Blended finance models can also help by attracting private infrastructure for building infrastructure and funding worker reskilling
As the world transitions away from fossil fuels to more sustainable forms, there arises the need for equitable and just transition for people working in fossil fuel energy sectors. Ensuring that all workers, especially economically vulnerable ones, are not left behind is one of the biggest challenges that developing nations like India will face. Then again, it also opens up new job opportunities and avenues for economic growth, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).
For supporting just transition in such growing economies, there is a need for large-scale capital for building new energy infrastructure like renewables, as well as targeted financing for communities and small businesses, found the report.
Blended finance models can play a key role here. On one hand, it can attract private infrastructure for building infrastructure for energy projects, where eventually there will be economical returns. On the other hand, it can secure funding for non-commercial activities like worker reskilling, which is important from a social perspective, according to the report.
Also, existing fossil fuel projects face a potential risk of becoming stranded assets for companies, as the energy sector gradually favours more renewable forms. While large companies have the resources and access to capital to adapt, worker communities dependent on the fossil fuel industry for livelihoods run the risk of being left jobless. Here, the government has to step in to ensure this does not happen.
To avoid this, the report stressed on the concept of “co-investment” approach for these asset closures, which combines financing energy transition assets like renewable energy with just transition activities, such as building community resilience or social support measures. These programmes often require concessional or grant-based finance.
Matching funding with needs
According to the report, the capital needed for transition should be matched to specific activities based on risk and impact. Detailed and strategic investment plans help build investor confidence by clearly mapping projects, funding needs and socio-economic co-benefits.
“Combining climate action with social equity can facilitate the energy transition in emerging markets and developing economies (EMDEs) without disrupting sectors that rely solely on fossil fuels,” says co-author Shantanu Srivastava, IEEFA’s research lead, sustainable finance and climate risk.
“A just transition aims to manage this change fairly by protecting affected workers and communities, creating opportunities for economic growth and ensuring the benefits of the transition are shared widely,” he says.
For this to happen, it is essential to strengthen institutional co-ordination across ministries, giving implementation powers to state and local governments, and ensuring that the governance systems are robust. The report stated that by implementing these measures, just transition financing mechanisms will have transparency, accountability and long-term effectiveness.
Ensuring finance flow
The report looked at initiatives from some emerging economies which show promise. The Philippines’ Accelerating Coal Transition (ACT) investment plan shows how securing grant commitments early on to finance just transition aspects can help mobilise additional concessional and commercial capital to fund fossil fuel asset closure and repurposing, according to the report.
The report also stated that India’s targeted programme for MSMEs helped co-ordinate investment from domestic, multilateral and philanthropic institutions in policy reform, technical assistance and scalable clean energy solutions for MSMEs. It also found that another Indian programme — the Zero-Budget Natural Farming (ZBNF) — revealed how targeted investments in capacity building can create a self-sustaining and low-carbon business model for farmers in vulnerable communities.
“Just transition activities encompass a mix of hard energy transition assets, such as renewable energy, climate smart agriculture, and climate-resilient infrastructure, and ‘softer’ Just Transition aspects like responsible coal asset closures, stakeholder capacity building, labour reskilling, support for micro, small and medium enterprises (MSMEs), and community resilience,” says co-author Soni Tiwari, energy finance analyst at IEEFA.
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