Megatrends and the Future of Social Protection

Raphaela Hyee

Valerie Frey

Marissa Plouin

The need to combat climate change has been on the policy agenda for decades, and the window of opportunity to limit the rise in temperature to 1.5 degrees, as agreed in the Paris climate accord, is closing. Many OECD countries are adopting ambitious strategies and commitments to achieve net zero greenhouse gas emissions by 2050. Russia’s attack on the Ukraine has made it even more urgent for countries to wean themselves off fossil fuels.

Across the OECD, a significant number of people are deeply concerned about climate change. The OECD’s 2022 Risks that Matter Survey (https://www.oecd.org/en/topics/social-and-economic-risks.html), conducted in 27 countries, finds that, on average, 72% of respondents are somewhat or very worried about climate change (Figure 6.1). Concerns are highest in Portugal, Mexico, Chile, Korea, Italy and Spain, where more than eight in ten respondents express concern.

Environmental policies and social policies are linked in two basic ways. First, pollution and climate change have heterogeneous effects on people and households, often affecting more vulnerable and less resilient communities the most. Second, a successful green transition will involve significant transition costs. It will require significant shifts across sectors and in production processes, including job destruction and generation and changes in relative prices. This will affect aggregate employment (and thus the funding base of social protection), but will also affect households, depending on how exposed they are to high emission sectors both through their employment and their consumption decisions, and to what extent they can adjust both their jobs and their consumption baskets to the changed conditions.

The degree to which these costs are shared fairly across social groups will affect governments’ ability to build and maintain public support for climate change mitigation (CCM). The following sections give an overview of how carbon pricing may impact household budgets, and the scope for policy intervention to compensate low-income households, the employment effects of the green transition, and the implications of climate change on government support for affordable and energy-efficient housing.

Carbon pricing (including excise taxes, emissions trading systems, and carbon taxes) is a major policy instrument to combat climate change. Taxing the carbon content of energy sources, such as fossil fuel or natural gas, increases the price of fossil fuels and fossil-fuel generated electricity. It therefore directly provides incentives for firms and households to reduce their fossil fuel consumption. This includes the consumption of consumer goods and services, as taxes on emissions generated throughout the value chain are carried forward to the final price. As carbon pricing increases the price of carbon, it also increases the price polluters are willing to pay for access to green carbon alternatives, which in turn promotes research and development in green technologies. Carbon pricing also incentivises investments in energy savings, e.g. building insulation and energy efficiency renovations.

Carbon taxes, in particular, are straightforward and technically simple to implement and administer, even in emerging economies, as most countries already levy taxes on fossil fuels at the source. Finally, a carbon tax is a tax on a good that creates a negative externality, which means that reducing demand for this good is desirable. The revenue created through such a tax therefore avoids harmful distortions in the economy that other taxes, e.g. on labour or investment, create. Carbon tax revenues may be used to lower other (distortionary) taxes, compensate households for carbon taxes paid, or subsidise green investments (Blanchard, Gollier and Tirole, 2023[1]; Parry, 2019[2]). Given that carbon taxes are instituted to reduce carbon emissions, revenues are necessarily expected to decline over time.

If carbon taxes are to curb energy consumption to the degree necessary to reach the goals of the Paris climate accord, they will pose significant burdens on households. According to OECD research covering 72 countries that are jointly responsible for 80% of all greenhouse gas emissions, including all OECD members, only 42% of emissions were at all priced in 2021, mainly through excise taxes. Only 16% of emissions were priced at more than EUR 30 per tonne of CO₂ emissions, and only 7% above EUR 60 (OECD, 2023[3]). These price levels fall significantly short of common estimations of price levels necessary to reach net zero emissions by 2050. For instance, a Network of Central Bank supervisors estimated that reaching this goal would mean a carbon price of over USD 100 in 2025, increasing to nearly USD 600 in 2050 (NGFS, 2023[4]). Demand elasticities to carbon prices depend on the sector and will crucially depend on technological progress and the future availability and price of green alternatives to greenhouse gas emitting energy sources. However, in the short term, to reach the net zero emissions target by 2050, significant price increases will be necessary (D’Arcangelo et al., 2022[5]).

