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Greening of the Economy:

Facilitating investment to green the economy through joined-up

government

ERLN meeting Concept Note

6-7 November 2014

Moses Mabida, eThekwini

Introduction Greening the economy provides an opportunity to address unsustainable resource consumption and

environmental risk whilst leveraging both inclusive economic growth and social inclusion. There is

now a global race to establish economies that are sustainable, equitable and not dependant on the

use of non-renewable natural resources. Many countries, regions and cities have developed

strategies to green their economies. It is a growing focus for governmental and private sector

initiative. However, the instituional matrix within which this takes place adds considerable

complexity to these challenges. To implement these strategies requires a concerted effort to ensure

national, sub-national and city strategies work together. This means understanding how the

mandates within the different spheres of government both enable and, sometimes, conflict with the

desired outcomes. Hence a key focus in this ERLN on joined-up government.

“Greening the economy” as a concept is a broad catch-all used in many different ways and with

different emphases. Given the broadness of the topic, the event seeks to focus on two questions

particularly relevant to ERLN participants:

• How can we better facilitate a substantial increase in public and private sector investment in

greening the economy?

• How can we ensure that national, provincial and city government policy and action is aligned

and integrated to create optimal conditions for investment?

The transition framework Any major economic transition, such as a shift to a green economy, needs to happen at a number of

levels. A green economy shift would involve some combination of the following:

• A shift in the national economic rules of the game (e.g. renewable energy as a compulsory new

component of the energy mix) that leverage systemic changes (macro level)

• A move towards efficiency that typically requires behavioural change and can be facilitated

through changing the incentive system (meso level)

• The creation of opportunities for inclusion and development through job creation and

leveraging community benefits (micro level)

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Institutional context Both globally and in South Africa greening initiatives require joined-up initiatives. In a TIPS working

paper (August 2012) 1, the author notes,

"In many ways, South Africa’s institutional arrangements with respect to the green economy

reflect the challenges faced internationally of complex interconnections between a maze of

institutions.

The National Strategy for Sustainable Development and Action Plan (NSSD) is the

responsibility of the Department of Environmental Affairs (DEA), but the National Planning

Commission (NPC), a department of sustainable development in all but name, resides in the

Presidency (it however has advisory powers only).

The Economic Development Department (EDD) includes the green economy under its

formulation of a New Growth Path (NGP) for the country, but EDD only has direct control

over the two main state-run development finance institutions: the Development Bank of

Southern Africa (DBSA) and the Industrial Development Corporation (IDC). Support for

green industry falls under the Department of Trade and Industry (the DTI, but the DTI has to

rely on other departments to implement measures aimed at green industries. Environmental

fiscal reform (green taxes and subsidies which supports both green industries and the

greening of the economy as a whole) is under the mandate of the National Treasury (NT).

The DEA is responsible for the protection and restoration of ecosystems and the setting of

environmental standards (e.g. for pollution or emissions). The Department of Energy (DoE) is

in charge of issues relating to fossil fuels and renewable energy. The Department of Water

Affairs (which falls under the same ministry as the DEA) is responsible for issues relating to

water, and technology policy and research and development (R&D) are under the

Department of Science and Technology (DST).

Other departments (including for mining, agriculture, forestry, fisheries, transport, housing

and local government) all contribute to green economy activities and thereby to green jobs

at the sectoral level."

....and this does not even touch on provincial and municipal competencies where all this hits the

ground!

The Eastern Cape Department of Economic Development, Environmental Affairs and Tourism has

done a report titled, “Mapping of provincial and municipal permitting and authorisation processes

for IPP projects in the Eastern Cape”2. This report highlights how, in spite of very successful

nationally funded and conceived programmes, processes around how these projects get

implemented on the ground need to be considered. For example, Eskom has also been caught short

on the capacity of its infrastructure to support these projects, and re-zoning and environmental

impact assessments can add years to the approval process – but are key land-use and environmental

management tools.

1Gaylor Montmasson-Clair (August 2012). Working Paper Series 2012-02: Green Economy Policy Framework and

Employment Opportunity: A South African Case Study. TIPS 2 Available at http://www.greenenergy-ec.co.za/

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Joined-up government – exploring the tools In a paper by Sara Gobbelaar and Nigel Gywnne-Evans on supporting regional economic

development, the tools available to each sphere of government as related to economic development

were identified. Whilst the areas identified are specific to economic development in the regional

economy, the same kind of mapping needs to inform how joined-up government works togther

when implementing programmes aimed at greening the economy.

