As India starts its G20 presidency, all eyes are on a crucial point mentioned in the final decision text of the recently concluded COP27 — a “just transition and just energy transition partnership (JETP)”. While an energy transition to renewables typically focuses on requisite technology and finance, a “just” energy transition argues for people-centric measures, one that reduces the negative impact of energy transitions on communities. The JETP combines technology, finance and people to help facilitate this transition. The G7 countries signed an $8.5 billion JETP deal with South Africa at COP26 in 2021, followed by a $20 billion deal with Indonesia and a $15.5 billion deal with Vietnam in 2022. There are now strong murmurs that the G7, led by the US and Germany, is courting India for a similar partnership. Should Delhi play ball?
A JETP for India has to be tailored to the country’s needs and not be a hand-me-down. A blinkered desire of the developed world to phase out coal use from the developing world without factoring in country-specific needs gives the same warning signs that erstwhile IMF-led deals did. As economist Joseph Stiglitz has argued, the conditions that IMF required for lending such as fiscal austerity, trade liberalisation, open capital markets and so on, were often counterproductive and devastating for the local population. We analyse why a JETP for India cannot be a neo-IMF bailout on terms dictated by the G7.
India isn’t staring at a financial crisis of the kind it saw in 1991 before liberalisation. The country’s current bargaining position needs to be acknowledged. A look at the terms of the deal that South Africa has signed suggests that the country was in dire need of foreign capital infusion. For South Africa, the JETP terms dictate no new investment in coal-based power plants and reducing the coal-based power generation fleet. Just focusing on a coal phase-out could impose unforeseen challenges on the already weak South African power system and the livelihoods that depend on it, not unlike the IMF bailouts. The $8.5 billion support is meagre compared to what the country needs and most of it comprises loans at regular rates of interest.
India, however, has little need for capital with such tight terms. It has already unleashed significant equity investment in its renewable energy generation sector. This growing momentum of private equity into renewables reiterates that any further investments cannot be made with stringent conditions.
The key reason for the G7 countries’ interest in South Africa, Indonesia, Vietnam and India is the dependence of these economies on coal. Looking at the South African story can inform India’s decision, since the other JETP deals are still new.
First, India’s power sector needs a customised transition plan and finance. The power systems of both India and South Africa are mainly driven by coal and are in a financial mess. In South Africa, Eskom, the power generation company that owns and operates its power fleet, is facing financial duress. In the case of India, it boils down to power distribution companies (discoms) not managing to raise revenues to cover power purchase costs. These problems need specific solutions and not superimposition of terms.
Second, India needs enhanced investments in a power grid that is responsive and ready to absorb an increasing share of renewable energy. A key dissimilarity between India and South Africa is the technical state of their power systems. The South African grid has witnessed years of neglect and under-investment. Power cuts even in major cities such as Cape Town are a part of life. But while public sector-owned power discoms in India are in a perpetual financial crisis, their technical state has continually improved. Transmission and distribution losses in the grid have fallen from 31.3 per cent in 2004-05 to 20.66 per cent in 2018-19. The challenge now is to increase the share of renewables in the grid.
Third and most importantly, a JETP deal for India cannot just focus on a quick coal phase-out. India’s carbon emissions are expected to peak only two decades from now, necessitating the addition of both renewable energy as well as coal for its fast-growing electricity demand as shown in the Council on Energy, Environment and Water (CEEW)’s research on a net-zero future. South Africa’s emissions, however, are expected to peak in the next three years by 2025.
If the G7 countries want to secure a JETP with India, they should focus on building trust and recognising India’s bargaining power. A clear way forward is to ensure that India is an equal partner in setting the terms and agenda for its energy transition. For instance, the sheer scale of the transition in India is different from most others. Millions of Indians are directly and indirectly dependent on the coal economy which begs for a wider, deeper and institutionalised conversation on “just transitions”. In addition, if the G7 countries want to secure a JETP from India, they should focus on offering support to build a green hydrogen-based economy and enhancing the share of renewable energy by investing in technologies that help make the power grid flexible, like battery storage, along with low-cost finance.
Any different dynamic in the corridors of power, where India’s economic aspirations are sidelined, will surely evoke fears of the JETP being “a neo-IMF bailout”. It’s a crucial partnership. But Delhi can dictate its terms.
Chaturvedi is Fellow and Jhunjhunwala is Programme Lead, Council on Energy, Environment and Water