How to enable a just transition in emerging economies

The shift to cleaner energy sources must be coupled with support for affected communities.

Investment in the energy transition should be coupled with efforts to ensure vulnerable workers and communities are not left behind, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

In a new report, IEEFA said there is a need for a “co-investment” approach, which combines financing energy transition assets like renewable energy with Just Transition activities, such as building community resilience or social support measures.

“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,” Srivastava added.

IEEFA said these programmes often require concessional or grant-based finance.

“With fiscal pressures mounting and fossil fuel revenues expected to decline, EMDE governments should look beyond their own budgets to a diverse set of capital providers, including multilateral development agencies, private investors, development banks and philanthropies,” said Soni Tiwari, co-author of the report and energy finance analyst at IEEFA

Srivastava noted there is also a need to target suitable forms of capital for specific activities based on their risk-return profiles and developmental impact.

By strengthening monitoring systems, aligning national schemes and fostering partnerships, EMDEs can access funding more easily and strive for a sustainable energy transition, IEEFA said.