Financing and implementing projects In October 2013 GTAC, in partnership with the Western Cape Department of Environmental Affairs,

completed a series of research papers titled “Increasing Investment in Climate Change Related

Projects at the Sub National Level”. This series of papers will be made avaible to the ERLN members.

In the finance chapter, The South African Green Public Finance Mechanism Landscape was scoped

(see blow).

Civil Society Interventions

Equity Investors

Banks

Government, Donors & Development Institutions

Project Inception

DRYLANDS FUND - R6.6M

Detailed Business Plans

ACID MINE DRAINAGE BUDGET - R20.8M

Enabling Environment

Investment Proposition

Pre-Feasibilities

Feasibility Study

SUSTAINABLE SETLEMENTS FACILITY - Unfunded

RENEWABLE ENERGY IPP FUND

SWH REBATE [R2.5BN]

CLEAN TECHNOLOGY FUNDS $500M

NATIONAL GREEN FUND - Gross Fiscal Allocation R800M (with window for multi donor facility)

GEF - DBSA accreditation as NIE ($50m)

Adaptation Fund - SANBI Accreditation

Capital Raising

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The various funding instruments identified cover different phases of the project lifecycle. The

graphic below depicts the different project stages and stakeholders that are involved in the project

cycle (beginning at project inception) and the gaps that the different public finance mechanisms are

aiming to fill across this cycle. The situation has changed since publication, but it serves to illustrate

the variety of funding sources and where this comes in the project life-cycle.

Source: DBSA, 2011 (Quoted in: Towards a Financing Framework for Implementing Climate Change

Projects, GTAC and Western Cape Department of Department of Environmental Affairs &

Development Planning, 2013)

Looking at the challenges facing municipalities, the diagnostic phase of the same GTAC/WC DEAT

study used the McKinsey six ball model to scope the challenges.

Balls are strategically placed into a pyramid shape that has a strategic, tactical and an operational

layer of assets.

The strategic layer gives the system its meaning and purpose and informs the evolution and aims of

an entity. The PFMA, MFMA, strategy and legislation are classified as strategic assets. They give

provincial and local government their mandate, which determines the allocation and management

of tactical and operational assets (i.e. the other five balls).

Tactical decisions concern provincial and local government’s ability to respond proactively to socio-

economic, political and technological changes. The tactical layer of the pyramid consists of the

culture and process balls because they determine the level of ease and / or difficulty with which

operational assets are allocated to projects and hence a provincial government’s or municipality’s

responsiveness to challenges and opportunities. The operational layer of the pyramid comprises

tangible and intangible assets that a municipality uses to deliver goods and services.

Policy: Design principles

informing the nature and

functions of an entity

Policy

Strategy

Legislation

Culture

Culture: Accepted values,

norms, and beliefs guiding

behaviourProcess

Process : Institutionalised

procedures guiding the allocation,

disbursement & application of

resources

Human

Capital

Networks &

Organisation

(Intangible

Capital)

Infrastructure

(Tangible

Capital)

Infrastructure: Physical assets

controlled by a municipality

ranging from IT systems to

smart meters

Networks: Structure of an entity

and the patterns of interaction

between departments with an

entity and third parties

Human Capital :Quality of skills and

HR interventions that promote the

development and retention of skills

Foundation Assets Tactical Assets Strategic Asset

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In summary, this assessment highlighted a range of factors influencing investment in greening

projects, including:

1. Policy and Legislation

• Differing Interpretations (mandates, liability, development link, procurement challenges).

• Weak incentive environment, national coordination and support – weak “demand”.

• Need for stable policy to “crowd in” private finance and participation.

2. Process

• Transaction costs of lengthy processes (internal, intergovernmental, community

consultation).

• Lack of information on funding processes.

3. Culture

• Excessive risk averseness to innovation, short term approach.

• Leadership is key to drive complex projects.

• Focus on survival and replicating past practices.

• Large dependence on grants and off-budget instruments.

4. Financial

• High dependence on grants to finance, limits ability to scale up investments in CCR projects.

• Co-funding requirements require complex institutional instruments to manage raising funds

and project implementation & reporting.

5. Infrastructure

• Information to justify investments.

• Bias towards engineering (vs ecological) investment choices.

6. Organisational

• Silo approach, with social and engineering dominance.

• Dependence on project champions to drive resourcing and approval processes.

7. Human Capital

• Uneven with metros and large cities having some capacity.

• TA used to leverage international grants.

