The scenario analysis presented in Section 2 shows that GDP in South Africa could be approximately 1.5% higher by 2035 under a higher climate ambition scenario consistent with its net-zero objective for 2050 relative to Current Policies. This result is conditional on the assumed energy investments being mobilised, roughly tripling annual energy system spending from its 2022 level by 2035 and on the modelled policy package being implemented as assumed, including a rise in effective carbon price and accelerated renewables deployment. Results also implicitly assume that political-economy challenges arising from regionally and sectorally concentrated adjustment costs can be addressed quickly enough not to delay policy implementation. In South Africa, meeting these conditions is not primarily a question of ambition. The emissions pathway underlying the Enhanced Policies scenario is close to what full implementation of South Africa's current energy plans would deliver, according to independent analysis (Marquard et al., 2025[17]). Realising the economic gains estimated in Section 2 in South Africa depends on overcoming institutional and political barriers to implementation, which stem from the difficulty of reconciling a faster energy transition with broader development objectives such as electricity security, economic growth, employment, fiscal sustainability and regional development. The following section examines a set of implementation challenges and sets out options to strengthen investment conditions and support NDC implementation. They focus on three sets of conditions: (i) the alignment of climate policies, fiscal planning and institutional responsibilities required to implement the NDC (Section 3.1); (ii) the sequencing and credibility of interdependent reforms and investments affecting project viability and investment risk (Section 3.2); and (iii) the political-economy dynamics that shape the feasibility, pace and durability of implementation (Section 3.3).
3. Improving investment conditions and capacity for NDC implementation in South Africa
Copy link to 3. Improving investment conditions and capacity for NDC implementation in South Africa3.1. Institutional co-ordination
Copy link to 3.1. Institutional co-ordinationSouth Africa has built a relatively comprehensive legal, institutional and planning framework for mitigation action, providing a solid foundation for the country’s low-carbon transition:
The Climate Change Act of 2024 establishes a national GHG emissions trajectory, sectoral emissions targets, carbon budgets, mandatory reporting for large emitters, enforcement penalties for non-compliance (Republic of South Africa, 2024[13]), as well as a comparatively strong Monitoring, Reporting and Verification (MRV) system. The Act also establishes obligations for climate change adaptation, including requirements for municipalities to develop and periodically update climate change response implementation plans.
The Presidential Climate Commission (PCC), now a statutory body under the Act with 25 commissioners representing government, labour, civil society, traditional leaders and business, provides advisory oversight (Republic of South Africa, 2024[13]). New commissioners were appointed in early 2026, completing the PCC's transition from an advisory panel to a fully constituted independent statutory body.
The 2025 Integrated Resource Plan (IRP 2025), the country’s latest national electricity plan, commits to no new coal and substantial renewable deployment (DEE, 2025[31]) (see Section 2.1.2).
The South African Renewable Energy Masterplan (SAREM), approved in 2025, sets out a framework for green industrialisation alongside the energy transition (DEE/DTIC/DSTI, 2025[64]).
The Electricity Regulation Amendment Act, effective since January 2025, ended Eskom's legal monopoly and the Eskom unbundling strategy, approved in December 2025, targets full separation into generation, transmission and distribution subsidiaries by 2030 (OECD, forthcoming[20]).
In practice, however, institutional mandates do not automatically imply implementation capacity. Responsibility for climate and energy policy is distributed across a wide set of institutions, each operating under different mandates and accountability structures (Table 1). The Climate Change Act establishes a framework for setting a national emissions trajectory and allocating sectoral emissions targets, but the mechanisms for translating these provisions are not yet matched by mechanisms for co-ordinating implementation across departments.
3.1.1. Challenge 1: Fragmented authority across government levels
The Department of Forestry, Fisheries and the Environment (DFFE) holds the climate mandate (Republic of South Africa, 2024[13]), but the policy decisions that most directly determine emission outcomes, above all in the energy sector but also in transport, industry and land use, sit elsewhere (Table 1). The IRP 2025, which governs long-term planning for South Africa's electricity sector and determines the future generation mix, is set by the Department of Electricity and Energy (DEE) (DEE, 2025[31]). Electricity procurement, including the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), is managed by a dedicated Independent Power Producer (IPP) Office, a joint DEE-Treasury-Development Bank of Southern Africa (DBSA) vehicle operating at arm's length from both the DFFE and Eskom (Eberhard and Naude, 2016[65]). The carbon tax is designed and administered by National Treasury (Republic of South Africa, 2019[38]; Republic of South Africa, 2024[39]). The JET is co-ordinated under the JET Project Management Unit (JET PMU) that provides a matchmaking mechanism connecting projects with funders and improving transparency on JETP financing through the JET Grants Register. An Inter-Ministerial Committee chaired by the Minister of Forestry, Fisheries and the Environment provides political direction and reports to Cabinet, while a Government Steering Committee chaired by the Director General in the Presidency oversees operational implementation (Republic of South Africa, 2023[11]).
