Negotiations for two loans totalling €600 million (R10.9 billion) are at advanced stages, according to a Treasury official.
At a media briefing ahead of the tabling of the Medium-term Budget Policy Statement on Wednesday, Wanga Cibi, Treasury's acting chief director for liability management, shared that South Africa was seeking climate funding from Germany's development bank KfW and France's Agence Française de Développement.
"We are at an advanced stage, and we should be able to give out communication in a couple of weeks or so," said Cibi.
This is part of the $8.5 billion pledged by international partners – UK, US, EU, Germany and France – at COP26. In its Medium-term Budget Policy Statement, Treasury makes provision for the foreign loans.
The climate funding is part of the Just Energy Transition Partnership (JETP), which will help South Africa decarbonise its coal-intensive power sector, as well as develop green hydrogen and electric vehicle industry.
Separate from the JETP, Germany has also recently announced that €355 million or R6.4 billion would be made available to South Africa in the form of grants and loans over the next two years. Most of these funds will be used for climate action, News24 previously reported.
In his address, Finance Minister Enoch Godongwana noted that climate change is "reshaping the world around us".
"It poses physical risks to our people, infrastructure, the environment and production, including critical goods such as food," he added.
Godongwana noted that the negotiations for the JETP pledges are being finalised. Cabinet recently approved an investment plan to support the just transition. The funding is a combination of concessional loans and grants. The Presidential Climate Finance Task team, headed by Daniel Mminele, has been ironing out the details of the terms of the deal to ensure it does not deteriorate the fiscal position.
Treasury's policy statement indicates that the fiscal policy will "sift economic incentives" toward cleaner forms of energy. The carbon tax is one of the mechanisms the government is using to discourage greenhouse gas emissions. It is expected to increase significantly from 2023.
Treasury noted that a paper on design options for tax-free allowances under the carbon tax would be published for public comment and consultation. Since the first phase of the carbon tax was implemented in June 2019, businesses have had a range of tax allowances and exemptions to assist them in adjusting their operations.
Treasury said that support for climate change mitigation and adaptation measures would also "increasingly feature" in budget policy.
Noting the impact of the flooding in KwaZulu-Natal and Eastern Cape earlier this year, which warranted disaster relief funding, Treasury highlighted that South Africa would need to improve its resilience to extreme weather. Government had allocated R1 billion through two disaster relief grants for the affected provinces and municipalities.
The 2022/23 budget has also been adjusted with additional funding of R6.1 billion to support rebuilding and humanitarian efforts, the policy statement read. Further resources will be considered over the medium term.