The determinants of divestment from coal energy: the case of South Africa

The escalating urgency to address climate change and achieve net-zero emissions as per the 2016 Paris Agreement has placed the spotlight on financial institutions in South Africa divesting from coal. This trend is particularly significant in light of South Africa's heavy reliance on coal for both its economy and energy needs. The country's journey towards an energy transition is fraught with the complexities of ensuring a just transition, considering the dependence of numerous communities and workers on the coal sector. At present, the coal mines in the Mpumalanga province are the main suppliers to Eskom. In addition to this complexity is the inefficiency of Eskom, which has resulted in power shortages and high electricity costs, further entrenching the country's dependence on coal. The study aimed to explore two key research questions: i) what are the drivers and barriers that are influencing divestment behaviour from coal? and ii) what is the extent of divestment from coal by key players in the sector? The study investigated these questions using qualitative data obtained from interviews with experts. The findings point out several factors encouraging this shift away from coal: the impacts of climate change, inefficiencies in Eskom, concerns about reputation, the shift towards renewable energy, and demands for Black Economic Empowerment (BEE) compliance from Eskom. Conversely, numerous challenges impede this transition, including limited energy availability, the reliability of renewable energy for constant power supply, issues with Eskom's expertise and financial health, constraints on the power grid, political factors, fluctuations in coal prices, and long-term contracts for coal. The study uncovers a slow and only partial reduction in reliance on coal, shaped by a mix of institutional, structural, and commercial factors. Among these, climate change stands out as a key driver for reducing coal use, as agreed upon by all participants in the survey. However, the transition faces significant challenges, especially in Eskom's operations. In light of these challenges, South Africa might focus more on ensuring energy stability rather than fully pursuing its goals to reduce carbon emissions, to safeguard its economy. The country also faces the need for considerable investment in climate finance of approximately R535 billion annually from both public and private sources to fulfill its commitments to the 2016 Paris Agreement on climate change (de Aragão Fernandes, 2023). The findings of this study are crucial for stakeholders seeking to understand the progress and challenges of coal divestment in South Africa as the nation shifts towards a lower-carbon economy.

Grantor dc:publisher.institution

Graduate School of Business (GSB)

Year dc:date.issued

2024

Author dc:creator

• Shonayi, Charles

Advisor dc:contributor.advisor

• Alhassan, Abdul Latif

• climate change

Handle dc:identifier.uri

http://hdl.handle.net/11427/41339

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/41339