Just Energy Transition – A Buzz or a Reality?

By Dr. Reem El Sherif and Ruusa Nandago

The Just Energy Transition (JET), a concept that has been buzzing in the world’s corridors, is nothing new and was initially coined in the 1980s. With that, one must ask – why are we hearing more about it now? What does it mean?

As pressure mounts to achieve the Paris Agreement goal to limit global warming to 1.5 degrees Celsius or less countries, especially developing nations, are tactfully thinking about the socio-economic implications that an abrupt change to greener and cleaner economies could bear while facing the dual pressure of boiling socio-economic risks. Namibia, for example, is a net sink economy while at the same time faces substantial socio-economic challenges arising from the triple challenge of unemployment, inequality and poverty.

This includes a high unemployment rate of 33.4%, the second highest inequality in the world with a gini coefficient of 59.1 and worrying levels of multidimensional poverty. According to the Namibia Statistics Agency (NSA), 43.3% of the Namibian population is multidimensionally poor across various dimensions including education, sanitation, housing and health amongst others.

However, JET provides light at the end of the tunnel for developing countries, such as Namibia, to be able to balance the climate and socio-economic goals. While there are many variations of what JET means, there is consensus that moving to greener and cleaner economies should be fair, inclusive and should leave no one behind. Ensuring nobody is left behind can be done through both direct and indirect channels. An example of a direct channel is ensuring that local content for fossil fuel related activity is well enforced to stimulate domestic entrepreneurial activity alongside the foreign direct investment that the country will attract.

An indirect way is through the fiscus.  Estimates are that if current estimated volumetrics of oil prove to be commercially viable, fiscal revenue could double. These revenues should be channelled towards the government’s diversification agenda and drive investment into sectors such as infrastructure, agriculture, real estate and telecoms. For individuals not captured in the direct and indirect benefits, fossil fuel revenues can assist the government in widening the social safety net especially for unemployed, able-bodied adults who are currently not captured in the social welfare system.

Additionally, a sovereign wealth fund will ensure that the benefits reaped are intergenerational, such that they extend beyond the short and medium term. At the same time, these revenues can be used to fund the transition to a green economy by investing in sectors such as green hydrogen and renewable energy projects.   

In this regard, another commonly held debate is whether this transition poses any sort of trade-offs. Can both climate and social goals be achieved by Namibia simultaneously? Or does one come at the cost of another? To understand this, a clear pathway and stakeholder mapping needs to be conducted to identify what the transition roadmap looks like, who are the stakeholders that are affected and how are they affected. From there, a clear sequencing needs to occur in terms of the appropriate actions to be taken.

Thinking in the frame of sequencing rather than trade-offs truly ensures that no one is left behind. Sequencing means tackling challenges one by one, depending on the severity of impact imposed. One cannot let the effects of climate change, which pose a threat on the livelihoods of marginalised groups, linger for long. Additionally, one must consider individuals who are employed in high emitting sectors. For example, countries can address the immediate effects of droughts and floods, which enact severe adverse effects on current livelihoods.

Then as a next step, which is one of many solutions, countries can consider re-skilling and up-skilling their workforce, while in parallel mobilising investments to develop green industries. Once newly skilled labour force is ready and can shift to green industries, countries can then look to identify ways to reduce emissions from carbon intensive sectors. This is also known as the green structural transformation.

A major enabler in the JET is financing, which was also a hot topic at COP28. One salient point is the need for the financial landscape to evolve beyond the traditional instruments of finance. At RMB’s event during COP28, the panellists offered some thoughts on how that could happen. An important view is that financial resources are not scarce, yet the secret sauce lies in how they are mobilized and distributed globally. With that view, there is a need to mobilise and marry different forms of capital that cater for the various levels of risk in an individual climate-related or energy project. This challenges the misconception that only one form of capital is the alpha and omega for JET. The “blending” of different forms of capital is theoretically poised to bring about efficiencies for investors in JET. In the spirit of balancing climate and socio-economic goals, there are innovative financing that allow us to achieve this duality as well.

The issue of transition reaches beyond transition to transforming African economies. The Nairobi Declaration proposes new financing mechanisms to help countries in Africa unlock funding for transformation and promote sustainable use of resources to help the region contribute toward global decarbonisation. One of the declarations from the Climate Summit in Kenya included a call for developed countries to honour their commitment to provide US$100 billion in annual climate finance, as promised 14 years ago at the Copenhagen conference. Furthermore, it included proposals for new debt relief and restructuring interventions and instruments such as extension of sovereign debt tenor and inclusion of a 10-year grace period.

Sustainability-linked bonds or loans, allow investors to raise financing while committing to certain sustainability KPIs and targets. These KPIs and targets can be both related to climate goals and social goals simultaneously. Another example of achieving duality is the FNB Namibia green bond, where proceeds were allocated to green building developing for an affordable housing project.

The JET is a concept that many developing countries like Namibia are embracing, to be able to dually achieve climate and socio-economic goals. What is needed is a clear pathway that requires inputs not only from scientists and government, but also from civil society and private sector that are implicated – to truly leave no one behind.

  • Dr Reem El Sherif is the Strategy and Innovations Lead at RMB Namibia. She has a decade of experience in corporate strategy, national strategy, policy and research.
  • Ruusa Nandago is part of the FirstRand Namibia team where she serves as the Group Economist across FNB, RMB, Ashburton and PointBreak.

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