The International Monetary Fund (IMF) has warned financially-constrained countries about the fiscal implications of the green transition, saying the current national objectives and policies could fail to deliver net zero, with catastrophic consequences.
This comes as South Africa is in the middle of a Just Energy Transition Programme (JETP) to accelerate the just transition and the decarbonisation of the electricity system after mobilising $8.5 billion, or R128bn, from rich countries.
IMF director of fiscal affairs Vitor Gaspar said yesterday that balancing public finances had become increasingly difficult for all countries as a result of growing demands for public spending, rising interest rates, high debts and deficit and political resistance to taxes.
During the release of the IMF’s Global Fiscal Monitor report, Gaspar said countries with limited fiscal space, low tax capacity, and expensive or non-existing access to market financing were facing large adaptation costs.
He said public policies should provide a framework that favoured private sector participation in investment and financing.
“In other words, large ambition gaps – the difference between countries’ national defined contribution and what's required for Paris Agreement goals – and policy gaps – the difference between national targets and outcomes achievable and the current policies – remain,” Gaspar said.
“The option of scaling up the present policy mix that relies on subsidies and public investments with a net zero is projected to increase public debt by 45 to 50 percentage points of GDP for both advanced and emerging economies by 2050.”
Gaspar said that compared with business as usual, the fiscal monitor showed that the combination of policy instruments could attenuate this most unpleasant trade-off.
He said carbon taxation was the central piece, but must be supplemented with measures to address other market failures and distributional concerns.
“Often countries with limited fiscal capacity, low tax revenues and restricting access to market financing face substantial adaptation costs.
“They should prioritise and increase the quality of public spending, for example, by eliminating fuel subsidies. They should also strengthen tax capacity by improving institutions and broadening the tax base.”
Meanwhile, South Africa’s deputy president, Paul Mashatile, has said that Africa must set the terms and the time frames of its own energy transition.
Delivering the keynote speech at the African Oil Week, Mashatile said the country recognised the need to reduce carbon emissions, but the government was also committed to economic development.
“Often, we get given resources or money, and we are told we need to transition within a certain period. We must say no to that. We must be able to look at our own needs and to set our own time frames. As Africa, we must keep the lights on during the transition,” Mashatile said.
Minister of Mineral Resources and Energy Gwede Mantashe also said there had to be an “African context” to the transition.
Mantashe noted that larger economies were still commissioning dozens of coal-fired power stations every year, even while they embarked on an energy transition.
“When you have a situation where 600 million African people do not have access to electricity, we have to put our people’s development needs first. The energy transition cannot be an imported concept that does not apply to our African realities,” Mantashe said.
“South Africa is operating only 14 coal-fired power stations. A country like China commissioned dozens of new coal-fired power stations in 2022 alone,” he said.
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