To relate this to current levels of energy prices, the price per tonne of CO₂ emissions in 2021 was around EUR 100 in France, EUR 90 in Germany, EUR 60 in Poland, and about EUR 20 in Mexico, Türkiye, Australia and the United States (OECD, 2024[6]). Thus, even in the short-term, an increase in the price of carbon in line with the net zero emission target would imply price increases of around 500% in countries with currently low prices – a very painful adjustment for household budgets.

By way of comparison, the 2022 surge in energy prices, caused by a recovering world economy and fuelled by Russia’s war of aggression against Ukraine, almost doubled total end use expenditure in OECD countries on average as a share of GDP. Countries responded with support measures totalling 1.5% of GDP over 2022 and 2023 in the median OECD economy, and over 5% in hard-hit European countries such as Austria, Poland and Greece (Hemmerlé et al., 2023[7]). Increasing carbon prices to levels required to reach the net zero target would therefore mean price increases substantially larger than the recent shock.

Even when they support the goal of the net zero transition, people tend to prefer non-price policies such as subsidies for green infrastructure and technologies, subsidies for thermal insulation, or bans, e.g. of specific high-pollution cars that are more opaque and do not have as clearly identifiable winners or losers, although they also generate costs and may be just as regressive as a carbon tax, but likely less effective (Blanchard, Gollier and Tirole, 2023[1]). Carbon taxes are also seen as highly regressive, although this is not the case in all countries and for all tax bases (e.g. in lower-income countries, richer households may consume more petrol, see below (Ewald, Sterner and Sterner, 2022[8])).

People tend to overestimate their own exposure to the tax, and struggle to correctly assess the impact of compensatory payments. For instance, (Douenne and Fabre, 2022[9]) ask a representative sample of 3 002 French households about their support for a carbon tax of EUR 50 per tonne of CO₂, the proceeds of which would be uniformly distributed. This results in a progressive reform with 70% of all households being net gainers, but only 14% of households think they would gain, and the large majority of respondents thinks that the reform is regressive. Consequently, only 10% of respondents would support such a reform, whereas 70% oppose it. (Douenne and Fabre, 2022[9]) conclude that the rejection of carbon taxes is not due to a lack of support for environmental policy, but rather due to “pessimistic beliefs” – French households do not trust the government to implement a tax that will be effective as well as distributionally neutral or progressive. Indeed, it is well established that support for climate change policies increases with trust in government (Ewald, Sterner and Sterner, 2022[8]), though these variables are highly correlated.

Importantly, public support for carbon taxes depends on accompanying policy measures. A recent OECD survey of 20 countries finds that respondents are much more likely to support a carbon tax combined with subsidies to low carbon technologies or green infrastructure programmes than they are to support a carbon tax combined with an equal cash transfer to all households (Dechezleprêtre et al., 2022[10]). This suggests that the design of and communication around carbon taxation should carefully consider priorities in the affected population.

Carbon taxes are perceived to be punitively regressive, one of the main reasons why they are often met with public opposition (Blanchard, Gollier and Tirole, 2023[1]). Indeed, rising energy costs and rising costs of food are the most oft-cited concerns raised by people in OECD countries when prompted to think about the climate transition. RTM survey respondents in 27 OECD countries were reminded of their government’s role in environmental regulation and asked to what degree they were concerned about economic consequences including rising costs, housing relocation and effects on jobs. On average, nearly nine out of ten respondents identified rising costs of foods/goods and energy/fuel prices as concerns (Figure 6.2), compared to around six in ten who worry about housing relocation due to environmental degradation or a lack of workers to fill green jobs.

A carbon tax is a consumption tax, and lower-income households save less and spend more of their income than higher-income households. They are therefore ex-ante more exposed to consumption taxes in relation to their income. But higher-income households may still have higher absolute expenditure (and therefore tax liability in absolute terms). Assuming that greenhouse gas emissions are taxed equally across emission sources,1 the relative as well as absolute burden of a carbon tax therefore depends on total expenditure and the carbon intensity of consumption across the income distribution.

