How can workers find their place in the green economy?

As global governments commit to a phased transition away from fossil fuels into renewable energy, they will need to understand how this new era will shape economic growth, how it will differ from the fossil-fuel age and how they can develop policies and plans to fully support and harness new power sources for the betterment of all.

To better understand what economic growth will look like in the coming years and how it might differ across regional economies, we collaborated with Politecnico di Milano to model the potential value and impacts of the green transition process. Specifically, we focused on what governments’ National Determined Contributions (NDCs) to meet the target of 1.5 degrees Celsius set by the UN 2015 Paris Agreement will mean for gross domestic product (GDP) and jobs growth over the next three decades.

To do this, we modeled two scenarios plus a baseline scenario:

1. The first scenario is called low-carbon economy (LCE). This scenario models GDP based on Nationally Determined Contribution (NDC) policy announcements, including the COP27 pledges. 
2. The second scenario is low-carbon economy plus (LCE+), which provides a feasible pathway to minimize carbon emissions beyond political pledges. It is based on reducing emissions by adopting the optimum, least-emissions pathway within key industry sectors and available technologies. 
3. The third baseline scenario depicts no policy implementation or technological changes, with energy demand driven only by economic growth until 2050.

Such transformations will also herald fundamental changes in the global job market, creating new opportunities and positions in the green economy but also making roles in fossil-based industries and dependent sectors redundant.
 

Fewer green jobs will be created within eco-industries5 (46 million under the LCE and LCE+ scenarios) than fossil fuel jobs lost because of the higher productivity gains provided by renewable energies (73 million under the LCE scenario). However, millions of new jobs will be created along the entire value chains tied to these core green economy sectors. We call them “other green jobs.” These include manufacturing, transport, construction and other services.

The net effect on employment is, however, positive; counting the “other green jobs,” net job generation will be 151 million more jobs created under LCE and 120 million jobs under LCE+. (The difference is mainly due to a higher increase in productivity in the LCE+ scenario). However, these changes won't play out uniformly across the world. In fact, the transition will harshen inequalities amongst some regions. When looking at how the employment landscape will change, we were able to identify three key clusters.

The first cluster is composed of the EU27, the UK, China and — to a lesser degree — the US. Here we have regions where a combination of a shrinking labor force (mainly due to demographic patterns) will intersect with higher demand for new green jobs and skills. Countries in this cluster are likely to have more jobs than internal applicants. This means that part of the green job requirement might not be internally met and would have to be attracted from other regions.

The second cluster is composed of the Middle East and — to a lesser degree — Australia. These seem to be the most negatively affected regions due to their heavy specialization in fossil fuel supply chain and trade. For example, oil rents — the difference between the value of crude oil production at regional prices and total costs of production — constitute over 11% of GDP in Middle East and North African (MENA) countries.⁶ Though this share has fallen significantly in the last decade (it was over 29% in 2011), it is still far above the global average of 1%. Due to the transition, socio-economic sustainability risks will likely increase as the employment rate drops.

The third cluster encompasses India, Southeast Asia and Africa. India and Southeast Asia will almost maintain their employment levels up to 2040 and will improve them in the 2040-2050 decade. Africa, however, is likely to experience a significant initial drop until 2035. In Africa and India, rather than transition-related investments, a significant component of new job creation after 2035 will be due to trade multipliers activated by growth demand in the Organisation for Economic Co-operation and Development (OECD) countries. For example, hydrogen generation in Africa could help the region become a global player through green hydrogen exports, potentially activating €1 trillion of investments.⁷ And in the mining sector, 58% of the international supply of cobalt — a critical raw material used as a component of cathodes in batteries and as a catalyst in fuel cells — comes from the Democratic Republic of Congo (DRC).⁸

Green jobs will be crucial in accompanying the transition process even more than support of overall labor input. In fact, a shortage of skilled labor and changing demographic patterns of the working age population associated with decoupling from fossil fuels could lead to stability issues in different regions either by overheating the labor market or increasing social unsustainability.
 

A two-step overarching strategy is needed.

The first step is to adopt a multi-stakeholder approach ⏤ one that brings governments, the business community and key third-party stakeholders, including academia, schools and trade associations, together to reshape the employment landscape. Second, that multistakeholder approach can create a new ecosystem where the demand for green jobs will come from and new talent can emerge. “The need for more green jobs will intensify as global economies accelerate the just transition away from fossil fuels. To respond to this shift in demand and to nurture future talent, governments will need to collaborate with educators and business to foster green skills and competencies for people starting their careers as well as workers who need to be re-skilled,” says George Atalla, EY Global Government & Public Sector Leader.

Needed new roles will involve engineering, digital, problem-solving, monitoring, management and critical thinking skills. To respond to this demand, we believe that governments and policymakers need to focus on four areas:

1. Public sector capacity building and internal training policies to support the execution of the green transition. Governments must anticipate increased demand for new types of skills and know-how to deliver on green initiatives. Targeted funding and a national green skills plan can help map out the quantity and type of skills needed, where new green jobs should be located (to ensure that no regions are left behind), and how to invest in education and retraining.
2. Coherent policies within sectors that create and support efficient social and financial mechanisms for life long learning (including social protection allowing for an opportunity to undertake training for a green job when leaving the previous occupation) and re-skilling people into new occupations.
3. Education programs for young people that introduce green skills (e.g., sustainability and circular economy knowledge) and digital competencies (e.g., programming, data analytics and information security). Digital also impacts on how green jobs will be delivered in an emerging hybrid environment where teams are working remotely, online, in person and offshore. Openness to these types of working dynamics will also impact an organization’s diversity and inclusion agenda and the wellbeing of employees — all critical factors in driving a better ESG strategy for an organization.
4. Business and governments should closely collaborate to make sure existing employees are best equipped to transition into green jobs and that new employees enter a working environment that can make the best use of their skills.
   

Shaping the future of the jobs market to deliver a just transition

The challenges governments will face will only increase as our climate crisis intensifies. The required shift to a green economy involves more than just creating and replacing jobs; it requires a fundamental restructuring of the labor market to ensure a sustainable and equitable transition. Current trends indicate a growing demand for green skills and environmentally conscious workplaces among employees and students, highlighting the need for governments to invest in education and training programs to meet these demands. While the challenge is immense, effective leadership — planning and acting now — will help shape a future that benefits future generations and creates positive legacies.

The authors of this article would like to give special thanks to Shalinder Bakshi and Marco Cavalli from the EY organization for their insights.

Summary

If the global economy really is to transition away from fossil fuels, that transformation will bring with it a fundamental shift in the employment landscape — creating new green jobs and careers but ending many jobs that are tied to fossil fuel production. How governments support the upskilling and re-skilling of the existing workforce while also preparing a new generation for employment in the green economy will determine the success of a just transition away from fossil fuels.