The institutional separation of electricity and energy policy from mineral and petroleum resources has enabled greater focus on electricity sector reform but also risks policy fragmentation. While the DEE is primarily tasked with advancing electricity security and the energy transition, the DMPR retains responsibility for mining and petroleum development, creating potential misalignments.
Table 1. Key institutions and mandates for climate and energy policy in South Africa
Copy link to Table 1. Key institutions and mandates for climate and energy policy in South Africa|
Institution |
Core mandate |
Key instruments |
|---|---|---|
|
Presidential Climate Commission (PCC) |
Independent statutory advisory body on just transition and climate policy |
Recommendations to Cabinet, stakeholder co-ordination |
|
JET Project Management Unit (JET PMU) (Presidency) |
Co-ordination of JET implementation across six portfolios, mobilisation of finance and monitoring of progress |
JET Implementation Plan, JET Funding Platform (grant matchmaking), JET Grants Register and Quarterly Reports |
|
Department of Forestry, Fisheries and the Environment (DFFE) |
Climate change policy, environmental regulation, NDC development and reporting |
NDC, Climate Change Act, national GHG inventory |
|
Department of Electricity and Energy (DEE) |
Energy planning, electricity regulation, generation and transmission procurement |
IRP 2025, REIPPPP, SAREM (with DTIC and DSI) |
|
Eskom (under DEE) |
Electricity generation, transmission and distribution (unbundling into separate subsidiaries approved in December 2025, full separation targeted by 2030) |
Coal fleet operations, grid access (Budget Quotes), transmission planning |
|
Department of Mineral and Petroleum Resources (DMPR) |
Mineral resources governance, mine closure and rehabilitation, critical mineral strategy |
Mineral and Petroleum Resources Development Act (MPRDA) |
|
National Treasury |
Fiscal policy, public finance management, climate finance co-ordination |
Carbon tax, budget allocation, sovereign borrowing (including JETP concessional loans), government guarantees |
|
Department of Trade, Industry and Competition (DTIC) |
Industrial policy, trade, green industrialisation |
Sectoral master plans, green hydrogen commercialisation strategy |
|
Department of Science and Innovation (DSI) |
Research, technology development, innovation for green industrialisation |
Green Hydrogen Commercialisation Strategy, SAREM (with DEE and DTIC) |
|
Transnet |
Freight rail, ports and pipelines |
Rail and port infrastructure |
Note: REIPPPP stands for Renewable Energy Independent Power Producer Procurement Programme.
Source: Authors, based on policy documents.
In many countries, environment ministries hold climate mandates but may have limited influence relative to ministries holding key implementation levers (Guy, Shears and Meckling, 2023[66]), lacking the political weight to enforce cross-sectoral trade-offs. Split mandates between environment, energy and finance ministries are standard across OECD and non-OECD countries alike. South Africa has established formal intergovernmental and stakeholder co-ordination mechanisms for climate policy, alongside more recent institutional arrangements under the Climate Change Act and the JET. The DFFE formulates climate policy with key implementing departments and the Intergovernmental Committee on Climate Change brings together the relevant national and provincial departments and organised local government to co-ordinate the review and implementation of national climate change policy (Republic of South Africa, 2011[67]). Yet, the number of actors with implementation authority is large, spanning national departments, regulatory bodies, state-owned enterprises, the PCC, nine provinces and 257 municipalities, and formal co-ordination remains challenging. The gap is therefore not simply the availability of co-ordination structures, but their ability to translate policy alignment into timely cross-sector implementation, sequencing, resource allocation and accountability across institutions with distinct mandates.
A key challenge is therefore not only horizontal co-ordination across ministries and agencies, but also vertical co-ordination between national, provincial and local governments. National climate institutions have had limited success in embedding climate objectives in local decision-making, where implementation capacity is often weakest and climate priorities must compete with pressing development needs. Further strengthening communication channels between national climate institutions and subnational governments could help bridge the gap between policy design and implementation, ensuring that climate objectives are better aligned with local development priorities, capacity constraints and community needs.
3.1.2. Challenge 2: Episodic delivery dependent on political intervention
South Africa has so far relied on structures created outside line departments to advance on electricity sector reforms, JET investment and renewable procurement, often in response to crises. A challenge is how the capabilities and co-ordination functions of these exceptional structures can be sustained over time, so that the delivery speed and cross-departmental co-ordination they have achieved can be maintained beyond individual reform episodes.
