, increasing yields and reduced fertiliser use. Current CA adoption by grain growers is between 20 and
30% at a national scale.

Both the establishment of plantations and agroforestry could lead to the sequestration of atmospheric carbon in
soils and biomass. The DAFF Agroforestry Strategic Framework for South Africa (DAFF, 2017c) presents a broad
overview of the potential for agroforestry in a South African context by providing a set of principles and strategic

themes and goals. It recognises the carbon sequestration potential role of agroforestry.

4.5 Waste

Waste management activities in South Africa are legislated through the National Environmental Management:
Waste Act (NEM:WA) (DEA, 2009). To provide further policy direction in terms of establishing fully integrated
waste management practices in the country, the National Waste Management Strategy (NWMS) was developed
(DEA, 2012). The Strategy adopts the internationally accepted waste management hierarchy of waste avoidance
and reduction, re-use, recycling, recovery, treatment and disposal. Implementing activities in accordance with the
prioritisation afforded by the hierarchy potentially contributes to a reduction in emissions from material life cycles’?
as follows:

¢ Avoidance and reduction of waste avoids emissions with production and transport of the waste that
would have been ultimately sent to landfill;

10 Emissions savings achieved through actions in the waste sector will not all be reflected in that sector's inventory, however they may
contribute indirectly to national emissions savings.

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Reducing the quantity of recyclable waste sent to landfill, through the implementation of separation at
source programmes in metropolitan municipalities and through the establishment of material recovery
facilities (MRFs) for separation after the waste has been collected, avoids emissions with primary
material production in the case of inert materials and avoids generation of methane in landfill in the
case of organics; and

Recovery of value through waste-to-energy (WIE) facilities avoids generation of methane from organics
sent to landfill, and at the same time the electricity generated offsets electricity generation from fossil
fuels. It is noted that, although included in the 2012 Strategy, WIE is no longer considered to be a
preferred technology option, but is rather recognised to be a last resort for managing wastes for which

higher value cannot be recovered.

Subsequent to the Waste Act and National Waste Management Strategy, twenty national waste management

initiatives, with annual targets, have been established by the DEA through a process known as the Waste Phakisa.

Jointly, these initiatives aim to achieve landfill diversion of 20 million tonnes of waste per year (75% industrial and

50% municipal). Of the twenty initiatives, those that are likely to have direct and indirect impacts on the total

national greenhouse gas emissions include (GreenCape, 2018):

Achieving a minimum of 50% of households separating organics at source by 2023;

Introduction of Material Recovery Facilities (MRFs) and pelletising plants to increase plastic recycling
rates, and formalising packaging industry producer responsibility plans;

Developing capacity through a specialised programme which upskills agri-stakeholders to minimise food
loss, and running a consumer awareness campaign to use and consume “ugly” food, towards saving
245,000 tonnes of food waste to landfill per year;

Establishing refuse derived fuel plants across South Africa, towards diverting 120,000 tonnes of waste
from landfill; and

Establishing a refrigerant reclamation and reusable cylinder industry to reduce emissions of refrigerant

gases.

The importance of circular economy thinking in guiding the Waste Phakisa initiatives was noted. A circular

economy framing has positive benefits in terms of reducing greenhouse gases.

4.6 Cross-Cutting Measures

In addition to the measures specific to individual sectors, four cross-cutting measures that will support low carbon
development are in various stages of being implemented.

4.6.1 Carbon Tax

The Carbon Tax Act was brought into effect from 1 June 2019. The Act gives effect to the “polluter pays principle”
and aims to price carbon by internalising the negative costs of emitting GHGs. The tax rate is set at R120 per
tonne of CO2-eq produced. To allow businesses time for transition, a basic tax-free allowance of 60% will initially
apply to all emissions, with a number of further allowances depending on the activities. These provide for
maximum tax-free allowances of between 60 and 95%. The allowances include those on fugitive emissions; for
trade exposure; for performance above the industry benchmark; for purchasing offsets; and for voluntarily being
allocated a (non-enforceable) carbon budget. The allowances bring the effective tax rate to between ZAR 6 and
ZAR 48 per tonne.

Post-2020, the carbon tax and the carbon budgeting system (discussed in Section 4.6.3 below) will be aligned.
This may include the option of imposing a higher tax rate as a penalty for emissions exceeding the carbon budget.
This interface option will help to ensure a credible price signal to drive mitigation and provide the required
regulatory policy certainty. At this stage some of the allowances are likely to be reduced, and the voluntary carbon
budget allowance will be completely removed.

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Emissions covered by the carbon tax are those that need to be reported in terms of the Department of
Environmental Affairs’ Mandatory Reporting Regulations, although the tax is administered by the South African

Revenue Services in the same way as other environmental levies.

The role of the carbon tax
e Through passing of the Carbon Tax Act, the government is providing a strong signal of an intention to
implement the “polluter pays principle”.
e At present, with the prescribed allowances, the tax rate is low. However, the ratcheting of this policy
intervention will be achieved through reducing the allowances and increasing the tax rate.
e Ahigher rate of tax on emissions exceeding the carbon budgets, as is being proposed once the carbon
budgets are mandatory, will further drive mitigation action.

4.6.2 Sectoral Emissions Targets (SETs)

South Africa’s national emissions trajectory will be translated into Sectoral Emission Targets or SETs, which are
quantitative greenhouse gas emission targets allocated to an emitting sector or sub-sector, over a defined time
period. The sectors or sub-sectors to which SETs are allocated are still being defined, but will be aligned with the
IPCC (2006) emissions categories to facilitate alignment with other GHG reporting. Individual national government
departments will be tasked with developing and implementing Policies and Measures (PAMs) to ensure emissions
from within a sector or sub-sector remain within SET limits. The allocation of the SETs will be based on the socio-
economic benefits of introducing the Sectoral Emissions Targets; the best available science, evidence and
information; and the mitigation options available to the sector. SETs will be determined for three rolling five-year

periods.

Sectoral Emissions Targets
e Constraining the cumulative SETs applied across the sectors and sub-sectors within the GHG
emissions trajectory will ensure that, as the trajectory is revised towards meeting the requirements of

the Paris Agreement, a consistent message will be sent to all government departments about the

requirements for implementation of PAMs to drive down emissions.

