A new approach to financing climate crisis actions is shaping up globally, and is confirmed in the most recent statement made by the G7 development ministers.
In Berlin last month, the ministers expressed their intention to set up public-private financing partnerships to support energy transition in specific countries in Africa and the Indo-Pacific region. The initiative is ostensibly aimed at helping large developing economies to move away from coal in their electricity systems and achieve the Paris climate goals. The G7 leaders are likely to bless the initiative at their forthcoming summit later this month.
Interestingly, the countries whose names are doing the rounds as the first possible candidates are Indonesia and India. Both are large users of coal in their energy system and are going to be the consecutive chairs of G20 in 2022 and 2023.
Should India get on board if finance is offered through a partnership of this nature?
The Just Energy Transition Partnership (JETP) initiative is apparently modelled after the South Africa JETP launched at the last climate conference in Glasgow with the support of the United Kingdom (UK), the United States (US), France, Germany, and the European Union (EU).
South Africa has been promised financing worth $8.5 billion in the first phase through mechanisms such as grants, loans and investments to meet its Nationally Determined Contribution (NDC) goals. JETP is yet to roll out and its modalities are still in the works. Its hurried adoption as the template for future NDC financing, therefore, raises a number of questions.
First, it is not clear why climate finance is being offered through JETP when an agreed international mechanism under the Paris Agreement exists? The primary vehicle of the Agreement is the Green Climate Fund (GCF), which has remained starved of funds ever since its inception in 2010. Although the Agreement does not bar bilateral, multilateral, and plurilateral channels for funding, the main problem is that such channels have generally pushed existing official aid and private investments into developing countries in the name of the climate crisis, with no additionality or concessionality. The additional benefits from JETP are not known.
{{/usCountry}}First, it is not clear why climate finance is being offered through JETP when an agreed international mechanism under the Paris Agreement exists? The primary vehicle of the Agreement is the Green Climate Fund (GCF), which has remained starved of funds ever since its inception in 2010. Although the Agreement does not bar bilateral, multilateral, and plurilateral channels for funding, the main problem is that such channels have generally pushed existing official aid and private investments into developing countries in the name of the climate crisis, with no additionality or concessionality. The additional benefits from JETP are not known.
{{/usCountry}}Second, there is no guarantee whether JETP will make equity and debt finance available to the target countries at the scale and in the manner required for meeting clean energy needs. The crucial issue in international climate finance is the cost at which the private international capital will flow into developing countries to support their NDCs.
Almost 80% of the renewable energy finance in India is currently mobilised as debt finance from its own domestic financial system. JETP may, therefore, do nothing to alter this landscape and reduce exposure of investors to volatile international financial markets. Instead, it may focus on persuading the destination countries to tweak their regulations and policies to increase the attractiveness of global private investors by spreading the risk throughout the domestic system.
Third, JETP may revive the ghost of coal phase-out that haunted the Glasgow conference. The hosts have openly stated that moving away from coal and transition to renewable energy is their goal. The track record of many of the developed countries like Australia, Canada, and even the US can be called into question in this regard.
India has already invested and installed more renewable energy capacity in the last 10 years than many of them. The real constraint is not creating more solar or wind capacity but integrating it with the grid and decarbonsing the coal-dependent industry where alternative fuels are not available. JETP donors that are targeting the phase-out of coal in the power sector are silent about access to alternative fuels and technologies needed for industrial decarbonisation.
Lastly, India has standing relationship with several of its investment and technology partners like the US, France and UK. India and the US launched bilateral clean energy financing platform last year when John Kerry, the US Special Envoy on Climate, visited India.
The UK and India have a bilateral Sustainable Finance Forum to help prepare projects that can seek support from the Green Growth Equity Fund in India set up by the UK. Similar fora exist with France, Germany and Japan. The government may consider whether it is worthwhile to negotiate access to capital and technology through these for a, rather scout for new.
Ultimately, the transition of Indian energy system towards clean energy may depend on several factors, not just renewable energy from solar and wind. Even while investments in future coal plants are static, energy transition will need to be worked out through a strategy for low-emission growth of various sectors of economy both in the short term and long term. Paris Agreement calls all economies to do so at the earliest and submit it for international support through multilateral and international channels. India may well do so and come to grips with the sectoral issues in decarbonisation where critical financing support is needed.
RR Rashmi is a former Special Secretary to the Government of India and currently Distinguished Fellow, The Energy and Resources Institute (TERI)
The views expressed are personal