Where line departments have struggled to respond to specific reform priorities, implementation has advanced through dedicated vehicles created by the Presidency. Operation Vulindlela, established in 2020 as a joint initiative of the Presidency and National Treasury, has accelerated reforms across electricity, water, transport and digital communications (OECD, 2025[6]). The JET PMU, located in the President's Project Management Office, co-ordinates implementation of the JET Investment Plan across six portfolios (Electricity, Mpumalanga Just Transition, New Energy Vehicle, Green Hydrogen, Skills, Municipal) (Republic of South Africa, 2023[11]). In parallel, two structural reforms have advanced the reform of the electricity sector. The Electricity Regulation Amendment Act, effective since January 2025, ended Eskom's legal monopoly and established a framework for a competitive electricity market, enabling multiple generators to sell power and setting the legal foundations for an independent Transmission System Operator (OECD, forthcoming[20]). The Eskom unbundling strategy, approved in December 2025, outlines the transformation of Eskom into a holding company with separate subsidiaries for generation, renewables, transmission and distribution, with full unbundling targeted by 2030 (OECD, forthcoming[20]).
These interventions have produced significant results. The REIPPPP bid prices fell by 46% for wind and 71% for solar PV across its first four bid windows, mobilising over ZAR 239 billion (~USD 14.8 billion) in private investment across its first six bid windows, with a seventh round attracting a further ZAR 31.4 billion (~USD 1.9 billion) (Department of Electricity and Energy, 2025[68]; OECD, forthcoming[20]). Yet the programme’s early history also shows that its implementation has been sensitive to changes in political and institutional support: between 2015 and 2018, the REIPPPP stalled when Eskom refused to sign power purchase agreements under political interference, costing South Africa approximately 5 GW of renewable capacity that could have eased subsequent supply constraints (Averchenkova, Gannon and Curran, 2019[69]; Meridian Economics, 2022[32]). Procurement resumed after 2018, following changes in Eskom management, which indicates that institutional capacity persisted despite temporary implementation constraints (Averchenkova, Gannon and Curran, 2019[69]).
The JET Project Management Unit (JET PMU) aims to apply a similar approach to the just transition, sitting in the Presidency with a mandate to co-ordinate delivery across departments. Early evidence points to growing operational traction, with funding allocated to specific projects or instrument lines on the JET Grants Register rising from USD 3.4 billion by end-2025 to USD 6.1 billion by March 2026 (JET PMU, 2025[70]; JET PMU, 2026[71]). These experiences indicate that, when institutional mandates, political backing and delivery mechanisms are aligned, South Africa has shown an ability to mobilise investment and implement reforms at scale. The REIPPPP and Operation Vulindlela illustrate the capacity of focused delivery vehicles to overcome co-ordination challenges and accelerate implementation. At the same time, the effectiveness of these initiatives has often depended on political backing rather than durable, system-wide arrangements.
3.1.3. Challenge 3: Aligning fiscal planning with climate objectives
Climate spending accounts for a small share of South Africa’s national budget and most climate-relevant spending is not identified as such. Of ZAR 1.8 trillion (~USD 100 billion) in average annual government expenditure, the tagging identified only ZAR 2.7 billion (~USD 150 million) as climate or green spending in 2020/21 (de Aragão Fernandes et al., 2023[12]).
National Treasury leads the climate budget tagging initiative. South Africa is one of few countries in Africa to have developed climate budget tagging, which allows climate objectives to be systematically integrated into fiscal planning (de Aragao Fernandes et al., 2025[72]). The Treasury is currently expanding the initial pilot to eight national departments (National Treasury of the Republic of South Africa, 2025[73]). Extending the tagging coverage across all national departments and sub-national levels of government could improve information on climate-relevant expenditure and support assessment of spending choices, alongside other development priorities and fiscal constraints.
National Treasury is to contribute to the creation of a ‘financial mechanism’ to fund South Africa’s climate change response. The Climate Change Act (2024) requires that such a mechanism is to be developed in consultation with the Minister of Finance (Republic of South Africa, 2024[13]), although the form of the mechanism and its funding sources remain unspecified.
National Treasury is establishing a Credit Guarantee Vehicle (CGV) to attract private investment into electricity transmission. Under this set-up, the CGV will guarantee payments to private investors who build and operate new transmission lines. It will start with a capital base of USD 500 million (~ZAR 8 billion) from development partners and Treasury, which will initially contribute first-loss capital of USD 100 million (~ZAR 1.6 billion) (World Bank, 2026[74]). The CGV aims to de-risk private investment in infrastructure and to close the investment gap to accelerate the grid expansion rates under South Africa's Transmission Development Plan. It illustrates that fiscal innovation for climate infrastructure is possible when institutional conditions are in place (Selvaraju S et al., 2025[75]).
Without costed NDC implementation plans from departments, climate commitments cannot be reflected in the Medium-Term Expenditure Framework and partial tagging coverage limits the ability to track what is already spent. These constraints sit alongside broader financing barriers (Box 1), including high and compounding costs of capital, structural gaps in financing instruments and a thin pipeline of bankable projects, which together limit South Africa's ability to mobilise investment at the scale NDC delivery requires and on which almost all of the GDP gain projected in Section 2 depends.
