The Just Transition is an idea that emerged out of trade union movements, has been advocated by environmental justice groups, and has resonated across the political spectrum. So much so that COP 24 in Katowice, Poland, was dubbed the ‘Just Transition COP’ by many involved. Indeed, 53 governments, including the UK’s, signed a Just Transition declaration at COP24. The term now represents a host of strategies to transition communities and build thriving economies that provide dignified, productive and ecologically sustainable livelihoods.
The crucial context for the Just Transition is a need to decarbonise the global economy at an unprecedented rate. The transition to a net-zero carbon economy has to be deep, broad, and rapid if we are to avoid truly catastrophic global heating and irreversible climate change. Any delay in reducing emissions results in an ever steeper pathway to net-zero by 2050.
The Just Transition is about doing this in a socially just and equitable manner.
WHO WILL BE AFFECTED BY The just transition?
Most commentaries on the Just Transition focus on technological switching (fossil fuels replaced by renewables for energy generation and transport, for instance). This has resulted in a focus on the fossil fuel industry in many analyses, but there has also been some work done on Just Transitions in other key sectors, such as agriculture.
Whilst technological change is going to be important to the transition, it is also likely that, to achieve the necessary emissions reductions in the short space of time we have, there will need to be a marked shift away from the type of non-essential consumerism that has taken root in many wealthy nations. Societal norms will probably have to alter in quite profound ways, with a rise in product and service sharing, less material-intensive lifestyles, greater leisure time, and so on. In this sense, the transition may impact everyone in some way.
With respect to the UK, analysis conducted by the LSE’s Grantham Institute and its partners has focused on the East Midlands, West Midlands, and Yorkshire and the Humber, as three regions with the highest proportions of jobs that could be exposed to the transition. Their work has highlighted the risks and opportunities with respect to a localised Just Transition in these regions, and outlined some case studies of place-based transitions (e.g. the Siemens-Gamesa wind turbine factory in Hull).
WHAT IF the TRANSITION ISN’T “JUST”?
Key proponents of the Just Transition have stressed that, unless the rapid shift to a low-carbon economy is socially equitable, or if it threatens the welfare and prosperity of the sections of society most likely to be impacted by it, then the transition itself may falter due to lack of social and political support.
A good example of what can happen if this social equity element is missing from transition or climate policy can be seen in France. Since 2018, the Gilets Jaunes, or ‘Yellow Vests’, have clashed with the French government, over, among other things, a tax increase on fuel, the proceeds of which were intended to fund a low-carbon energy transition in the country.
Similarly, Australian coal miners have been vocal in their opposition to climate policies which would destroy their jobs and livelihoods, without adequate compensation. The defeat of the Australian Labour party in the country’s most recent general election has been attributed in part to lukewarm promises to mining communities. The party promised the establishment of a ‘just transition authority’, but no finance for restructuring the economies of coal-dependent states and communities. If political parties’ proposed climate policies do not offer a brighter, alternative future to ‘at-risk’ workers, it should not be surprising if they do not win their votes.
The crucial context for the Just Transition is a need to decarbonise the global economy at an unprecedented rate. The transition to a net-zero carbon economy has to be deep, broad, and rapid if we are to avoid truly catastrophic global heating and irreversible climate change.
By contrast, there are already some examples of more successful transitions. Starting in the mid-1990s, the city of Gelsenkirchen (in Germany’s Ruhr region), transitioned from a reliance on the mining industry to other alternative activities by building a science centre specialized in developing new technologies on both energy efficiency and the use of solar energy and clean fuels. A report released in 2017 noted that upwards of 26,000 jobs had been created through the transition period, and the region has grown into a “large student and research hub”.
A GLOBAL PERSPECTIVE
Whilst recognising that domestic political issues are paramount, the Just Transition has to be a global effort – the ‘greening’ of wealthy nations in the Global North cannot be at the expense of the Global South. This adds a further layer of social and racial justice to the transition.
Many low carbon or ‘environmental’ technologies – from electric vehicles to energy storage devices – rely on rare minerals, many of which are found in developing countries. Unless we can factor global socio-economic equity into the Just Transition, we risk a wave of resource extraction, land-grabbing, human rights abuses, and local environmental destruction across the Global South in the race to decarbonise the Global North through technology.
This is also beginning to come home to roost in Europe. In Portugal, for example, mining companies seeking to exploit the country’s lithium reserves are “locking horns” with local communities. Lithium, which is used in smartphones, electric vehicles, and energy storage systems, will be a key strategic mineral in the low-carbon transition. However, the environmental costs of its large-scale extraction across South America have been well documented, even if they are not that widely known, and similar drawbacks cannot be overlooked in Portugal’s case.
WHAT IS EDENTREE DOING?
As with our previous “emerging issues” Expert Briefings, we have explored here the background to the topic, but our thinking on the Just Transition continues to evolve. For instance, there is evidence of growing client interest in exploring the implications of integrating Just Transition thinking into portfolio construction. With this in mind, we have signed an investor statement on the Just Transition, and have recently joined a PRI working group on the subject, which we will contribute to.
One of the biggest hurdles for investors is obtaining adequate data from companies to be able to say with confidence that they are contributing to the Just Transition. This is a challenge across many sectors, and is something on which we anticipate engaging. A further conundrum for mainstream equity investors is how to gain exposure to (or directly finance) place-based transitions. A case in point is the Siemens-Gamesa wind turbine facility in Hull, mentioned earlier. An investor in Siemens can point to the company’s work in the Yorkshire and Humber region, but he or she cannot avoid also being connected to Siemens’ work on the Adani-Carmichael coal mine project in Queensland, Australia, for instance.
One way around this problem may be through debt instruments, with specific use-of-proceeds outlined. A flourishing market in ‘green’, ‘social’, and ‘sustainability’ bonds is making it easier for investors to achieve a focused, occasionally project-specific exposure to elements of a Just Transition. Care is needed in analysing the use-of-proceeds and the quality of the issuer, but it is an area in which EdenTree is increasingly active.