• Addressing climate change involves multiple approaches, including incentives, fiscal measures, and new and improved standards.
• Mitigating climate change is an economic—and moral—imperative because the overall costs of unmitigated climate change to society far outweigh the costs of mitigation.
• However, there are short-term costs, and we need to understand who those costs fall on versus who gains. Costs are always unwelcome, but we need to demonstrate the benefits, including energy security and new green jobs.
• A just transition is essential to ensure widespread support and avoid delays that will simply result in greater climate change.
• A just transition means fairness must be an integral part of the fiscal/policy response to climate change.
• To gain acceptance, the proceeds of taxes/duties must be perceived as well spent to be popular, gaining political and social legitimacy.        

It’s widely understood that climate change on the current trajectory would be economically devastating across society. Economists warn that 2˚ of warming by 2050 could result in a 2.5% to 7.5% reduction in global GDP, with the worst effects felt by countries in Africa and Asia. In the long run, the costs of acting to reduce the temperature rise far outweigh the costs associated with adaption.

We know that climate change itself is likely to have the greatest impact on the poorest individuals, communities, and countries—those least able to mitigate its effects. We have evidence already: The COVID crisis has shown that extreme events disproportionately affect the poorer members of society and exacerbate preexisting income gaps within countries. So we must act, but how we try doing so will influence whether mitigation continues to have popular support.

Crucial to achieving consensus on climate change action is a fair and equitable approach to its implementation—a just transition that addresses the risk that the costs of addressing climate change fall disproportionately on those unable to afford it. Likewise, those who have worked hard in challenging conditions to extract fossil fuels need training and jobs in the new industries created by the transition to cleaner energy.

It’s widely understood that climate change on the current trajectory would be economically devastating across society. Economists warn that 2˚ of warming by 2050 could result in a 2.5% to 7.5% reduction in global GDP, with the worst effects felt by countries in Africa and Asia. In the long run, the costs of acting to reduce the temperature rise far outweigh the costs associated with adaption.

We know that climate change itself is likely to have the greatest impact on the poorest individuals, communities, and countries—those least able to mitigate its effects. We have evidence already: The COVID crisis has shown that extreme events disproportionately affect the poorer members of society and exacerbate preexisting income gaps within countries. So we must act, but how we try doing so will influence whether mitigation continues to have popular support.

Crucial to achieving consensus on climate change action is a fair and equitable approach to its implementation—a just transition that addresses the risk that the costs of addressing climate change fall disproportionately on those unable to afford it. Likewise, those who have worked hard in challenging conditions to extract fossil fuels need training and jobs in the new industries created by the transition to cleaner energy.

"The transition towards inclusive and low-carbon economies must be just and fair, maximizing opportunities for economic prosperity, social justice, rights and social protection for all, leaving no one behind."

Momentum is building among countries and businesses to implement initiatives designed to curb reliance on polluting through carbon pricing. In 2021 alone, 65 carbon pricing initiatives were selected by 45 national jurisdictions and 34 subnational jurisdictions, representing 11.65 GtCO₂e, or 21.5% of global greenhouse gas (GHG) emissions. These costs threaten a near-term inflation pickup as businesses essentially pay to pollute or, alternatively, invest in the new technology required to avoid emitting GHG.

As the International Monetary Fund sharply cuts its growth forecast for 2022, with a warning that higher-than-expected inflation and the Omicron variant have worsened the outlook for the global economy, some politicians have started to attack these green taxes as inflation begins to bite in both developed and developing nations. In the United States, President Biden faced a watering down of his US$3.5 trillion social spending and climate bill to expand social programs and combat climate change, with some Democrats warning that the proposed US$555 billion earmarked for climate and clean energy investments could be reduced or scrapped.

Taxes on energy disproportionately affect the less wealthy, but it's crucial to achieving net zero that green taxes continue to incentivize a shift to sources of low emission energy. In the long-term, solving climate change will benefit society broadly and, more particularly, its poorest people, communities, and countries, but it’s vital that the proceeds of green taxes are clearly earmarked to show clear value to society and positive direct benefits in the short term.

What is a just transition?

At its core, the Paris Agreement recognised the importance of achieving “the imperatives of a just transition of the workforce and the creation of decent work and quality jobs in accordance with nationally defined development priorities." When tackling climate change, we also need to consider wider sustainable development goals, including reducing inequalities and offering decent work and affordable, clean energy. Broadly, when considering a just transition, we should be considering workers, supply chains, communities, and consumers, which are all affected by fiscal measures.

"One of the major challenges in moving towards a low-carbon economy is enabling workers in declining industries to find new jobs and livelihoods."

UNFCC, April 21, 2020

Why should we aim for a just transition?

1 For purely ethical reasons

2 To ensure the social legitimacy of the transition

3 To ensure the widest possible political acceptance and avoid protests and delays, with their associated financial and environmental costs

Failing to properly transition jobs from high carbon to low carbon risks policy reversal if those who have worked hard in difficult conditions to extract fossil fuels (e.g., coal miners) fail to see real action to develop jobs in renewable industries in their areas.

There are a huge number of jobs forecast to be created by the transition—18 million jobs could be created by 2030 in pursuit of the Paris Agreement goals—but workers need to see real action to ensure that jobs in renewable industries are encouraged in their areas and know they’ll be qualified and trained for them.

There are overlaps in transferable skills between occupations in polluting and renewable energy industries: The skillset of electrical engineers employed in operating fossil fuel power stations can be adapted to renewable power plants, former shipyard workers could be successfully retrained to build offshore wind farms, as could displaced coal workers for the solar industry. Ambitious pilot projects have been launched to lure workers to relocate to far-flung green industrial megaprojects but these industries (e.g., wind farms) may already lie in similar locations to existing, polluting industries (e.g., offshore oil rigs). More localised projects may help to convince workers that these new jobs really will be coming to their areas, often to the same industrial heartlands that will see polluting industries decline.

The UN’s just transition white paper suggests that companies, industries, and state or federal governments could establish and finance public retraining programmes to enable reskilling within the context of regional economic development strategies. Companies should identify their community engagement, especially in regions in which stranded asset risk is highest, and unions will need to ensure their members receive the training they need through the collective bargaining process.