How does today’s low-carbon transition compare with past industrial restructuring?

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Policy AnalystOrganisation for Economic Co-operation and Development (OECD)
27 November 2018
Event Updates

On 27-28 November 2018, the GGKP's Sixth Annual Conference was held in conjunction with the OECD's 2018 Green Growth and Sustainable Development Forum (GGSD) on the theme of "Inclusive solutions for the green transition: Competitiveness, jobs/skills and social dimensions" in Paris, France.   

Enrico Botta presented his issue paper 'A review of “transition management” strategies: Lessons for advancing the green low-carbon transition' in Session A 'Effects of green growth policies on labour markets'. Enrico Botta works within the OECD Green Growth and Global Relations team (GGGR) where he focuses on environmental policies design and impacts.

As economies decarbonise, what will happen to coal miners, offshore oil & gas workers or combustion-engine engineers? Is it possible to ensure a just and inclusive transition to a low-carbon future?

While there are concerns that the transition to a low-carbon future may lead to large job losses, recent OECD analysis suggests that the impact on employment will be limited. The OECD estimates that the introduction of a carbon price of around 50 EUR/tonne could lead to a total labour reallocation of around 0.3% for OECD and 0.8% for non-OECD countries. Is this number large or small? If we consider that total job reallocation accounted for 20% of employment in the OECD countries in 1995-2005, the job shifts due to climate policy is indeed small in comparison. The main reason of this limited effect is that the energy-intensive industries, which are likely to be the most affected by measures to reduce carbon emissions, often account for a small share of total employment.

Notwithstanding the economy-wide impact may be small, certain sectors will be heavily affected by the transition. Extractive industries and fossil-fuels based electricity generation are the first sectors that come to mind when policymakers consider which sectors may shrink due to policies to mitigate climate change. However, also energy intensive industries (e.g. steel, cement) may see a reduction in output and employment because of the higher energy cost due to carbon pricing policies.

A key challenge for restructuring or phasing out these sectors is their tendency to be concentrated in specific regions. The resulting concentration of possible job losses can pose significant challenges to communities if the local economy is not sufficiently diversified. Workers who lose jobs in these sectors may be required to relocate to other regions to find new occupations, with potentially destabilising effect on communities and families. Furthermore, if a large share of fiscal revenues is collected from the industries being phased-out, the ability of local governments to provide education and other public services may be affected, further complicating the transition management.

Interestingly, the low-carbon transition seems to be characterised by two gender aspects. On the one hand, workers employed in the extractive industries and the energy utilities – two of most negatively impacted sectors – are mostly men. For example, 90% of the workforce in mining and quarrying and 80% in the electricity and gas sectors in Europe is composed of men, according to EuroStat (2016). On the other hand, the growth of the renewable energy industry, where female representation is higher than in the traditional energy sector, suggests that the transition may help to rebalance gender representation in this male-dominated industry. At the same time, however, more women need to pursue studies in “science, technology, engineering and mathematics (or STEM)” related fields if we are to boost female participation in several growing segments of the “green” labour market.

Many countries have considerable experience in managing sectoral restructuring processes that could be applied to managing the low-carbon transition. Examples of such structural changes range from the UK coalmine closures in the 1980s to the restructuring of the fishing industry in Peru and the shipbuilding sector in Japan. These experiences highlight that a suite of policy instruments are necessary to manage the transition adjustment process. These include active labour market policies, broadly defined as those programs designed to help workers to find new occupations by improving ability to search the job market for new suitable opportunities, skills policies and structural reforms.

While previous experiences of industrial restructuring hold many lessons learnt, the low-carbon transition may be different in that it is driven by environmental policy. In the past transitions, in contrast, the decline of certain sectors was driven mainly by changes in global market conditions or technology. The policy-driven nature of the low-carbon transition may imply different social acceptability, and may possibly lead to stronger resistance from the segments of the society that are – or perceive to be - negatively affected by such policies. The key challenge for governments is to ensure a “just transition” with inclusive solutions for the affected workers, firms and regions.

The OECD’s 2018 Green Growth and Sustainable Development Forum held in conjunction with the Sixth Green Growth Knowledge Platform (GGKP) Annual Conference explored how to ensure that the green transition does not leave certain communities, regions, or workers behind. What best practises do previous restructuring experiences highlight? Which pitfalls should be avoided? What are the main opportunities and risks generated by the green low-carbon transition for workers, firms and households? What determines social acceptability and public perception of the green transition in the post-truth world? The Forum discussed these topics with many distinguished speakers, including Professor Nick Stern, Professor Olivier Deschenes, and Mr. Norbert Kurilla, State Secretary of the Slovak Ministry of Environment.

The opinions expressed herein are solely those of the authors and do not necessarily reflect the official views of the GGKP or its Partners.