Making it Real: Beyond the Rhetoric of Just Energy Transition

The issue of energy transition can be a divisive one. While there is alignment that we need to transition decisively and rapidly away from fossil fuels to meet our global climate imperative, there are concerns that this transition may not be inclusive: it could make energy more expensive for large section of citizens who are struggling to access affordable energy, and it could lead to significant job losses in traditional energy-intensive and allied industries. ?

As a result, the concept of ‘just energy transition’ has come in vogue. This essentially means that if we manage the transition effectively and fairly, it can become an engine for economic growth, decent jobs and sustainable prosperity for all. A just energy transition offers a path to unlock significant opportunities for inclusive development in emerging markets – if done well, it can create new green jobs, and improve quality of life through cleaner air and reduced health risks, and ensure no one is left behind.

But this is easier said than done. What does it take to make this ‘magic’ of just transition happen in practice? Malaysia's recently announced National Energy Transition Roadmap (NETR) offers an example of a path designed to accelerate progress towards achieving net-zero goals, while also making it people-centric and ensuring that the negative economic impacts are mitigated.

With the NETR, Malaysia can respond to shifting global demands, attract green foreign direct investments, and address potential carbon border adjustment mechanisms of importing countries. At the same time, it aims to ensure a responsible energy transition.

Establish Long-term Goals with Interim Checkpoints

So what are the learnings from the Malaysia example?

First, a key takeaway from the NETR is that countries must establish clear, long-term just energy transition goals, with well-defined checkpoints to track progress on both emissions and inclusion. The NETR, for instance, has a 2050 public transport modal share target of 60%. At the same time, it has also set itself an interim target of 40% by 2040. These checkpoints provide the opportunity to stocktake and make adjustments when needed, depending on global and local trends. Regular monitoring of progress against these targets also promotes coherence in policy formulation and implementation, reducing the risk of conflicting actions or policies that hinder overall progress.

Develop Targeted Transition Strategies

Second, when making the shift towards sustainability, it’s imperative that policymakers prioritize positive socioeconomic outcomes. This encompasses efforts to promote green job creation, boost GDP, and provide social safety nets for low-income households.

To achieve this, governments must have a comprehensive understanding of how these policies will impact the nation's socioeconomic landscape, and be clear about tackling the so-called ‘energy trilemma’, i.e., growing energy supply, keeping it affordable and making it green at the same time. The NETR outlines Malaysia’s energy goals for the years 2030, 2040, and 2050, clarifying how these triad of goals will be met.

The NETR also predicts that Malaysia can experience a slight decline in energy access due to increased import dependence in the medium-term. As such, the roadmap outlines specific measures to secure natural gas, a transition fuel, in the medium-term through infrastructure development and long-term agreements to stabilize fuel imports and natural gas prices.

Third, the transition must have a detailed plan to help the transition of the workforce from traditional sectors to green growth areas. In order to ensure inclusivity, the NETR has plans to develop community support programs for regions and communities that may be impacted. These extend to rolling out strategic workforce planning, establishing a green skills taxonomy, and implementing upskilling and reskilling programs for the existing workforce, which in the long run would aid in meeting the demands for green energy jobs.

Identify Key Funding Sources

The energy transition comes with a price tag, making it imperative for governments to establish long-term investments in key sectors and technologies. By estimating the required investments, governments can proactively identify and secure sufficient funds for the development and implementation of green investments.

Such investments need to go beyond technical or hard infrastructure financing, and also cater to the funding needs of socioeconomic initiatives, such as upskilling and reskilling programs, and social protection programs for the affected workforce.

The NETR has taken important steps to address this complex challenge by clearly outlining the total investment costs—estimated to be RM1.2 trillion to RM1.3 trillion by 2050. Malaysia’s Government is expected to bear a portion of this cost, amounting to RM60 billion to RM90 billion in the next ten years.

To stimulate private investment in this transformation, a blended catalytic facility – a national energy transition facility – with an initial seed capital of RM2 billion has been established. This will serve as a critical driver for private capital flow into the energy transition, ensuring that the transition towards a sustainable energy future is not only possible but economically feasible.

Implement a ‘Whole of Country’ Approach with Strong Governance

Strong leadership and effective governance are crucial for implementing a comprehensive, nationwide approach when it comes to a just transition. By engaging with a wide range of stakeholders from both the public and private sectors, governments can develop policies that work in tandem with industry initiatives to ensure positive, holistic outcomes.

Through collaboration across the public sector, governments can align on key policies and foster a coordinated approach to the energy transition.

Maintaining strong leadership and robust governance is imperative when executing a just energy transition agenda. As outlined in the NETR, Malaysia will set up its National Energy Council with the Prime Minister serving as its chair, with representation from across the socio-economic spectrum, ensuring that the energy transition is a top priority for the nation and implemented in a holistic and collaborative way.

Emerging markets find themselves at a crossroads in the global energy transition landscape. They possess the potential to not only drive the energy transition, but also enact critical energy policy initiatives that prioritize positive socioeconomic impacts. The challenges and opportunities presented by the just transition emphasize the need for visionary leadership, effective planning, and inclusive policies. With a clear roadmap, these nations can chart a successful path to a sustainable and inclusive future for their societies.

Authored by:

·???????? Nurlin Mohd Salleh , Head of BCG Malaysia

·???????? Varad Pande (??? ??????) , Partner and Director, Boston Consulting Group

Special thanks:

The authors would like to thank Daniel Tan (Senior Associate, Boston Consulting Group) for contributing his views to this article.