Getting up to Speed on Just Energy Transition Partnerships (JETPs)

Summary:

Just Energy Transition Partnerships (JETPs) stand at the forefront of the global effort to tackle climate change by facilitating a shift from fossil fuels to renewable energy in developing economies. In essence, JETPs serve as a critical bridge, channelling funds and expertise from wealthier nations to those whose growth has been historically fuelled by carbon-intensive industries. The urgency of this transition cannot be overstated, as it underpins the global commitment to mitigate the impact of climate change and ensure an equitable energy future. Initiated at the UN climate conference in Glasgow in 2021, JETPs are not only mechanisms of support but are a testament to the power of international cooperation. They ensure that the journey toward a sustainable future does not sideline the economies that are most vulnerable to the costs of decarbonization.

Why JETPs Matter:

In confronting the formidable challenge of climate change, the strategic role of JETPs cannot be understated. These partnerships are instrumental in equalizing the playing field, allowing emerging economies heavily reliant on fossil fuels to transition effectively to green energy. They encapsulate a vision where progress in clean energy and climate resilience is a shared responsibility, affirming the principle that a move towards a greener planet must be inclusive and considerate of all countries, regardless of their economic status. This holistic approach not only accelerates the global transition to clean energy but also fortifies international solidarity in environmental stewardship

The Big Picture:

At the heart of JETPs lie the principles of equity and collaboration. The ‘Just’ in JETPs emphasizes the transition’s social equity, seeking to ensure that the workforce affected by the fading fossil fuel sector is not left behind, but rather re-skilled and presented with new, sustainable business opportunities. ‘Partnership’ underscores the bespoke nature of these agreements, tailored to meet each country’s unique requirements, with an active role for local leaders. JETPs envision a scenario where affluent nations and the private sector unite to address this pressing global challenge. The nations on the receiving end are often grappling with inadequate infrastructure and financial constraints, alongside an entrenched reliance on coal. They urgently require both a financial impetus and strategic incentives to prioritize decarbonization in tandem with other pressing economic objectives.

Historical Context and Expansion:

The concept of JETPs was brought to the world stage at COP 26 in Glasgow, marked by an unprecedented commitment of $8.5 billion from a consortium of global powers to support South Africa’s energy transition. This initial pact laid the groundwork for a series of future financial commitments, with the G7’s subsequent announcement expanding the reach of JETPs to include countries like India, Indonesia, Senegal, and Vietnam—diversifying the initiative beyond coal dependency alone. This expansion reflects a strategic adaptation of JETPs to a wider array of energy profiles, accommodating a variety of fossil fuel dependencies.

Why the Focus on Coal?

Coal’s dominance in the electricity sector presents a formidable barrier to achieving climate objectives. Developed nations are witnessing the phase-out of their ageing coal infrastructure, but in Asia, a young fleet of coal plants threatens to derail climate efforts. This presents a temporal challenge: if these plants persist as long as those in the advanced economies have, the repercussions for climate goals could be catastrophic. The imperative, therefore, is to expedite the retirement of these carbon-intensive giants.

The Backbone of JETPs:

JETPs are underpinned by a diverse coalition encompassing national governments, international bodies, innovators from the private sector, and civil society groups. They synergize to craft customized energy strategies for the participating countries, reflecting the unique demands and capacities of each nation. The image below describes the governance structure of South Africa’s JETP.

Image sourced from:Katherine Kramer, Making the Leap

How is it going?

Progress on the $8.5 billion JETP deal for South Africa serves as a cautionary example. Despite commitments from the UK, US, Germany, France, and the EU, the country’s reliance on old coal-fired plants persists, contributing to blackouts and high greenhouse gas emissions. Similarly, Indonesia’s $20 billion plan, structured to involve commercial institutions from the outset, faces challenges of debt burdens and investment hurdles due to restrictions on coal investments. Vietnam has also agreed to a $15.5 billion package to exit coal and achieve carbon neutrality by 2050.

Private capital plays a crucial role in addressing climate challenges, but hurdles remain for initiatives like JETPs. Investment risks in emerging markets and institutional policies against coal investment pose significant barriers. Efforts like the Glasgow Financial Alliance for Net Zero aim to address these challenges, but discussions continue to evolve. Senegal recently joined JETP deals, while India remains hesitant to phase out coal, preferring to focus on renewable energy investment.

Challenges abound…

The practical experiences of countries like South Africa, with its $8.5 billion JETP, exemplify the transformative potential and the intricate challenges inherent in such partnerships. The country’s dependence on outdated coal plants has contributed to severe energy shortages and a high carbon footprint. The path to transition is strewn with political and social obstacles, yet the persistent efforts underscore the critical need for focused investments.

South Africa heavily relies on coal for over 80% of its electricity generation, making it the 13th largest emitter globally. Eskom, the state utility, is responsible for 42% of the country’s emissions. Initially, Eskom proposed a $27 billion investment in energy infrastructure to transition away from coal. Later, it suggested that development finance institutions contribute $10 billion to close most coal-fired power plants by 2050. This proposal resulted in an $8.5 billion funding commitment for the Just Energy Transition Partnership (JETP), announced at COP26.

