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What’s the state of play on Just Energy Transition Partnerships?

Expert Comment

Written by Sierd Hadley

Image credit:Jakarta, Indonesia. Image license:Revan Pratama/Unsplash

One of the most important announcements from COP27 so far is the deal struck between Indonesia and a group of international actors to provide $20 billion to support the transition to cleaner electricity generation. The latest Just Energy Transition Partnership or JETP builds on the excitement surrounding a similar agreement with South Africa launched at COP26 last year.

JETPs are perhaps the most ambitious efforts by advanced economies to support the rapid decarbonisation of large middle-income countries. There is also an expectation that similar JETPs could be established in other countries, with negotiations underway for India, Senegal and Viet Nam. But will JETPs be the model partnership for aligning national development and international climate goals that many believe?

Why was there so much excitement about South Africa’s JETP?

After over a decade of international climate finance, developing countries have little reason to believe that developed countries will provide the programmatic support they need to genuinely pursue low-carbon, climate-resilient development. Climate finance to date has typically been insufficient and fragmented, a project-by-project approach that does not add up to sectoral transformation.

Against this backdrop, South Africa’s JETP provided a signal that a sub-group of the world’s richest economies were committed partners in the collective global effort to fight climate change while supporting the economic and social aspirations of major emitters in the developing world. South Africa’s JETP was founded on a pledge of $8.5 billion to support the decarbonisation of South Africa’s failing power sector, which has been a drain on both the economy and the national budget while producing some of the most carbon-intensive electricity in the world.

For South Africans, the JETP potentially offers financial support for the challenging energy transition, a precondition for revitalising the economy and creating much-needed jobs. There is currently no other mechanism which would unlock the scale of international public finance needed to retire South Africa’s multiple coal-fired power plants, re-skill fossil fuel workers and support local economic development in coal mining regions.

For South Africa’s development partners, the JETP offers a relatively low-cost way to rapidly cut emissions and stimulate private investment in clean energy, electrification and other green technologies. But it won’t be free, and the Government of South Africa is already signalling its frustration with the small share of grants in the new arrangement – which amount to less than 3%.

How is the JETP model is being adapted to Indonesia?

The deal struck with Indonesia shows that the international community is keen to build on the momentum created by the JETP in South Africa. (It is possible that a deal with Viet Nam may still emerge later this year, while an announcement for India is expected at the G20 Summit in July.)

These are very different contexts from that in South Africa. The three Asian economies have experienced rapid economic growth in recent years, although the Covid-19 pandemic led to brief contractions and an increase in poverty. The average age of a power plant in is 10-15 years compared to around 30-40 years in South Africa.

Indonesia and India stand out among many emerging economies because they have a power surplus, at least in key regions where industry is concentrated. There is therefore less scope to decarbonise electricity by adding new clean energy: commercially viable coal plants (under the current, favourable regulatory regimes) will need to be closed and replaced with renewables to reduce the carbon intensity of power. These conditions reduce some of the immediate political and economic pressures for energy sector reform, at least when compared to South Africa or other nations facing energy shortages.

The commitments adopted in the Indonesian JETP reflect the country’s different circumstances, with an ambition to peak emissions from the energy sector earlier than business-as-usual projections rather than to rapidly decommission coal-fired power as renewables come online. Both the existing JETPs commit to expand the quantity of renewable energy, though Indonesia’s focuses on increasing the share of renewables while South Africa’s focuses on the substitution of renewables for coal.

The new JETPs also involve different partners. The International Partners Group (IPG) for South Africa’s JETP is coordinated by the UK, while negotiations with Indonesia were led by the United States and Japan. Indonesia is also attracting financial support from Japan, Denmark, Norway and New Zealand, who were not involved in South Africa. The different composition of the IPG shapes the politics of the JETP, and potentially has implications for its long-term viability – with Joko Widodo’s presidency guaranteed to end and Joe Biden facing elections in 2024.

What have we learnt from the first two JETPs?

JETPs are highly political. Direct negotiations between the host governments and their international development partners are integral to securing the scale of ambition needed to satisfy both sides. The relatively closed nature of those discussions has also been important for forging the partnership, even though it has been a source of dissatisfaction for many civil society groups.

Negotiations are slow and resource-intensive. The announcement of the South African and Indonesian JETPs were broad commitments responding to a specific political window, but the specifics of the financing terms, reform plans, coordination structures, etc. take time to pin down. A detailed investment plan was only published by the Government of South Africa the week before COP27 began, a year after the JETP was announced at COP26.

The “just” aspects will be hardest to agree and finance. Only half of the $20 billion pledged for Indonesia will come in the form of public financing, and just a small share is likely to be provided as grants. Grant financing pledged by South Africa’s IPG was reported at less than $20 million. While international loans, guarantees and private finance will help scale up infrastructure investment, grant (or highly concessional) financing is more important for easing the impact on those communities affected negatively by the economic transition. On the other hand, there is an argument to be made that international grant finance (which will be limited in supply) should be reserved to support adaptation and loss and damage in the poorest and most vulnerable countries, rather than climate action in middle-income countries with better domestic revenue generation and access to capital markets.

For further lessons for JETPs from development cooperation, please see our working paper: Country Platforms for Climate Action: Something Borrowed, Something New?

Could the JETP model be replicated at scale?

It is far too early to make definitive assessments of the two JETPs announced to date. Progress is certainly encouraging in terms of agreeing the broad direction of travel within the host countries and finding alignment between host countries and their development partners. But experience shows it can be difficult to sustain strong political partnerships in the longer term as priorities change. It will be especially challenging if development partners renege on their commitments, as the US has previously done in the climate arena and the UK in the development arena.

Signs are that the JETP model will not be replicated in all countries demanding support – at least in its current form. It is currently politically unthinkable to offer such partnerships to some of the countries defining themselves as ‘developing’ under the climate accords, such as China and Saudi Arabia. Similarly, there is little sign of a JETP for adaptation, which some are calling for. But even for countries which are more likely candidates for future JETPs, the process is too intensive for donor countries to manage bilaterally at scale.

For the JETP to become a more durable and less transactional model for climate finance, the next step may be stronger integration in the multilateral system. Bold reforms are mooted within both the multilateral development banks and the IMF. Could this include the institutionalisation of JETPs? Something to watch in 2023.