Box 1. Key financing constraints for NDC delivery in South Africa
Copy link to Box 1. Key financing constraints for NDC delivery in South AfricaWhile substantial investment is already being mobilised, important financing gaps remain in several priority areas, particularly adaptation, municipal infrastructure, transmission expansion and transport decarbonisation and hard-to-abate industry. Meeting South Africa's NDC2 requires investment well beyond current levels. The Government of South Africa estimates total mitigation investment needs of ZAR 3.47 trillion (USD 193 billion) and adaptation needs of ZAR 250 billion (USD 14 billion) over 2026 to 2035, equivalent to around ZAR 372 billion (USD 20.7 billion) per year (Government of South Africa, 2025[9]). Tracked annual climate finance flows, covering public and private, domestic and international finance for mitigation and adaptation averaged ZAR 188 billion (USD 10.5 billion) for 2022 to 2023, roughly half of the required level1 (de Aragao Fernandes et al., 2025[72]). South Africa faces a set of financing challenges that make it difficult to close that gap. In particular:
Limited fiscal space and competing public priorities. South Africa's macroeconomic constraints limit fiscal space for climate spending, a challenge common across emerging economies with high borrowing costs and competing social spending needs. Debt-servicing costs are projected to exceed spending on health, basic education or social development and the Eskom debt relief package has further narrowed available resources. These pressures increase the importance of using public resources strategically to leverage private capital.
High and compounding cost of capital. Investment risk operates at multiple layers: a sub-investment grade credit rating raises baseline borrowing costs; Eskom's financial fragility raises risk premiums for independent power producers; and policy uncertainty, permitting delays and grid connection bottlenecks add project-level costs. Currency risk compounds these pressures, increasing the effective cost of long-tenor international finance.
Structural gaps in financing instruments. Most domestic capital is short-to-medium term, while clean energy projects require financing horizons of fifteen to twenty years or more. South Africa has built de-risking arrangements for specific programmes, notably the government support framework behind the REIPPPP, the Infrastructure Fund’s blended finance mandate and the Credit Guarantee Vehicle being established for transmission. The Green Fund also provides a mix of grants, concessional loans, equity and guarantees for green projects. However, these instruments remain programme-specific or limited in scale relative to the financing gap. No arrangements of comparable scale exist for hard-to-abate industry, where technologies such as green hydrogen and carbon capture are not yet commercially viable and depend on access to low-cost renewable electricity.
Thin pipeline of bankable, investment-ready projects. The gap is particularly acute outside the power sector, in adaptation, municipal infrastructure and transport decarbonisation and industry decarbonisation. Municipalities face a double constraint: limited financial resources and limited capacity to structure projects that can attract and absorb available finance. In several sectors, project preparation and implementation capacity may be a more binding constraint than the availability of funding itself.
3.1.4. Potential options to strengthen institutional co-ordination for NDC2 implementation
To strengthen co-ordination across government bodies and levels, delivery capacity and fiscal alignment, the following options could be considered:
Improving cross-departmental co-ordination on NDC delivery under the Climate Change Act. The Act provides for co-ordination through sectoral emissions targets, with line ministers reporting annually to the Presidency, but implementation mechanisms remain at early stages. Linking the PCC’s independent progress assessments to the annual reporting on sectoral emissions targets and introducing a formal government response to the National Assembly, as under the UK Climate Change Act (United Kingdom, 2008[82]), could complement the executive co-ordination led by the Presidency and the DFFE and reduce the gap between climate mandates and sectoral implementation levers. In Ireland, ministers responsible for each sectoral emissions ceiling can be required to account for their sector’s performance before a parliamentary committee, following the annual reports of the independent Climate Change Advisory Council and the Environmental Protection Agency (Government of Ireland, 2021[83]).
Supporting the delivery capacity that dedicated vehicles have built. Operation Vulindlela, now in its second phase, the IPP Office and the JET PMU have produced results because they combine a dedicated political mandate with operational focus. Ensuring that these mechanisms are adequately resourced, aligned with the frameworks established under the Climate Change Act and with sectoral planning processes could consolidate their effectiveness over the longer term.
Increasing the visibility of climate-relevant spending in routine fiscal and budget processes. Further extending climate budget tagging across national and sub-national levels of government, where coverage remains partial (particularly in municipalities) and having departments develop costed NDC implementation plans for consideration in the Medium-Term Expenditure Framework would make climate commitments visible in public resource allocation and inform, without conditioning, budget decisions. The Climate Change Act's provision for a climate finance mechanism, prescribed in consultation with the Minister of Finance, could complement these processes once it comes into force.
