The Just Transition Transaction (JTT) is a multilateral coal retirement mechanism designed to enable an accelerated, affordable and just energy transition of South Africa’s power sector. The core component of the JTT is a concessional debt instrument backed by a consortium of developed country governments. The degree to which the instrument is concessional is contingent on the implementation of policy reforms and the achievement of pre-defined emissions reduction. The JTT was conceptualised and proposed by South African think tank Meridian Economics. It partly inspired the South Africa Just Energy Transition Partnership which was later announced at COP26 and is the result of broad-based efforts.

Case study

Just Transition Transaction (JTT) application for South Africa

Key elements

• The JTT would entail the South African government to receive an ~$16 billion concessional, debt-financing package which would be incrementally drawn down in tranches of ~five years. 

• The funding from the JTT would support the accelerated retirement of coal power plants by providing fiscal support to the government (the national utility’s shareholder and debt guarantor), to recapitalise the power sector, unlocking investment in renewable energy to replace the coal.

• The JTT would also provide initial capitalization for a government-established just transition fund.

• The concessional element of the loan is conditional on the adoption of regulatory and policy reforms, including the establishment of an Independent Transmission and System Operator (ITSMO) to enable a level playing field for cost-competitive renewables investment, and a large grid expansion and upgrade programme. 

• The value of the loan’s concessional element would be determined by a) the number of emissions reductions delivered by the national utility relative to a baseline emissions trajectory; and b) the agreed value per tonne of reduced emissions (“deal price”).

Benefits of this structure 

• Successful implementation has the potential to stabilize the national utility’s financial situation, de-risk the power sector financing environment and “crowd in” other investors across the value chain (generation, transmission, distribution) to build out the country’s green power infrastructure. 

• The concessional element of the loan is tied to the actual delivery of emissions reductions, with the implementation of policy and regulatory reform likely to be necessary for loan disbursement.

• A portion of the concessional element is earmarked for just transition annually. This creates the potential for long-term, recurring funding for the just transition – substantially improving the likelihood of a more equitable outcome. 

Enabling conditions 

• Willingness of developed country governments to fund the concessional element of the initiative in return for highly cost competitive emission reductions.

• Political will from national government to implement necessary policy, regulatory and market reforms to accelerate power sector decarbonisation.

• Emissions reductions can be accurately measured and verified.