What is a just transition?

Just transition is a phrase that is often used when talking about the move to net-zero economy. The concept was affirmed in the Paris Agreement, and is often referred to when discussing what the world will look like under decarbonisation.

As the climate change threat becomes more real and extreme weather events become more common, policymakers and advocates are taking a just transition more seriously. Senior officials of vulnerable nations have called on financial institutions to take climate action more seriously, while the South African Reserve Bank governor recently urged wealthier nations to share the cost of transitioning.

To understand the debate around how nations and central banks should respond to the increased costs and impact of a greener economy, it’s first important to understand the concept of a just transition.

What is a just transition?

There is no standard definition of a just transition, although the term was originally used by US trade unions in the 1970s and 1980s to refer to workers who lost their jobs due to environmental policies.

In recent years the term has evolved to mean managing the impact and challenge of climate action on everyone during a transition to a net zero economy. The International Labour Organization defines it as “greening the economy in a way that is as fair and inclusive as possible to everyone concerned, creating decent work opportunities and leaving no one behind”.

That includes maximising opportunities while managing any challenges presented by climate action, including respecting labour rights. What that looks like varies for each country.

Meanwhile, the International Trade Union Congress considers a just transition as securing “the future and livelihoods of workers and their communities in the transition to a low-carbon economy”, through better jobs, social protection and training.

What does a just transition look like?

There are also different aspects of a just transition. Yannis Dafermos, professor of economics at the University of London, says there is a global inequality between countries in the global north which have high emissions and countries in the global south which are experiencing some of the most significant effects of climate change.

“If we want to make the transition in a way that can be considered just, the countries in the global north have to contribute more from a financial perspective in order to help countries in the global south adjust to this new reality,” he said.

For Dafermos, a just transition means introducing policies that consider the impact on women, aim to reduce racial inequalities, support the global south, and also support workers who might lose their jobs.

“We need to design a transition in a way that does not create more harm to these social groups and second, ideally, also reduces inequalities that exist already because of climate change,” he added.

A just transition looks different for each country or region, said Haley St Dennis, head of the just transitions programme at the Institute for Human Rights and Business.

“This is a global agenda with localised practice, so the social, labour rights, and human rights risks and development opportunities vary widely across local contexts and sectors,” she said.

For example, countries with economies that rely on high-carbon industries are at a greater risk of economic instability but also workers might not be able to secure employment elsewhere. A just transition would take these factors into account by providing training for other jobs in, say, renewable energy or another type of industry.

Why do we need a just transition?

A just transition is needed to limit inequality. While there is no doubt that the world needs to move faster towards implementing the transition to a net-zero economy, doing so without taking vulnerable communities into account could be costly for the economy. It could lead to civil unrest, social inequality, reduced productivity, as well as less competition among companies.

The needs of richer countries and developing countries also differ, said St Dennis. For richer nations, the focus is on moving away from fossil fuels.

“Managing the social disruption and conflict of mass systems change will be the only way to meet their climate targets in time,” she said.

For developing countries, which have difficulty accessing energy, “climate action must be balanced with energy security and economic development or it will fail,” she said.

We may have less time than originally thought to combat climate change. New estimates by scientists calculate that the earth has five years at the current rate of adding carbon to the atmosphere before global warming is pushed past the 1.5ºC limit set in the Paris Agreement.

While a transition to a green economy will be expensive, costing an estimated US$3.5tn, waiting could increase the cost even more, a study from the European Central Bank found.

Not taking into account a just transition would also likely increase unemployment rates, death tolls, and migration as people are forced to leave their homes due to climate change.

“It will be far costlier not to implement a just transition in any climate action project,” said St Dennis.

For richer countries that means moving away from fossil fuels and “managing the social disruption and conflict of mass systems change”, while for developing and low-income nations “climate action must be balanced with energy security and economic development or it will fail”.

What steps can central banks take to ensure a just transition?

Some just transition advocates argue that there needs to be coordination between different policymakers, including governments and central bankers. One of the key issues is how to pay for a just transition, especially in poorer nations.

“This requires significant changes in the way that we think about central banking but it’s less straightforward than making some adjustments to financial regulation or quantitative easing programs,” said Dafermos.

He says one way central banks can have an impact is by encouraging more lending in certain areas of the economy that are good for the environment, such as supporting small and medium companies that want to invest in climate adaptation.

Other organisations have called for forgiving the debt of poorer nations hit by the climate change crisis and debt-for-nature swaps whereby nations invest in the environment in exchange for debt forgiveness.

A report from the Inspire research network recommends central banks integrate socio-economic implications of decarbonisation in their modeling toolkits, as well as incorporate just transition principles into their policy focus.

“If we really want to be serious about the climate justice issue and just transition, we need to have a new type of monetary fiscal policy coordination whereas the banks support more active spending… in the global south because of the climate crisis that the global north has created,” Dafermos said.