The Energy Transition
by michaël aklin and johannes urpelainen
michaël aklin teaches political science at the University of Pittsburgh. johannes urpelainen is director of the Initiative for Sustainable Energy Policy at Johns Hopkins University. This article is adapted from a recent Brookings Institution report.
Illustrations by robert neubecker
Published January 24, 2023
You may not have seen the phrase “ just transition” before, but we guarantee you’ll be seeing it a lot in coming years. Governments large and small, including those of Colorado and New Mexico, have hopped on the bandwagon, launching just transition initiatives to help workers dislocated by the switch to renewable energy technologies. The kindling of interest in a just transition can be explained by multiple factors. First, a government-mandated energy transition aimed at befitting everybody creates societal responsibilities to minimize the dislocation for people and places disproportionately affected. Second, the geographical concentration of fossil fuel reserves — and in some cases, their distance from other job markets — means that local economies will struggle to absorb displaced workers in the absence of public intervention.
Third, a just transition is politically expedient. The United States — and much of the rest of the world — is years behind in meeting commitments to contain greenhouse gas emissions. And many of the U.S. workers who have the most to lose in the transition live in political swing states (think Pennsylvania) or in states with influential lawmakers (like West Virginia). As such, just-transition programs can reduce political friction that can slow or even stop measures to phase out fossil fuels.
While disruptive energy transitions have occurred on several occasions in the past — for example, the switch from horse-drawn vehicles to transportation powered by coal and oil — none has depended on popular support on such a scale. Moreover, to avoid the worst effects of climate change, decarbonization will have to happen at warp speed — by 2050, if warming is to be limited to a barely manageable two degrees Celsius. Just-transition policies thus have a critical ancillary role to play in saving the planet from the worst consequences of climate change.
These budding just-transition initiatives vary considerably in shape and ambition. But ultimately, they all wrestle with the same problem: how can the government make it possible for households and communities that depend on fossil fuels for income thrive in a post-carbon world? The scope of the problem, with millions of workers across the world employed directly or indirectly in carbon- intensive industries, is daunting. The United States itself needs to find ways to support 1.7 million people who extract, refine and transport oil, gas and coal.
However laudable the ambitions behind just-transition programs are, a host of questions create doubts that they will work — for instance, can they deliver a sufficient number of good jobs where they are needed over a relatively short 10- to 20-year time frame? Here, we highlight several critical policy issues and how they might be addressed.
One of the enduring strengths of the U.S. economy is its relatively well-integrated national labor market — workers in, say, Wyoming can and do routinely consider taking jobs in Utah and Colorado.
What Has to Happen?
Most just-transition initiatives in the United States have been driven by local stakeholders. While this bottom-up approach has much value because it ensures local engagement, a lack of national-level support would almost certainly lead to inefficiencies and wasted opportunities.
After all, one of the enduring strengths of the U.S. economy is its relatively well-integrated national labor market — workers in, say, Wyoming can and do routinely consider taking jobs in Utah and Colorado. So state-led actions to attract new industries run the risk of harmful interstate competition, leading to a race to the bottom.
For instance, providing tax breaks of sufficient magnitude to lure investors and jobs can force states to hollow out important state programs such as education and public health. Furthermore, if local policy action is effective, it will mean that fewer workers leave the jurisdiction. But in some cases, the costs — financial and social — of relocating workers might be lower than creating new jobs at home. The United States thus needs to coordinate just-transition policies at the national level, ideally by creating a dedicated, wellfunded Just Transition agency with enough muscle to make a difference.
Second, federal — or, for that matter, regional — just-transition initiatives must identify the key sources of friction that prevent a smooth movement of workers across industries. And that isn’t easy. Casually channeling grants or subsidized loans to industries in coal, gas or oil country without an effort to match skills or provide training may make business happy but is not going to help those who really need it.
There is a paucity of data in this area. In particular, we need a clearer understanding of the regions most at risk, the types of workers who need the most support and the sorts of jobs that match workers’ capacities and aspirations
Ultimately, the success of just-transition programs will depend on adequate funding. And cost estimates vary considerably. But it’s plain that Washington will be in a better position than states to raise the needed cash. Among other reasons, the states most affected by job losses will be those that can least afford to pay. Funding must be commensurate to the challenge and include resources for retraining and relocating, as well as infrastructure investment to make affected communities more attractive to employers.