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4.6.3 Carbon Budgets

Carbon Budgets set a maximum volume of emissions from certain activities that individual entities are allowed to
emit over three rolling five-year periods. By assigning a Carbon Budget to an entity, a signal is provided as to the
degree of GHG mitigation that is required within a specific time period, with a penalty being imposed if the budget
allocation is exceeded. Furthermore, by providing entities with an understanding of how the budgets are likely to
be assigned in future phases to keep overall national emissions within the bounds of the national emissions
trajectory, which will continue to be revised downward in keeping with the Paris Agreement, they are sensitised
to how mitigation requirements may change in the future. The system thereby provides an opportunity for entities
to plan ahead.

The first phase of the Carbon Budgets, which runs from 2016 to 2020, is currently being implemented, with the
allocation of company-level Carbon Budgets for a small group of companies. This phase is voluntary as there is
no legal basis to set emission limits for sectors or companies. The second and subsequent phases (i.e. the post-

2020 period) will become mandatory when the Climate Change Bill is formally approved by government.

4.6.4 Phasing out of inefficient fossil fuel subsidies/incentives

Fossil fuels are used across a number of the economic sectors in South Africa. As a member of the G20, where
countries have committed to phasing out inefficient fossil fuel subsidies, South Africa has indicated willingness to
identify and minimise their harmful impacts, taking cognisance of its developmental state. The subsidies
undermine the competitiveness of renewable energy, divert financial resources from development of priority
sectors and services such as education, health, and infrastructure; and encourage the extraction and
overconsumption of fossil fuels (as they are under-priced). Inefficient fossil fuel subsidies act as a negative fuel
tax or work as a negative price on carbon, and hence their phase-out entails removing market distortions which
would result in greater efficiencies in the economy, including restructuring taxes to reflect their environmental
impacts. An economy-wide carbon tax has been implemented from 1 June 2019 (as described above) and this
provides a price signal to nudge the economy towards low carbon development. South Africa should consider
participating in a fossil fuel subsidy peer review within the G20 framework to facilitate the sharing of experience

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and mutual learning among G20 members as the next step in identifying inefficient fossil subsidies within the

economy.

5 GOING FURTHER TO ACHIEVE THE PARIS GOALS

Section 4 focused on a set of stand-alone, sector-based policies and measures as well as a selection of cross-
cutting interventions that government is busy implementing. However, Section 1 highlighted that a broad range
of structural changes will be necessary across economic sectors, in order to ensure the global economy achieves
carbon neutrality within the second half of the century. Changes will be required in terms of service demand,
technology fleet, infrastructure, operating practice, and energy sources, for all sectors of activity.

Ensuring South Africa plays its role in the achievement of the Paris Agreement is the overarching purpose of this
strategy. Therefore, as the science of climate change evolves, and our understanding matures to permeate our
public awareness and policy processes, we will adjust our strategy accordingly. This is a living document, and
ongoing work will ensure adequate updates are brought forward at appropriate times.

As it continues to strengthen its response to climate change as part of a global effort, South Africa will increase
its focus on a range of strategic elements that will together promote the change to low carbon growth, while
continuing to align with the goals of the Paris Agreement. These are:

e Enhancing the vision for development

e Enhancing institutional capabilities and arrangements for the transition

e Creating the right financial environment through aligning fiscal strategy with sustainable growth
e Providing broad access to funds

e Driving innovation, research, and skills for future value capture

e Ensuring a just transition with jobs for all

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e Promoting sustainable development through education and culture

e Enhancing information and metrics

Each of these is elaborated upon in the sections that follow.

5.1 Enhancing the vision for development
The SA-LEDS vision described in Section 3 is guided by the peak-plateau-decline trajectory as defined in the
NCCRP and the NDC. The trajectory represents the contribution South Africa commits to the global response to

climate change at this time, aligned with its vision of development.

As a signatory to the Paris Agreement, South Africa subscribes to the view that a progression in climate ambition
will be necessary to achieve the global long-term goals, with all parties taking part in this progression in ambition
with regards to mitigation, adaptation, and means of implementation, in accordance with the principles of the
Convention. As climate science continues to further our understanding of the challenges and potential solutions
to climate change, and economic reality broadens the range of options and global willingness to invest in them,
South Africa will continue to both strengthen its commitments and communicate in a compelling manner how they

represent our fair contribution to the global achievement of the Paris Agreement.

The IPCC Special Report on the impacts of global warming of 1.5°C has provided significant new understanding
on the targets of the Paris Agreement, as briefly discussed in Section 1.2. Itis clear that Parties must find a way
to ensure that emissions over time decrease rapidly as part of a sustainable development pathway, consistent
with the goal of carbon neutrality in the second half of this century. Changes in all productive sectors, and
important enhancements of international cooperation, are required. All of these elements must be kept in mind as

we enhance our long-term development vision.

Determining a trajectory to carbon neutrality will require a number of processes. Sectoral scenario analyses will
be required to inform on the range of options. For these, traditional “incremental” modeling techniques will be
insufficient, so a transformational approach will be required. Uncertainties in speed of response and investments
required should not limit the scenario work, but rather become part of the output, to enable policymakers to

appreciate what conditions will be required to enable different trajectories.

Creating a national picture out of sectoral pathways will be essential to ensure balance between the sectors can
inform national deliberations. Stakeholders from all sectors will play a vital part, providing insights into

opportunities, challenges, trade-offs and requirements which will inform the national debate and also enrich our

43
position with regards to the international community, be it as part of the UNFCCC negotiations or in discussions

with donors and investors.

The analyses will seek to determine requirements for enablers from other participants in the global community,
as appropriate. As South Africa play its part within a global effort, a range of technical pathways will be developed
for low carbon development. The strategy development process will evaluate the opportunities within a new model
of development, and the benefits of achieving net zero carbon emissions by 2050, alongside the challenges to

the transition and the international enablers available.

National life, from local politics, business decisions, and mass media communications, will have to reflect these
ideas, preparing citizens and decision-makers for a new perspective on economic development. The climate

challenge will only be tackled under the paradigm of sustainable development.

