Turning the tide on carbon emissions: How Just Energy Transition Partnerships work

As climate change accelerates, the focus on slashing carbon emissions in poorer nations intensifies. Just Energy Transition Partnerships (JETPs) emerged as a beacon of hope, aiming to channel trillions from wealthier nations into middle-income economies for rapid decarbonisation. However, the journey to a greener future is fraught with challenges, from political turbulence to financial barriers and coal dependency. Can these partnerships effectively balance economic development, historic inequalities, and urgent climate action, or will they fall short of their lofty promise?

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Just Energy Transition Partnerships and How They Work

By Clara Ferreira Marques

To limit the damage caused by climate change, the world needs to rapidly reduce carbon dioxide emissions everywhere, not just in rich countries. To get there, poor and middle-income places will require trillions of dollars for replacing coal plants with cleaner energy, improving electrical grids and retraining workers, among other measures. Just Energy Transition Partnerships, or JETPs, are among the most high-profile financing mechanisms designed to funnel money from wealthy economies to some of the bigger developing-world emitters for the purpose of weaning off fossil fuels. South Africa signed the first agreement in 2021, and a handful of others are getting off the ground, including in Indonesia. But the process has been slow and politically fraught, raising the question of whether such flagship plans can be inclusive, effective and timely enough to fulfill their promise.

1. What is the big idea?

Cleaning up middle-income economies is crucial for the world to meet its climate targets, and the JETP model sees wealthier nations and private capital as part of the solution. The reasoning goes like this: These countries are balancing energy transition obligations against rising power demand, while also grappling with insufficient infrastructure, less robust government finances and acute coal dependence, along with other domestic priorities. They need financial support and incentives to continue to make decarbonization a priority on par with broader economic development. And they need to do it in a just way  â€” one that accounts for the historic advantages reaped by rich countries unencumbered by environmental considerations. JETPs, which first made headlines at the United Nations-led climate talks in Glasgow in 2021, aim to do all of that.

2. How much money are we talking about? 

The amounts needed are staggering. Investment in clean energy in emerging markets is less than a 10th of what’s required to keep the world on course to limit disastrous temperature increases, according to BloombergNEF. It estimates Indonesia alone will need as much as $3.5 trillion under the most dramatic scenario, where its net emissions are cut to zero by 2050. That sum will need to be front-loaded, with more invested in the earlier years. JETP and related initiatives, as they stand, cover at best a small fraction of that, but are designed to be catalysts, “crowding in” private finance to reach the far larger sums. But investment will have to rise fast. BNEF estimated late last year that over the previous decade, solar and wind investments in Indonesia made up just 0.03% of the $3.2 trillion global total.

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3. Why is coal such a focus here? 

Coal generated more than 36% of the world’s electricity in 2022, making it by far the single biggest source, according to Ember, a climate think tank. But while in Europe and the US coal plants are reaching the end of their useful life after decades in service, in Asia the average age is below 15 years. If those plants were allowed to run as long as in the West, they would rapidly exhaust the bulk of the carbon emissions left for the world to emit and still maintain global warming targets established in the Paris Agreement. 

4. How’s it going?

Progress on the first JETP, an $8.5 billion package for South Africa, provides a cautionary tale. Its old coal-fired plants still produce almost all of the country’s energy, a dilapidated fleet that contributes to economy-battering blackouts while also helping to make South Africa one of the world’s biggest producers of greenhouse gases. The UK, US, Germany, France and the European Union as a whole committed in 2022 to support the country’s plan, which included closing and re-purposing coal-fired plants owned by Eskom Holdings SOC Ltd., the state power utility, in tandem with developing renewable energy and strengthening power grids to handle the change. The government in Pretoria, already dealing with energy poverty â€” a lack of affordable, reliable, sustainable supply — and one of the highest unemployment rates in the world, embraced the idea of a “just transition.” However, political turbulence has hampered the process. Meanwhile, chronic, crippling power cuts have cooled public enthusiasm and driven energy security concerns to the fore. 

5. Where else is this happening?

Indonesia’s plan is similar in aim but not identical in structure to South Africa’s, in that it’s meant to incorporate large commercial institutions from the start. The $20 billion deal agreed to in 2022 at the Group of 20 leaders meeting in Bali is split equally between public and private finance. An investment plan is due to be complete mid-August, and some officials in Jakarta have already expressed fears that there won’t be enough in grants or other cheap funding, so that a substantial clean-up will come with a debt burden the country doesn’t wish to take on. Large banks, meanwhile, are grappling with hurdles like clauses that block them from investing in coal. And climate activists are fretting about loopholes that allow, in some cases, for big industrial users to continue to build new coal plants for their own needs. Elsewhere:

  • Vietnam agreed to a $15.5 billion package in December 2022 with funders, led by the EU and UK, to help exit coal and become carbon neutral by 2050.
  • Senegal in June became the fourth country to strike a deal, potentially worth $2.7 billion.
  • India is also included in discussions on the next wave of JETP deals, but New Delhi has resisted agreements to phase out coal, preferring instead to focus on attracting renewable energy investment.

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6. Can private capital really help solve the climate problem?

Meeting the world’s climate investment needs will unquestionably require private capital, but at least two hurdles are standing in the way of initiatives like the JETP attracting vast sums. The first is the underlying risk of investing in emerging markets, which are often less predictable than developed ones, and where transparency can fall short. Even green-minded institutions have fiduciary duties to shareholders that may prevent them from taking on those risks. The second is that many banks and institutions have policies that severely restrict or even prohibit investing in coal, even if the money is to close coal plants down early. The Glasgow Financial Alliance for Net Zero, an umbrella group of banks and asset managers that supports the JETP, launched a public consultation in June to help hammer out new guidelines that would change that. GFANZ is co-chaired by Mark Carney, a former governor of the Bank of England, and Michael Bloomberg, the founder of Bloomberg News parent Bloomberg LP. Both men are also UN special envoys in the field of climate change. 

7. Isn’t the Asian Development Bank doing something similar?  

Yes. The ADB has worked since 2021 on an Energy Transition Mechanism that also aims to accelerate the retirement of coal-fired plants and the development of renewable energy by blending commercial and concessional finance (below-market rate loans from institutional lenders). It began in Southeast Asia with Indonesia, the Philippines and Vietnam, and has now extended to Pakistan and Kazakhstan. The plan is smaller-scale than the JETP but can run in tandem with it. In Indonesia, a memorandum of understanding was signed last year to explore the early retirement of a coal-fired power plant in West Java, a proof-of-concept deal expected to usher others. An agreement is expected this year.

The Reference Shelf

  • A 2021 blog post from the financier who pioneered the ideas behind the Energy Transition Mechanism, Don Kanak, on accelerating the energy transition in developing economies.
  • An International Institute for Sustainable Development policy brief on South Africa’s JETP experience and what Indonesia can learn.
  • An article from Fulcrum.sg, published by the ISEAS Yusof Ishak Institute, on how Indonesia can leverage its advantages and grasp the energy transition.
  • Indonesia’s Institute for Essential Services Reform on the cost and benefit of tackling a pipeline of coal projects.
  • Previous QuickTakes on resilient coalgreen finance and transition finance.

–With assistance from Antony Sguazzin.

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