3.2. Sequencing reforms and investments for NDC delivery
Copy link to 3.2. Sequencing reforms and investments for NDC deliveryThe effectiveness of South Africa’s climate and energy reforms depends not only on institutional co-ordination but on how interdependent reform and investment timelines are sequenced. Where reforms and investments that depend on one another do not progress in step, projects that look viable on paper can stall, costs increase and investment signals weaken (DBSA/NT/NPC/PCC, 2025[84]). South Africa's experience illustrates a cascading pattern. Industrial decarbonisation depends on access to reliable, affordable low-carbon power (OECD, 2025[25]; de Aragao Fernandes et al., 2025[72]). In turn, that depends on renewable energy deployment, which necessitates grid expansion. South Africa is estimated to need 14 000 km of new transmission lines by 2032, while installing approximately 500 km per year (OECD/UNDP, 2025[1]). This substantial expansion depends on transmission planning and wheeling frameworks being synchronised. However, these are all areas where regulatory frameworks could be improved (Terblanche et al., 2025[80]; DBSA/NT/NPC/PCC, 2025[84]).
3.2.1. Challenge 4: Transmission grid bottlenecks
Adequate transmission infrastructure is a key condition to achieving South Africa’s power generation targets. The IRP 2025 projects approximately 105 GW of new power generation capacity and grid expansion and a total investment programme of ZAR 2.23 trillion (~USD 125 billion) through 2039 to deliver it (DEE, 2025[31]). The plan envisions approximately 72 GW of new wind and solar PV, with near-term targets of 10.3 GW for solar PV and 7.3 GW for wind power by 2030 (DEE, 2025[31]). Meeting the near-term targets for wind and solar requires a step change in transmission infrastructure: a PwC/DBSA market sounding estimates that transmission expansion needs to accelerate to approximately five times the historical rate (Eskom, 2024[85]).
Despite recent reforms opening grid transmission to private investment, grid expansion remains constrained. The Independent Transmission Programme, launched in 2025, represents a first step toward opening transmission procurement to private participation. The Credit Guarantee Vehicle developed by National Treasury and the World Bank Group is expected to begin de-risking procurement under this programme in 2026 (OECD, forthcoming[20]). Grid planning and procurement nonetheless remain institutionally concentrated in the National Transmission Company of South Africa (NTCSA), which is executing 61 energy projects while facing its own funding, planning and procurement constraints (Eskom, 2024[85]). In addition, renewable-rich provinces, particularly the Northern Cape, Eastern Cape and Western Cape, are already at or near grid capacity, creating a physical bottleneck that delays project connection regardless of the pace of generation procurement (Terblanche et al., 2025[80]).
Small-scale distributed generation can in some locations expand without waiting for new transmission grid capacity, since it connects at distribution level and serves demand close to where it is produced. Utility-scale wind and solar potential is concentrated in the Cape provinces, where resources are strongest but regions with weaker utility-scale resources can still deploy renewables at small scale. Mpumalanga, for instance, has substantial untapped potential for small-scale embedded generation (OECD, forthcoming[20]). For small enterprises, own generation can reduce exposure to load-shedding and rising tariffs and installation and maintenance can create local business opportunities in the regions losing coal employment (OECD, forthcoming[20]).
The decarbonisation of South Africa's industrial sector, including steel, aluminium, cement, petrochemicals and ferroalloys, faces similar transmission constraints. Investment incentives for industrial decarbonisation hinge on whether the electricity system can deliver clean, reliable power at scale and key barriers remain, including insufficient transmission to mining and heavy-industry nodes (de Aragao Fernandes et al., 2025[72]). The scenario analysis in Section 2 reinforces the case for accelerating grid expansion. Under the Enhanced Policies scenario, energy efficiency gains, end-use electrification and increased renewable electricity capacity reduce South Africa's dependence on imported fossil fuels, lowering the economy's exposure to international price volatility. Realising the energy security benefits of electrification depends on transmission infrastructure keeping pace with generation deployment.
3.2.2. Challenge 5: From national plans to municipal delivery and finance
Similar sequencing challenges are visible at subnational levels. National climate plans and targets are adopted at the central level, but implementation of many climate investments, particularly in adaptation, municipal infrastructure and distributed energy, falls to provinces and municipalities. Project preparation capacity at the municipal level is limited: over 60% of municipalities have been classified as “dysfunctional” (Adom, Malivhadza and Simatele, 2025[86]) and institutional fragmentation across national, provincial and municipal spheres hampers the translation of policy into measurable outcomes. Municipal budgetary constraints mean that even concessional finance, loans offered on favourable terms by development banks and development partners, is difficult to access and deploy (National Treasury, 2025[27]). Strengthening local government capacity could help translate national plans into measurable outcomes.
