Just Energy Transition Partnerships: An opportunity to leapfrog from coal to clean energy

One year on from the announcement of the first "Just Energy Transition Partnership" (JETP) at the 26th UN Climate Change Conference of the Parties (COP 26) in Glasgow, how these types of innovative funding models will work, what they can achieve for climate change mitigation, and what pitfalls they must avoid are questions that are drawing increasing attention and scrutiny. With a new JETP announced in early November and four additional countries also set to take part in these mechanisms, now is a valuable time to take stock of the developments to date and what lessons can help inform these partnerships going forward. 

These JETPs are a nascent financing cooperation mechanism, the aims of which are to help a selection of heavily coal-dependent emerging economies make a just energy transition. The goal is to support these countries' self-defined pathways as they move away from coal production and consumption while doing so in a way that addresses the social consequences involved, such as by ensuring training and alternative job creation for affected workers and new economic opportunities for affected communities.

The first such JETP emerged from COP 26 in Glasgow, when South Africa was promised USD 8.5 billion in financing by France, Germany, the United Kingdom, the United States, and the European Union. A second tranche of countries announced as partners in the JETP approach included India, Indonesia, Vietnam, and Senegal. The donor pool has since been expanded to include multilateral development banks, national development banks, and development finance agencies. As they involve a relatively small group of actors, JETPs can potentially make much faster progress on the energy transition than what would be possible in the UN climate talks themselves, where large oil and gas-producing countries could veto agreement.

In November 2022 at COP 27 in Sharm el-Sheikh, South Africa published its JETP Implementation Plan (JETP IP), which laid out its priority investment requirements in the electricity, new energy vehicles, and green hydrogen sectors. The finance needed to achieve the aims of the JETP IP, at USD 98 billion, is far more than the USD 8.5 billion announced in Glasgow. This means the JETP IP is far broader, and therefore more realistic, in laying out the actual transition needs, but also indicates the scale of change needed in many countries to achieve a just energy transition. 

At the G20 leaders' summit in Bali, also in November, Indonesia's JETP deal was announced: USD 20 billion in finance over 3 to 5 years, half from the donors and half due from the private sector. The JETP laid out an emissions trajectory for the country and how to achieve it: peaking power sector emissions by 2030, not the previous 2037, and capping carbon dioxide emissions levels about a quarter lower than previously expected by the same time.

From Promise to Practice: Ensuring JETPs can deliver

While these announcements show real progress, the implementation of the JETPs will be the true test of their contribution. However, JETPs do have the potential, if their implementation follows the right principles, to extend the scope of climate finance to date because they are more explicitly co-focused on the social aspects of the energy transition and enabling a phase-down in fossil fuel use.

A new IISD policy brief argues that shifting from coal to fossil gas, through JETPs or indeed any international public finance, would not constitute the sustainable and just transition that the JETP model stands for. While there is pressure from some of the JETP countries—and this is something not totally ruled out in South Africa's JETP IP, and Senegal is keen to develop its gas fields—to make a bridging transition to gas, this is technically unnecessary, economically disadvantageous, and dangerous for the climate.

Russia's war in Ukraine has led to high gas prices around the world, which is emblematic of the general volatility of the global gas market. While South Africa, Indonesia, India, and Vietnam source a large proportion of their current coal use domestically, a transition to gas would expose their economies to this volatility. In contrast, leapfrogging from coal straight to wind and solar would enable them to make use of their own natural resources to provide their people with an economically secure source of energy.

Given the technological improvements in renewable and storage technologies, along with the massive cost reductions for these technologies over the past decade, renewable energy is increasingly cost-competitive. In some markets, these technologies are also cheaper than fossil gas infrastructure and the related running costs. Concerns about the supply variability of renewables can be addressed by pump storage and, increasingly, battery storage. These approaches are well suited to grid balancing, as they can be turned on or off in fractions of a second.

All of the JETP countries have considerable wind and solar potential. For example, the International Renewable Energy Agency found that "realistically, and cost-effectively, South Africa could supply 49% of its electricity mix from renewables by 2030" and Indonesia could meet its 31% renewable use goal, which has a 2050 target date, by 2030. However, Indonesia would need USD 16 billion in investments over that period to do so.

Renewable sources of energy are well suited to meeting energy access needs, which remains an issue for all JETP countries with the exception of Vietnam. According to World Bank figures, 36.9 million people in the JETP countries alone lack access to energy. Many people who lack access to modern energy live in rural areas and the modularity and feasibility for energy projects to be installed without needing expensive grid extensions. This makes wind and solar energy ideally suited to meeting the energy access needs that hamper countries' abilities to develop to their full potential. 

Renewables can also have greater social benefits than fossil gas. The United Nations Industrial Development Organization and the Global Green Growth Institute found that for Indonesia and South Africa respectively, investment of USD 1 million in fossil fuels could generate 22 and 33 jobs. In contrast, investing the same amount in clean energy could generate 103 and 66 jobs, respectively. There has not been much detail yet on how the "just" element will be addressed in the two most advanced JETPs. South Africa's JETP IP refers to the need for strategic planning for the skills needed to support economic diversification and place-based "Skills Development Zones" to provide appropriate training for workers so they can contribute within locally relevant value chains. Indonesia's November 2022 JETP statement spoke of "implementation of concrete actions achieving a just energy transition for workers and communities." More granularity will be needed for the planned energy transitions to be considered just.

The urgency of the challenge

The climate imperative to leapfrog from coal to clean energy is clear. Recent IISD analysis shows that "global gas power generation capacity should decrease by more than 55% by 2035 compared with 2020 levels" in order to try to limit average global temperature increases to 1.5°C, in line with the Paris Agreement target. 

Investing in any new long-lived gas infrastructure would create significant risks of stranded assets. This is because gas-fired power plants have a lifespan of over 40 years, and with renewables continuing to fall in price, and as governments increasingly implement climate regulations, the utilization rates of more expensive gas assets will decline. This means less revenue, thus reducing or negating returns on investment. Furthermore, investments in fossil gas now would simply delay the transition to clean energy in JETP countries and would, in turn, necessitate a second round of JETPs to achieve what could—and should—have been achieved the first time around.

There are no good technical, economic, or climate science arguments for the use of public money to support a transition to using gas as a bridge away from coal. Donor countries have agreed so far that JETP finance should be fossil free, but the fact that the JETP IPs that are being developed may not fully follow that principle means that civil society needs to be vigilant so that climate-damaging projects do not get funded. Renewables represent a credible technical alternative to fossil gas and are an approach that can better address other issues, such as energy access, while not endangering the climate further.

JETPs should serve as a beacon to the wider investment community that participating governments are committed to a global clean energy transition. As South Africa, Indonesia, and donors move toward putting these JETPs into practice, and with the prospect of further JETPs for other countries on the horizon, ensuring these partnerships deliver on their potential means avoiding false solutions like fossil gas, prioritizing renewables, and ensuring these efforts are informed by the latest available thinking on how to ensure a just transition. And these are principles that should guide all use of public finance for energy transition, not just the JETPs.