Co-Financing Can Power Just Transition in India, Ethiopia: IEEFA

The global push toward climate goals and a low-carbon economy is opening major opportunities for countries to build new industries, create jobs, and boost economic growth, a recent report by the Institute for Energy Economics and Financial Analysis (IEEFA) said. The report, Financing Just Transitions in Emerging Economies, highlighted a surge in clean energy investment since 2020, with spending on renewable power, grids, and storage now surpassing total investment in oil, gas, and coal.

IEEFA report through a study explained, "Financing a Just Transition in emerging markets requires substantial capital for building new low-carbon infrastructure, worker reskilling programs, social protection measures and economic diversification efforts in fossil fuel-dependent regions. Assets stranded by the transition, such as early coal plant retirements, will require compensation, while investment in climate-resilient infrastructure will be needed to sustain economic growth."

Just Transition activities, the study said, span both “hard” assets—such as renewable energy, climate-smart agriculture, and climate-resilient infrastructure—and “soft” components, including responsible coal asset closures, stakeholder capacity building, labour reskilling, support for micro, small and medium enterprises (MSMEs), and community resilience. These activities vary in their commercial viability.

Key Findings

One of the key takeaways from the report is in support of co-financing mechanisms to support a Just Transition, particularly in fossil fuel-dependent regions. “To achieve this, planning for the energy transition must go hand in hand with planning for a Just Transition,” it said, warning that failure to do so could deepen existing socio-economic inequalities.

Taking the case of Africa (Ethiopia) and India (Andhra Pradesh), the IEEFA report in its study identified global energy transition can give emerging markets and developing economies (EMDEs) a chance to combine climate action with inclusive economic growth. It explained the role of  Just Transition is to manage this change fairly by protecting affected workers and communities, creating new opportunities for economic growth, and ensuring that the benefits of the transition are shared widely.

The IEEFA study recommended, "While grid-scale solar projects may attract private capital at market terms, non-commercial components like coal asset closure or social support measures often require concessional or grant-based finance. Given the interlinkages between these activities, they must be pursued through a coordinated “co-investment” approach that focuses on financing energy transition assets, such as renewable energy, alongside Just Transition initiatives like building community resilience in fossil fuel-dependent regions."

It showed that these challenges will be quiet for EMDEs in financing climate initiatives, socio-economic development, and infrastructure improvements due to limited financial resources. With fiscal space constrained by public debt accumulated during the global pandemic, there is an urgency to confront these challenges and increase private sector participation to bridge this financing gap.

Case Study: Accelerating the Transition of MSMEs in India 

The study gave the example of a study, mentioned, "The Global Environment Facility (GEF)’s Accelerating Sustainable Energy Transition (ASET) project, approved in December 2024, aims to help Indian MSMEs in the industrial sector reduce energy use and lower emissions

"Although this project is not explicitly labeled a Just Transition initiative, it supports interventions essential to enable a Just Transition for MSMEs." Sharing the goal of the project, the report mentioned, "The project focuses on improving energy efficiency, switching to cleaner energy sources, and adopting technologies that reduce environmental impact while boosting productivity and resilience. It has received US$9 million (Rs773 million) in grants, with an additional US$71 million (Rs6.1 billion) in co-financing."

Case Study: Zero-Budget Natural Farming in Andhra Pradesh 

The study based on the cast study revealed, "In 2018, the Andhra Pradesh government launched a large-scale initiative to transition six million farmers to Zero-Budget Natural Farming (ZBNF), a chemical-free agricultural system that improves soil health, enhances biodiversity, and promotes water conservation. The initiative supports climate goals by eliminating synthetic fertilizers and pesticides and reducing greenhouse gas emissions. ZBNF also enhances soil carbon sequestration, conserves water, and improves resilience to drought."

“Zero budget” means farmers do not need to purchase external inputs, thereby reducing cultivation costs. ZBNF is supported by a diverse financing structure involving philanthropic, multilateral, and public sector stakeholders. The program is implemented by Rythu Sadhikara Samstha (RySS), a state-owned not-for-profit organization.

The study also recommended building the capacity of local and sub-national institutions to design and execute Just Transition programs, including budgeting, planning, and delivery. Case studies from Ethiopia and India’s Zero Budget Natural Farming (ZBNF) show how decentralized governance enhances ownership and impact.