At COP28, parties committed to “accelerating efforts towards the phase-down of unabated coal power” and “transitioning away from fossil fuels in the energy systems, in a just, orderly and equitable manner […] so as to achieve net zero by 2050 in keeping with the science”.  Although the words “oil” and “gas” are not included, ambition has been raised regarding the accelerated phase down of coal, which still plays a large role in the world’s current energy mix. Coal produces significantly more carbon dioxide (CO2) per unit of energy produced than either oil or gas. Its rapid phase down is imperative for countries to achieve the collective goal of limiting global warming to 1.5’c (or well below 2’c).

Although several wealthy countries (including the UK) have committed to moving away from coal in recent years, it remains the main source of energy and a large source of employment in many low and middle-income developing countries who, despite accounting for two thirds of the global population, receive only one-fifth of global energy investment. As a result, such countries are unable to access capital needed to pay the high up-front cost of transitioning to clean energy, and are forced to continue relying on subsidised coal, oil, and gas. Developing countries in the Global South may not have the trillions required to invest in renewables infrastructure projects, upgrade electrical grids, and retrain an entire workforce within the timeframes required by the Paris Agreement. Such economy-wide transformation will require substantial financial assistance from developed countries. 

COP28 has seen repeated calls for innovative finance arrangements to facilitate the energy transition in developing nations. One such mechanism consists of Just Energy Transition Partnerships (JETPs), which have been described as one of the most significant energy transition financial mechanisms to have emerged globally to date.

What are JETPs?

JETPs are partnerships that facilitate the transfer of funds and support from wealthy economies to developing countries to facilitate the recipient country’s transition to renewable energy and end its reliance on fossil fuels, particularly coal. JETPs seek to foster a “just transition”, ensuring the energy transition is fair and inclusive and that countries, communities, and individuals (such as coal workers) dependent on fossil fuels are not left behind. To do so, JETPs offer bespoke solutions, for example, paying coal plant owners for closing plants early, compensating owners for foregone earnings, or investing in training to ensure local communities can benefit from the jobs and economic opportunities created by new renewables industries. 

How do JETPs work? 

JETPs pool donor funding from states, multilateral development banks, national development banks, development finance agencies and the private sector, such as HSBC and Citi Bank. As they involve a smaller number of actors (compared to other multilateral processes including COPs), JETPs have the potential to accelerate progress on the energy transition. Although recipient countries (many of whom already struggle with a high sovereign debt burden) would favour direct grant funding, JETP finance is provided mostly by concessional and commercial loans

Existing JETPs 

JETPs are a relatively new concept. The first was announced at COP26 in November 2021, when the US, EU, UK, France, and Germany committed to provide South Africa with an initial USD 8.5bn to help its economy transition away from coal. South Africa published its JETP Implementation Plan the following year at COP27, which laid out its priority investment requirements in the electricity, new energy vehicles and green hydrogen sectors. This is expected to prevent up to 1-1.5 gigatons of emissions into the atmosphere over the next 20 years, but comes with an estimated price tag of USD 98bn – substantially more than the USD 8.5bn announced in Glasgow.

Sovereign loans can be disbursed directly for general budget expenditure: in November, the National Treasury of South Africa secured a further EUR 500mn concessional loan from Germany and the European Investment Bank  has issued a EUR 200mn loan to the Development Bank of South Africa. However, the importance of targeted funding for community projects on the ground is recognised. International Partners Group is supporting the deployment of renewable energy projects in over 60 municipalities and 20% of grant funding is allocated to Just projects in South Africa.

A second JETP was announced to support Indonesia at the G20 summit in November 2022. The Indonesia JETP will mobilise USD 20bn in public and private funding for Indonesia to reduce coal use and reach net zero by 2050. The funds will be disbursed in the form of grants, concessional loans, market-rate loans, guarantees, private investments and technical assistance. 

The Vietnam JETP was launched in December 2022 with an initial tranche of USD 15.5bn to assist Vietnam with finance, technology, and capacity building, and to support regulatory reform to foster private investments in renewable energy. Further JETPs have been announced with India and Senegal and more countries are seeking to benefit from JETPs

JETPs at COP28

In a side event in the Blue Zone at COP28, Clyde & Co attended an event titled Safeguarding the “Just” in Just Energy Transition Partnerships (JETP) in South Africa & Indonesia”. The speakers acknowledged that a lot could be learned from the JETPs launched in the last two years:

  1. The importance of stakeholder engagement: speakers highlighted the challenge (but also the importance) of engaging with groups and individuals traditionally seen as losing out from the transition away from fossil fuels, such as coal-mining communities. In South Africa, where a single coal worker may have up to 10 family dependants, a just transition away from coal would require concerted efforts to ensure continued job security for that worker (for example, through retraining and upskilling programmes) as well as efforts to foster wider social change and economic opportunities (for example, job creation schemes for previously unemployed family members). Such transformative social change requires the consultation and involvement of all affected stakeholders, including workers, trade unions, local communities and Indigenous people. 
  2. The need to look beyond headline sums: while initial funding for JETPs (ranging between USD 8 and 20 billion) is impressive and promising, speakers stressed that this is just the start. At COP28, South African environment minister Barbara Creecy revealed that only 10% of the support needed to implement its JETP has been provided. Furthermore, only USD 200m of Indonesia’s JETP is made up of grant funding and Indonesia may have to provide USD 8.4bn of sovereign guarantees in order to access concessional loans under the terms of the JETP. 
  3. Further reform needed: JETPs have been criticised as another “debt trap” for developing economies and many have concerns about the pace of implementation. Speakers emphasised that, for funding in the just transition to be scaled up, the architecture of global finance institutions must be reformed. For example, Tiza Mafira, Director of the Climate Policy Initiative and Indonesian representative, proposed channelling JETP funds to national just transition funds, like the EU Just Transition Fund, which could enable targeted investment to support the upskilling of workers, provide systemic support for community-based renewables projects, and contribute to environmental restoration, thereby entrenching an equitable and inclusive energy transition.

Implementation, Implementation, Implementation 

With sufficient investment, the IEA finds that, by 2030 South Africa could supply 49% of its electricity mix from renewables and Indonesia could meet its 31% renewable use goal. JETPs present a great opportunity to unlock this potential by investing in local renewables projects while creating employment and providing electricity access to the 36.9 million people in JETP countries who currently lack access to energy. 

But, like with all climate solutions, the devil is in the detail, and the detail is in implementation. JETPs must be implemented much faster than we are currently seeing, and countries are calling for JETPs to avoid “false solutions” including fossil gas. Governments (of both donor and recipient countries) have a significant role to play in creating enabling regulatory environments to support “just” investments in renewables, which create opportunities for business and benefit communities at the same time.