Growing focus on a fair and inclusive energy transition

With environmental and climate change pressures mounting, societies and governments are compelled to transition to greener and more climate-neutral practices to build more sustainable economies. The 'just transition' describes an approach to this energy transition that is as fair and inclusive as possible, as was the focus of Cop27, keeping the social dimension at the forefront of discussions on climate change. The vision for a just transition is often attributed to UN agency the International Labour Organization's publication of its Guidelines for a Just Transition Towards Sustainable Economies and Societies for All, where it is described 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".

Impact on people

The main focus of the just transition is the impact on people and, in particular, workers and local communities of changing industries and physical environments. The Paris Agreement set out the requirement for national plans to take into account "the imperatives of a just transition of the workforce" and the creation of decent work and quality jobs.

To this end, the European Commission has established a Just Transition Mechanism ("JTM") to help mobilise funds that can be used to support member states in their transitions. The Commission has stated that the JTM is intended to benefit people and citizens most vulnerable to the transition by facilitating employment opportunities in new sectors and those in transition, offering reskilling opportunities and investing to fight energy poverty.

As well as initiatives from political bodies such as the EU, companies are also expected to support the just transition through protecting workers and local communities in their operations and supply chains. Scrutiny in this area is likely to increase, with the World Benchmarking Alliance developing indicators for the Just Transition Benchmark to assess 450 keystone companies' contributions to a just transition by addressing the social challenges of the move to a low-carbon world. In particular, it will consider their efforts to respect the rights of workers, communities and the most vulnerable.

Another area of focus for ensuring a just transition is through assisting less-developed countries with their energy transitions. For example, at Cop26 the Just Energy Transition Partnership (JETP) was established between South Africa, Germany, France, the UK, the US and the EU to support the phase-out of coal in South Africa through an $8.5bn pledge. This model was intended to offer a template for cooperation between the Global North and the Global South, and to help support additional developing countries' transitions to clean energy. Since the pledge in 2021, the terms of the financing have been agreed and South Africa has developed a five-year transition plan that relies on this JETP financing to attract investment from the private sector.

As well as ensuring fairness and promoting societal and individual wellbeing, the just transition is expected to offer the benefit of a more effective transition. A just transition seeks a more sustainable approach by mitigating the risk of adverse economic consequences, political fallout and social disruption. For example, this can be achieved through engaging stakeholders and developing collaborative strategies to avoid political and social backlash, and encouraging economic resilience through investment in human capital.

Climate transition forecasting consortium the Inevitable Policy Response's report on the just transition highlights this further by explaining the risks of stranded workers and stranded communities from a poorly managed transition—risks that could result in economic stagnation and political instability. A collaborative approach across countries, in particular between developed and developing countries, can also enable a quicker, and less costly, energy transition.

Looking forward, we can expect the conversation on a just transition to develop, engaging companies, governments and international organisations, and building on commitments to the just transition in previous Cops. Given its roots in the concept of sustainable development, the just transition will also be closely linked to new legislative measures for supply chain due diligence and responsible sourcing of critical minerals. Integrating the principles of a just transition will increasingly be at the core of energy transition strategies.

Reproduced with permission from PE Media Network. This article was first published in PE: Outlook 2023.

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.