Who’s Doing What
There are historical models that offer clues to what sort of economic transition aid works and what doesn’t. Over the past half century, governments in North America and Europe have tried a host of market interventions to address environmental problems ranging from acid rain to greenhouse gas emissions. And they only succeed if the regulations create incentives to discourage pollution, for instance by making it more expensive — either by pricing effluents or by punishing polluters with fines. The 1990 Clean Air Act Amendments, to take an example, used a cap-and-trade scheme to curb sulfur dioxide emissions that disrupted the ecological balance of lakes and forests.
The growth of competitive renewable electricity sources — wind and solar — have dented the domination of fossil fuels in the power sector. The coal industry, in particular, has entered a phase of rapid decline in the United States that was accelerated (but not caused) by environmental regulation and incentives to switch to renewable energy. Coal generated 2,000 billion kWh of electricity in 2007. By 2020, its contribution had been cut by almost two-thirds to 773 billion kWh. Employment followed a similar trajectory: jobs in coal mining went from over 125,000 in 1990 to less than 50,000 today. And Adele Morris, an economist at Brookings, has convincingly argued that even if government ignored the environmental consequences of burning coal, the fuel would have no chance of making a comeback.
These employment numbers might barely rate a glance in an economy with a labor force of 165 million. But the influence of coal-sector workers (and their employers) is wildly disproportionate to their numbers thanks to their geographic concentration in key states. Employment in oil and natural gas has also declined, caused mostly thus far by rising sector productivity and slow growth in demand. But natural gas still employs about 200,000 people and petroleum just under 500,000. And here, too, the sector is disproportionately influential in national politics.
Facing up to the reality that the fossil fuel industries were never going to recover, labor unions developed the just transition concept. Their concern, of course, was that the burden of rapidly reducing the carbon footprint of the U.S. economy would follow the pattern of the 1980s and 1990s, when much of the burden of the hollowing-out of heavy industry in the Midwest was shouldered by an aging workforce that was ill-prepared for change. And with liberals veering toward tougher environmental regulation as well as open trade — Nafta, after all, was Bill Clinton’s baby — the Democratic Party was no longer seen as a reliable defender of labor.
Hence the pivot from protecting the status quo to minimizing the pain of transition. Just-transition initiatives have been launched around the world. The European Union is implementing a Just Transition Mechanism, which is expected to plow some €55 billion (about $58 billion as this is being written) into the transition between 2021 and 2027 via public investment, subsidized private investment and loans below market interest rates.
The proliferation of just-transition initiatives is encouraging and may well make a difference. However, existing programs have short track records that make it hard to draw conclusions at this point.
The EU has also promoted collaborative initiatives. At the 2021 UN Climate Change Conference in Glasgow, it announced a plan with the UK, the U.S., France and Germany to create a “Just Energy Transition Partnership” to support South Africa’s decarbonization efforts. In India, an environmental NGO called iForest is pushing for similar initiatives. In Colombia, another major coal-producing country, the government has partnered with the International Labor Organization to create green jobs for displaced energy workers.
In the United States, much of the (albeit modest) just-transition action has so far occurred at the state level. In Colorado, a Just Transition Office was launched in 2019. Its mission is primarily focused on channeling investments into coal communities and coordinating state and local policies. New Mexico’s new law, also dating from 2019, stipulates that millions must be invested to “ensure a just transition.” Elsewhere, proposals to create just-transition agencies are on the table — notably in West Virginia and New York.
Washington is not yet in the game, but there is a hint of movement. A bill in the House, the Just Transition for Energy Communities Act, would create a program run by the Department of the Treasury to fund programs in the states. Meanwhile, the Biden administration took its first steps in meeting just-transition expectations by setting aside $16 million to create a just-transition roadmap for communities dependent on fossil fuel extraction.
What the Feds Could Do
The proliferation of just-transition initiatives is encouraging and may well make a difference. However, existing programs have short track records that make it hard to draw conclusions at this point. The problem is further exacerbated by fundamental differences across countries and across the sort of workers at risk. For instance, the problems faced by workers in Germany, with its comprehensive social safety net, differ from those faced in poor countries like India where there is little protection for labor. The pain of transition is therefore bound to be unevenly distributed.
