Just Energy Transition Partnerships: Financing a Leap from Coal to Clean Energy Equitably

Author

Norah Zhang

Executive Summary

  • The JETP is currently funding South Africa, Indonesia, and Vietnam, prioritizing countries with high emissions from coal generation.

  • Balancing loans and grants is crucial in ensuring that JETP recipients can finance their energy transitions effectively while avoiding excessive debt.

  • While the JETP is a significant step towards a cleaner energy transition, more efforts are needed beyond the program to promote renewable energy investments.

Introduction

The JETP (Just Energy Transition Partnerships) is a new financing cooperation mechanism designed to support heavily coal-dependent emerging economies. It enables these countries to define their own pathways for a just energy transition while addressing the social consequences of such a shift. This includes providing training and creating alternative job opportunities for affected workers, as well as promoting new economic opportunities for impacted communities.

This article analyzes the current development of the JETP and explores potential solutions for emerging economies to achieve a just energy transition. By examining the characteristics of funded countries and specific forms of financing, the article aims to identify practical strategies for leveraging the JETP to support sustainable development in these regions.

Key messages

1. JETP Current Development

The JETP has been funding South Africa, Indonesia, and Vietnam since 2021, with ongoing discussions with the Philippines, Senegal, and India. They are funded by the International Partners Group (IPG), including the EU, the UK, France, Germany, the US, Italy, Canada, Japan, Norway and Denmark (see Figure 1-1). However, most developing countries heavily reliant on coal are not yet involved due to the slow pace of global coal exit and alternative financing frameworks such as the EU Just Transition Mechanism. Since the JETP has been launched less than two years ago, it is expected that more developing countries will join in the future to accelerate their transitions to clean energy.

JETP’s pioneering recipients have a common feature: growing emissions from the energy sector due to increased coal generation, which amplifies the urgency to tackle climate change. Figure 1-2 demonstrates the striking similarity between current and prospective JETP recipient countries in terms of coal generation and electricity carbon emissions, indicating the need for coal power retirement to curb carbon emissions from coal-fired generation. Senegal stands out as an exception because its electricity generation is dominated by oil another high-emitting fossil energy source. It is essential to address the specific needs of each country and ensure a just transition towards cleaner energy sources to mitigate climate change’s negative impacts.

Figure 1-2: JETP recipients’ GHG Emissions from the Power Sector (left) and Electricity Generated from Coal (right)

The JETP’s recipients exhibit a resemblance in coal power generation and electricity sector emission patterns, with the exception of Senegal.

Sources: Our World in Data based on CAIT, P Statistical Review of World Energy & Ember | Latest Data: 2021 | Made by Norah Zhang

2. JETP Financial Instruments

South Africa, as the inaugural recipient of JETP, obtained $8.5 billion primarily from concessional and commercial loans from the Climate Investment Funds’ Accelerating Coal Transformation Program (CIF-ACT) and five IPG members, as illustrated in Figure 2. This funding flow provides a glimpse into the potential structure of JETP programs. While each funder has its preferred financing instruments, they all provide at least a modicum of grant or technical assistance ($330 million combined). It is essential to recognize the importance of balancing loans and grants to ensure that the JETP recipients can finance their energy transitions effectively while avoiding excessive debt.

Figure 2: Just Energy Transition Partnership Funds to South Africa

The CIF-ACT is the largest funder, with the majority of funding provided in the form of loans.

Source: UNFCCC COP26 Updates on JETP | Latest Data: 2022 | Made by Norah Zhang

3. Beyond the JETP: Cleaner Energy Investments

Energy investment is the key driver of the energy transition, as the JETP aims to address related social impact issues. In South Africa, Figure 3 illustrates the public investment projects in the energy sector over the past two decades. While some of the larger fossil energy projects have been contributed by China, the US, the International Bank for Reconstruction and Development (IBRD) and the African Development Bank (ABD), it is encouraging to see an increasing flow of renewable energy investments in recent years especially from Germany, Japan, and the Netherlands.

Figure 3: Foreign Public Energy Investments in South Africa

IBRD, China, the US, and ABD heavily invested in fossil energy projects while Germany and Japan invested more in renewables.

Source: IRENA Renewable Energy Finance Flows | Latest Data: 2020 | Made by Norah Zhang

Conclusion

The JETP presents a promising solution for emerging economies struggling with the challenge of transitioning from coal to cleaner energy sources. When supporting countries with growing emissions from the energy sector due to increased coal power, the JETP should balance its loans and grants to ensure effective financing and avoid excessive debt for the recipients. However, while the JETP is a significant step towards a cleaner energy transition, it is important to recognize that more efforts are needed beyond the program to promote renewable energy investments and achieve sustainable development in these regions.