COP27: Financing A Just Transition--Lessons For India From South Africa

Just Energy Transition Deals, that ensure transition to renewable energy is inclusive and protects workforce employed in fossil fuel-related sectors, are one of the major topics of discussion at COP27 in Sharm-El-Sheikh in Egypt, and will play an important role in financing transition to renewable energy for some developing countries, such as India and Indonesia.

G7 countries and South Africa had signed a similar Just Energy Transition Partnership at COP26, that was widely perceived to be a key factor in South Africa's decision to reduce its dependence on coal. The deal with India is expected to be a major step in building the South African model, according to experts.

An analysis of South Africa's deal, signed last year, shows that India needs to think through the investment needed for a Just Transition before signing a deal, both at the level of the Union government and for the states, and negotiate a deal that works in its favour especially as its coal plants are not as old as South Africa's, experts said.

A just transition

Just Transition ensures that the leap towards decarbonisation and transition away from fossil fuels and towards renewable energy is socially and economically just. This would include, economic and industrial restructuring, reskilling of the workforce that was employed in the coal economy, repurposing of the land and guaranteeing responsible social and environmental practices, among other things, we reported in August 2021.

A Just Transition is a "systemic transition, not just about shutting down coal, or oil and gas, but how do you build a new economy and how do you use the funds or signal to the market that you are ready for the once-in-a-century opportunity to enter a new industrial age", said Kartikeya Singh, director of the Global Energy Futures Initiative at the California- based Climate Imperative Foundation that provides technical support and expertise on climate change.

Last year, at COP26, a significant development took place, when rich countries belonging to the G7 group announced initial finance to the tune of $8.5 billion to South Africa to help wean off coal and enable its transition to renewable energy.

"For developed countries, there is a lot of pressure domestically and internationally to take climate action. But it is also challenging for them to take bold climate action domestically because there is a large constituency of people, stakeholders and politicians who are deeply embedded in the fossil fuel economy," said Sandeep Pai, senior research lead with the Global Just Transition Network at the Washington DC-based Center for Strategic and International Studies, a policy research organisation with focus on international relations, energy, trade, finance and geo-strategy. "So investing and supporting a coal-dependent developing country to transition away from coal is a fantastic way for them [developed countries] to showcase climate leadership at a global stage."

The concept of 'Just Transition' has been increasingly featured in policy and political discourses at international level. For instance, India and the US have a bilateral Strategic Clean Energy Partnership that includes supporting a just energy transition to meet "climate and energy challenges". India and Germany also have bilateral agreements to support "just energy transition", which includes massive scale-up of renewable energy, green grids and storage facilities.

South African Partnership: Developments Since COP26

South Africa accepted the Just Energy Transition Partnership under a very different set of circumstances than India, said Pai.

"South Africa's coal fleet is very old--over 40 years, on average. It is a normal practice to run power plants over 40 years but requires major retrofitting which is costly," Pai told IndiaSpend. "South Africa's power utility company ESKOM, which holds a monopoly in the power sector, has been debt-ridden. So South Africa has been willing to participate in partnership."

However, a year since the South African partnership was announced, at COP27, the government reported in its investment plan that only 3.8% ($329 million of the $8.5 billion) of the finance will be in the form of grants, the rest of which (96%) will be in the form of concessional and commercial loans and guarantees. "Commercial loans are like standard market loans while concessional loans have a subsidised interest rate but it can come with conditions. For instance, conditions like giving contracts to certain companies etc.," said Pai.

A statement from the UK government published in November 2022, claimed that the initial "funding package (of $8.5 billion) will be disbursed through various mechanisms over the 5-year period". But South Africa's own assessment of the investment required says that it needs $98 billion for the first five years of the 20-year energy transition. This is more than 11 times the amount G7 countries have promised for the first five-year phase.

"What we learned from the South Africa experience is that you need to be ready. The COP presents a great opportunity to make big announcements but the reality was that there was more work that was done after the announcement… But there was no detailed-enough plan before announcement and details were filled up after the announcement," noted Singh

Over the last one year, the entire process of negotiations also helped South Africa think through the just transition ideas. As Pai told us "the negotiations helped South Africa brainstorm on investment plans, galvanise communities and groups with different ideas of just transition".

India has low interest in a finance particularly for just transition

Unlike South Africa, India's coal power plants are on average only 13 years old, according to 2020 data by the International Energy Agency. And 70% of India's energy needs are met by coal. India's coal demand is also projected to increase by 63% to 1.3-1.5 billion tonnes by 2030 despite a big push given to renewable-based energy sources, according to the Ministry of Coal in a statement from March 2022.

"India's coal sector is new and highly profitable. It does not have a debt problem like South Africa since state-owned banks fund the sector. So it is not bothered by foreign investment. India has never asked for just transition-specific finance, it always asked for climate finance more broadly. So the just energy transition partnership with India is largely driven by rich countries, India's interest so far has been very low," Pai said.

Nonetheless, such a deal will be a good way for India to start thinking ahead on just transition, with lessons from South Africa, Pai told us.

An Iforest report published in October 2022 noted that the existing policy framework in India around mine closure, labour, land transfer and repurposing and financial issues around energy transition are inadequate in the context of a "planned coal transition given the climate crisis".

"India needs a taskforce to have everyone on the same page--the power ministry, the MNRE [Ministry of New and Renewable Energy], the coal ministry, all the central PSU's, and the state government. Because, for India the story is about how you will fill the budgetary gap that will be the result of no longer depending on revenues from coal," said Singh. "How do we quantify how much money India needs, for instance, for pension funds to be secured for early retirement of workers or secure affordable electricity to retire some amount of coal-based electricity? A taskforce to think about these things is a prerequisite to then approach donors to support transition."

In 2021, the Ministry of Coal started deliberating on the formulation of a "Mine Closure Framework" emphasising institutional governance, people and communities, and environmental reclamation and land repurposing on the principles of just transition.

We reached out to the Ministry of External Affairs (MEA), Ministry of Power and Ministry of Coal for their comments. According to experts we spoke to, the Ministry of Power and MEA are negotiating the partnership and the Ministry of Coal is not fully involved in the negotiations, even when the major purpose of the deal is phasing down coal.

"For a country as large as India, there cannot be a single Just Energy Transition partnership. There need to be state-level partnerships, or transition finance mechanisms for large central public sector units to stay profitable and manage their transition from coal to alternative sectors," stated Singh. "So investment plans will need to be readied for all these entities."

Currently, there are very few examples of investments estimated for phasing down the coal sector in India. In 2019, the Gujarat Energy Research and Management Institute (GERMI) did an analysis of the roadmap for Gujarat's energy transition after the CM's announcement of no new coal power plants. The report noted an approximate cost of $3.5 billion for the state to retire its thermal power plants

"This cost would be much higher for states heavily invested in coal such as Jharkhand and Chattisgarh," said Singh. "We need similar assessments for other states as well."

The Just Transition deal is likely to be advanced in the upcoming days of the Conference. "India may also decide to wait for an opportune time and negotiate the deal in the lead up to the G20 conferences next year," said Singh of the Climate Imperative Foundation. India will host the G20, or Group of 20 countries, as its president from December 2022 to November 2023.

This story was produced with the support from Climate Tracker's COP27 Climate Justice Fellowship.

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