A survey conducted in KwaZulu-Natal found that 87% of institutional respondents perceived limited financial resources as a severe constraint on local climate adaptation efforts, while 83% identified lack of research, training and capacity building as equally severe (Adom et al., 2024[87]). The project pipeline gap identified in Box 1 is most acute at this level, where adaptation investments and small-scale energy projects at the municipal level lack the technical support to get structured and the revenue models to make them bankable are still missing. At the same time, municipal engagement with the just energy transition is growing, reflecting the fact that municipalities are one of the six portfolio areas of South Africa’s Just Energy Transition Investment Plan. The South African Local Government Association (SALGA) has established a JET Municipal Council to co-ordinate local government participation and capacity-building initiatives such as GIZ-supported e-Learning programmes are reaching over 50 municipalities (OECD, forthcoming[20]). These efforts remain at early stages relative to the scale of the challenge but indicate emerging institutional pathways for improving subnational delivery. Operation Vulindlela’s Phase 2, which extends the reform delivery model to local government, spatial inequality and digital transformation, signals recognition at the Presidency level that subnational delivery constraints require the same focused intervention that energy sector reforms received in Phase 1.
The JET Investment Plan, launched in 2022, quantifies total investment needs for the just transition in South Africa and establishes a framework for deploying international and domestic finance across six portfolios (Republic of South Africa, 2023[10]). The JET Partnership secured USD 13.2 billion in international pledges by March 2026, of which approximately USD 6.1 billion had been allocated by the same time (JET PMU, 2026[71]). Disbursement of these funds has been constrained by a combination of fiscal, institutional and technical factors in the past. For example, the conditions attached to Eskom’s debt relief limited access to concessional finance for transmission, distribution and decommissioning (Republic of South Africa, 2023[11]). For municipal and adaptation investments, a key constraint is often project preparation. Municipalities often lack the capacity to produce the feasibility studies, cost estimates and revenue models that lenders require, so funds remain uncommitted even where financing is available.
3.2.3. Potential options to improve policy and investment sequencing for NDC2 implementation
To reduce sequencing misalignment and strengthen the investment case for NDC2 and net-zero delivery, building on the analysis above, the following options could be considered:
Accelerating transmission expansion to match the IRP 2025's generation timeline. This includes new grid infrastructure within renewable-rich provinces where grid capacity is exhausted. Scaling up private investment through the Independent Transmission Programme would allow grid expansion to proceed faster, with the near-term priority in the renewable-rich provinces where capacity is exhausted to meet the IRP 2025 generation targets. In parallel, supporting small-scale embedded generation, which does not depend on new transmission, would extend deployment to regions where utility-scale potential is lower, such as Mpumalanga and allow communities and small enterprises to directly benefit from it.
Investing in municipal and subnational project preparation capacity. Directing international climate finance and technical assistance toward feasibility studies, financial structuring, procurement support and the operational capacity to manage projects once financed would allow municipalities to absorb finance that is already available. This could build on the JET Investment Plan's dedicated municipalities portfolio and lessons from its early implementation.
3.3. Political economy of NDC delivery
Copy link to 3.3. Political economy of NDC deliveryThe scenario analysis in Section 2 projects that investment stimuli and energy efficiency gains more than offset costs of mitigation, leaving GDP and total energy sector employment slightly higher by 2035. However, aggregate gains mask income and job losses concentrated in a few sectors, regions and occupations, which generate the political-economy constraints this section examines. Many of the implementation challenges identified above persist because they involve difficult trade-offs, distributional consequences and, in some cases, institutional and capacity constraints. Efforts to accelerate implementation can create both winners and losers. Concentrated economic interests, distributional consequences and social coalitions shape the feasibility, sequencing and credibility of policy and investment decisions. Policy signals from different parts of government have at times pointed in different directions on the pace and scale of the low-carbon transition, adding a layer of uncertainty for investors that compounds the structural challenges examined in the preceding sections. In South Africa, these dynamics are particularly consequential because they interact with deep structural inequalities, high unemployment and long-standing regional disparities. The transition is further complicated by the heavy concentration of coal-dependent economic activity in Mpumalanga, where the economic and social costs of decarbonisation fall disproportionately on a relatively small number of communities, workers and municipalities. These distributional impacts help explain why debates over the pace of climate action remain politically sensitive (OECD, forthcoming[20]).
3.3.1. Challenge 6: Structural unemployment and concentrated job losses
South Africa enters the energy transition with the lowest employment rate and the highest unemployment rate among OECD and G20 countries (OECD, 2025[6]). At 31.4% in Q4 2025 (SSA, 2026[88]), unemployment largely reflects structural features of the economy, with youth unemployment reaching 60.1% in 2024 (OECD, 2025[6]). Unlike most emerging economies, where workers excluded from formal employment move into informal work, South Africans are more likely to remain unemployed altogether, reflecting deep barriers to labour market participation (OECD, 2025[6]). In a country where the economy already fails to absorb most of its working-age population, any policy perceived to put jobs at risk, even temporarily, meets strong resistance.
