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A NOVEL FINANCING MECHANISM FOR JUST ENERGY TRANSITION

Just Energy Transition Partnerships (JETPs) have emerged as a nascent financing cooperation mechanism with the primary objective of aiding heavily coal-dependent emerging economies in making a just energy transition. The overarching goal is to address the social consequences of this transition, ensuring new economic opportunities for affected workers and communities.

The inaugural JETP partnership was announced in 2021 at the 26th United Nations Climate Conference (COP 26) in Glasgow. South Africa became the first recipient, receiving a substantial USD 8.5 billion in financing from the governments of the UK, the US, France, Germany, and the EU. The G7 Leaders’ Communiqué in 2022 marked a significant milestone by announcing a second tranche of JETPs, with India, Indonesia, Senegal, and Vietnam identified as the next beneficiaries.

While JETPs were initially envisioned to facilitate the transition away from coal, the inclusion of Senegal, a country with insignificant coal usage, has broadened their scope to potentially apply to all fossil fuel-dependent nations.

The focus is on achieving the most ambitious targets within each country’s Nationally Determined Contribution, aligning with the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement.

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A MULTILATERAL FINANCING APPROACH

JETPs, operating with a relatively small group of actors, have the potential to make faster progress on the energy transition compared to the broader UN climate talks, where large oil and gas-producing countries might hinder agreements. 

 

The International Partnership Group (IPG) actively engages multilateral development banks, the private sector, sovereign wealth funds, and philanthropic foundations.

Funding tools include grants, subsidies, concessional loans, guarantees, export credits, and technical assistance.

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MAIN CRITICS AND THE GAS DILEMMA

Criticism from civil society groups has been directed at the lack of transparency in South Africa's first-ever JETP. The focus on new economic opportunities, such as green hydrogen and electric vehicles in South Africa, raises questions about the scope of actions.

Gas is presented as a transitional energy option; however, transitioning from coal to fossil gas through JETPs contradicts the sustainable and just transition that JETP models aim for. The global volatility in gas prices adds economic and environmental risks.

JETP countries possess significant wind and solar potential, making a leapfrog from coal to renewable energy a more economically secure and climate-friendly option.

The social advantages of renewables over fossil gas are evident, with cleaner energy investments generating more jobs, according to the United Nations Industrial Development Organization and the Global Green Growth Institute.

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SOUTH AFRICA'S JETP JOURNEY : FINANCIAL CHALLENGES AND PROJECT REALITIES

The focus of South Africa’ JETP is on completing the coal phase-out by 2050, with 10 coal-fired power plants expected to close in the coming years.

The financial requirements outlined in the JETP Implementation Plan, totaling USD 98 billion, far exceed the initial USD 8.5 billion announced in Glasgow. This emphasizes the broader and more realistic scope of the JETP IP, indicating the substantial changes needed in numerous countries for a just energy transition.

The funding structure, with less than 3% in grants and the majority in loans, has raised concerns about exacerbating the debt of recipient countries. The low level of subsidies also questions the "just" aspect of the transition, particularly in addressing local community concerns.

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SOUTH AFRICA CASE STUDY

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