The role of institutional frameworks in promoting green bonds to finance carbon capture and storage in South Africa

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2022

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Ngwenya, Nomhle

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Abstract

The purpose of this research was to investigate the role of institutional frameworks in promoting green bonds to finance carbon capture and storage in South Africa. Globally, carbon capture and storage has been identified as a critical technology that if deployed on a wide-scale can mitigate high carbon emissions. In the context of South Africa, the technology has been included in several key national policies and government has embarked on long-term plans to implement the technology. It is argued that carbon capture and storage can play an important role as a transitional technology towards a low-carbon economy and also facilitate in the decarbonisation of the energy sector. In order for the technology to be successfully implemented in the country this will require significant investments in which this study explored the use of emerging climate finance mechanisms such as green bonds which could provide the necessary long-term investments. It is important to note that there was also an investigation of the use of institutional frameworks which are currently operating and what aspects could be reformed to promote and support green bonds to finance carbon capture and storage. The role of institutional frameworks has been identified as crucial in not only supporting the implementation of low-carbon technologies as aligned in the country’s climate change commitments but also in facilitating the transparency and accountability of long-term environmental investments. The context of this study involved data collection on a wider scale. Using both qualitative and quantitative research methods, data were collected to understand the views and perceptions of climate change and climate finance from experts on the potential of positioning carbon capture and storage to contribute to the energy transition as well as how it could be sustainably financed through green bonds. Through the use of semi- vi structured interviews and surveys, data were collected in the four provinces of South Africa where massive developments around carbon capture and storage and the growth of the green bond market were observed. These provinces included Gauteng, Kwa-Zulu Natal, Eastern Cape and the Western Cape. It was important that a mixed-method approach was adopted to ensure a deeper understanding and diverse representation of the research participants included in the study. The findings of this study have both practical and theoretical considerations. One of the biggest challenges to the implementation of carbon capture and storage is competing financial resources. The current financial resources are currently deployed to tackle the country’s pressing socio-economic issues such as healthcare, social welfare, education, poverty, unemployment amongst others. The data reveals that amidst the country’s socio-economic issues, mobilising financial resources that could contribute to climate finance for environmental projects in the country are constricted. This has resulted in the important role of partnerships with the private sector who have access to and are able to rapidly mobilise the much needed capital to sustainably finance the low-carbon transition in South Africa. Green bonds are an example of how private capital can be invested into large-scale environmental projects such as carbon capture and storage. The green bond market has grown exponentially since its first introduction in the global capital markets and has been regarded as an important financial mechanism for tackling climate change. In the context of South Africa, the green bond market is relatively smaller in comparison to other regional markets, however, several green bond issuances have proven promising for various climate and environmental related projects. This study has highlighted how green bonds have the potential in financing carbon capture and storage projects. As a vii result, high carbon emitting energy companies such as ESKOM as well as several mining companies can largely benefit from these issuances which can reduce their carbon tax and enable them to build up on their ESG (Environmental, Social, and Governance) portfolios. While it is important that the investment challenge to carbon capture and storage could be resolved, the findings clearly show the importance of institutional frameworks in which green bonds can be pursued and governed in South Africa. The data clearly shows that institutional frameworks such as laws, policies and frameworks are important in ensuring that transparency and accountability is adhered for green bonds. This is because governance through institutional frameworks plays a very important role in coordination of how private capital will be adequately used for national projects such as carbon capture and storage as well as strengthening public-private partnerships for future energy and decarbonisation plans. There are several key recommendations that emerged from the data that could assist government and industry leaders in financing the just energy transition. This includes a proactive approach from government to partner with business on how financial resources can be pooled specifically for national, regional and local climate change initiatives. Collaborations with the private sector with institutions such as the South African Reserve Bank, National Treasury, Department of Science and Innovation as well as the Department of Environment, Forestry and Fisheries could lead to greater discussions and inter-ministerial committees that are focused on how green bonds can support carbon capture and storage initiatives and how existing policies and frameworks can be adapted to make alternative financing inclusive. viii Some of the more poignant points are further discussed in this thesis in the different chapters presented.

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A thesis submitted in fulfilment of the academic requirements for the degree of Doctor of Philosophy in Geography and Environmental Studies to the Faculty of Science, School of Geography, Archaeology and Environmental Studies, University of the Witwatersrand, Johannesburg, 2022

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