Coal-dependent regions, concentrated in the Nkangala and Gert Sibande districts of Mpumalanga, are the most exposed to job losses from the transition. Of the 100 000 workers employed directly in coal mining in 2024, 87% were located in southwestern Mpumalanga (OECD, forthcoming[20]). The broader coal value chain as a whole employs approximately 150 000 people, including mining, transport and power generation, whose jobs would be at risk over the course of the transition (Hermanus and Montmasson-Clair, 2021[28]; OECD, 2025[6]). Each mining job lost affects up to three others in the local economy, as reduced household spending feeds through to retail, services and transport businesses in mining-dependent towns (OECD, 2025[6]).
The technical and vocational education system, which would need to play a central role in reskilling, does not currently align its programmes with labour market needs and lacks teachers with industry experience (OECD, forthcoming[20]; OECD, 2025[6]). The experience at the Komati power station, South Africa's first formal coal plant closure under the JET framework, illustrated the consequences of getting the sequencing wrong: decommissioning proceeded before repurposing, repowering and community engagement had been implemented, leading workers and communities to report that the shutdown had been rushed while the replacement solutions were slow or lacking (Molepo, Aboalez and Mathaba, 2025[79]). The Komati experience also revealed that decommissioning affects not only formal workers with access to structured retraining or retirement benefits, but also informal workers who remain largely invisible in official planning processes and risk being excluded from economic alternatives during repurposing efforts (PCC, 2025[89]). These constraints on the workforce side interact with the planning and financial reasons coal retirement has been deferred, set out in Box 2.
The transition also creates distributional risks in the regions where activity is projected to increase. The Northern Cape and Eastern Cape host 54% and 21% of the renewable capacity built under the REIPPPP. The Eastern and Northern Cape, which have some of the country’s best solar and wind resources (Marquard et al., 2025[17]), have low levels of educational attainment (Stats SA, 2024[90]) and the Eastern Cape is among South Africa’s poorest provinces (Stats SA, 2025[91]). Without investments in skills at the local level, enterprise development and community participation, local residents risk being limited to low-value and temporary work while higher-value jobs and economic returns are redirected elsewhere. A just transition plan therefore could account for regions where green industrial activities are likely to take place, next to coal-dependent ones.
Box 2. Coal, path dependency and the interaction between policy, markets and planning
Copy link to Box 2. Coal, path dependency and the interaction between policy, markets and planningCoal-fired generation continues to shape electricity planning, operational decisions and emissions outcomes in South Africa. South Africa has not yet set an explicit target for ending coal use in the power sector. Legacy assets, revenue dependence, employment considerations (see Challenge 6) and energy security concerns create strong path dependency that constrains the pace and sequencing of electricity sector reform, even where long-term climate objectives are well articulated. Coal represented approximately 80% of South Africa's electricity mix in 2022 and the Eskom coal fleet alone employed approximately 10 000 workers directly, with a further 91 000 in coal mining and approximately 15 000 in associated transport activities. Many of South Africa's coal-fired power stations are approaching retirement as they have reached the end of their technical design life, with ageing infrastructure and rising operating costs making continued operation increasingly unfeasible. The transition is therefore driven as much by system reliability considerations as by climate policy objectives.
Market conditions have shifted in recent years. As declining prices under the REIPPPP indicate (see Section 3.1), renewable energy has become increasingly cost-competitive. Private investment in renewables has accelerated, including through corporate PPAs and distributed generation. At the same time, electricity planning assumptions and operational decisions have continued to accommodate extended coal utilisation, including through the IRP 2025's Policy Decision 3 on 'clean coal' technology demonstrations and the extension of coal plant operations at several stations to 2030. Postponing coal decommissioning timelines may create uncertainty about South Africa's low-carbon transition trajectory and contribute to a growing divergence between market behaviour and planning assumptions.
Over time, sustained shifts in market conditions, particularly continued private investment in lower-cost renewable generation, may increasingly constrain the operational and financial viability of coal assets. The DBSA/National Treasury/NPC/PCC energy transition scenarios study confirms that the pathway most aligned with climate commitments, the Green Industrialisation scenario, requires the lowest total system investment. These dynamics have the potential to reduce coal utilisation independently of formal policy decisions, creating bottom-up pressure on planning assumptions. Greater transparency around how these issues are managed, including how coal retirement schedules interact with replacement capacity timelines and just transition investments, can increase policy credibility and investment confidence.
3.3.2. Challenge 7: Participation, legitimacy and subnational governance
Understanding of just transition priorities among institutional actors has improved significantly over the past five years, supported by the PCC, the JET Framework and growing engagement by government, labour and civil society. The PCC is now a statutory body with 25 commissioners from government, labour, civil society, traditional leaders and business and its second mandate, with new commissioners appointed in early 2026, includes a stronger focus on connecting national climate governance with sub-national implementation and community engagement (OECD, forthcoming[20]). The Climate Change Act, passed in late 2024, establishes new legal obligations for municipalities to develop climate change response implementation plans, providing a framework for building local capacity over time.
