How to lay the groundwork for a just energy transition

Climate action has the potential to protect the environment, save lives, and generate massive economic opportunities, including the creation of 30 million jobs in clean tech sectors. But if not managed carefully, climate-friendly initiatives can inadvertently introduce high costs and inequities, particularly for at-risk populations and workers in legacy industries. That’s why it’s imperative that the transition to low-carbon energy is just and inclusive, adopting a human-centric approach that leaves nobody behind, including those who lack access to energy or may face steeper prices.

Our current situation has been described as an energy trilemma, we require a secure and reliable energy supply at an affordable cost with minimal negative impact on the environment and society. Policymakers and business leaders will need to navigate potential tradeoffs through the transition. For example, the phase-out of unabated fossil-fuels is critical to arrest global warming but threatens 33% of jobs in the sector.

A low-carbon energy system promises an escape from the trilemma – but the journey to get there will be complex and uncertain. A rapid and smooth transition requires the cooperation of companies, governments and regulators, investors and development finance institutions (DFIs), and NGOs and partnerships. The principles of a just transition include:

Ensuring equitable employment for transitioning workers. The just transition will disrupt industries, such as coal and oil and gas, and destabilise tax revenue in the local and regional economies that depend on them. New jobs in clean energy sectors will require upskilling and training, and may not be available in the areas where factories, plants, and mines closed down. To minimise the impact on workers’ livelihoods, thoughtful measures and policies must be adopted.

Phasing down oil and gas rapidly, but still making selective investments. Coal must be swiftly phased out. However, most net zero scenarios call for a supply of oil and gas in 2030 that is equivalent to 50% to 80% of 2021 supply levels — particularly for fuel use in hard-to-abate sectors and as feedstock in petrochemicals. Current productive assets will not meet this demand in 2030 or beyond (projections for 2050 estimate we will still require 15% to 30% of 2021 supply levels). Therefore, we must create conditions that ensure selective investment in the development of the most affordable, least GHG-intensive oil and gas volumes.

Supporting at-risk groups. The poorest 40% of the population are the most likely to lose income as a result of climate change, which is sending more than 26 million people under the international extreme poverty line each year. If the energy transition is not managed well, rising energy costs and job losses will further imperil the world’s most disadvantaged communities.

Increasing climate financing. A BCG analysis shows that countries have invested only 16% of the $3.8 trillion annually that experts say is required to meet the Paris Climate Agreement goal of limiting global warming to 1.5°C above preindustrial levels. While significant commitments have been made toward emerging markets, often as part of just energy transition partnerships (JETPs), actual funding has not started to flow at the scale required. It must begin soon, or we run the risk of locking in fossil fuel investments in emerging markets and simply replacing existing emissions from developed countries with future emissions from developing countries. Governments and companies must boost funding and direct investments to address this.

Avoiding unintended consequences. Well-meaning projects can have adverse effects on biodiversity, ecosystems, and human health, and leaders need to manage the transition within our planetary boundaries. We must also implement a rapid, substantial phase down of fossil fuel demand that simultaneously ensures secure and affordable energy.

Achieving these principles and maximizing the positive socioeconomic outcomes of a just transition will require the contributions of a diverse array of stakeholders. In the following section, we’ll highlight the steps different actors can take to ensure that the costs and benefits of a transition to low-carbon energy are equitably distributed.

Governments and regulators should work with companies and social groups to identify employment alternatives for disrupted and at-risk workers and design effective transition policies that seek to protect livelihoods. Governments should also invest in modern infrastructure, implement planning and permitting improvements, and incentivise climate investments.

Companies must plan for a just transition that includes retaining, retraining, and redeploying workers. Companies can also responsibly repurpose carbon-intensive assets. It’s also important for companies to be transparent about their equitable transition goals and share best practices with industry peers.

Investors and DFIs should leverage metrics to focus on assessing companies’ just transition strategies, and incorporate their findings into capital allocation decisions. They should also scale up global financing and fill funding gaps in developing economies. They can also ensure the long-term sustainability and performance of portfolios by accounting for just-transition challenges.

If left unchecked, climate change could push up to 132 million people into extreme poverty and generate a 2% loss in global GDP per capita by 2030. The just transition has the potential to bring many socioeconomic benefits, including new jobs, GDP growth, and improved health and well-being. But it will also be highly disruptive. Governments, companies, and investors must work holistically to ensure that the green revolution maximises sustainable employment and development opportunities for all, especially at-risk workers, legacy industry employees, and their communities.