5.2 Enhancing institutional capabilities and arrangements for the transition

Regardless of the details of the path followed towards a carbon-neutral world, in-depth sectorial transformation
plans will need to be developed over the coming years, with significant public and private sector collaboration, to
lay out the transformation pathways which will lead South Africa to achieve its goals. Such planning requires

political will, coordination, a participatory process, and specific analytical resources and expertise.

Thus, a critical area in which institutional capabilities and arrangements should be enhanced is for the planning
and policy-making processes themselves. These processes will have to develop targets across the whole
economy, plan detailed actions over several timescales, and ensure the right changes can take place in the right
way. The institutional capabilities required for these planning efforts and their implementation will require improved

capabilities, as well as closer links to the research community, civil society, and the business community.

As the sectoral pathways are fully identified, the required sequence of steps for their implementation should be
mapped onto the current institutional framework in order to establish where current coordination arrangements,
as shown in Table 4, are suitable, and where it would make sense to consider adjustments. It is important to recall
that these will be pathways of transformation, spanning 30 years and requiring multi-step processes which should
be mapped out in somewhat detailed sequence. Topics such as ministerial attributions, levels of government,
chains of command, and decision-making, as well as the scope for different institutions to access resources such
as finance, skills, or regulatory authorization, should all be taken into consideration, as they can make a significant

difference to the success of the transformation.

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Table 4: Current institutional arrangements to address climate change response actions

Structure

Function

Parliament and Portfolio Committees

Oversee and monitor the implementation of the
national climate change responses

Make laws to support climate change responses in
the country

Presidential Climate Change

Commission (PCCCC): (Yet to be established)

Coordinating

Coordinate and oversee the low carbon and just
transition, including how to maximise the
opportunities for jobs.

The Inter-Ministerial Committee on Climate Change
(IMCCC): Executive level committee. The Minister of
the Environment and Minister responsible for planning
monitoring and Evaluation in the Presidency co-chair
meetings

Coordinate and align climate change response
efforts, including statutory and regulatory needs

Intergovernmental Committee on Climate Change
(IGCCC): Consists of relevant national, provincial
departments and local government

Operationalise cooperative governance on the
climate change issues

Ministers and Members of Executive Councils
(MINMEC) and the Ministerial Technical Advisory
Body (MINTECH): Facilitate a high level of policy and
strategy coherence among the three spheres of
government - national, provincial and __ local
government

Guide climate change work across the three spheres
of government

National Committee on Climate Change (NCCC):
Multi-stakeholder Committee

Consult with stakeholders from key sectors that
impact on or are impacted by climate change -
academia, business, NGOs, labour, government and
civil society

Advise on matters relating to national responsibilities

Advise on the implementation of climate change-
related activities

In addition to the institutional arrangements, training and capacity building that will be required to support the

transition at the national government level, infrastructure and skills will need to be developed at the sub-national

level. Many of the sub-national government structures are currently dysfunctional and lack the capacity to support

implementation of and manage funding for the actions required to support the low carbon transition.

5.3 Creating the right financial environment through aligning fiscal strategy with sustainable growth

The need for investment at scale and the change in purchasing choices of businesses and citizens over the
coming years makes the fiscal regime of a country a determining factor in its ability to achieve the structural
changes required by the joint objectives of achieving the Paris Agreement aims and eradicating poverty. The

correct incentives will accelerate positive change, while misalignment can hold back action.

Several considerations should inform fiscal adjustments over time. Overall tax revenue must be decoupled from
volumes of fossil fuel sales and exports in order to ensure that financial sustainability of the state does not become
a brake to the changes which are needed. Negative externalities should be considered for a greater share of
intake, supported by detailed analysis including market responses over time, which itself should inform the

pathway planning approach.

Capital investment should be encouraged in technology and implementation choices to support Paris-compatible
pathways. The incentives provided will have to be coherent with the long-term development pathway in order to
ensure short-term mitigation actions do not lead to emissions lock-in, nor a boost for assets which may become

stranded later.

Fossil fuels subsidies and incentives which have the effect of fostering inefficient management of resources such
as water, food, fertilizers, or public goods should be reviewed to support the transition to cleaner development.
While such a subsidy review may cause resistance in some sectors, it provides an opportunity to ensure the use
of state funds is progressive in terms of its distribution and enhances growth through the development of new
businesses and investments which align fully with national objectives. Support for renewable energy options must
be considered to accelerate their market acceptance, without building excessive distortions which may limit future

competitiveness or stagnate the transformation.

Significant work will be required to create an environment which is nurturing and inviting to new business models.
From shared ownership to provision of service/experience rather than goods/commodities, different ways of
satisfying demand — supported by ever more powerful and accessible digital platforms and networks — will
generate tremendous growth opportunities within a population increasing its per-capita income as poverty is

reduced. A forward-looking fiscal strategy, aware of the options and flexible to the evolution of new markets, will

46
enhance such opportunities for South Africa, which will in turn bring export opportunities to Africa and the rest of

the world.

Additional opportunities for investment and growth will follow if the fiscal regime is inviting to new business which
seek to on-shore significant portions of the value chain of the industries which will lead the sustainable transition;
rather than zero-sum tariffs or restrictions, long-term policies which encourage investment, innovation, skills
development, and early leadership of local markets which are likely to evolve later in neighboring countries, will

all contribute to national wealth creation.

Carbon prices must evolve over time to effectively discourage fossil fuel and other emissions, while providing
clear market signals to investors in zero emission technologies that their investments will provide suitable returns
over their useful lifetimes. Visibility over future carbon prices, such as legislating for a ramp-up over several years,
provides clarity that carbon-intense investments will become uncompetitive and thus stranded, thereby informing

decisions which may lock the country into future emissions.

In summary, fiscal strategy over time must reconsider the balance of taxation, planning for falling sales of fossil
fuels and seeking to reduce negative externalities, while incentives will focus on both the emissions implications
of investments, favoring the route to net zero, and stimulating investments which take advantage of the
opportunities created by this transition, both in the short term (such as business creation) and in the medium to

long term, (such as by favoring skills development, innovation, and research).

The fiscal strategy must therefore form its own pathway to 2050, balancing the needs of the transformation,

economic and social development, with the viability of private sector companies and the state.

