Change creates opportunity. And, as the world transitions towards a clean energy future, society faces a historic opportunity to ensure that the transition is just, fair and equitable. It is an opportunity we cannot afford to squander. The world would be considerably worse- off if we do.
To date, much of the conversation around the ‘just transition’ has been focused on jobs. Yet solving the jobs part of the equation may be the easy task. Other industries have gone through similar disruption in the past; governments have a good idea of what it takes to re-skill people and diversify economies. Besides, it now seems clear that the transition away from fossil fuel usage will take some time.1
The bigger challenge is likely to be in ensuring that investment, development and sustainability outcomes are spread equitably between developed and emerging markets. The reality is that massive investment will need to be placed into scaling up renewables (as KPMG international’s recent report, Turning the tide in scaling renewables finds, the gap between the investment needed and capital deployed is wide),2 improving climate adaptation in high-risk geographies, creating supportive regulatory regimes, developing new economy skills and capabilities, and capacity building, for example. And the developed world is currently capturing the lion’s share of those inflows.
The emerging markets are also seeing massive increases in clean energy investment and capacity. It is likely that future investments into traditional energy sources will likely be channeled to the emerging markets where regulations are less clear and where some countries still have not defined their decarbonization pathways or set net zero targets.
Not only could this create an imbalance in how the benefits of the energy transition are spread around the world, it also creates significant risk for Development Finance Institutions (DFIs) and private investors seeking to fund projects in hard to abate sectors in these countries (steel and cement in particular). As a result, attempts to develop cleaner, more sustainable infrastructure in these markets are being marginalized.
In order to meet the UN SDGs, the world should be ensuring economic development and transition to low carbon happens together rather than at the cost of each other. This would require greater focus on capability development, investment in R&D, promoting alternate industries and creating new pillars of economic growth — decarbonization, energy efficiency, smart infrastructure. The launch of the Just Energy Transition Partnership (JETP) in Indonesia, is a landmark, long term partnership designed to create an ambitious and just power sector transition in Indonesia. The JETP will focus not only on delivering strong emissions reductions, but also on driving sustainable development and economic growth, while protecting the livelihoods of communities and workers in affected sectors.3
This year will be critical to bridge the divide between the developed markets and emerging nations and build trust by ensuring pilot projects are successfully implemented and are the showcase for future projects. The ‘loss & damage fund’ formalized at COP28 is a good start,4 but what the world should be ensuring is multi-party commitment to a ‘recover & restore’ approach that drives constructive interventions with a view to accelerate sustainable social change.
The infrastructure sector is likely to play a key role. Infrastructure investors will have an opportunity to shape the capital flows. Owners and operators can influence the value expectations. Developers can help ensure supply chains and approaches are diversified and sustainable. Regulators will make sure consumer rights and expectations are being met.
Over the coming year, some governments and international organizations are expected to start broadening their definition of ‘just transition’ and, with it, encourage greater collaboration between nations, sectors and citizens. Multilateral organizations and collaborative alliances — like KPMG’s membership with the WWF and UNDP as part of the Alliance for a Just Energy Transition5 — will be critical to driving this change and achieving a balanced outcome. And infrastructure investors, developers and operators are expected to start to pay much more attention to the emerging markets which, in turn, should help put just transition into practice.