(OECD, 2024[6]) analyses the carbon intensity of spending patterns of households in Germany, Finland, France, Mexico, Poland and Türkiye, including both direct spending on CO₂ emissions (electricity, heating and motor fuels), and emissions that are “embodied” in goods and services through the production process. They find that households’ total expenditure aligns very well with their carbon footprint.

Across the six countries on average, the richest 10% of households spend 4.5 times as much as the poorest 10%. Spending inequality was the lowest in France and Poland (the richest 10% of households spend three times as much as the poorest 10%) and highest in Mexico (where the richest 10% spend nine times as much as the poorest).

On average across countries, CO₂ emissions closely track total expenditure. That is, on average, the richest 10% of households “consume” about 4.5 times as much CO₂ as the poorest 10%, the same as the disparity in total consumption. In Germany and France, spending in the top decile is somewhat less carbon intensive than that of the reminder of the income distribution, whereas in Mexico it is somewhat higher, likely reflecting that car ownership is less prevalent among poorer households than in Germany or France. Note that these are average values across income deciles – at the very top of the income distribution, patterns of emission intensity could be different – e.g. (Starr et al., 2023[11]) find outsized carbon footprints for the top 0.1% of households in the United States.

This implies that a carbon tax places a higher absolute burden on high-income households. Such a tax could therefore be made progressive by a lump-sum redistribution of revenues – dividing the carbon tax revenue equally across the population, without any targeting by income, would make households at the bottom of the income distribution better off.

However, without a redistributive policy accompanying a carbon tax, the relative burden on low-income households would be higher, as they spend more of their income, and therefore do not have the space in their budget to adjust to the tax. Low-income households do tend to spend a higher share of their income on energy and transportation. (OECD, 2024[6]) find that overall, energy consumption makes up about half of all household greenhouse gas emissions across the six countries studied. The share of expenditure for electricity, heating and motor fuels decreases with income in all countries except Mexico, with the poorest 10% of households spending over 20% of their income on energy in Poland and Türkiye, and over 15% in Germany and France.

Targeting the compensation payment to low and middle‑income households, or to households who are more affected by the tax – e.g. households in rural areas with less access to public transport and green household energy sources – would generate further fiscal space. For example, Austria already distributes revenue from its EUR 32 per tonne of CO₂ emission tax to households via direct cash transfers. Transfers only vary by area, with households with less access to public transport receiving higher payments (OECD, 2024[6]). Such targeting can, however, weaken incentives to make major, one‑off lifestyle adjustments that reduce emissions in the long run, such as moving to more densely populated areas with better access to public transport.

Some households would invariably lose purchasing power even in a uniform carbon tax regime in which all carbon tax revenue were redistributed equally to all households – but it would be higher-income households with carbon-intensive lifestyles, which should make such a tax more politically palpable.

It is also important to note that other climate change mitigation policies that often garner more public support than carbon taxes, such as subsidies and bans, are also often regressive, but in a less transparent way. For instance, subsidies for electric vehicles are more likely to benefit higher-income households who can afford more expensive cars, and urban households who have better access to charging infrastructure (OECD, 2021[12]; Caulfield et al., 2022[13]).

To achieve public support for the considerable increases in carbon prices thought necessary to achieve net zero emissions, compensation policies need to be immediate, transparent and of sufficient size. Carbon taxes can certainly generate the fiscal space for such compensation. As social protection agencies have the capabilities and experience to track incomes, establish entitlement to benefits and process conditional transfers, designing and administering compensation payments will be in their purview.

The COVID‑19 pandemic has shown that processing payments to a large share of the population in a short period of time can strain even mature social protection systems (OECD, 2020[14]). Countries are increasingly using new data and digital technologies to increase their capabilities to provide benefits that are easy to claim (or even paid automatically), timely (that is, any conditionalities are established quickly) and responsive to changing circumstances (see (OECD, 2024[15]) for country strategies). Investments in the administrative capacities of agencies administering social benefits will increase the credibility of carbon tax compensation payments, and therefore their public acceptability.