The transition away from coal poses significant challenges, as approximately 120,000 coal jobs are at risk, exacerbating South Africa’s already high unemployment rate of nearly 30%. However, Eskom estimates that the construction and operation of new energy infrastructure could create over 300,000 jobs.

There is a divide within the government regarding the role of fossil fuels in the energy transition. While Mineral Resources and Energy Minister Gwede Mantashe criticizes the commitment to end international public finance for fossil fuels, tensions exist between donors advocating for phasing out coal-fired power plants and the South African government, which seeks support for developing green hydrogen and electric vehicle production.

Is private capital the saviour?

The transition to a sustainable energy future is not just a public sector pursuit; the private sector’s influx of capital is indispensable in bridging the climate investment divide. However, the journey is not without its challenges. Risks typical of emerging markets—such as political volatility and nascent regulatory frameworks—can impede private investment. Existing policies may also restrict funding for transitional projects that include coal components, despite their overarching aim to phase out coal. Against this backdrop, initiatives like the Glasgow Financial Alliance for Net Zero are making strides to reconcile these barriers, crafting guidelines that enable more fluid investment flows and reflect a more profound financial sector commitment to climate action.

Financing the Transition to a Sustainable Future:

The Financial Landscape of JETPs:

The financial stakes for achieving our collective climate ambitions are sky-high. For example, Indonesia’s roadmap to a net-zero future by 2050 may require an eye-watering investment of $3.5 trillion, with a significant need for upfront capital. The funds earmarked for JETPs, while currently modest, are intended to act as a catalyst, with the aspiration of leveraging substantial private investments to fulfil these ambitious targets.

Blended Finance: A Synergistic Approach

Blended finance, a cornerstone of the JETP framework, seeks to maximize the impact of public funds by attracting private-sector investment. This model, advocated for over a decade, aims not only to enhance the value for government donors but also to deepen the private sector’s role in development finance. It is designed to ensure that public funds are allocated not just to viable commercial projects but also to those that bear significant risk or may not generate direct revenue, which is crucial for a just energy transition.

The JETP deals carry significant risks of funding what could be termed as ‘false solutions’ to the energy transition. One such risk involves investing in technologies that may not be viable or could even harm the environment. For instance, there’s a focus on expanding green hydrogen production for export, which is a central aspect of South Africa’s JETP ambitions. While green hydrogen can help reduce emissions in challenging sectors like heavy industry, the feasibility of shipping hydrogen internationally raises concerns due to its expected high costs and inefficiencies.

Image sourced from: Zero Carbon Analytics

Conclusion:

Just Energy Transition Partnerships (JETPs) represent a pivotal mechanism in the global fight against climate change, embodying principles of equity, collaboration, and shared responsibility. As evidenced by initiatives like South Africa’s $8.5 billion deal, JETPs hold promise in catalyzing transitions away from fossil fuels towards sustainable energy sources. However, challenges such as political tensions, economic constraints, and the need for private sector engagement underscore the complex landscape of energy transition. Despite these hurdles, the imperative for international cooperation remains clear: to ensure that no nation is left behind in the pursuit of a greener, more sustainable future. As the world continues to grapple with the urgency of climate action, JETPs stand as beacons of hope, demonstrating that through collective effort and strategic partnership, a just energy transition is not only possible but imperative for the well-being of present and future generations.

Refrences and how to get up to speed quickly:

1. International Institute for Sustainable Development (IISD). (No Date). “Just Energy Transition Partnerships: An opportunity to leapfrog from coal to clean energy.” Available at: [www.iisd.org] https://www.iisd.org/articles/just-energy-transition-partnerships-an-opportunity-leapfrog-coal-clean-energy

2. Atlantic Council. (No Date). “Just Energy Transition Partnerships: Will COP27 deliver for emerging economies?” Available at: [www.atlanticcouncil.org]  https://www.atlanticcouncil.org/in-depth-research-reports/report/just-energy-transition-partnerships-will-cop27-deliver-for-emerging-economies/

3.Edelman Global Advisory. (2023). “Five Facts to Know: Just Energy Transition Partnerships.” Available at: [www.edelmanglobaladvisory.com] https://www.edelmanglobaladvisory.com/insights/five-facts-to-know-just-energy-transition-partnerships

4.Smith, J. (2023). Green | Quicktake: Just Energy Transition Partnerships and How They Work. Bloomberg, [online] Available at: https://www.bloomberg.com/news/articles/2023-08-15/what-are-just-energy-transition-partnerships-jetps-and-how-do-they-work?embedded-checkout=true

5.A 2021 Blog Post by Don Kanak: This post discusses the ideas behind the Energy Transition Mechanism, focusing on accelerating the energy transition in developing economies. https://www.weforum.org/agenda/2021/01/how-to-accelerate-the-energy-transition-in-developing-economies/

6.International Institute for Sustainable Development Policy Brief: This brief covers South Africa’s experience with Just Energy Transition Partnerships (JETP) and insights that Indonesia can learn from it https://www.iisd.org/publications/brief/indonesia-south-africa-jetp-lessons

7.The Just Energy Transition Partnership’, a plan to fund South Africa’s transition away from coal https://youtu.be/ugw1EJ7lULo?si=aVt5_MFkLv2KsK9W

8.The 6 key elements of a just energy transition https://youtu.be/ugw1EJ7lULo?si=aVt5_MFkLv2KsK9W