Although the energy transition promises significant overall GDP, employment and welfare benefits, this cannot be considered in isolation of the socio-economic system of which the transition is an intrinsic part and which it reshapes. These interactions determine the transition outcome. Different pathways are possible, dependent on the level of energy and climate ambition, on how targets are translated into specific policy actions, and on the resulting dynamics and synergies.
However, irrespective of the particular pathway followed, different communities, countries and regions will clearly fare differently during the transition. This is a result of several factors, beginning with diverging levels of ambition among countries. But the outcomes also relate strongly to underlying structural realities and the degree to which governments undertake transformative actions such as implementing carbon tax systems in order to guide economies toward a low-carbon future.
The capability of a country or region to reap the GDP, employment and welfare benefits of the transition also depends to a large extent on the degree to which domestic supply chains can respond to new economic demand patterns stimulated by the transition. Countries with well-developed industries and service sectors will benefit significantly more than those that depend heavily on imported inputs. But governments can take action to leverage and enhance existing capabilities with a view toward building more diversified and deep supply chains.
Even though the overall jobs impacts of the energy transition are expected to be positive, some labour market misalignments may emerge along the way as old jobs fall by the wayside, new ones emerge, and others undergo various kinds of shifts in focus and specialisation. Policymakers need to anticipate and address the following challenges:
- Temporal misalignments: Job losses and gains will likely take place on diverging time scales rather than in parallel.
- Spatial misalignments: New jobs may be created in different communities, regions or countries than those where the principal job loss occurs.
- Educational misalignments: Although retraining efforts can help to some extent, the skills associated with vanishing jobs do not necessarily match the profiles and occupational patterns required in emerging and growing industries.
- Sectoral misalignments: Rising industries may draw more heavily on raw materials or intermediate inputs from sectors that are quite different from those that supply declining industries. The indirect effects will thus vary.
It is against this backdrop that the concept of a just and fair transition assumes great importance. Spreading the benefits of the transition widely and limiting any resulting socio-economic difficulties is essential not just as a matter of fundamental fairness, but also to limit the likelihood that those negatively impacted will oppose policies required to render the world’s economies climate-safe (examples of such opposition are manifold already). A transition can be just if it entails policies to support needed economic restructuring while offering strong interim social protections and giving an adequate voice to affected communities.
Further, a transition can be regarded as fair to the degree that it also seeks to reduce historical divergences in levels of energy access. Universal energy access is in fact a key component of a fair and just transition. The transition process will only be complete when the level of energy services available converges in all regions, overcoming the huge disparities that exist today.
Just transition entails a number of policies, and the mix of policies that are needed will vary from country to country.
- It includes a set of industrial policies that support the creation of domestic supply chains capable of responding to the economic dynamics triggered by the transition. Governments can do so through tools such as providing preferential access to credit, land and buildings, but also through the formation of economic incubators and industry clusters, and initiatives to develop the technological capability of domestic firms. Public investments can stimulate the diversification of the economy as needed.
- Another critical element concerns education and training policies, including an assessment of the occupational patterns and skill profiles in rising and declining industries, and how workers might most successfully be retrained. Governments can promote collaboration between educational institutions and the renewable energy sector, and pursue technology-transfer opportunities from foreign suppliers as part of a long-term skill-building strategy.
- Forecasting skills needs and mapping labour market outcomes are pre-requisites for effective labour market interventions. Offering adequate employment services is essential (matching jobs with qualified applicants; promote employee wellbeing, facilitate on and off-job training and employment safety nets), along with measures to facilitate labour mobility, such as relocation grants. Because reskilling and other adjustments take time and are not always certain to succeed, there is also a need to provide interim support, such as unemployment insurance and other social protection measures, especially for vulnerable workers and their communities.
From the perspective of ensuring a fair transition, adjustment challenges need to be considered beyond urban, industrialised settings, with wider energy access and convergence considerations being factored into energy transition scenarios and planning. In particular, these considerations need to be an explicit part of any socio-economic footprint evaluation of transition roadmaps.