Carbon tax revenues could also be recycled to lower other distortive taxes, e.g. on labour, to boost economic growth and to counteract lower productivity growth as economies adjust to higher carbon prices. Options include co-financing of social protection schemes, e.g. pensions, to lower contributions.

Housing construction and household-related energy consumption are major contributors to greenhouse gas emissions (OECD, 2023[16]) and weigh heavily on household budgets. Improving housing quality and energy efficiency is therefore important both for the green transition and for the financial security of low-income households, which are disproportionately negatively affected by housing quality and energy costs (OECD, 2024[17]; OECD, 2023[16]). Indeed, across OECD and EU countries, low-income households are systematically more likely to report difficulties keeping their homes warm relative to middle‑income households, with more than 15% of households in the bottom income quintile reportedly struggling with energy poverty in 11 countries (OECD, 2024[17]).

There are a number of policy tools to support the decarbonisation of the housing sector, including carbon pricing, environmental regulation, subsidies and financial support (OECD, 2023[16]; OECD, 2024[18]). While many of these policies extend beyond traditional measures of social protection, there is scope for social programmes to address the specific challenges relating to low-income and other vulnerable households in the decarbonisation of the housing sector, who are more likely to be liquidity constrained and struggle with energy poverty.

Most OECD governments have programmes in place to support energy efficiency upgrades, such as subsidies or interest-free or subsidised loans (OECD, 2024[17]); these may be in addition to direct support to low-income households to help cover energy costs. Nevertheless, homeowners may delay profitable investments due to present bias and liquidity constraints. Adaptive home renovations such as building insulations require large up-front investments that households may not undertake even when economically justified.

In particular, for rented homes, there is a disconnect between landlords shouldering the cost of the investment and renters reaping the rewards of lower energy consumption that might not be well-mediated through the market. Assuming a complete and well-functioning rental market with perfect information, renters could use energy performance certificates to gauge energy expenditure associated with different properties, and landlords could command higher rents for more energy efficient dwellings. Rental markets do not function so well in practice, however, and studies confirm that owner-occupied properties are more likely to be well-insulated. Carbon pricing alone might therefore not be enough to solve the problem of insufficient long-term investments, and additional social programmes to support adaptive home renovations for low-income households, and those living in rented accommodation, including standards and bans, may be needed (OECD, 2023[16]; Blanchard, Gollier and Tirole, 2023[1])

Social programmes to support low-income households can be conceived to support broader efforts to upgrade the quality of the housing stock. One notable approach in Lithuania was, in a reform to 2023 legislation, to condition the continued reception of the means-tested heating compensation benefit (cash support to households to cover spending related to heating, drinking, and hot water) on the household’s agreement to participate in the government’s housing renovation scheme (OECD, 2023[19])

Changes in settlement patterns caused by the net zero transition will also affect property values. For most homeowners, their home represents the bulk of their wealth (Causa, Woloszko and Leite, 2019[20]). the densification of cities and prevent urban sprawl and its consequences, such as automobile commuting and the expansion of paved surfaces) may raise property values in cities, while higher carbon prices or a ban on some vehicle classes is likely to depress the value of some suburban or rural housing. These unequal positive and negative rents might need to be rebalanced, maybe through some form of capital gains tax (Blanchard, Gollier and Tirole, 2023[1]).

Social programmes should also support broader policies to promote the densification of cities and prevent urban sprawl and its consequences (such as automobile commuting and the expansion of paved surfaces). Governments should keep the climate transition in mind when building new social and affordable housing, and when undertaking renovations of the existing social housing stock. Social and affordable housing should embed energy efficiency, be adapted for current realities (e.g. high heat), and consider public transit needs vis-à-vis available jobs.

