Towards a Greener Future: Leaving No One Behind in the Transition to Climate Neutrality
Text1: Endre Gyorgy, Katarina Jaksic, Frank Siebern-Thomas,
Directorate-General for Employment, Social Affairs and Inclusion, European Commission
The green transition is creating jobs, changing skill needs and mitigating job polarisation. But it is not inclusive by default: employment and social impacts vary by group, country, sector and region. A strong social dimension is key for just transitions through reskilling, income support and access to basic needs such as energy and transport.
Like the digital transition, the transition to climate-neutrality offers many opportunities and raises significant challenges, notably in the employment and social spheres. While having substantial job creation potential, it can have a transformative impact on economic structures, value chains and skill requirements, as well as significant employment and skills impacts in the renewable energy and circular economy sectors, for example. The greening of the economy will affect jobs and occupations throughout the whole economy. Foremost, jobs and occupations in which greening leads to substantial changes in tasks and required skills will be affected.2 Moreover, new jobs and occupations will be created to meet the new demands of the green economy.3
Ambitious climate action coincides with other megatrends such as automation and digitalisation that have major impacts on future skill needs, too. New business models such as the platform economy, and new forms of work and work organisation, including teleworking, have an impact on electricity and mobility demands and related emissions. New and changing value chains in a more circular economy and technological innovation to improve resource efficiency will also have a major impact on labour and skill demands. All together, these developments require significant labour re-allocation across firms and sectors and new specifically green skills, as well as the continuous improvement of existing transversal and specific skills, including digital skills, and flanking measures that support the transitions and facilitate reskilling. If not managed properly, the transitions risk increasing energy poverty and inequalities. Access to social protection and essential services is key to ensuring that the costs and benefits of the transitions are shared fairly.
This section summarises recent evidence on how the transition to climate neutrality is likely to impact the future of work. It summarises employment and social impact of climate action based on the European Commission’s annual flagship review, Employment and Social Developments in Europe (ESDE),4 as well as related recent policy developments.
„Environmental and climate policy clearly is a key element of a fair and just society. Inaction is not an option.“
Climate change and environmental protection: Inaction is not an option
Environmental degradation and climate change have a direct and significant impact on the health and well-being of EU citizens, and a significant proportion of Europeans have already been affected by extreme heatwaves, severe droughts and floods. The socio-economic cost of inaction on environmental and climate issues would be considerable, reducing GDP in the EU by up to 2 per cent, and GDP in Southern Europe by more than 4 per cent in the long term (Figure 1), thereby increasing inequalities within and among Member States and regions. Environmental and climate policy clearly is a key element of a fair and just society. Inaction is not an option.
Moreover, surveys show that the vast majority of the EU population across all age groups and education backgrounds considers climate change a serious, man-made problem and feel a high level of personal responsibility to contribute to the fight against climate change.
Ambitious targets and distributional impacts: Room for policy action
There is a broad consensus that progressing towards an environmentally sustainable and socially fair economy is a realistic goal for the EU, benefitting from its strong social foundations and its role as global frontrunner for a number of social Sustainable Development Goals. It is uniquely placed to promote sustainable economic growth that respects both social foundations and ecological ceilings (Figure 1). However, the transition to sustainability and climate neutrality is not inclusive by default. Its unequal distributional impacts could undermine social acceptance, in particular at times where some of the social foundations are under unprecedented pressure due to the coronavirus pandemic and public health crisis. To ensure wide public support, environment and climate change policies need to integrate fairness and equity considerations from the outset while strengthening social protection and social services in parallel. Employment and social policies have a key role to play in this context.
Employment and skills in the transition to a climate-neutral economy
According to latest available statistics, 4.5 million people worked in environmental goods and services sectors in the EU in 2016, up from 3.2 million in 2000. This includes jobs in waste management, environmental protection and energy preservation. Absolute employment numbers in these “green economy” sectors are relatively small and well below those of information and communications technology (ICT) specialists (almost 7.4 million in 2015) or other ICT task-intensive jobs (15.8 million in 2015). Employment shares in environmental goods and services sectors vary from around 1 per cent of total employment in Belgium and the UK to 5 per cent or more in Estonia and Finland, compared to employment shares between 5 and more than 20 per cent in ICT jobs (Figure 2 and Figure 3).