But context varies in other important ways. The problem of labor dislocation has two components. One is the scale: the sheer number of workers likely to be stranded in the transition. But the direct impact is only the beginning. There’s also the collateral damage, since tens of thousands live in communities that supply the services to support the fossilfuel workers.
Be careful what you wish for: if Washington did choose to turn its back on fossil fuel-dependent regions, we might feed already dangerous levels of political extremism.
One study by Robert Pollin and Brian Callaci of the University of Massachusetts estimates the cost of a just-transition program for American workers to be about $600 million per year — a surprisingly modest sum in the context of a trillion-dollar investment in climate change containment. This figure is a lower bound at best, though, as it assumes little slippage in terms of failed retraining programs, administrative expenses and the like. The low estimated cost per worker (about $2,300 per year) is also in part explained by the speedy pace of retirement attrition assumed in their model as well as voluntary exit from the sector. Most important in this context, the estimate only includes workers in extraction and mining — about 250,000 workers, or onesixth of a more inclusive fossil-fuel employment number.
Then, too, there is the question of goals. Is the idea simply to buffer the consequences of economic dislocation for energy workers and their families? Or should one aim at truly reversing the economic decline of these regions, to rebuild thriving regional economies on a diversified base?
Indeed, in that vein one may legitimately ask whether a just transition really needs to repair the economic health of places as well as people. Historically, market-driven internal migration has been the primary tool in responding to changes in economic opportunity, with labor leaving moribund markets for booming ones. This has happened multiple times in American history — for example, as agriculture moved west and as light manufacturing deserted New England. But there are at least two good reasons for not letting the course of the transition be driven solely by market forces.
First, some workers are not especially mobile today, in the sense that the cost of uprooting them would be high. Record rates of homeownership, widely perceived as a measure of societal success, reduces mobility for workers in markets with stagnant, illiquid housing markets — which is precisely the circumstance in regions depressed by flat demand for fossil fuels. And aside from its pecuniary cost, moving has a high emotional cost, especially for people living in regions that have a proud heritage of contributions to the growth of the U.S. economy.
Second, Big Coal, as represented by West Virginia, Wyoming and North Dakota, has a total of six Senate seats — the same as California, New York and Florida — and the business/ labor lobby is not about to allow the coal regions to tank without a fight. In any case, be careful what you wish for: if Washington did choose to turn its back on fossil fuel-dependent regions, we might feed already dangerous levels of political extremism.
Another variable here is relative dependence on fossil fuel extraction and processing. Texas, for example, employs a lot of people in oil and gas, but the state’s diversified economy will make the transition much easier. That isn’t the case everywhere and in every instance, though. For example, the failure to buffer job losses in the Rust Belt in the 1980s, when heavy manufacturing began to migrate to East Asia, left a pretty massive body count in its wake. And, it’s worth remembering, their grievance was one of the factors that badly eroded the attraction of liberalism to blue-collar workers.
While “monotowns” dependent on single industries have become less common in America, fossil fuels are the exception. Their geographic concentration naturally creates pockets in which the industry dominates the economy.
Consider coal. Employment in the sector has decreased dramatically over the past 30 years in the United States (and many other countries) as demand waned and mining companies substituted machines for labor.
Yet the concentration of coal workers remains extremely high in a few parts of the country. The percentage of the labor force that works in coal is still around 30 percent in several counties in West Virginia.
A better statistic to understand the over- or under-representation of a sector is the “location quotient,” the ratio of workers employed in an industry locally compared to the ratio at the national level. In Greene County, Pennsylvania, the location quotient of mining, oil and gas is 45, meaning that the concentration of this industry is 45 times higher in Greene County than in the nation as a whole. In Mingo County, West Virginia, the location quotient of coal (as of 2015) was over 470.
To understand the import of these numbers, we can compare them to other geographically concentrated industries. The location quotient of gambling dealers in Las Vegas, for example, is about 29. In New York City, the location quotient of the financial sector is about 6. In other words, while many industries are concentrated in regions, fossil fuel jobs are even more so, and represent a central node in regional economies. Thus, we cannot rely on nominal employment numbers to assess which places need support or how much. Instead, we need to take a holistic view and assess regional vulnerability in addition to individual workers’ vulnerability.