Finally, it is essential that the cost-effectiveness and distributional consequences of climate mitigation policies be assessed in advance. When designing subsidies for building renovations in particular, the fact that they will be capitalised in the value of the dwelling, and therefore benefit the owner, should also be taken into account. Low-income households, as well as those renting their homes, tend to benefit less from subsidies for green home improvements (OECD, 2021[12]). These distributional consequences should be considered alongside broader efficiency considerations: for instance, in the United States, rooftop photovoltaic panels are much less cost effective than large‑scale grid-based panels, yet rooftop panels are being subsidised, both directly and through metering subsidies. Similarly, retrofitting poorly insulated buildings can come at a high price per tonne of CO₂ saved, except for the most poorly insulated buildings (Blanchard, Gollier and Tirole, 2023[1]).

The green transition will mean a sectoral shift away from greenhouse gas emission intense activities and sectors, in particular fossil fuels, towards sectors that help decarbonise the economy, such as renewable energy generation or improving the energy efficiency of buildings. This will lead to job losses in high emission sectors and job creation in others.

Whether the net effect on employment is positive or negative depends on a variety of factors, including the size and design of climate change mitigation policies (such as the amount of carbon taxes levied, and the way the revenue is recycled), the labour intensity of new technologies and production processes in low emission or “green” sectors, and how firms and consumers respond to new relative prices and changed market conditions. This uncertainty means that the net effects on employment are difficult to forecast (OECD, 2024[21]), but depending on modelling assumptions, forecasts point to a slightly negative net impact of the green transition on employment. For instance, recent OECD work using the general equilibrium model ENV-Linkages (Borgonovi et al., 2023[22]) estimates the effects of the EU Fit for 55 package, an ambitious set of measures adopted by the European Union to reduce the EU greenhouse gas emissions by 55% by 2030 compared to 1990 (corresponding to a carbon tax of USD 202 per ton of CO₂ in the model). They find that the Fit for 55 package decreases employment growth between 2019 and 2030 by more than half (from 3% in the baseline scenario without the package, to 1.3% accounting for the package). Modelling by the European Commission (2020[23]) and Eurofound (2023[24]) find modest net employment gains or losses, depending on how carbon tax revenues are recycled. See (OECD, 2024[21]) and (Vandeplas et al., 2022[25]) for a short overview of recent modelling efforts. This is keenly felt: more than six in ten respondents to Risks that Matter 2022 worry about job losses related to the green transition Figure 6.2).

While macroeconomic modelling allows forecasts on which economic sectors are expected to contract in the green transition, and the occupations that are concentrated in these industries – so called “brown jobs” – it is difficult to gauge which occupations are in expanding industries. This is because the results of currently published models are not very detailed, and bundle together low-emission sectors. The OECD (2024[21]) therefore proposes a new measure of “green-driven occupations” that identifies a set of occupations that are likely to expand and/or being transformed by the transition. It makes use of the US Department of Labor’s Occupational Information Network, O*NET, Greening of the World Project (Dierdorff et al., 2009[26]; 2011[27]).

Green-driven occupations include:

Therefore, green-driven occupations do not only encompass occupations that directly contribute to the greening of the economy, or that will grow in demand because of the green transition (both of which can be found in all three sub-categories above), but all occupations which will be affected by the green transition, either because they will emerge to facilitate it, they will see their skills and other requirements change because of it, or they will rise in demand because of the general restructuring of the economy towards green sectors (OECD, 2024[21]).

Across 27 OECD countries with available data,2 about 20% of all workers were in green-driven occupations before the onset of the COVID‑19 crisis. Only about 3% are in new and emerging occupations (1). The biggest share (9%) are in green-enhanced skills occupations (2) that are not necessarily expected to expand in the short term but will likely see their jobs change, while about 8% are in green increased demand occupations (3). Around 6% of workers work in occupations that are concentrated in greenhouse gas intensive sectors, so-called “brown jobs”.