5.4 Providing broad access to funds
Access to funds in sufficient volume to meet the investment needs across a broad range of activities will be crucial
to the success of our efforts to tackle climate change. Significant work is already underway to illustrate this need

and help facilitate such access.

South Africa’s National Climate Change Response Policy emphasises the importance of mobilising a wide range
of financial and non-financial resources for both mitigation and adaptation. The Policy emphasises the need to
draw on all available sources of domestic and international financing (DEA, 2011). South Africa’s National
Determined Contribution goes further, and frames the ability to “catalyse, at an economy-wide scale, financing of
and investment in the transition to a low carbon and climate resilient economy and society” as a key challenge

for South Africa (DEA, 2015). Both these documents highlight the importance of international support given South

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Africa’s status as a developing country, and the magnitude of the challenge. Adaptation costs are difficult to
quantify, but it could cost South Africa more than US$ 30 billion per annum to adapt to climate change for the
period 2021-2030, and the incremental cost of mitigation action is estimated at more than US$ 1,350 billion in
total over the period 2020-2050, or roughly US$ 44 billion per year (DEA, 2015; DEA, 2019b). Furthermore,
Diffenbaugh and Burke (2019) find that the 1°C increase in global temperatures over the last century has already

reduced the size of the South African economy by between 10 and 20%."

Internationally, it is estimated that an additional US$ 13.5 trillion (in 2014 dollars) is required to remain below two
degrees of climate change from 2015 to 2030 (Meltzer, 2016; Bhattacharya et al, 2016). This additional
investment is, however, coupled with a reduction in investment in fossil fuel energy generation, transmission and
distribution of US$ 5.7 trillion and US$ 3.7 trillion in upstream oil, coal and gas investments. A further
US$ 5.1 trillion could also be saved in operating expenditure because of the reliance on low carbon technologies
like renewables. Meltzer (2016) points out that the challenge is thus how to deal with the high upfront cost of

these investments, since they are likely to more than pay for themselves over time.

5.4.1 Climate finance flows to date

Oliver et al (2018) find that US$ 472 billion of climate finance was deployed in 2015, US$ 455 billion in 2016 and
between US$ 510 billion and US$ 530 billion in 2017. Of the US$ 463 billion average annual flow over 2015 and
2016, an average of US$ 45 billion flowed from developed to developing countries, and only US$ 12 billion per
annum (including domestic resources) was deployed in Sub-Saharan Africa. Of the US$ 463 billion average
annual value, more than 80% originated from domestic sources (US$ 162 billion from within OECD countries and
US$ 214 billion from within non-OECD countries). These numbers, however, cover all climate finance deployed,
and are not comparable to the pledge by developed countries, first made at COP15 in Copenhagen, to provide
US$ 100 billion of climate finance to developing countries by 2020. Timperley (2018) mentions that there is
disagreement about how close this pledge is to being met. According to the UNFCCC (2018), US$ 74.5 billion of
climate finance flowed to developing countries in 2016. International public climate finance flows to developing
countries, however, averaged US$ 58 billion for 2015 and 2016. Oxfam (2018) believes public climate finance
flows from developed to developing countries are much lower at between US$ 16 billion to US$ 21 billion. The
OECD (2019) estimated the value to be US$ 46.9 billion in 2016 and US$ 54.5 billion in 2017. Using project-level

11 According to the World Bank Development Indicators the size of the South African Economy was US$ 366 billion in 2018.

48
data which doesn’t cover all climate finance flows, Timperley (2018), calculates a lower value for OECD climate
finance to developing countries of US$ 37 billion in 2016.

For 2015 to 2017, approximately US$ 160.7 million of bilateral and US$ 45.4 million of multilateral climate finance
flowed to South Africa. Over the same period, however, the South African government deployed almost
US$ 690 million of climate finance (DEA, 2019c).'2 The distribution of local public sector climate finance is shown
in Figure 8. Even though South African climate finance deployment was small by international standards, it is
nowhere near the levels that will be required from 2020 as discussed in the previous section. The percentage of
climate finance generated from domestic versus international sources is in line with international trends over this
period.

Energy Efficiency and Municipal Disaster 4
Der a Municipal Disaster
Management funding _ 4.9% Recovery Grant
Loans program (EEDSM) ~ 4.1% — integrated National
~ Electrification
_— Programme (INEP)
0.1%

45.38 million
uso

Manufacturing
Competitiveness
Enhancement
programme (MCEP)
2.9%

National Expanded_—~
Public Works
Programme:
Environmental
protection &
infrastructure All Grants

= Conditional Grants 8.7%
= Grants

@ Loans Domestic Finance

Figure 8: Domestic climate finance (2015 - 2017)
Source: DEA (2019c)

‘South Africa’s 3 Biennial Update Report (BUR-3) mentions that lags in reporting may lead to an underestimate of 2017 values.
Climate finance information for the periods 2000-2010 and 2010-2014 can be found in BUR-1 and BUR-2.

49
Even without considering the contribution of domestic private sector financing for climate change-related activities,
which is likely to be significant given recent investments in renewable energy and energy efficiency in South
Africa, it is clear that international support contributes a relatively small proportion of climate finance being utilised
in South Africa. The contribution of domestic climate finance is also likely to increase further given the broad-

based carbon tax that was put in place during 2019.

International support is also highly concentrated in the form of one bilateral and one multilateral development
partner for the period under consideration. Germany contributed 55% of bilateral and 43% of total international
climate finance to South Africa, while the Global Environment Facility accounted for 93% of multilateral and 20%
of total international climate finance. The bulk of international climate finance was in the form of grants, with only
US$ 950,000 (0.5%) originating from multilateral loans (DEA, 2019c).

5.4.2 Formalising climate finance structures

While South Africa has made great strides in understanding its mitigation and adaptation challenge, and
particularly in understanding the availability and attractiveness of mitigation policies and measures and the ways
these will have to be combined to meet its international climate commitments, it has not been successful in
accessing climate finance on a transformational scale. The climate finance that has been accessed is
concentrated in two entities, and this creates risks in terms of the long-term certainty of flows and climate

governance and independence.