Employment and value generation in the EU are increasingly taking place in economic sectors that are relatively low in carbon emissions and material inputs. Electricity production, transport, extractive industries, agriculture and manufacturing together produce close to 90 per cent of all CO2 emissions yet account for less than 25 per cent of employment and gross value added in the EU. Decarbonisation of these sectors, including through innovation and new technologies, will be key for achieving climate targets and greening value chains overall. Lowcarbon industries and service sectors produce less than 10 per cent of all CO2 emissions, but employ more than 70 per cent of the EU workforce. At the same time, they are also the sectors with the strongest employment increases: 7.5 per cent increase in the period 2013–2018 (1.5 per cent annually) compared to 3.4 per cent (0.7 per cent) in the other sectors. Yet progress is not automatic, as service sectors also increasingly rely on electricity.
Projections of the impact in 2030 of a full implementation of the Paris Agreement show that the transition could raise GDP by an additional 1.1 per cent and employment by 0.5 per cent compared to a scenario without climate action policies.5 Job creation is projected mostly in growing green(ing) sectors, both in industry and services, including construction, waste management and sustainable finance. The positive impact on GDP and employment is largely due to the investment required in the transition, together with lower spending on fossil fuel imports.
In these projections, employment impacts vary considerably among sectors. Job gains in services, construction, renewable energy sectors and agriculture would be partly offset by job losses in fossil fuel-related mining and temporary job losses in the utilities sector. In the latter, employment is expected to decrease temporarily, as increased energy efficiency in buildings and households in particular would lead to lower production activity and output in the electricity and gas supply sectors.
On the 2050 horizon, demand for electricity and thus employment in the sector is projected to grow strongly, as industry, transport and other services become increasingly electrified. Energy production and energy-intensive sectors such as steel, cement, car manufacturing, machinery and chemicals will have to transform and shift to new production processes as part of the transition – which will require new skill sets.
Expected employment impact further varies across Member States and skill groups (Figure 4 and Figure 5).
Countries and regions with high value added and employment shares in declining or transforming sectors, many of which are in Central and Eastern Europe (including Germany), are particularly affected. For some of them, labour or skill shortages remain a major challenge, while all of them face low participation rates in adult training (Figure 2), posing an additional challenge to successfully managing transitions.
At Member State level, positive and substantial employment gains are expected notably in Belgium, Spain and Germany, where employment would increase by up to 1 per cent of total employment (equivalent to some 60,000 additionaljobs in Belgium, 200,000 in Spain and 350,000 in Germany). By contrast, there would be small effects only in Denmark, since the country is already well advanced in the uptake of renewables and energy efficiency. The impact on overall employment growth in Poland would also be small, as job losses in the coal production sector are expected to offset gains in other sectors.
In addition, climate change policies are expected to affect job quality. Job creation due to climate change policies would in particular mitigate further job polarisation expected under the baseline scenario and contribute to more inclusive job growth, unlike job creation driven by digitalisation and further integration in global production networks and value chains, which are expected to increase
„To ensure wide public support, environment and climate change policies need to integrate fairness and equity considerations from the outset while strengthening social protection and social services in parallel. Employment and social policies have a key role to play in this context.“
further job polarisation. Instead, if accompanied by effective reskilling and labour market policies, job creation due to climate change policy is expected to mitigate these tendencies by adding middle-skilled, middle-paying jobs, notably in the construction sector and in services sectors more generally (Figure 5).
However, these effects also vary across Member States. In particular in Germany, climate action favours job creation for all skill groups, in contrast to the further expected employment polarisation overall. In Spain, Ireland, Estonia, Lithuania and Slovakia, climate action is expected to mitigate job polarisation somewhat by creating middle-skilled, middle-paying jobs. In other countries, including Poland, climate action is more likely to support low-skilled job creation, thereby counteracting the generally observed trend of skill upgrading in those economies.
Other co-benefits and challenges of climate policy
Access to affordable energy, mobility and quality housing is key for social fairness. However, irrespective of the slump of oil and energy prices as a result of the corona pandemic, energy costs are set to increase over the next decade in the transition to climate-neutrality. One risk related to decarbonisation therefore is increasing energy poverty, with growing shares of households at risk of being unable to afford heating, cooling or other energy services due to a combination of low income, high expenditure on energy and poor energy efficiency of their homes. Energy poverty in turn has impacts on health, productivity and the environment.
A key driver of energy poverty, energy prices have risen substantially over the last two decades, increasing financial pressure on households; notably low-income households but in some Member States also a significant proportion of middle-income households. Recent developments have been positive in the EU overall, however, as the proportion of households subject to this type of energy poverty has on average decreased below its 2010 level. Well-targeted social benefits, social housing and energy-efficiency measures can mitigate energy poverty.
