Phasing Out Coal Investment Contracts: Does Just Transition Finance Legitimize Unjust Compensation?

Abstract By locking States in a long-term carbon-intensive trajectory that contradicts international climate change mitigation efforts, coal power purchase agreements (PPAs) and related investment contracts pose a significant obstacle to the just energy transition. Just Energy Transition Partnerships (JETPs) aim to mobilize public and private finance to accelerate the energy transition in developing countries, including by compensating coal investors for the early termination of their PPAs. Paradoxically, the risk of similar compensation under international investment treaties has led to severe criticism, as illustrated by States’ withdrawal from the Energy Charter Treaty. Taking into account this apparent contradiction, this article investigates the compensation of coal investors under the JETPs, and related transition finance initiatives, building on the just transition and climate-investment law literature. The analysis focuses on the early termination of coal PPAs in Indonesia and Vietnam—two JETP countries that provide relevant case studies to understand the obstacle that investment contracts present for the energy transition, and the justice implications of fully compensating investors for terminating these contracts.