2.9 Policies for a just energy transition

A broad set of policy measures are required to avoid a rise over 1.5°C and align short-term actions with longer-term climate and socio-economic development objectives.

Governments have a crucial role in placing the world on a 1.5°C trajectory and advancing a just energy transition. The transition discourse often defines governments’ primary responsibility as creating an enabling environment for private investments through predictable and stable policies and de-risking public financing tools. In fact, a much broader set of policy measures is required to facilitate the adoption of the entire spectrum of energy transition solutions needed to achieve the 1.5°C target and align short-term actions with longer-term climate and socio-economic development objectives.

In addition to the specific policies and measures needed to support the various technological avenues discussed above, a broad policy framework is required for a just energy transition and its interaction with the main system layers of energy, society, the economy and the planet – as shown in Figure 3.1. This comprehensive framework includes a host of cross-cutting enabling policies, structural and just transition policies to address potential misalignments that may arise, and a holistic global policy framework to strengthen international collaboration.

2.9.1 Cross-cutting enabling policies

As discussed in Section 1.3 of Chapter 1, countries worldwide need to be increasingly ambitious in their pledges to scale up renewables and cut energy-related greenhouse gas emissions while reaping significant socio-economic benefits. NDCs are still collectively insufficient to achieve the 1.5°C goal and need to be more ambitious. Net zero targets are not immediately feasible for all economies. In addition, for commitments and net zero pledges to materialise, they need to be translated into national laws and short-term policies and measures that are part of a robust long-term policy framework combining various aspects, including deployment policies and financing. Moreover, targets in national legislation and NDCs should go beyond the power sector and cover end-use sectors – heating/cooling and transport – to accelerate the pace and depth of the transition. Targets must also consider energy transition solutions and technologies such as green hydrogen.

A phase out of fossil fuels represents an important component of the energy transition, with its contribution to final energy consumption falling from 64% in 2018 to 10% in 2030 under the 1.5°C Scenario. To reduce the risk of stranded assets, governments should halt the development of fossil fuel plants. Some assets will need to be phased out, including fossil fuel upstream supply infrastructure, power plants and inefficient boilers, and governments need to devise a long-term plan as seen in many European countries and some cities in China. Under such plans, provisions should be made to ensure a just and fair transition for affected workers and communities (e.g. early fossil fuel asset retirement policies being implemented in Germany).

Phasing out fossil fuel assets should be done in tandem with measures to eliminate distortions and incentivise energy transition solutions. This involves phasing out fossil fuel subsidies, and levying the environmental, health and social negative externalities of fossil fuels to remove support for the fossil fuel industry as well as existing market distortions. Fiscal policies, including carbon pricing policies, should be implemented and adjusted to enhance the competitiveness of transition-related solutions against fossil fuels. In Sweden, the taxation of fossil fuels has been a major driver for renewable heat. However, like the phasing out of fossil fuel subsidies, such interventions should be accompanied by a careful assessment of equity, particularly among low-income populations, to ensure that they do not worsen energy poverty or have other socially regressive effects.

Finally, efforts are still needed to raise awareness among customers and citizens regarding the potential and benefits of transition-related solutions. Public campaigns that share relevant information and raise awareness are vital for encouraging citizens to adopt clean solutions and behavioural changes in line with reduced energy consumption. South Africa, for example, launched the Solar Water Heater Campaign to increase public awareness while similar policies helped Barcelona (Spain), Rizhao (China) and Cape Town (South Africa), among other cities, to promote solar thermal solutions.

2.9.2 Structural and just transition policies

It is essential to recognise that regions and countries face markedly different contexts with varying starting points, socio-economic development priorities and resources. Any structural change in an economy (including an energy transition) will bring benefits, as well as challenges in the form of misalignments that may become evident in finance, labour markets, power systems and the energy sector itself. These misalignments, if not well managed, risk inequitable outcomes and a slower energy transition. A set of structural and just transition policies, along with the creation of strong institutions to ensure policy co-ordination and cohesion, is required to manage potential misalignments.

