With six months to go before Cop28, a new form of energy transition is needed

The 200-year-old history of mankind’s energy transition is a story of pioneers and solutions – from steam engines and oil lamps to internal combustion engines and the wide-scale use of electricity.

Yet, it could be argued that while propelling humanity through development, these innovations have also resulted in massive global injustice, unequal development, growing poverty and a world now suffering from an existential threat.

The global shift from an agrarian economy to an industrial one called for new sources to provide more efficient energy inputs. However, in this day and age, the current energy transition is driven not only by economic impetus but also by social considerations.

The financial and professional services sector has a critical role in driving this transformation and also ensuring it is fair, just and inclusive.

That’s why I was delighted to participate last month in the Net Zero Delivery Summit in London hosted by the City of London Corporation, in association with the Cop27 Egyptian Presidency. The summit focused on the need to mobilise capital at scale into emerging markets to support mitigation, adaptation and resilience and to highlight the solutions already being pioneered by the financial services industry.

The bottom line is that, with six months to go for Cop28, we already know there is sufficient global capital, both within and outside the global financial sector. This can be redirected to climate action, in particular for economically vulnerable and developing countries facing debt. We just need the ambition and resolve to rethink how these finances are distributed so that they address the current system, which can be inefficient, insufficient and unfair.

The share of the poorest 50 per cent of the world's population from the total global income is only 8 per cent, while the richest 10 per cent earn over 50 per cent of global income. Accordingly, global wealth is divided between the richest 10 per cent and the remaining 90 per cent of the world population at a ratio of three to one. As pointed out by Oxfam, this category of the wealthiest 10 per cent is collectively producing more than half of the global carbon emissions; further exacerbating the effects of climate change, which the poorest are the least responsible for yet most susceptible to.

A critical disruption to this long-standing legacy of transitions is needed – practically, a new form of transition; one that is unbiased, environmentally effective, procedurally fair, socially just, globally equitable and technologically inclusive. One of the key catalysts to drive such a transition is financing streams that are predictable, appropriate and at-scale, coupled with access to technology that support sustainable development efforts. All this needs to be located within our Right to Development and equity so that no one is left behind.

Cop26 in Glasgow recognised the need for mobilising finance towards "just transitions", which is greening the economy in a way that is as fair and inclusive as possible and providing targeted support to the poorest and most vulnerable. Additionally, an initial agreement was reached on the need for the provision of finance to developing countries and making finance flows consistent with a pathway towards low carbon climate resilient development, as avenues to support just transitions.

Cop27 in Sharm El Sheikh, on the other hand, emphasised the multi-dimensional perspectives and nature of the transitions while highlighting the important role of instruments related to social solidarity and protection in mitigating the impacts of applied measures.

The Sharm El Sheikh Implementation Plan highlighted that about $4 trillion per year needs to be invested in renewable energy up until 2030 to be able to reach net zero emissions by 2050, and that, furthermore, a global transformation to a low-carbon economy is expected to require investment of at least $4tn to $6tn per year.

An important point to note is that even though Sharm El Sheikh highlighted the just transition is multi-dimensional, the business-as-usual approach to public and private financing has, by and large, been limited to financing needs for infrastructure and policy aspects. Future financing frameworks must factor in the social aspects of the transition if we are to adopt a real multi-dimensional approach to the just and equitable transition.

Noting the aforementioned limitations in terms of a more comprehensive cost of the just transition, a recent analysis by the International Renewable Energy Agency and the International Energy Agency, finds that Africa’s average annual energy sector investment needs to double this decade to around $190 billion per year. This means that the average annual investment of around $30bn in the power sector must triple by the mid-2020s. It is worth noting that of $30bn only around $5bn have flown to renewables.

Only three African countries have achieved the 10 per cent renewable energy milestone. Existing financing trends have, however, not delivered the required resources to accelerate the potential for clean, reliable, accessible and affordable energy in meeting development priorities. Despite the decline in costs of renewables globally, they remain high in many parts of Africa demanding robust policy reforms and enhanced financing to support the continent’s ambition of increasing and sustaining generation capacity.

Just transitions will undoubtedly need more than financing. There is a need for extensive policy changes and changes pertaining to legalities and technology to address requirements related to the transitions and to avoid associated social risks.

Lately, the concept of just transition has undergone an evolution within the international climate discourse from being recognised in the Paris Agreement to becoming a core organising principle of the urgently required transition to a low carbon climate-resilient development economy.

According to the International Labour Organisation, the transition to renewable energy and the circular economy could potentially generate over 100 million jobs by 2030. Yet, close to 80 million jobs could also be lost over the same timeframe. Within that context, efforts are needed not only to create new jobs and re-skill workers in preparation for the green economy, but also to ensure that commensurate social protection programmes are in place to provide security to those at risk of losing a job during this process, and time to those who need to develop new skills.

In September 2021, for instance, the UN Secretary General launched the Global Accelerator on Jobs and Social Protection for Just Transitions, which specifically calls for integrated approaches to accelerate just transitions. The Global Accelerator is currently being implemented in several “Pathfinder Countries” through catalytic support provided through the UN’s Joint Sustainable Development Goals Fund.

Daniel Yergin, the vice chairman of S&P Global, articulated four challenges that stand out in relation to the transition. These include: a return of energy security as a prime requirement for many countries, as seen in the case of Germany; the pressure to accelerate a significant part of the 2050 carbon emission targets toward 2030; the emergence of a new North-South divide – a sharpening difference between developed and developing countries on how the transition should proceed; and ensuring new supply chains for net zero.

Mr Yergin suggests that these four challenges – energy security, macroeconomic impacts, the North-South divide, and minerals – will each have significant effects on how the energy transition unfolds. Nevertheless, this is a whole new story.

Indeed, “we need disruption to end the destruction,” as per the words of the UN Secretary General Antonio Guterres last February while addressing the General Assembly on the 2023 UN priority agenda including climate action.

We also need to be cognisant of the fact, however, that in transitioning, we should never turn a blind eye to the serious social implications associated with the transition, particularly in relation to loss of employment and livelihoods which in turn, impact the development agendas of countries.