To address this shortcoming, South Africa is developing a comprehensive climate finance strategy. The strategy
will take a holistic view of climate finance activities and will cover all aspects of climate finance, including: the
quantum of climate finance required; identifying stakeholders and activities along the climate finance value-chain;
increasing climate finance flows from different types of finance providers (e.g. bilateral finance, multilateral
finance, domestic public finance and private sector finance), monitoring and evaluation, and climate finance
governance structures. The strategy will ensure that climate finance frameworks are compatible with local
conditions and ambition. Furthermore, in order to best contribute to the strategy development process, it should
seek to identify financing pathways commensurate with technology transformation pathways and economic
development pathways required by the transformation to a low-emissions economy (see remarks on planning for
implementation contained in Section 6).

South Africa has a framework for tracking climate finance in place, which is being operationalised as part of the

national integrated climate change monitoring and evaluation (M&E) system. The climate change M&E system,

50
however, is still under development and monitoring and reporting activities will only be automated during the final
phase of implementation (2021-2025) (DEA, 2017; DEA, 2019c). At present climate finance is therefore being
tracked on an ad hoc basis via informal engagements between the Department of Environmental Affairs and the
National Treasury. The national climate finance strategy will formalise local climate finance governance,
coordination and reporting structures. M&E will be a key focus area of the strategy, and it will seek to strengthen
the current climate finance M&E framework by extending monitoring and reporting to include all elements of the
climate finance value chain, including private sector finance. Furthermore, the strategy will consider the
development of mechanisms for evaluating the outcomes of climate finance to understand the extent to which it
is accelerating South Africa’s climate change mitigation and adaptation responses. In addition to supporting
climate change planning by the government, it will reassure the providers of finance that it is being effectively

deployed. It will also serve to illustrate the positive impact that climate finance can have in South Africa.

5.4.3 Climate finance opportunities

South Africa’s climate finance strategy will seek to quantify the financing requirements and identify areas where
climate finance should be targeted. This will complement significant research that has been undertaken to identify
sectors and activities that should be prioritised in terms of mitigation and adaptation actions. Research already
undertaken includes the Technology Needs Assessment (which is currently being updated) (DST, 2007), the Long
Term Adaptation Scenarios (LTAS), Long Term Mitigation Scenarios (LTMS), the latest GHG Inventory, the
Mitigation Potential Analysis (MPA), Climate Change Mitigation Technology Implementation Plan (DEA and DST,
2015), Global Change Research Plan and national government departmental plans (DEA, 2018b; DEA 2019c).
Explicitly linking climate finance requirements with mitigation and adaptation needs could also create the
opportunity to use climate finance to support technology development and transfer. Both the Green Climate Fund
and the Global Environment Facility, for example, provide support for the development of Technology Needs
Assessments and/or consider the results of these assessments in their lending programmes (Resende, 2019;
Kaung-Idba, 2019).

The climate finance strategy will also seek to understand why South Africa has not been successful in attracting
more climate finance, and will attempt to significantly increase the amount of climate finance flowing to South
Africa. As part of this process, a 5-year high-level climate finance implementation plan will be developed that will

include a pipeline of financeable projects.

51
One area where South Africa has demonstrated that it has the capacity to effectively absorb large amounts of
climate finance, and where a scaling up of climate finance could have a positive mitigation impact relevant on a
global scale, is the electricity supply sector (as outlined in Section 4.1.2). South Africa’s electricity supply industry
is set for significant change in coming years as a result of an electricity supply crisis and reform of the current
poorly performing vertically integrated utility model. South Africa has one of the most carbon-intensive electricity
grids in the world, and recent research has shown that aggressive decarbonisation can have significant economic,
social and environment benefits (Wright, et al., 2017; Steyn, Burton, & Steenkamp, 2017; Bischof-Niemz &
Creamer, 2019). Significant decarbonisation of the electricity grid in the short term, however, is likely to incur
significant transition costs, and may not happen without significant international support. The current situation,
however, provides and unprecedented opportunity to avoid long-term carbon lock-in and significantly accelerate

a just transition to a low carbon and inclusive economy.

South Africa has a number of features that make it attractive as a destination for climate finance. The country has
a well-developed financial system and a history of developing and rolling out innovative instruments for raising
and deploying donor, public and private sector climate finance. The well-regarded Renewable Energy
Independent Power Producer Procurement Programme (REIPPPP), for example, managed to raise
US$ 15.83 billion of finance for utility-scale renewable energy projects, 80% of which originated from domestic
sources (IPPP Office, 2019).13 By the end of March 2019, the REIPPPP had procured 6,422 MW of capacity
(3,976 MW of which had been connected to the national grid). 35,669 GWh of renewable electricity had been
generated, saving 36.2 Mt of CO2 and 42.8 million kilolitres of water. 53,339 full-time equivalent (FTE)'4 jobs were
also created, 48,085 of which went to locals (DoE, 2019a). The economics of energy generation has changed in
South Africa, and a growing body of evidence shows that renewable energy is now the cheapest form of electricity
generation locally. Given the very carbon-intensive nature of South Africa’s national grid, and local energy
investment needs going forward, this creates an unprecedented opportunity for South Africa to absorb climate

finance.

South African banks have also started developing financing tools aimed at the smaller-scale renewables market
(GreenCape, 2019). Tools for aggregating and effectively deploying public sector climate finance also exist in the

form of, for example, the Green Fund managed by the Department of Environmental Affairs (DEA) and the

13 Calculated at the annual average South Africa Rand-US dollar exchange rate for 2018 from the South African Reserve Bank.
14“ETE” means Full Time Employment Created. It refers to one person-year of employment. In the calculation of this number one person
year is equivalent to 230 person days of work.

52
Development Bank of Southern Africa (DBSA), and the Energy Efficiency and Demand-side Management Fund
managed by the Department of Energy.

The REIPPPP is also an example of using green public procurement to raise climate finance. This is an approach
that is also being considered in other countries (see, for example, the UK Government’s Green Finance Strategy
(HM Government, 2019)) and could be expanded in South Africa.