Green-driven occupations are concentrated in construction, manufacturing, utilities and mining, and transport. Greenhouse gas emissions-intensive or brown jobs are concentrated in agriculture, transport, as well as manufacturing, utilities and mining. Because of this sectoral overlap, green-driven occupations may be found in greenhouse gas intensive sectors (empirically mostly green-enhanced skills and Green increased demand occupations). Other services, representing more than two‑thirds of employment on average, are not expected to be impacted by the green transition.

This sectoral gradient in both green-driven and high-emissions occupations translates into the socio‑economic characteristics of the workers likely to be positively or negatively affected by a decarbonisation of the economy. In most countries with available data, rural areas, where agriculture, manufacturing and mining are concentrated, are more exposed to the green transition, both in terms of greenhouse gas intensive occupation, as well as in terms of green-driven occupations (Figure 6.3). However, new and emerging occupations which tend to employ more high-skilled workers and tend to pay higher wages tend to be concentrated in urban areas (OECD, 2024[21]).

Men are overrepresented in both green-driven as well as high-emission occupations, while women are overrepresented in services, and are thus less exposed to the green transition. But this also means that women are worse positioned to take advantage of job opportunities emerging in the green transition – for instance, women are under-represented in STEM fields which may hinder their participation in these expanding industries (OECD, 2021[12]; OECD, 2024[21]).

Another way in which the green transition may act as a job creator that is often overlooked is the emerging trend for sustainable consumption. Preserving resources by buying less, but better-quality consumer products, or buying restored or refurbished consumer durable goods, means that the demand for labour-intensive products in developed countries might rise again. This trend has the potential to create jobs in a variety of sectors: from technicians who restore or refurbish used appliances, to classic handicraft occupations such as cobblers and dressmakers. These are also occupations that are little susceptible to being automated, because they involve a high share of non-routine, manual tasks (Georgieff and Hyee, 2021[28]).

The green transition will lead to job-reallocation away from high-emission industries. While these industries only account for a small segment of total employment, workers in these sectors may feel the effects of job displacement more keenly than the average worker. OECD research (OECD, 2024[29]) shows that workers in high emission industries are, on average, more likely to have low educational attainment, and participate less frequently in formal and non-formal education and training programmes. At the same time, they are less likely to earn wages at the bottom of the wage distribution, and more likely to earn higher wages, than other workers, reflecting firm-wage premia (more generous wage‑setting practices in these firms compared to the average firm). They are also somewhat older than the average worker, more likely to be male, and more likely to live in rural areas. This combination of high wages with low skills, low participation in life‑long learning, and living in areas with few other job opportunities, points to high costs of job reallocation: these workers are likely to find it more difficult than the average worker to re‑skill after job displacement, they live in areas with low labour demand, and are more likely to face wage losses after transitioning to a new job.

Accessible unemployment insurance schemes with adequate replacement rates and durations can act as a first line of defence against earnings losses following job displacement. But given the characteristics of these workers, they are at risk to remain unemployed longer, and may require substantial re‑skilling, and may need help to relocate to areas with more job opportunities (Section 6.3). They may also face lower wages after transitioning to a new job in the long term. Thus, in addition to re‑skilling efforts by Public Employment Services, additional income support policies may be necessary. For instance, wage insurance programmes partially cushion wage losses when transiting to a new, lower wage, and have been shown to be effective in incentivising jobless workers to accept new employment (OECD, 2024[29]).

In addition, regions with a high concentration of carbon-intensive jobs are often not economically diversified and often have a workforce with low levels of education and sector-specific skills (OECD, 2023[30]). Investments in local economic development are often necessary to improve job prospects in the area (IEA, 2021[31]; Sheldon, Junankar and De Rosa Pontello, 2018[32]), as well as to shore up the local housing market.

Finally, extreme weather events such floodings, fires or extreme heat may cause unsafe working conditions and lead to work stoppages, and thus earnings losses, for workers. Some countries already provide insurance for this risk through their social protection systems. In Austria, for example, “bad weather compensation” is a separate social insurance programme that provides income support of the same amount of unemployment benefits in the event of “bad weather” (including snow, frost, or extreme heat) that make taking up or continuing work either impossible or unreasonable for workers. Contributions are shared equally by employers and workers. Job retention schemes can also be adapted to this emerging risk as an alternative to a separate programme, e.g. in Czechia, Belgium or Spain, short-time work schemes are already used in cases of stoppages due to natural disasters or extreme heat.