Labour-market interventions that facilitate collaboration between industry and educational institutions can contribute to more co-ordinated skill-matching efforts. In parallel to providing young people access to new careers in the renewable energy sector, the existing workforce also presents a potential talent pool, and it is important to not leave them behind. Reskilling and upskilling measures

will be vital for extending the employment benefits of the transition along the value chain and across the wider economy. Support for vulnerable workers and their communities would help ensure they do not shoulder an unfair burden of the energy transition. This includes unemployment insurance and other programmes to promote income stability, policy incentives for employers to retain (and retrain) workers where possible, and flexible, longer-term employment contracts to promote job stability. In addition, governments will also need to dedicate funds to the reorientation and reskilling of the workforce, such as the Scottish government’s “Transition Training Fund” which offers grants for the retraining of oil and gas workers who have lost their jobs or are at risk of redundancy. Partnerships between governments, industry and trade unions will play an important role in facilitating the shift for workers and securing safety standards and social benefits.

Bolstering efforts to strengthen local value chains would not only create new renewable energy jobs but also generate income by leveraging existing and new economic activities. Industrial policy can support the development of internationally competitive local or regional suppliers, particularly in developing economies. In India, a production-linked incentive scheme has been launched to promote the manufacturing of high-efficiency solar PV modules and reduce import dependency, as part of the recovery plan. The availability of the materials and equipment, as well as skills, required along the value chain will also be an important factor in determining where local value creation can be maximised. Enhancing and leveraging domestic capabilities require carefully crafted incentives and rules, business incubation initiatives, supplier-development programmes, support for small and medium enterprises and promotion of key industrial clusters. Small and medium enterprises play an important role in any attempt to maximise local benefits and diversify economies. Supporting the digitalisation of small firms and easing start-ups’ access to finance and information, among other steps to support small and medium enterprises, will go a long way to promote innovation and economic opportunities. Start-ups benefit from the promotion of key industrial clusters, as do firms of any size along the value chain of a technology. The proximity of manufacturers and designers of a certain technology to service providers and markets creates synergies and thus additional benefits.

The renewable energy sector offers employment prospects for people with a wide range of experiences and backgrounds, and skills that are typically available in country. While there is a demand for professionals with training in fields such as science, technology, engineering and mathematics, as well as other highly qualified individuals (such as lawyers, logistics experts, marketing professionals, financial analysts and experts in regulation and standardisation), most jobs do not require a university degree, but high manual dexterity and on-the-job experience.

Structural policies are needed to maximise the socio-economic benefits and ensure a just and inclusive energy transition

Community energy – the economic and operational participation and ownership of citizens or members of a defined community in a renewable energy project – can play an important role in accelerating renewables’ deployment while generating local socio-economic benefits and increasing public support for local energy transitions. Policy makers would do well to set up enabling frameworks that help promote market entry for community energy projects and put financial measures in place to de-risk early-stage activities, offset capital costs and provide communities with access to affordable and low-cost financing. Further, administrative measures like one-stop-shops can support communities in navigating the complex process of developing a renewable energy project as well as help with skills development and capacity building. Governments are adopting policies that value direct citizen participation in renewable energy projects. In countries such as Germany, Denmark and Japan various forms of community energy have emerged that encourage ownership in renewable energy projects next to accelerating local socio-economic development.

Policies and measures are also needed to ensure the sustainability of energy transition-related solutions, focusing on circular economy principles. Topics of concern, for example, include the social and environmental impacts of mining activities and the use of relatively scarce components which require end-of-life management (Chapter 7). Together with industry and other stakeholders, governments need to prepare for the anticipated waste volumes of equipment – such as solar PV panels and batteries – including through legislation. R&D programmes across energy and waste sectors and industrial clusters could help stimulate innovation in end-of-life management. Tackling larger waste streams will also lead to the expansion of waste management infrastructure, and regional cooperation can be beneficial, especially in the absence of substantial national waste volumes or country-specific technical know-how.

2.9.3 A holistic global policy framework

The policies needed to advance the energy transition reinforce one another and have implications for the energy system, economy, society and planet. An integrated policy approach is necessary to account for feedback among policies and across the systems to ensure a timely, just and fair energy transition. A holistic global policy framework is needed to bring countries together to commit to a just transition that leaves no one behind and strengthens the international flow of finance, capacity and technologies in an equitable manner. Climate policies represent a crucial piece of such a framework. A portfolio of measures might include fiscal policies such as adequate carbon pricing covering emissions across sectors and meeting public funding needs to implement policies, efforts to set up enabling conditions for deployment, education and training, and social protection mechanisms. The requisite financial resources will not always be available domestically; international collaboration and cooperation are needed to channel them, particularly to least developed countries and small island developing states.