Just as importantly, not all fossil fuel workers face similar odds of success in a post-carbon world. Terms like “oil workers” are catchalls for dozens of different types of jobs. The oil industry employs roustabouts, truck drivers, civil engineers, clerks, mechanics, security staff and so forth. Looking beyond the fossil fuel industry, the range of jobs expands even further if we consider related industries that are undergoing dislocation, notably cars and fertilizer. The ease of transitioning to new employment is hardly identical across these occupations and skillsets.
Beyond skills and expertise, additional complications include occupational licensing, which creates hurdles to switching industries. As public policy, licensing requirements can be good or bad, on the one hand allowing consumers to gauge the skills of specialized workers without much knowledge of the services they provide, on the other making it extremely difficult for outsiders to join the occupation. To illustrate the problem: in West Virginia, mine electricians must complete just one year’s training. But to switch to electrical work outside mining requires a three-year apprenticeship.
These challenges shed light on what it will take to provide an efficient, comprehensive just transition. First, the federal government needs a central clearinghouse, a permanent agency to administer programs — in other words, a Just Transition Bureau. And given its current portfolio of responsibilities and experience, the Department of Energy should probably serve as the umbrella cabinet agency.
Local- and state-level initiatives are helpful to gather information about bottom-up demands, but a lack of federal coordination is bound to be inefficient, and perhaps selfdefeating: states and localities already compete to attract investment by offering free infrastructure and major tax breaks — competition that has a strong “beggar-thy-neighbor” flavor. Given how dependent some regions are on fossil fuel jobs, one may expect them to engage in a race to the bottom that could exacerbate other problems they face that are only made worse by reduced revenues.
Federal programs could short circuit the self-defeating competition. Moreover, a federal- level agency would have a better chance of amassing and disseminating information efficiently. In particular, local authorities are often limited in their capacity to learn about policy successes and failures elsewhere. A just-transition bureau could thus also serve as a centralized resource for best practices.
Along with vertical coordination with state authorities, the federal government would also need to undertake horizontal coordination among federal agencies with differing expertise and data access. To be effective, just-transition administrators would need to know which workers are at risk and how much — likely the expertise of the Department of Labor. Lawyers for a coal company, for example, are presumably less vulnerable than the miners.
Lastly, federal support for just-transition policies must be adequate for the task. Part of the challenge will be to ensure stable, longterm funding — this is not an endeavor that could be completed in a year or even five. Remember, too, that there are few solid estimates of the cost of a just transition for energy, and those that exist vary considerably. On the lower end of the spectrum, the estimate by Pollin and Callaci cited above suggests a modest $600 million per year. Yet we noted that they focused on a narrow definition of fossil fuel workers.
It is also not clear whether such modest investment could reinvigorate a local economy, as opposed to buffering the pain for households. The price tag of economic development in chronically depressed regions could prove much, much higher.
Indeed, another study by Pollin and Callaci, which focuses on ways to rejuvenate Pennsylvania with clean energy investments (a type of policy often included in just-transition proposals), comes up with $23 billion per year between 2021 and 2030 to generate 162,000 jobs — a cost that would be frowned upon by Congress if one attempted to sell it tomorrow as a just-transition program.
Regardless of the amount committed, the federal government remains best positioned to fund these programs. For one thing, federal budgets do not suffer from the same kind of budgetary constraints that state budgets do — for both better and worse, as was demonstrated in the massive response to the first two years of the Covid-induced recession. The federal government could also mobilize new revenues (Adele Morris suggests a carbon tax).
Second, some workers may want/need to relocate to other jurisdictions, which only the federal government is in a position to subsidize. Third, funding will be needed to support stranded industry pension plans that are underfunded and dependent on ongoing contributions to pay the bills of previous generations of workers. Lastly, and more broadly, big infrastructure investments will be needed, which would require big bucks and a lot of interstate coordination.
If It Works for a Just Transition…
A just transition for the energy sector is a moral obligation and, as a practical matter, a necessity for sustaining congressional support for a rapid switch to renewables. But what works for energy might also work to smooth other transitions, as technology and international trade disrupt other industries.
To take just one example: automation could create new types of jobs, but in the process of doing so, many workers will need to be retrained and have to relocate, possibly for lower pay.
The sooner policymakers figure out how to soften this process of “creative destruction” in energy, the better equipped they will be to support workers when the global economy faces the next transition, and the next.