pacific money | Economy | Southeast Asia
While many details of the Just Energy Transition Partnership remain vague, one thing is clear: China will not participate.
In December, Vietnam and a coalition of international partners, including the United Kingdom, the United States, the European Union, and Japan, announced a $15.5 billion Just Energy Transition Partnership designed to accelerate carbon emissions reductions and increase the adoption of renewable energy. The plan calls for Vietnam to reach peak emissions by 2030 and net zero emissions by 2050. According to the official policy statement Published by the UK government, the transition will be implemented “with the cooperation and support of the international community, including developed countries, both in terms of funding and technology transfer.”
This follows closely on the heels of a Just Energy Transition plan announced at the G-20 between Indonesia and a similar international coalition led by Europe, the United States and Japan. It is still early days, but the basic structure of the Vietnam plan closely resembles the Indonesian version. $7.75 billion, or half of the total package, will come from public sector financing. The document specifies that this public sector financing “should be on more attractive terms than what Vietnam could obtain on the capital markets.” I don’t think similar language was included in the Indonesian plan.
Similar to the Indonesian plan, Vietnam’s Just Energy Transition Partnership envisions the remaining half of the package to come from a group of commercial banks that “will work to mobilize and facilitate at least $7.75 billion in private financing, subject to to the mobilization of catalytic financing from the public sector”. .” This means that the basic structure between the two plans is largely the same: public sector financing, such as grants and concessional loans from governments, state banks and multilateral development banks, will serve to boost investment in energy projects. green, and for early retirement of existing coal plants.
Depending on the success of this public sector financing, the private sector will work to mobilize an additional $7.75 billion in investment and financing on terms that more closely reflect market conditions. Similar to Indonesia’s Just Energy Transition plan, this part of the package remains rather vague and was a sticking point as the terms of the deal were worked out in recent months. Reports began to emerge that Vietnam was waiting for language that would ensure the package consisted of more grants and fewer loans at commercial rates.
We see in the released statement carefully worded language about how the plan “will not divert critical development assistance from existing development funding” and that it “will support Vietnam’s just energy transition needs in line with the national framework of public Law”. debt management and external debt”. Clearly, Vietnamese politicians are concerned that the fund will be used by foreign creditors to saddle the government with debt, especially market-rate debt. And they fought for, and appear to have obtained, some assurance that the risk would be spread more evenly.
Of course, this plan is still in its initial phase. The exact terms and structure of public and private sector financing will be key in determining how this vision will ultimately translate into reality. We can’t really say, at this point, what the Just Energy Transition Partnership in Vietnam or Indonesia will end up looking like in the three to five year time frame envisioned by the drafters.
However, we can say one thing. China is not involved in either the Indonesian plan or the Vietnamese plan. Both funds have been created and spearheaded by coalitions that include the EU, the US and Japan. China has been a major investor in building the region’s coal capacity in recent years, so one way to interpret this is that the US and its allies in Europe and Asia are looking to offer strategic partners like Indonesia and Vietnam an exit ramp. for coal And they are doing it by mobilizing attractive packages of financing, technology transfer and capacity building that offer a mix of market and non-commercial incentives.
Is this a coordinated effort by the US and its allies to help the region’s major emerging markets develop next-generation energy capabilities and improve their positions on the global technology frontier? And is it part of a deliberate effort to exclude China from participating? These funds will help the US and its allies increase their participation in two fast-growing regional energy sectors, an area in which US companies have not played a significant role in recent years. I don’t like to read every political and economic development in Southeast Asia through the lens of the US-China rivalry, but this looks like a situation where there could be some bigger geostrategic implications at play.