Incentives for A Just Transition in Africa- Weaning off Fossil Fuel Subsidies

?“A healthy person who keeps begging for food is an insult to a generous farmer”. This proverb encapsulates what should be the correct context of fossil fuel subsidies – they must be transitionary. Economies must be weaned off such subsidies to unlock growth incentives for cleaner energy sources.

Why do I say so? Just imagine this – the average subsidization rate in Africa is estimated at 33% at the cost of between 3.8% - 5.8% of GDP by country. In 2020, the continent spent a whopping $27.7 billion in fossil fuel subsidies, a new 14-year low necessitated by the COVID-19 slump. Regarding the distribution of these subsidies , the transport and industrial energy sectors were the primary beneficiaries and domestic energy. Making diesel cheaper to ensure affordable energy generation and transportation and making kerosene cheaper to ensure the poor can afford cooking & lighting fuel is at the core of the continent’s subsidies. But we need to ask, what would happen if the continent dedicates just half of this amount – say $15billion – to clean energy incentives??

Africa and Just Transition

You will agree that we need to move to action on such a reality swiftly. We must note that Just Transition’s meaning to Africa is not the same as in other regions across the world. Hence the narrative must be contextualized with people at the centre. We must present both a realistic and lucrative alternative. This alternative is best summarised in one sentence – “incentives for a just transition”. Africa is already a net sink. It is home to 17% of the global population but is responsible for less than 4% of global emissions. The region’s economies are currently the least productive – up to 20times less productive than competitors in the global economy. For a region that needs to create no less than 12 – 15million jobs every year and is projected to face the most significant expansion of its working-age population of 450million more people or 70% in slightly over a decade from now, the urgency to accelerate economic productivity is a leading priority that will be with us for some time.

Incentives for a Just Transition- Driving a counter-narrative for fuel subsidies.

Therefore, the implication is that a counter-narrative for fuel subsidies, should promise a greater socioeconomic return than the status quo of intensified fossil fuel subsidies. In the energy sector, a just transition for Africa will require additional baseload energy generation that may not be renewable to unlock opportunities for investments in rapidly upscaling renewables. The continent taking a stepwise rather than drastic withdrawal of fossil subsidies represents an interesting proposition. For example , rather than continue subsidizing coal and diesel power generation, the continent must instead focus on natural gas subsidies for generating baseload power while transferring the amounts dedicated to subsidizing coal to incentivize clean, renewable sources. Natural gas represents a much cleaner alternative to coal & diesel fuel. While a coal power plant emits about 1 kg of CO2 per kilowatt-hour of electricity generated, a natural gas-fired plant emits only about 40% of this figure – which is 0.4 kg of CO2 per kilowatt-hour of power generated. Perusing such trade-offs is critical toward justly transitioning the continent.

An opportunity for solar and wind investments by 38 times,

Furthermore , if Africa were to double its electricity generation using only natural gas, that would allow the multiplication of solar and wind investments by 38 times, with only a 1% increase in global emissions. A just transition will require that Africa tap into such baseload power as it moves towards its emissions peak to create industries and enterprises that will create much-needed jobs by tapping more optimally into the global shift to net zero from a value addition dimension. As opposed to being a bottom feeder through export trade in extractives. For example, as the globe accelerates to transition to net-zero by 2050, the demand for lithium and cobalt, which are critical resources for solar and wind-turbine energy, is projected to grow by over 30times. This is an over 3000% growth by 2040. Unlike fossil fuels produced in many countries, such clean energy minerals are concentrated in a few countries.

For example, just one country in Africa – DRC – produced up to 70% of the world’s cobalt in 2019. For a region that holds such vital minerals of global public good on the one hand and facing a difficult task of accelerating inclusive economic growth on the other, the urgency to graduate from raw material exports to now start tapping value-added aspects – such as manufacture of value-added components for the solar industry using raw materials sourced from the continent – is at an all-time high. Such investments will call for baseload power that can be supplied by natural gas. Actualising this means the just transition must become a priority.