ARKANSAS, Nov 26 (Future Headlines)- As the global community intensifies efforts to combat climate change, innovative financing schemes are emerging to facilitate a transition to cleaner energy sources. Egypt’s Climate Champion, Mahmoud Mohieldin, advocates for extending the successful Just Energy Transition Partnership (JETP) structure to encompass challenging sectors like steel, aluminum, cement, and fertilizers. The impetus for this expansion is driven by new European Union rules, specifically, the Carbon Border Adjustment Mechanism (CBAM), set to be enforced in 2026. The CBAM aims to impose CO2 emissions tariffs on imported goods, urging greener production practices worldwide. In this comprehensive analysis, we explore the potential of applying the JETP model to hard-to-abate sectors, navigating the challenges posed by CBAM, and its implications for global climate finance discussions leading up to COP28.

The JETP is a pioneering financing mechanism designed to aid developing countries in transitioning to cleaner power generation. Developed as a collaborative effort, JETP draws funding from Western donors, including the Group of Seven (G7) wealthy nations, multilateral banks, and private lenders. The funding structure comprises equity investments, grants, and concessionary loans, creating a robust framework to support energy transitions. The success of JETP is evident in its implementation in countries like South Africa and Indonesia, where it has played a crucial role in advancing sustainable energy initiatives.

The introduction of CBAM by the European Union poses significant challenges for developing nations, particularly those exporting goods to Europe. CBAM is heralded as the world’s first system for CO2 emissions tariffs and will be applicable to various sectors, including iron and steel, aluminum, cement, electricity, fertilizers, and hydrogen. The primary objective is to incentivize environmentally friendly production practices globally. However, the implementation of CBAM raises concerns about its impact on developing economies, potentially leading to economic penalties for exporters in hard-to-abate sectors.

The focal point of the proposed expansion of JETP includes four pivotal sectors – steel, aluminum, cement, and fertilizers. These industries are critical contributors to global trade, and they face the imminent challenge of adhering to the stringent emission standards set by CBAM. Mahmoud Mohieldin emphasizes the significance of these sectors, as they constitute a substantial share of exports to the European Union. The impending regulations necessitate innovative approaches to decarbonize these industries, ensuring compliance while fostering economic growth.

Mahmoud Mohieldin envisions the extended JETP framework as a catalyst for decarbonization in hard-to-abate sectors. By leveraging investment and technology, these resource-intensive industries can accelerate their transition to sustainable practices. The structure of JETP allows for catalytic funding, a mechanism that can expedite the deployment of cleaner technologies. A notable example is the cement industry in Egypt, where catalytic funding could play a pivotal role in achieving rapid decarbonization.

One of the strengths of JETP lies in its collaborative nature. The active involvement of both public and private entities, along with the resourcefulness of the targeted sectors, positions the partnership as an effective vehicle for sustainable change. The collaboration between developed and developing nations becomes paramount, bridging the gap in resources and expertise. As CBAM looms on the horizon, this collaboration is essential to navigate the complexities of emission tariffs and ensure a smooth transition for exporting countries.

The impending COP28 U.N. climate change summit, scheduled to commence on November 30 in Dubai, will serve as a platform to assess the progress of JETP programs. The spotlight will be on how well these initiatives align with global climate goals and contribute to the broader agenda of decarbonization. Additionally, discussions at COP28 will delve into mobilizing more climate finance to support initiatives like JETP. Germany and Chile are set to launch a club dedicated to assisting developing nations in decarbonizing industries such as steel and cement, further emphasizing the importance of collaborative efforts on a global scale.

Last year’s climate summit marked a breakthrough with an agreement to create a “loss and damage” fund aimed at supporting poor countries affected by climate disasters. Mahmoud Mohieldin provides insights into the progress of this fund, expressing optimism that it could be operational within months after COP28. The proposed start-up capital of $500 million signifies a pragmatic approach, addressing the urgent need for financial assistance in the face of escalating climate-related challenges. The fund’s focus on “loss and damage” could catalyze efforts to address past failures in adaptation and mitigation.

Tensions between likely contributors and beneficiaries of the “loss and damage” fund are acknowledged, but Mahmoud Mohieldin remains optimistic about achieving realistic targets. The proposed $500 million as start-up capital, while not ambitious, is deemed realistic and feasible. The fund’s estimated cost of $100 billion by 2030 aligns with developing countries’ expectations, emphasizing the need for a comprehensive financial mechanism to address climate-induced losses and damages.

Mahmoud Mohieldin highlights the potential of focusing on the cost of “loss and damage” as a catalyst for addressing past failures in adaptation and mitigation. By quantifying the financial implications of climate-related impacts, there is an opportunity to redirect attention to proactive measures. This approach creates a ripple effect, prompting a renewed commitment to adaptation strategies and a more robust framework for mitigating greenhouse gas emissions.

Reporting by Emad Martin