Carbon pricing policies such as carbon taxes and emission trading can have important distributional implications, too, which depend on the income elasticity of emissions: the percentage increase in emissions as income increases by 1 per cent. The share of energy consumption within total consumption decreases for higher-income households, while their indirect emissions associated with goods like food and durable consumer goods are significant. There is mounting evidence that the overall income elasticity of emissions is close to 1.6 A significant burden of carbon pricing would have to be borne by better-off households while using some of the revenues for compensating low-income households.
A tax shift from labour to energy consumption – waste and pollution in particular – can help internalise social and environmental externalities, avoid the setting up of “pollution havens” and set incentives for “greening” production and consumption patterns and promoting inclusive growth, productivity gains for firms and increased well-being for people.
Finally, one of the most important co-benefits of climate action is its positive effect on reducing air pollution, which remains one of the main environmental health risks in the EU, causing around 400,000 premature deaths per year.It affects vulnerable groups disproportionately,including children, the elderly, those with preexisting health problems and those from lower socio-economic backgrounds.
„A tax shift from labour to energy consumption – waste and pollution in particular – can help internalise social and environmental externalities, avoid the setting up ofpollution havens and set incentives forgreening production and consumption patterns.“
Furthermore, the immediate gains from reducing air pollution are visible on a local level and short-term scale, compared to the benefits of a more abstract climate mitigation action.
Outlook: The European Green Deal and a strong social Europe for just transitions
With its European Green Deal,7 the European Commission presented a new strategy for the EU to cut emissions while creating jobs and wellbeing and promoting environmental protection and respect for planetary boundaries. It rolls out an ambitious action plan in line with the EU’s commitments under the Paris Agreement.8 To succeed, the transition to climate-neutrality will have to be fair and inclusive, leaving no one behind, by providing targeted support to the workers, sectors and regions most affected.
Both the European Parliament and the European Council have endorsed the climate-neutrality objective and underlined the importance of a just transition. In its resolution of November 2019,9 the European Parliament declared a climate and environment emergency and urged the Commission to ensure full alignment of all proposals with the climate and environment objectives. The European Council has set building a climate-neutral, green, fair and social Europe as one of the main four priorities of its Strategic Agenda for 2019–2024.10 In its conclusions of December 2019,11 it highlighted that the transition requires significant public and private investment and further called upon the Commission to regularly report on the socio-economic impacts of the transition to climate-neutrality.
A number of instruments have been developed in response, and as part of the Green Deal, to promote investment, empower citizens, ensure a just transition, and align action in all policy areas:
- a proposal for a first European Climate Law12
- a Green Deal Investment Plan13
- a new Circular Economy Action Plan14
- integration of environmental sustainability aspects in the European Semester
- attention to energy poverty in the EU climate and energy governance framework
- a future European Climate Pact.15
Stepping up efforts to reduce greenhouse gas emissions by at least 50 per cent by 2030 will require frontloading efforts in a number of sectors. Careful monitoring is needed of the impact this may have on specific sectors, labour markets and social outcomes.
„To succeed, the transition to climate-neutrality will have to be fair and inclusive, leaving no one behind.“
To cope with the multiple transition challenges and accompany firms and workers in the twin transitions to a digital and climate-neutral sustainable economy and society, the European Union needs an ambitious social policy moving forward, underlining the importance of pursuing the implementation of the European Pillar of Social Rights. Since the endorsement of the Pillar in 2017, the Commission has taken a range of concrete initiatives to put the 20 rights and principles of the Pillar to support fair and well-functioning labour markets into practice at European level.
„To cope with the multiple transition challenges and accompany firms and workers in the twin transitions to a digital and climate-neutral sustainable economy and society, the European Union needs an ambitious social policy moving forward.“
In its Communication of 14 January 2020 on A Strong Social Europe for Just Transitions,16 the Commission outlined additional initiatives to take the list of achievements further and launched a broad consultation with a view to presenting by early 2021 an action plan to implement the European Pillar of Social Rights and an action plan for the social economy. Other EU instruments such as the ESF+, the European Globalisation Adjustment Fund (EGF) and European Social Dialogue also contribute to a just transition by supporting workers and families who are dependent on work in energy-intensive sectors during the transition.
Together with the important measures taken in response to the challenges stemming from the coronavirus pandemic to protect people, reinforce public health sectors and mitigate the socio-economic impact, these actions and instruments will help keep the course towards an even stronger social Europe, strengthening economic and societal resilience and providing an enabling framework for successful, just transitions to a sustainable future for all.