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1 Jan 2024

Joseph Wilde-Ramsing, SOMO

From baby steps to bold action: Challenging the current economic model to ensure a just energy transition

As we welcome 2024, the imperative for a transition to sustainable energy sources is no longer up for debate - even the thousands of oil industry lobbyists at COP28 could not prevent a call to “transition away” from fossil fuels. However, how the energy transition takes place is both of enormous consequence and still largely up in the air. There is a growing recognition that achieving a just energy transition involves more than technological advancements - it necessitates a fundamental re-evaluation of the economic model which got us into the climate crisis in the first place and which continues to drive the current corporate-led energy transition.

Baby steps

Prior to COP28’s call for a “transition away” from fossil fuels, 2023 saw the OECD Guidelines for Multinational Enterprises updated to include new expectations of business with regard to climate change and the just transition, insisting that all companies have a responsibility to bring their emissions in line with the 1.5 degree target established by the Paris Agreement and to do so in a way which is fair and inclusive, creates decent work opportunities, and leaves no one behind. In December 2023, there was a breakthrough on the EU Corporate Sustainability Due Diligence Directive, with legislators agreeing to make key portions of those normative standards binding, including obligating large European companies to draft and implement a just transition plan for their business. Compared with the enormity and urgency of the climate crisis, these can only be described as baby steps. 2024 will need to see bolder action and a more fundamental challenge to the prevailing paradigm if we are to fulfil the just transition imperative.

Challenging the ‘maximising shareholder value’ model

Currently, the energy sector – fossil fuels as well as renewables – is guided by the principle of maximising shareholder value. This model prioritises short-term financial gains for investors, often at the expense of long-term sustainability, social responsibility, and environmental stewardship. In order to continue maximising short-term shareholder value, oil companies like Shell and bp continue to invest in fossil fuels, despite scientific consensus that doing so is harmful for the planet. The same model drives multinational renewable energy companies to cause widespread human rights and environmental impacts in mineral-rich countries in their frantic rush to secure resources for “clean” energy technology such as wind turbines, solar panels, and electric vehicle batteries. However, the just energy transition demands a departure from this profit-centric approach, urging a more holistic perspective that prioritises the well-being of communities, the environment, and future generations.

Bold action to meet the just energy transition imperative

The just energy transition thus calls for a paradigm shift—one that places people and the planet at the centre of our energy decisions. It demands an economic model that values long-term sustainability, environmental justice, and social equity over short-term profits. It has three key imperatives:

1. Communities and Indigenous Peoples, not corporate shareholders, at the helm

A just transition requires local communities to be in the driver’s seat in local and global decisions about how the energy transition takes place. Indigenous leadership has already provided a wealth of learning for the just transition when it comes to shared prosperity and duty of care for communities and the environment. Given the majority of the world’s mineral reserves are on Indigenous, community and peasant lands, it is essential that Indigenous Peoples’ right to free, prior, and informed consent to any development of these lands and resources be respected. By fostering community and Indigenous-led models of governance and decision-making in the transition, we can ensure that the economic costs and benefits are justly and equitably distributed.

2. Avoid entrenching unjust power relations through “offsetting” carbon emissions

Carbon offsetting has become a popular way for governments and companies to “cancel out” their emissions by investing in projects established elsewhere which claim to be removing, reducing, or avoiding equivalent emissions. This has created a $2 billion industry that ‘produces’ carbon credits for sale to companies seeking to continue business as usual. However, carbon offset projects reproduce colonial models of control and use of land, forests, and livelihoods as well as of exploitation of particular groups of people and of nature itself. It is an industry that relies on and amplifies inequality and is fundamentally at odds with a just transition.

3. Responsible divestment and disengagement from fossil fuels

As the transition proceeds, there will be massive divestment from current fossil fuel projects. Coal mines and oil wells will need to be decommissioned and rehabilitated. Driven by the ‘maximising shareholder value’ model, fossil fuel companies are attempting to maintain power and profit margins by offloading the costs of decommissioning and remediation onto local communities and governments. In Colombia, mining and energy companies are preparing to disengage from coal mines without addressing the severe human rights harm to which they contributed. In the Niger Delta, Big Oil is attempting to wash its hands of the mess and dump its liabilities onto local communities. In response, communities in the Delta have agreed on a set of National Principles for Responsible Petroleum Industry Divestment, calling for robust action by the government to prevent oil companies from leaving behind substantial social, economic, and environmental costs.

The just energy transition necessitates a profound shift in our economic thinking. Challenging the prevailing model of maximising shareholder value is not only a moral imperative, but a strategic move towards long-term economic resilience.

By Joseph Wilde-Ramsing, Director of Advocacy, SOMO