Translating this institutional progress into broader public engagement remains a work in progress. While understanding of just transition issues has deepened among government, labour, business and civil society actors, the JETP's early implementation phase offered limited scope for broad-based input: the JET Investment Plan was released days before COP27 and labour unions have called for earlier and deeper engagement in future implementation cycles (Karg, Gupta and Chen, 2025[92]). At the community level, ethnographic fieldwork in Mpumalanga found that key transition concepts have not yet been translated into local languages such as Xitsonga or siSwati and that engagement has tended to begin with explaining already-prepared policies rather than involving communities from the problem-identification stage (Ledger, 2024[93]). These findings are consistent with the OECD survey of municipalities in Mpumalanga and the Western Cape, which found that awareness of climate change is increasing but is not yet central to local policy debates (OECD, forthcoming[20]). Engagement alone is unlikely to secure support, however, because the main concern in affected communities is the loss of livelihoods, which consultation cannot address. Support depends as much on whether economic alternatives materialise, which in turn depends in part on the terms of the finance available.
International support for South Africa's energy transition has grown since the JETP was announced at COP26 in 2021. Secured pledges under the JETP have increased from USD 8.5 billion to USD 13.2 billion by 2026, with European partners increasing their contributions (de Aragao Fernandes et al., 2025[72]). The partnership has overall helped elevate the social dimensions of the energy transition, particularly in coal-dependent regions (OECD, forthcoming[20]).
At the same time, the terms on which that finance arrived have strained domestic support. Grants accounted for 7.5% of the USD 13.2 billion pledged by international partners as of March 2026, with the majority structured as policy loans (31%), concessional loans (28%), commercial debt and equity (24%) and guarantees (10%) (JET PMU, 2026[71]). Policy loans, the largest component, are sovereign budget-support loans on terms well below South Africa’s market borrowing costs and they carry real fiscal value while reforms are implemented. As general budget support tied to policy reforms, however, they are not earmarked for the community-level investments, which can influence local support for the transition. Civil society groups have noted that transitioning Mpumalanga alone would cost more than five times the total grants pledged, while labour unions have called for earlier and deeper stakeholder engagement in implementation decisions (Karg, Gupta and Chen, 2025[92]). Communities affected by the closure of Komati, the first Eskom coal-fired power station to be decommissioned, are still waiting for much of the economic opportunity and alternative livelihoods that the transition was expected to deliver. Whether future decommissioning is accompanied by timely and adequately funded economic alternatives, particularly through grant financing for community-level investments, will be central to sustaining domestic support for the JETP.
3.3.3. Potential options to manage political-economy constraints and strengthen delivery capacity
To manage political-economy constraints and strengthen delivery capacity for NDC implementation, the following options could be considered:
Accelerating economic diversification in coal-dependent regions ahead of scheduled plant retirements. Coal plant closures are largely driven by end-of-life technical constraints, so timetables are often known in advance. Given the high concentration of coal-related employment and economic activity in parts of Mpumalanga, worker reskilling alone is unlikely to replace lost economic opportunities. Creating new sources of economic activity capable of generating sustainable employment at scale will depend on co-ordinated industrial, infrastructure, skills and regional development policies, alongside efforts to mobilise private investment. The earlier these foundations are put in place, the greater the likelihood that future plant closures can occur without severe social and economic disruption. Planning processes could also cover informal workers, who currently fall outside both retraining schemes and repurposing plans. Similar planning is needed in regions receiving new renewable investment, such as the Northern and Eastern Cape, so that local residents gain access to skilled and long-term jobs.
Matching financing instruments with what recipients can absorb. While large infrastructure projects can often absorb concessional loans, many of the actors expected to drive a just transition cannot. Community-level investments, economic diversification efforts and support for emerging green enterprises frequently require grant financing combined with long-term technical assistance. Strengthening local delivery institutions and financial intermediaries will therefore be as important as mobilising additional finance. Without mechanisms capable of translating international commitments into accessible funding for municipalities, communities and smaller enterprises, significant financing needs are likely to remain unmet despite high levels of pledged capital (OECD, forthcoming[20]).
Deepening community engagement before policy decisions are taken rather than after. Engagement could involve communities in identifying local priorities, co-creating common local solutions, such that transition plans reflect local priorities and retain the public support on which their implementation depends. Engagement does not replace economic alternatives, but alongside the diversification and financing options above, it would reduce the risk that future plant closures repeat the experience at Komati, where decommissioning proceeded before communities had been engaged or alternatives were in place.
Note
Copy link to Note← 1. The comparison is indicative only. Tracked flows are commitments in 2022–2023 and do not yet cover all sectors or levels of government, while the estimated NDC needs figure is an annual average 2026–2035.