On 16 May 2023 the OECD published Net Zero+: Climate and Economic Resilience in a Changing World, focusing on how to drive climate policy forward in the face of various global challenges.
The paper looks at how to achieve net zero in a situation where there are various other overlapping disruptions. It notes that policies must take into account the socio-economic implications and maintain fairness and equity.
As the net-zero transition needs to be carried out within a definite time period there will be wide economic and social implications. Governments should design climate policies with these implications in mind. Climate policy must have enough resilience to anticipate and adapt to potential future economic shocks without being thrown off course. Strategic foresight tools and techniques can help governments to foresee disruptions and build buffers to absorb the initial impact of shocks while retaining the capacity to invest in recovery efforts.
Governments can do more to get the climate policy basics right in the near-term, including the correct mix of price-based and other instruments and reform of fossil fuel subsidies.
Strategies should be developed to anticipate and overcome challenges that may arise. Materials shortages, supply-chain vulnerabilities, skills gaps, rising costs of capital, and clean energy supply are situations where policy action is required to avoid bottlenecks that could hinder climate action.
For private sector finance, aligning investment and financial markets is critical but current commitments often lack credibility. Environmental Social and Governance (ESG) investing is held-back by a lack of standardisation and the prevalence of greenwashing.
Widespread public support will be essential for a resilient transition. Identifying and carefully communicating on distributional outcomes and means to manage these is integral to building support and ensuring a fair and equitable transition. Revenue from carbon pricing can be substantial and used to balance distributional concerns. Similarly, labour market shifts require a careful balance between labour market flexibility and worker protection as well as enhanced assessments of skills needs to inform vocational training and education policies.
Developing countries must meet development needs whilst simultaneously decarbonising. Development co-operation has a key role to play in aligning development priorities with climate objectives. There is also a need to avoid an artificial division of climate policy into adaptation and mitigation. Reducing emissions is necessary to minimise climate risks and adaptation to climate impacts is also essential to a resilient transition to net-zero. There are synergies between the two approaches.
Summary of steps towards climate resilience
Governments should ensure that spending for crisis relief and economic stimulus is aligned with climate goals. Bottlenecks to the climate transition in relation to finance, energy and materials should be anticipated. The basic climate policy should be correct, involving a mix of price-based and other instruments tailored to the regional and national context. Synergies between mitigation and adaptation policy objectives should be exploited, and trade-offs minimised.
The public finance implications of transition should be managed by careful fiscal planning, and transition to net-zero aligned tax instruments. Innovation should be accelerated with targeted support for early-stage innovation and R&D.
The distributional impacts of climate policy should be assessed, including clear communication to the public on the climate policies. The new employment patterns should be supported by policies to encourage reasonable labour market flexibility and mobility while protecting workers. Governments should identify skills needs and prioritise re-skilling.