Two municipal green bonds have been released in South Africa, by the City of Cape Town and the City of
Johannesburg, and the Johannesburg Stock Exchange currently has three green bonds listed by financial
institutions with a total value of US$ 385 million (PWC, 2019; Khumalo, 2019)

South Africa has well capacitated development finance institutions, like the DBSA and the Industrial Development
Corporation (IDC) that routinely channel climate finance from multilateral and bilateral donors, and private sector
banks have also partnered with international donors to roll out innovative climate finance vehicles. An example of
this is the US$ 98 million FIRST fund that offers long term debt finance to local small renewable energy projects
(FIRST fund, undated). The fund is a collaboration between a local bank and the German KfW Development Bank

(KfW), and is underpinned by a first-loss debt facility and grant-type funding from KfW (Hawarden, undated).

Despite the sophistication and depth of South African financial markets, a number of barriers remain that restrict
the flow of funding to climate change projects. These are not unique to South Africa and include, amongst others,
a relatively high degree of risk aversion among local financial institutions, difficulty in accessing longer-term
financing, credibility of off-takers, high transaction costs for smaller projects, relatively long pay-back periods and
a lack of attractive large low carbon investment options, difficulty in raising financing for technologies that have
not been proven locally, a lack of concessionary wholesale finance, uncertainty about future electricity prices,
complexity and regulatory burden of environmental regulation, a lack of public sector capacity in key areas, and
an investment environment that is not conducive to investment due to policy uncertainty (Nicholls et al, 2015;
Cloete et al, 2016; Cloete et al, 2018). These barriers, coupled with the scale of funding that is required to address
mitigation and adaptation, means that there is a significant need for scaled-up international support to finance the

transition to a climate-resilient inclusive low-carbon economy in South Africa.

Positioning South Africa as an attractive destination for climate finance offers opportunities beyond enabling a
transition to a just, sustainable and prosperous low carbon economy as discussed below. It also creates the
opportunity to leverage its sophisticated and deep financial markets to serve as a gateway for climate finance to
the rest of the continent, which, as mentioned earlier, is struggling to access its fair share of climate finance.

Following the example of a country like the UK (see HM Government (2019)), South Africa should use its climate

53
finance strategy to support the local financial sector to develop a competitive advantage in accessing and
channelling climate finance. To do this, however, the emphasis should be placed on greening the financial sector

as a whole, and not just developing a climate finance niche.

The reasons for this are multiple. Not only is the scale of the challenge such that countries cannot afford to
misallocate capital, particularly while domestic sources still make up the bulk of climate finance, but carbon lock-
in and a reluctance to allow stranded assets could jeopardise mitigation targets. Finance is a critical driver of the
low carbon transition, and without targeting finance effectively, climate goals will not be achieved. Equally
important, it is now well understood that neglecting to asses and price the risks inherent in climate change creates
systemic risk within financial systems (see, for example, TCFD (2017), Vermeulen et al (2018), Poloz et al (2019),
Giuzio et al (2019)). The Task Force on Climate-related Financial Disclosure has created a common language
for considering both physical and transition risk related to climate change. It is important that the
recommendations of the Task Force be mainstreamed into the South African financial sector to ensure that these
risks are understood and managed, to provide the information required to effectively deploy finance in a climate
compatible way (TCFD, 2017). Furthermore, as illustrated by the UK’s Green Finance Strategy, it is also important
that all local financial regulators recognise climate-related financial factors as part of their mandate and actively

monitor climate-related risk and exposure within the South African financial sector.

During the transition it is critical that the financial sector enables the redirection of funds from the high-carbon
activities that are no longer consistent with a just, sustainable and prosperous low carbon economy to the new

industries and activities that will underpin it.

5.5 Driving innovation, research, and skills for future value capture

Boosting innovation, research and skills is a crucial lever to increase South Africa’s international competitiveness,
and to ensure that higher-value economic activity spearheads future growth by becoming an ever-greater
proportion of GDP over time. The transitions required to support low-carbon development present clear
opportunities for the innovation, research, and skills agenda, particularly given that global compliance with Paris

implies a large, ongoing investment over decades.

South Africa’s existing research and industrial capabilities, as well as its natural resources, present a compelling
starting point for such an expansion. The national research agenda is largely guided by the priorities set by
national government and in particular the Department of Science and Innovation (DSI), as the national department

responsible for provision of leadership, an enabling environment and resources for science, technology and

54
innovation. With 17% of funding for the South African climate change research and technology development

system coming from international sources, international research agendas also have some impact on the local

agenda. The White Paper on Science, Technology and Innovation (STI) (DST, 2019) also emphasises the core

themes of inclusivity, transformation, and partnerships, and recognises the important role that STI would play in

mitigating and adapting to climate change impacts. The paper recognises the role of a circular economy in driving

the shift to a green economy by accelerating eco-innovation.

A range of existing research activities are already setting the basis for the low carbon transition. These include:

The Hydrogen South Africa (HySA) Research Programme, that aims to make South Africa a global player
in fuel cell technology, through prototyping, demonstration and commercialisation of fuel cell
technologies;

The Renewable Energy Hub and Spokes initiative aims to develop national technical capacity in wind,
solar photovoltaic and solar thermal power. Research capacity is built at various universities throughout
the country. Research focusses on specific individual components, as well as system design and
production.

The Lithium lon Battery Programme that was established to initiate the development of advanced energy
storage technologies which play an essential role regarding the integration of solar and wind power.
The South African Centre for Capture and Storage (SACCS) was established to drive the activities
required to realise commercial scale Carbon Capture and Storage in South Africa, towards sequestering
a portion of the emissions from coal-fired power plants, iron and steel, cement and coal gasification.
The Waste Research, Development and Innovation Roadmap implemented by the CSIR was developed
to assist DEA in realising the ambitions of the NWMS through research, science, technology and
innovation. If a recycling and circular economy is realised this will drastically reduce the volumes of waste

to landfill and mitigate GHG emissions.

Over time, the scale of the planning related to the low-carbon transition will increase, and further research and

innovation challenges will arise. Preliminary sectoral analyses have already suggested such specific research

and innovation challenge areas that will need to be addressed. Examples of future research direction include:

As mentioned in Section 4.1.2, the IRP proposes a set of research and analysis activities to be undertaken
to support the low carbon transition of the electricity supply sector. These include detailed studies on the

impact of gas supply options, the appropriate level of penetration of RE in the South African national grid,

55
the cost and economic benefits associated with other clean energy options as well as socio-economic
impacts of communities affected by the decommissioning of coal fired power stations.

e Developing robust data on the long-term implications of implementing mitigation policies and measures
across the sectors, where such information does not exist. Notable here are the transport, waste and
AFOLU sectors.

