As Indonesia and Vietnam start on their respective Just Energy Transition Partnership (JET-P) journeys, funding is pivotal in determining the nature of ‘partnership’ in just energy transition. Can they clear the path away from debt and fossil fuel-laden projects to navigate the way transparently with the IPG towards clearer benefits for all and respect for human rights?
Indonesia and Vietnam, both members of ASEAN (Association of Southeast Asian Nations), have recently embarked on a striking initiative called the Just Energy Transition Partnership (JET-P). JET-P proclaimed as the single largest global climate finance deal, signifies a critical turning point in pursuing decarbonization and more sustainable practices in the energy sector.
Indonesia took a momentous leap forward in November 2022 when it pledged JET-P’s commitment at COP27 (27th Conference of the Parties to the United Nations Framework Convention on Climate Change) and G20 (Group of Twenty) Bali 2022. Indonesia's JET-P seeks to accelerate the transition towards equitable-sustainable energy systems and deploy more green projects, with an initial funding of USD 20 billion over the next three to five years. Building on this momentum, in December 2022, Vietnam also signed JET-P deals with the International Partners Group (IPG), aiming to secure USD 15.5 billion in funding over the next three to five years to facilitate Vietnam's effort to achieve net-zero emissions by the year 2050.
The JET-P announcement generated surprise and great fanfare, as it was considered a breakthrough in addressing the stagnation of North-South cooperation in the energy transition. Given the heavy reliance on coal energy1 , the actions taken by Indonesia and Vietnam also are considered bold and progressive steps.
However, JET-P is still a complex conundrum with insufficient depth and clarity as a favorable initiative, leaving stakeholders uncertain about its effectiveness and raising doubts about its ability to drive meaningful partnerships. JET-P still demonstrates a rhetorical and vague partnership, lacking a concrete and mutually advantageous cooperation structure, requiring an immediate and substantial shift.
Overcoming financial hurdles and renavigating the financial structure
The funding scheme of the JET-P has sparked concerns from various stakeholders regarding the availability and adequacy of favorable finance. The Indonesian government has strongly criticized the sluggish progress and unclear availability of JET-P funds, which were meant to deliver swift capital and drive a transformative shift away from fossil fuels. These concerns indicate that JET-P still needs to meet these expectations.
IPG countries' proposed deals must meet the required finance for a just transition in Indonesia and Vietnam. The Indonesian government has emphasized in international forums that the energy transition plan requires around USD 225 billion, while JET-P only provides USD 20 billion2 , equivalent to 9% of the total funding. Similarly, the Vietnam JET-P only channels USD 15 billion, approximately 11% of the total need of USD 134 billion.
JET-P’s recent development also indicates that the funds allocated could simply be shifted from existing initiatives or commitments, conveniently repackaged as new climate finance. This approach should be strongly discouraged in the JET-P financial scheme. Instead, dedicating any financing provided to Indonesia and Vietnam from genuinely new funds is crucial. Thus, it could inject much-needed drive into accelerating the energy transition.
The credibility of JET-P as an energy transition initiative is subject to scrutiny because of concerns about the financial structure. Recently, Indonesia announced a meager USD 160 million grant for JET-P, representing only 0.8% of the total USD 20 billion funding. This amount is even lower than the criticized grant allocation of South Africa's JET-P, which was deemed insufficient at 4%. This raises the possibility that a similar lack of grants may also occur in Vietnam's JET-P, which is still awaiting clarity regarding funding.
Concerns are mounting that JET-P's reliance on debt would fail to finance critical aspects of a just transition in developing countries like Indonesia and Vietnam. According to the Institute for Essential Services Reform (IESR), Indonesia JET-P needs grant funding of at least 10–15%, equivalent to USD 1–1.5 billion, most likely from the IPG and public funds, to support partner countries effectively.
How funds are provided is crucial to understanding what a ‘partnership’ is. For a truly beneficial partnership in Southeast Asia's energy transition, JET-P must be renavigating to avoid a quasi-partnership by prioritizing substantial grants or a higher proportion of soft loans. Relying heavily on commercial loans instead of favorable funding terms would not be helpful for Indonesia and Vietnam's progress in transitioning away from fossil fuels.