The six-ball model and the areas identified above provide a useful framework for considering the

challenges at a sub-national and national level. As Sarah Ward, Head of Energy and Climate Change

in the CoCT’s Environmental Resource Management Department notes, “There are major challenges

around significant job creating – and poverty alleviation - projects such as the ceilings retrofit

programme – spending grant funds in the municipal system can be very difficult when one is dealing

with private assets in particular. There are also major challenges to, for example, fundamentally

changing the way in which municipal services are delivered (eg. dual grey and potable water

systems) and extracting value from municipal services – methane/energy from landfill and from

sewerage systems etc). Staff capacity issues as well as municipal capacity and appetite to innovate

are often stumbling blocks.”

There are attempts to explore ways in which private sector investment can be facilitated. For

example, GreenCape is looking to establish a Green Finance Desk Manager with a view to developing

a network of financiers in the green economy space. The aim of the desk is to understand what

investors are looking for and to connect project developers and businesses with suitable sources of

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funding and advise them on what they need to have in place in order to increase their chances of

success. This is in its infancy.

International experience

In work done by the CSP and World Bank for the City of Johannesburg a range of challenges were

identified that are shared around the world, including the fact that in all cities, the “green economy”

is transversal within government, involving amongst others:

• Utilities (especially if government owned)

• Economic development agencies (from SME to urban regeneration)

• Natural resource agencies (e.g., parks agencies)

• Labour and skills departments

• Building regulation, procurement, finance

They note that even Copenhagen, perhaps the world’s leading “green city”, has struggled to

integrate SME promotion and SME-academia linkages. In the US, many cities struggle to align

utilities and budget needs with green programmes and attempts to override a department’s natural

incentives have rarely ended well. This means the need to work creatively and often requires

individuals within organisations who are able to stitch together internal alliances and support for

transversal projects and programmes. Even so, CFO and Municipal Managers, who have the politcal

stick of an unqualified audit hanging over their heads can baulk at projects that require innovation.

The CSP/World Bank work emphasises that careful, sustained and disciplined monitoring can be a

key tool. But there are limits to what will work. Almost every government the World Bank team

engages with complains about the difficulty of acting transversally, “and we know of no-one with a

“magic bullet””.

Energy as example

Electricity and energy is a key issue in South Africa at the moment, and creative ways of easing

energy demand whilst not negatively impacting growth, whilst also improving the supply sources are

key. But the transversal problem is a big challenge for municipal utilities because under normal

regulation, municiapl income is “coupled” to electricity sold. Municipal budgets – and thus

municipal services – come to depend on the amount of energy consumed (and thus sold) in the city

This creates a conflict between normal city services and a core component of the green economy

(resource efficiency). Experts describe it as “one of the hardest and most critical problems” in

developing a green economy. No definitive solution has been found, but many incremental

improvements have been tried and many have worked relatively well. These hinge on tariffs, power

purchasing requirements and other regulations to compensate (and possibly incentivise) utilities to

sell less.

Extensive regulatory experiments in the US (with 50 different electricity regimes) have yielded a

number of creative but not overly complex tariff systems that can adjust incentives and stimulate

efficiency programmes.

This is just one example of an area where creative ways of working across government and within

organisations poses both major challenges, but can also yield positive results.

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Objectives of the event In line with the above challenges, the purpose of the event is to explore how national, provincial and

local government can collaborate regionally to provide a coherent and joined-up action to facilitate

investment in the green economy.

The event will explore some of the following questions:

• What strategies and initiatives for greening the economy have worked and why? Where are the

blockages?

• How do we create ways of working (e.g. platforms) to deepen regional initiatives and

competitive positioning around greening the economy?

• What tools and mechanisms are needed at national, provincial and local levels to enable joined-

up working when it comes to facilitating public and private investment to drive the greening of

the economy?

• What are some of the good practice examples of innovation and investment facilitation?

Programme overview For the ERLN Greening the Economy event we have invited a range of government professionals and

practitioners who are directly involved in exploring these issues and shaping solutions. The intention

is that this will lay the basis for an on-going collaboration.

Broadly, Day 1 of the ERLN Greening the Economy event will offer a combination of framing

discussion and inputs (international and national frameworks and perspectives), and detailed

exploration of one specific programme, the Independent Power Producer programme, as a way of

exploring how this highly succesful programme unfolds across the institutional and physical

landscape.

It will then explore some specific examples thorugh profiling KZN initiatives, coupled with a site visit.

Day 2 will allow for broader discussion and engagement around the identified issues, using the

World Café format. This will enable detailed engagement with the key themes and build towards

defining programmes for action.

END