The governing board of the Climate Investment Funds, one of the world’s largest multilateral funds for climate action in developing countries, endorsed new investment plans set to allocate $1 billion for a just transition from coal to clean power in South Africa and Indonesia.
The decision intends to equip each country with access to $500 million in concessional, risk-bearing capital from CIF’s Accelerating Coal Transition (CIF ACT) investment program to build momentum toward ambitious climate, energy, and development goals. The availability of finance will also directly support and catalyze funding for country platforms such as South Africa’s Just Energy Transition Partnership and similar initiatives in Indonesia.
The new investment plan paves the way for South Africa to retire several coal-fired power plants, replacing their generation capacity with clean power and energy storage systems. Workers and local communities affected by the transition, including women and other vulnerable groups, will benefit from resources to access new employment opportunities and influence decision-making.
The CIF ACT-supported decommissioning could prevent approximately 71 million tons of CO2 in potential GHG emissions, equivalent to taking nearly 14 million gasoline-powered cars off the road for a year.
CIF finance will also enhance governance and build capacity of provinces, municipalities, and local communities to manage just coal transitions. In parallel, the new capital will promote investment in community infrastructure, new revenue streams for small, medium-sized, and micro climate-smart businesses, and job creation through the scaling-up of energy efficiency and distributed generation programs.
87% of South Africa’s installed generation capacity comes from aging coal-fired power plants, responsible for nearly half of the country’s carbon dioxide emissions and frequent outages.
Last year, South Africa announced an ambitious climate plan which emphasized the decarbonization of its electricity sector.
Meanwhile, in Indonesia—the world’s largest coal exporter—CIF will partner with the state utility Perusahaan Listrik Negara (PLN) and the private sector to accelerate retirement of up to 2 gigawatts of coal-fired power by 5-10 years. The investment plan will also pilot solutions for repurposing decommissioned coal assets using solar farms, battery storage, and other climate-smart alternatives.
Indonesia’s investment plan, which CIF’s Trust Fund Committee endorsed in principle, will support just transition activities up and down the value chain, supporting capacity building, retraining, upskilling, and other economic regeneration programs for people and communities affected by the transition.
Coal is an abundant natural resource in Indonesia, underpinning most domestic electricity generation and many livelihoods. Even more challenging, Indonesia’s coal fleet is relatively young with potentially decades of economic life and harmful emissions ahead of them. Indonesia recently committed to reaching net-zero by 2060.
Both investment plans will feature a grant-making mechanism that promotes women’s climate leadership and supports their involvement in designing and implementing coal-to-clean transition strategies.
CIF ACT is the first multilateral effort to advance an equitable, inclusive shift away from coal power in developing countries. Launched at COP26 in Glasgow last year, CIF ACT addresses three critical dimensions of the coal transition: governance, people and communities, and infrastructure. South Africa, India, Indonesia, and the Philippines, representing over 15% of coal-related emissions globally, were selected as the first beneficiaries of the initiative.
In 2021, G7 leaders committed up to $2 billion to capitalize CIF ACT and related CIF energy transition initiatives. In fulfillment of this pledge, the United States recently announced a contribution of nearly $1 billion to CIF ACT.
CIF ACT investments are expected to mobilize billions of dollars in additional finance from partners including multilateral development banks (MDBs) and the private sector, reduce greenhouse gas emissions, improve air quality, and ensure a people-centric transition. They build on CIF’s nearly 15-year track record de-risking, piloting, and scaling transformational climate solutions in more than 70 developing countries.
MDBs have a critical role in helping countries meet their climate ambitions. As institutions they have relevant expertise, experience, networks, and safeguards to help developing countries spark lasting structural change. The World Bank is the lead implementing partner for CIF ACT in South Africa, working in partnership with the African Development Bank and International Finance Corporation (IFC). The CIF ACT contribution is part of a $2.6 billion package being mobilized from public and private sources by the South Africa government.
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The Asian Development Bank will be the primary implementing partner in Indonesia, working jointly with the World Bank Group.
Coal combustion is costly for the economy and public health. It is the single-largest source of global temperature increase and contributes to air pollution that causes over 4 million deaths every year.
Renewable energy is increasingly more cost-competitive than coal, with the number of uncompetitive coal plants expected to grow by over two-thirds globally by 2025. The transition to clean energy represents an enormous economic opportunity for developing countries and our shared climate future.
Minister of Forestry and Fisheries and Environmental Affairs of the Republic of South Africa, Barbara Creecy:
“A just energy transition that is procedurally just, equitable in sharing risks and opportunities, and one that is restorative, is a climate and developmental imperative that we can no longer ignore. I welcome the decision by the Climate Investment Funds’ governing body to approve $500 million in concessional resources under the ACT Investment Program. Noting that estimates indicate that over the next 8 years South Africa needs over $60 billion in investments to effect the transition, the CIF ACT finance will make a meaningful contribution towards South Africa walking down that ambitious pathway to a brighter future of our people, addressing our energy needs, promoting sustainable development and leaving no one behind.”
Minister of Finance of the Republic of Indonesia, Sri Mulyani Indrawati:
“As a country, we are strongly committed to transition away from coal to cleaner forms of energy. Any potential solution must reflect our country specific considerations like electricity over-supply, young fleet of coal plants, and just transition of our people. The Climate Investment Funds’ ACT Investment Program allows us that flexibility to deploy a financial toolkit to tackle these critical challenges holistically. I welcome the recent endorsement in principle of our ACT Investment Plan by the CIF governing body and look forward to our continued partnership to deliver on the critical energy transition agenda.”
CEO of the Climate Investment Funds, Mafalda Duarte:
“There is no winning our fight against climate change without a rapid, just transition away from coal, especially in the developing world, where the coal fleet still has many years of economic life and coal is deeply interwoven into societies and the livelihoods of millions. With these new investment plans, South Africa and Indonesia are stepping up and striving to show the world a new path forward: One in which we break our dependence on coal, support those most vulnerable in the transition, and unleash a new green economy all at the same time. The Climate Investment Funds has deep expertise in climate finance efforts, and we are proud to support developing countries across the globe in this urgent work.”
Source: Climate Investment Funds