2023 USDOS_Energy Transition Accelerator Core Framework

Briefing Document: Energy Transition Accelerator (ETA) Core Framework

Overview

The Energy Transition Accelerator (ETA) is a collaborative initiative spearheaded by the U.S. Department of State, The Rockefeller Foundation, and the Bezos Earth Fund. Its objective is to mobilize substantial finance to accelerate the just energy transition in emerging and developing countries, with a formal launch anticipated by Earth Day 2024. The ETA aims to foster partnerships between governments and private stakeholders, focusing on reducing greenhouse gas emissions and enhancing access to clean electricity while aligning with the global goal of limiting warming to 1.5°C.

The Need for Urgent Action

The International Energy Agency (IEA) emphasizes the critical need for transforming power systems in developing nations to achieve significant greenhouse gas reductions. Current trends indicate that electricity emissions will increase due to economic growth and electrification in these regions. However, to remain on a net-zero trajectory, these emissions must peak sooner and decline rapidly. The IEA estimates that global clean energy investments need to triple by the early 2030s, with developing regions requiring a seven-fold increase to approximately $1.9 trillion annually. Concessional funding and innovative financing mechanisms are essential to attract private capital at scale.

ETA's Innovative Approach

The ETA addresses the urgent financing needs through a market-based strategy that leverages carbon finance. This is designed to catalyze private sector investment in power sector decarbonization in developing economies. The ETA Coalition will facilitate transactions between sellers (host countries) and buyers (private sector and government entities), using high-integrity carbon credits to support ambitious energy transition strategies. Credit generation will be linked to verified emissions reductions, allowing host countries to reinvest revenues into decarbonization activities, such as renewable energy deployment and coal plant retirements.

Preliminary estimates suggest the ETA could mobilize between $72 billion and $207 billion in transition finance by 2035. This amount could cover 20% to 35% of the total power sector transition costs for participating countries.

Guiding Principles and Objectives

The ETA is built upon several guiding principles aimed at ensuring comprehensive, country-led transition strategies:

• Incentivizing Structural Change: Promote long-term changes aligned with climate goals.
• Supporting Climate Goals: Assist developing countries in achieving their Nationally Determined Contributions (NDCs).
• Promoting Environmental Integrity: Ensure that carbon credits represent genuine emissions reductions consistent with best practices.
• Facilitating a Just Transition: Address energy poverty and support affected workers and communities.
• Catalyzing New Climate Finance: Enhance existing funding without displacing current investments.

Coalition Membership and Participation Criteria

The ETA Coalition will consist of host jurisdictions generating carbon credits, alongside private sector buyers committed to acquiring these credits.

Host Jurisdictions

To join the ETA, jurisdictions must:

• Be recognized national or sub-national governments.
• Have an NDC related to electric power generation.
• Develop a Just Energy Transition Plan that outlines strategies for net-zero emissions, investment needs, and commitments to phasing out unabated coal generation.

Private Sector Buyers

To participate, buyers must:

• Commit to science-based emissions reduction targets.
• Report greenhouse gas inventories and progress towards targets.
• Disclose any use of carbon credits transparently.

Sovereign Buyers/Donors

Sovereign contributors must:

• Commit to ambitious NDCs and long-term net-zero strategies.
• Agree to no new unabated coal generation permits.

Carbon Crediting Program

The ETA will implement a rigorous carbon crediting program to ensure that emissions reductions are verifiable, additional, and aligned with the host countries' climate strategies. This includes a sector-scale crediting approach to incentivize broader systemic changes in the electricity sector.

Sector-Scale Crediting

The sector-scale approach allows for the aggregation of emissions reductions across the entire power sector, facilitating credit generation from diverse decarbonization activities. This method addresses issues of additionality and leakage and supports infrastructure investments that benefit communities affected by the transition.

Supporting Adaptation and Resilience

In line with the transition goals, the ETA will allocate 5% of generated credits to bolster adaptation and resilience efforts in vulnerable countries, ensuring a comprehensive approach to climate challenges.

Alignment with International Agreements

The ETA is designed to be compatible with Article 6 of the Paris Agreement, allowing host countries to retain emissions reductions in their national totals. This compatibility enables both sovereign and private buyers to utilize ETA credits toward their NDC objectives.

Just Transition and Safeguards Framework

A robust framework for a just transition is crucial to uphold the rights of affected communities. The ETA will include safeguards that ensure:

• Alignment with Just Energy Transition plans.
• Transparent stakeholder engagement and information disclosure.
• Implementation of anti-corruption measures and social risk assessments.
• Preserving cultural heritage and ensuring energy supply security.

Financial Structuring and Leverage

The ETA will operate on a pay-on-delivery model where buyers commit to purchasing credits upon successful verification of emissions reductions. This structure is aimed at mobilizing upfront capital for necessary investments in the transition. Preliminary analyses suggest that the ETA's credit revenue could unlock $72 billion to $207 billion in total finance through 2035, significantly supporting countries’ transition costs.

Collaboration with the World Bank

The ETA has established a strategic partnership with the World Bank’s SCALE initiative to enhance support for developing countries. This collaboration aims to build the institutional capacity necessary for successful carbon credit generation and transaction, ensuring that both initiatives contribute to transformative climate action.

Next Steps

The ETA partners will finalize governance structures, pricing frameworks, and participation terms throughout 2024. Technical assistance will be provided to pilot countries to facilitate their participation in the ETA Coalition.

Conclusion

The Energy Transition Accelerator represents a significant opportunity to mobilize finance for clean energy transitions in developing countries. By leveraging carbon finance and fostering collaboration among diverse stakeholders, the ETA aims to facilitate a just and effective energy transition that aligns with global climate goals.