While there is much evidence to suggest that, overall, the transition to a low-carbon economy will be net positive for the economy, the distribution of these benefits – and the economic costs of transition – will not be evenly spread locally or nationally.
Economic impacts include aggregated effects on different variables: gross domestic product (GDP), employment, production, consumption, and household income (wages). These effects differ at the national versus regional and local scale, or public versus private income and expenditure.
An analysis of economic impacts needs to cover a broad spectrum of effects. It should also recognize that economic effects may stretch farther than the areas undergoing a transition.
Local Level
At a local level, reduced employment and declining income can lead to reduced spending in the local economy. This in turn impacts small businesses in the retail and service sectors in the region.
Small firms tied in with local production may experience significant business losses for which they are unprepared. Municipal public revenue might decline, impacting local governments’ service delivery and ability to invest in new infrastructure, for example, which may be needed to support economic diversification.
National Level
At the national level, a transition might lower production in economically important sectors or in foreign export earnings that have contributed significantly through taxes and royalties. The loss of these revenues could affect a government’s fiscal position and ability to fund social programs and municipal governments, or its ability to borrow.
Diversification
Transition planning requires analysis of potential opportunities for economic diversification or scaling up other sectors, or both. This is particularly important in regions most affected by the closure or phasing down of an industry.
Smart specialization and asset repurposing assessments can be used to explore new economic activities.