In order to regain credibility as climate leaders and foster a genuine energy partnership that has long been called for, the IPG countries must demonstrate a greater sense of responsibility. They have significantly profited from the fossil fuel industry and exacerbated climate change. It is also crucial because wealthy countries like the U.S., Japan, and other IPG members leading the partnership in Indonesia and Vietnam have been perpetuating the dependency of the Global South on fossil fuels.
The Asian Development Bank (ADB) recently announced providing a mere USD 2 million for institutional and capacity-building assistance to Indonesia's JET-P Secretariat. This meager allocation starkly contrasts with the ADB's staggering USD 2 billion in direct loans to fossil fuel projects in Indonesia and Vietnam over the past seven years. The glaring disparity raises concerns about the ADB's responsibility as it fails to adequately address the significant profits gained and the pressing need to shoulder its projects' social and environmental costs.
The JET-P project requires a secretariat coordinating governments, IPGs, and other stakeholders for long-term implementation. Securing continuous funding is essential, and it should be emphasized that ADB or other development finance institutions will bear the costs and provide grants instead of loans.
Charting a clean and clear path in just energy transition
The pathway to success in the just energy transition partnership relies on a shared clear path to shift away from fossil fuels and a clear-cut definition of clean energy projects to avoid false solutions.
Indonesia's commitment to halt the construction of new coal power plants in 2021 is shrouded in ambiguities. Although initially set a deadline of 2023, it was subsequently extended to 2025. The government intends to proceed with fossil fuel projects, including 13.8 GW of coal, as listed in the country’s 2021–2030 energy development plan.
Vietnam faces a similar challenge, sending mixed signals in its energy transition plan. Despite signing the JET-P, concerns arose with Vietnam's recent Power Development Plan (PDP8), which maintains the plan for 13 GW of new coal projects until 2030.
Both countries' plans contradict global recommendations by the IEA (International Energy Agency), which states that no new coal power plants should be built after 2021 to achieve global net-zero targets.
JET-P also carries the massive risk of derailing decarbonization efforts by direct-indirectly supporting a transition from coal to another fossil fuel, like gas, under the guise of a ‘bridging fuel’. The lack of clarity from the IPG regarding fossil gas fuel exclusion is a significant cause for escalating concern. These concerns are further compounded by Indonesia's ongoing construction of a 4.8 GW new 7 GW gas power proposal and their intention to secure JET-P funding for gas projects. Likewise, Vietnam has set a target to increase its gas-based power generation capacity to approximately 25% by 2030.
Recent data show that IPG countries, such as Japan, the USA, Germany, and the UK, still provide substantial public finance support for LNG export infrastructure from 2012 to 2022, amounting to USD 55.2 billion. Financial institutions in the GFANZ (Glasgow Financial Alliance for Net Zero) also provided USD 269 billion to 102 major fossil fuel expanders. Another issue is the push for ‘false solutions’ in Indonesia and Vietnam, such as the co-firing of ammonia, biomass, and carbon capture utility storage. These energy sources are not economically nor environmentally sustainable and risk prolonging the lifetime of fossil fuel power generation.
In the JET-P, IPG countries must firmly reject financing for fossil fuel-related projects and false solutions that hinder the transition from coal and impede renewable energy development. Forming a joint partnership that aligns public-private finance with Paris 1.5° scenarios is vital by accelerating coal power plant closures and supporting clean-renewable energy sources.
Advancing partnership and governance
In 2023, Indonesia and Vietnam faced critical challenges in preparing an investment plan and implementing the JET-P. The short timeframe reveals the detrimental consequences of insufficient structural, policy, and regulatory readiness. For instance, while Indonesia's JET-P starts engaging with civil society, its lack of a clear legal basis undermines its continuity. Codifying the JET-P is essential to address listed targets regardless of political power changes or dynamics.
The IPG (International Partnership Group) plays a crucial role in providing technical and institutional support to create an effective partnership setup. Meeting JET-P's targets requires well-designed regulations, capacity, and funding. Ensuring transparency and accountability is also essential in JET-Ps, including meaningful participation, preventing corruption-related losses, and avoiding overcompensation.
Effective energy transition schemes involve navigating the comprehensive energy model and governance structure, fostering mutual and practical cooperation between donor and recipient countries. A robust partnership with the IPG will be instrumental in avoiding the risk of stranded assets, overcoming challenges in decarbonization, and a just energy transition.
