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We need to talk about the real world impact of COP26
  • The world is transitioning to a low carbon economy. This article highlights the impact be on jobs and people in hard to abate industries
  • While the transition appears assured, the nature and pace of that transition is uncertain.  
  • It is in the interests of those who work in hard to abate industries, and the economy at large, that this transition is orderly but this will involve some hard conversations.  Are we prepared to have these conversations before it is too late?
2nd November 2021 / 7 mins read
Tim Conly
Senior Consultant, Head of Responsible Investment
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Economies and jobs continually evolve as technology, demographics and social needs evolve. Think of the transition from horse and cart though to cars and planes, and the negative impact on people and economies based on older technology but positive impact on people in the new industries as well as from the opportunities that reduced travel time opened.

Most changes tend to evolve naturally – where the impact of climate change may differ is that the intention to decarbonise the global economy is well flagged and there are some industries that are most likely to be negatively impacted.

It is in all of our interests for the transition to be orderly rather than disorderly, with this type of transition being preferable in a real world sense but also from an investment risk and return perspective.

When conducting investment research, JANA believes understanding motivations and incentives are key. People tend to act in a way that aligns with their incentives, whether financial or non-financial, and we look to understand whether this is in alignment with the desired outcomes from our client’s perspective.

This perspective, in our view, also applies when you look at some of the political commentary and positioning around net zero.

As former NSW Premier Jack Lang said:

In the race of life, always back self-interest; at least you know it's trying

How many people could say ‘yes’ to the following question: Would you be happy to lose your job if it meant we had a better chance of meeting global climate change goals?

Politicians want to get re-elected.  People don’t want to lose their jobs nor see their costs of living increase.  Net Zero has often been positioned as a binary choice in the domestic political landscape – its jobs or climate action – and this has paralysed the debate.

If we do not evolve the conversation to the point where we think of the two as linked rather than as a binary choice, then the real world impact of the climate change transition could be higher than it needs to be as it pushes us towards a more disorderly transition.

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 For there to be an orderly transition there are two things we need to acknowledge:

  1. That there will be a transition as the global economy decarbonises; and
  2. Whilst there will be some beneficiaries, taking action to decarbonise the economy will cause harm to some industries and regions.

The below is from the UN Global Compacti:

The Secretariat of the United Nations Framework Convention on Climate Change (UNFCCC) has identified 1.47 billion jobs globally in sectors critical to climate stability. The International Labour Organisation (ILO) has estimated that action to meet the Paris Agreement will create 24 million jobs in clean energy generation, electric vehicles and energy efficiency.

In the move towards this future there will be disruption. Australia is already seeing it with ageing coal-fired power stations closing in the next two to three decades. This will see up to 8,500 jobs lost and result in major structural adjustment challenges for both the workers who have lost their jobs, and the communities that have come to depend on the coal energy industry.

Those communities bearing the impact of low-carbon policies need a fair and socially equitable transition — a ‘just transition’. The concept of a just transition holds immense potential for affected communities, trade unions, businesses and governments to develop and implement carefully planned policies to support those directly impacted by low-carbon policies.

Focussing on energy-related jobs globally out to 2030, the following is from the International Energy Agency’s Net Zero 2050 Reportii.

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There is a clear global trend (and an obvious requirement) to decarbonise the global economy. Whilst Australia’s current plan focusses on technology solutions, many other countries have taken a broader approach to reduce emissions.

This sees a decrease in the global demand for fossil fuels and an increase in renewables and other energy sources, and a resultant reduction in employment in fossil fuel sectors regardless of Australia’s position.

This is a global challenge and required a global mindset.  There is a requirement for more developed countries to assist developing/emerging economies who have less financial resources transition.  

However, if we turn our gaze inwards, the Australian economy could have some challenges from the transition given our reliance on fossil fuels from an economic and trade perspective. Pinning our hopes on technology alone doesn’t mean jobs in fossil fuels won’t be impacted, given a large proportion of these are influenced by typical supply, demand and cost factors.  

However, if we acknowledge that there is a high likelihood of some (not all) of these jobs changing or becoming superfluous to requirements, then it opens up the conversation about how we can transition these people and communities in a more orderly way.

How can we financially support people adversely impacted by a decarbonising the economy? How can we re-tool and re-skill people?  How can we encourage new industries and opportunities in areas that are likely to be impacted?

Are we prepared to prepared to have a hard conversation now before it is too late?

  i https://unglobalcompact.org.au/environment-climate-change/just-transition/ 

  ii https://www.iea.org/reports/net-zero-by-2050

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