A rigorous analysis of South Africas competitiveness in the different commercial and industrial sectors which are
likely to present the greatest opportunities from the sustainable transformation should inform the specific support
provided to this agenda. This analysis should look across a spectrum of economic benefits, from value-chain

analysis of likely technology rollouts, to regional and global competitive advantages under different scenarios.

Key to the innovation, skills and value capture strategy is the idea of a 30-year transition. The planning approach
presented in Section 6 allows for a staged approach to building up the necessary policy environment, drive
investment, and train a diverse workforce while supporting entrepreneurial activity. Coupling this planning with
sectoral scenario analyses will help identify concrete areas of opportunity, for which additional work will be

required to fully flesh out plans.

5.6 Ensuring a just transition with jobs for all

South Africa’s transition to a low-carbon society and economy will have uneven socio-economic impacts. The
transition will bring about efficiencies, investment and growth, opening up many opportunities in new areas of
activity. However, activity will also reduce in areas linked with GHG emissions, leading to declining operations,
diminished returns for companies, and fewer jobs in specific sectors. Impacts will differ across scales, timeframes,
and locations. The South African government is committed to ensuring that the transition is just; that its negative
impacts are not disproportionally borne by the most vulnerable poor and working-class communities who are

simultaneously bearing the brunt of the physical impacts of climate change.

To ensure that government's commitment to a just transition is realised will require a clear vision around which
the various initiatives, policies, sectors, geographical areas and communities can organize. The vision being
developed by the National Planning Commission (NPC), through a consultative, bottom-up process, will help to

define such an end-state, together with pathways to achieve this in the key areas of land, water and energy.

Appropriate and sufficiently resourced plans and policies will be necessary. International examples exist of
initiatives to support workers and communities who currently depend on fossil fuel and other industries, on which

the South African government can draw. These include initiatives in training, re-tooling, relocation, early

56
retirement, and other forms of support. A number of such initiatives are in the planning or pilot phase, led by
various stakeholders. A broader macro-economic view is also important. Two key policy instruments are being
developed to manage the just transition to a low carbon economy: the National Employment Vulnerability
Assessment (NEVA), and Sector Jobs Resilience Plans (SURPs). The NEVA will assess the employment
characteristics of key economic sectors in the context of the low carbon transition. The SJRPs will be tailored to

address the job losses in each sector, together with future opportunities.

All policy measures targeting the low carbon transition should be aligned with the fulfilment of the country’s
developmental objectives, which include alleviating poverty and reducing inequality, creating sustainable jobs and
increasing the provision of basic services to all South Africans. In addition, specific policies and interventions will

be required to support vulnerable communities in particular locations and scales, at particular times.

5.7 Promoting sustainable development through education and culture

Education can be a key factor in promoting sustainable development, by helping people develop knowledge,
skills, values and behaviors which enhance their understanding and appreciation of how sustainability means a
better life for them and their communities. Specific actions range vary the education curriculum, and must also
include cultural and citizen awareness campaigns. Significant work is already underway globally to promote
education surrounding climate change and sustainable development, and best practices are available, such as
through the “Education for Sustainable Development’ program of UNESCO.'5 The concepts of economic

transformation, pathways, and just transition must also be included into the educational and cultural work.

South Africa should see the opportunity to obtain support for education for sustainable development as a core
element of its overall strategy to improve education, and so should urgently set about developing a

comprehensive, integrated approach to realising this opportunity.

5.8 Enhancing information and metrics

Ensuring availability of data is central to tracking the low carbon transition, and monitoring that this transition is
being achieved in a way that is just to all. South Africa has already implemented mandatory reporting regulations
to support reporting by emitters falling within certain emissions categories. Furthermore, the Department of

Environmental Affairs is in the process of establishing the national M&E system, which will be used to monitor

15 See http:/Avww.unesco.org/new/en/harare/about-this-office/single-
view/news/southern_africa_celebrates_awarding_of_unesco_japan_esd_priz/

57
implementation of mitigation actions by stakeholders across the economy and ultimately to the implementation of
this and subsequent versions of SA-LEDS.

Future work needs to ensure that data is collected in a coherent, consistent and transparent manner, and that the
“tight” data to support decision making and planning is collected — including towards informing future updates of
this strategy.

6 CONCLUDING REMARKS: PLANNING FOR IMPLEMENTATION

This strategy sets out a direction of travel for South Africa as we refine our low carbon emission development
pathway to meet our commitments to the international community and address our developmental
agenda/priorities and needs. We know that success will require decades of dedicated effort. Therefore, we
present this Strategy as a living document, the beginning of our journey towards ultimately reaching a net zero

carbon economy by 2050.

The first step will thus be to ensure national targets are aligned with the Paris Agreement, as stated in Section
5.1. Thereafter, planning teams with analytical and sectoral expertise will engage in detailed scenario work to
develop transformation pathways towards achieving the national targets (see discussion in Section 6.1 below).
Building a scenario is, however, not enough to plan for its delivery. The work of translating such a plan to policy
is a challenge which all Parties will have to grapple with over the coming months and years. South Africa aims to

inform rollout plans through the use of a dedicated change framework (Section 6.2).

SA-LEDS will thus be reviewed at least every five years or at an earlier date, should there be significant changes
in sectoral or national plans/programmes that can result in a big structural changes, growth or decay of the

economy and major global events that impact on its content or implementation.

6.1 Detailed sectoral work to explore transformation pathways

reduction, and market change. This work has already commenced in South Africa through a number of studies:

e The Greenhouse Gas Emission Mitigation Potential Analysis (MPA), the overall objective of which was

to conduct an updated, bottom-up assessment of mitigation potential in key economic sectors in order to

58
identify a set of viable options for reducing GHGs. Marginal abatement cost curves (MACCs) for key
sectors and subsectors were constructed. The MACCs provide estimates of mitigation potential and
marginal abatement costs for broad mitigation measures. Estimates of national mitigation potential have
been derived from the sectoral MACCs and ranked in terms of level of implementability at national level
for each of the technologies.

e The Policies and Measures (PAMs) analysis, which explored the impact of existing PAMs, many of which

were included in Section 4 of this document, on the emissions trajectory.

the latest science from the IPCC.