The governments of Indonesia and Vietnam must seize the opportunity of JET-P and demonstrate steadfast commitment to decarbonization. This includes revising their energy development plans, prioritizing renewable energy integration, and actively obtaining input in their comprehensive investment plans to implement JET-P successfully.
Ensuring equitable benefits
In the realm of extensive ‘partnership’, the distribution of financial flows remains a primary issue, mainly concerning the actual beneficiaries. It sparks public unease that JET-P funds provided could potentially impoverish and exacerbate the economic challenges of developing countries.
Redirecting JET-P funds to favor donor countries and companies that own numerous fossil fuel power plants in developing countries is worrisome. This arrangement could perpetuate the business-as-usual approach for affluent wealthy-developed countries while giving the appearance of bailing out the private sector.
Instead, a genuinely meaningful partnership in energy transition must fundamentally shift its focus towards prioritizing the support and recovery of affected communities in their social, economic, environmental, and health aspects. This imperative shift is necessary to ensure a just transition, emphasizing the well-being and empowerment of communities rather than merely compensating the private sector for decommissioning their fossil fuel power assets.
Upholding Human Rights
The recent arrests of Vietnamese environmental activists on alleged “tax evasion" charges highlight the critical need to uphold human rights as a fundamental requirement for the effectiveness of JET-P and strengthening partnerships. Binding clauses on human rights must be integrated into JET-P agreements, ensuring strict adherence to internationally recognized standards like freedom of association and speech.
As a key JET-P stakeholder, the EU has incorporated human rights provisions into its trade and cooperation agreements. JET-Ps should follow the EU's example of including human rights clauses in their agreements to ensure a consistent approach.
Alarming threats and fabricated crimes against environmental defenders in Indonesia also demand immediate attention. Over the past decade, around 102 serious threats have targeted defenders, mainly focusing on the mining and energy issues. Adding to these concerning developments, the Coordinating Minister for Maritime Affairs and Investment, a key figure in Indonesia's JET-P negotiation, filed a lawsuit against activists who exposed his conflicts of interest in the natural resources industry, potentially leading to imprisonment on defamation charges.
Relying on fragile governance structures that disregard human rights and fail to protect environmental defenders and affected communities would pose significant problems for energy transition partnerships.
Strengthening the role of civil society and affected communities is fundamental in renavigating the JET-P. The Just Energy Transition Partnership takes massive financial resources, and its objectives should go beyond technical emissions reduction measures by establishing an inclusive governance legacy that ensures all stakeholders' voices are heard. By doing so, JET-Ps can ensure an environmentally sustainable and socially equitable transition.
What is next?
Establishing JET-P as a genuine and beneficial partnership is a formidable but necessary task. It is crucial to acknowledge the critical importance of such partnerships for long-term continuity and optimal benefits in social, economic, and environmental aspects.
Failing to establish this genuine partnership would hinder JET-P's capacity to effectively drive the energy transition in recipient countries, thus depriving them of tangible benefits. As a result, his purported "partnership" would merely perpetuate the status quo, reinforcing developed countries' hegemony and their vested interests while failing to provide substantial benefits to the partner countries.
Andri Prasetiyo is a senior researcher on climate policy and finance at Senik Centre Asia, a research-driven organization working on clean and equitable energy transition.
The views expressed in this article are not necessarily those of Heinrich Böll Stiftung.
This article was published first here: th.boell.org
- 1Indonesia and Vietnam rank among the top ten coal-consuming countries globally. Indonesia is the third-largest coal exporter and one of the largest coal-consuming nations. Vietnam was also within the top ten countries regarding coal plant capacity in 2020.
- 2The Indonesian JET-P includes USD 10 billion pledges in public funds from members of the International Partner Group, with the remaining USD 10 billion from the private fund Glasgow Financial Alliance for Net Zero (GFANZ). While Vietnam JET-P includes USD 7.75 billion in pledges from the IPG together with the Asian Development Bank and the International Finance Corporation. The remaining USD 7.75 billion in private investment from an initial set of private financial institutions coordinated by the Glasgow Financial Alliance for Net Zero (GFANZ).