Based on the sectoral pathways work, which will identify the requirements of the different sectors, a cross-cutting
analysis of such pathways will help identify common needs. An aggregate understanding of the evolution over
time of such critical factors such as levels of capital investment, consumer prices of different energy options, and
requirements for skilled workers in various industries (increasing and decreasing), will set out the parameters for

the cross-cutting approaches detailed in Section 6.2.

6.2 Creation of policy package roadmaps across three phases
The likelihood of policy action leading to long-term transformation results would require the application of new

planning techniques.

Pathway planning has emerged as an analytical tool that can inform national policy development over time
towards objectives that sit beyond a typical policy horizon. Pathways aim to visualize the whole timespan between
the present and the time for which a target is set, seeking to establish what steps make sense now in the context
of reaching the long-term goal. When establishing potential pathways, the desired end-state should be linked to

the present, but by “backcasting” rather than forecasting. This means that requirements for intermediate steps

59
between today and the long-term goal are deduced not on the basis of how compatible they may be with the
current context, but rather in terms of what is required for the end-state to be achieved. This leads policy-makers
to consider the question “what would have to be true” regarding short and medium-term checkpoints, deriving the
answer from the evolution to the goal. Since many actions have long lead times to achieve full effect, backcasting

can help identify by when core changes must take place.

actions on a three-stage timeline. These stages are:

e Starting Right (to be completed prior to end of 2021 financial year)
e Turning the Corner (to begin in parallel with the Starting Right stage and continue to 2025)
e Massive Rollout (2025 to 2050)

The “Starting Right” stage will focus on actions relating to the current government administration, or perhaps also
address the initial years of the following one. The most important aspect of the “Starting Right” stage is to ensure
that a true transition is kicked off. On the one hand, rapid implementation must begin in all areas where pathways
to achieving the Paris Goals are already clear (such as investments in renewable energy power generation, solar
water heaters, etc) while on the other, steps taken will need to enable future action at scale, as much as (or
perhaps more than) drive immediate emissions reductions. Clearly, the “Starting Right” stage cannot be
successfully executed without a long-term pathways analysis to provide confidence on the Paris-compatibility of
implemented measures as well as the overall direction of travel. Indeed, the search for immediate emissions
reductions in the short-term can often lead to investments in technologies or business models which, while
emitting less than traditional options, are not on track to drive the large reductions demanded by the long-term
transformation. Because of this, avoiding decisions which will lead to emissions lock-in is a core priority of the

“Starting Right” stage.

The second stage, “Turning the Corner” would typically take five to seven years. This phase will begin to be
implemented in parallel with the “Starting Right” stage, where appropriate, and continue to 2025. This period is
decisive, since within it new decision and investment criteria are broadly applied, bringing about changes to the

day-to-day operation of many sectors of the economy at the same time. Resistance to change can become

60
challenging if not well handled, and must be anticipated and addressed with social acceptance and just transition
actions. It is at this stage that multiple policies will need to work in concert for the new technological options to
make economic sense for businesses and consumers. An overall understanding of the sectoral narratives of

change and how they collectively feed into the national vision will be core to the success of this stage.

“Massive rollout” is the final phase, in which the low-emissions climate resilient options have become the new
normal. The constant application of transformative action will drive large volumes of investment towards
transformational change. Perseverance on the application of all aspects of change will be required to avoid
imbalances or injustices which will compromise the change, and sectors which achieve important milestones must
not be allowed to become complacent, but rather contribute to the broader change by supporting areas of natural
synergy.

Examples of activities that might be taken during the three phases of implementation of the transition are shown
in Table 5. All along the way provision needs to be made for regular review of the Strategy and the implementation

plan, and M&E of implementation.

Table 5: The three phases of the just transition

e Start the process of developing long term plans for each sector, to avoid lock-in to emissions
intensive infrastructure and establish the basis for transformation at scale
e Develop approaches for allocation of Sectoral Emissions Targets (SETs) and carbon budgets

Starting Right to high emitting entities

and complete by
end of 2020/21
financial year)

(start immediately | ¢

Develop Sector Jobs Resilience Plans (SJRPs) to support the transition to the low carbon
economy and climate resilient society in a Just manner

Identify the institutional, legislative, finance and other changes required to achieve the
transformation

Develop an understanding of the relevant government decisions which need to be taken to
achieve the long-term plans

Develop a monitoring plan

Turning the corner
(start immediately,
as _—_ appropriate,
and complete by
2025)

Develop and begin to implement detailed transformation plans for each sector, which is
supported by the implementation of the SETs, carbon budgets and SJRPs

Develop investment pathways to support the transformation

Implement foundational changes to drive down the national trajectory

Implement the institutional changes to accelerate the rate of transformation and remove
barriers

Massive __ roll-out

(to 2050)

Roll-out the implementation plans for each sector along with measures to support changes
until they become the new reality
Refine strategies as required, to account for changes in technologies, society and markets

Successful rollout of the pathway across the three stages will thus require policy action to be taken in a
coordinated manner. It is helpful to present policies not as stand-alone actions but rather as parts of policy
packages, that is to say, combinations of measures which may include planning, regulatory, financial, and other
instruments to collectively drive towards the desired outcome, providing capabilities and overcoming barriers to

change. Complementarity and sequencing are both crucial to building effective policy packages.
Proposed components of policy packages could include those that focus on:

e Planning;
e Institutional / regulatory;
e Project implementation;
e Financing;
e Acceptance, skills and just transition; and
e Avoiding lock-in.
Policy packages should be built up in sequence over time to ensure the full implementation of the pathway, in the

form of a policy pathway which is required to implement the low-carbon transition.

62
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Bhorat, H. and Rooney, C., (2017). State of Manufacturing in South Africa. Development Policy Research Unit.
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Bischof-Niemz, T. & Creamer, T., (2019). South Africa's energy transition: a roadmap to a decarbonised. low-cost
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