Climate change may necessitate additional housing policies to ensure adequate support for workers and their families for two principal reasons. First, local housing markets in areas experiencing a widespread loss of brown jobs may deteriorate or even collapse. A decline in local housing prices can trap workers and their families in their current homes and mortgages, preventing them from selling, limiting their ability to buy in other areas, and preventing them from moving to better jobs. Conversely, in areas with greater labour demand, the need for access to affordable and/or social housing may increase.

In areas where educational, health and social services rely heavily on local funding, the closure of carbon-intensive industries in rural areas can also deal a blow to the provision of schooling and public services that had depended on tax revenue from those industries. For instance, the loss of coal tax revenues, royalties and fees to state and local governments has severely negatively affected Appalachian communities in the eastern the United States following the closure of coal mines there (Roemer and Haggerty, 2021[33]).

The second likely need for support for affordable housing is related to the direct, physical effects on homes and communities. Extreme weather events such as droughts, fires and flooding are an increasing risk for people and homes in many parts of OECD countries, irrespective of their employment situation. Climate change is degrading many communities and is making homes inhabitable due to rising sea levels. Around the world, sea levels may rise by one metre (or more) this century, leading to increased flood and erosion risks and permanently inundating some areas and communities (OECD, 2023[34]). A recent study suggests that in the United States alone, between 31 000 and 171 000 properties around 32 major coastal cities are experiencing coastal subsidence – sinking land in the face of rising sea levels (Ohenhen et al., 2024[35]).

Extreme temperatures, more frequent droughts and the increasing likelihood of wildfires pose additional risks. Across OECD and OECD partner countries, the number of people exposed to days with maximum temperatures exceeding 35°C increased by an estimated 11% in the period 2018‑22 compared to the 1981‑2010. As a result, in 2022, over 45% of the people in OECD and OECD partner countries experienced at least two weeks of extreme temperatures (OECD, 2023[34]). This may result in a greater number of relocations away from very hot regions. Groundwater shortages are becoming more common as well. To address groundwater shortages in drought-prone areas, some cities and regions have begun limiting new home building (see for example Arizona in the United States (Flavelle and Healy, 2023[36]). This has implications for housing supply, which is already insufficient to meet demand in many countries.

These effects of climate change are expected to disproportionately affect low-income households (see, for instance (Hallegatte and Rozenberg, 2017[37]; Hallegatte et al., 2015[38])) and will pose increased risks for the unhoused as well, particularly people who are sleeping rough (Bezgrebelna et al., 2021[39]). Large‑scale displacement could also lead to an increase in housing instability and homelessness if housing markets are not able to adapt to increased demand.

It is essential that a just environmental transition includes plans for affordable housing and community development. Governments will need to support workers and their families to relocate away from areas dominated by “brown” jobs. This may be complicated by declining house prices in some areas – as owner-occupied housing is the main asset for many, workers may find themselves locked into their mortgages amid falling prices. Those living in areas where environmental degradation may become so severe that households are required to relocate may suffer from this asset devaluation as well. Therefore, so-called “managed retreat” programmes, and/or home buyouts, may be necessary for some areas. In addition, increased public investment in social housing, public transit, educational infrastructure and other social services may be necessary in communities to which workers relocate (see, for instance, (Petz, 2015[40]); (Hino, Field and Mach, 2017[41]); (O’Donnell, 2022[42])). National governments will also likely need to intervene to prevent a “fiscal death spiral” related to the loss of tax revenues and fees from industries that had previously supported local public services (Roemer and Haggerty, 2021[33]).

As part of Germany’s well-known transition away from coal in the Ruhr region, a tripartite agreement between coal companies, trade unions and local and federal government led to a range of measures including early retirements, reskilling, and the relocation of around 10 600 workers to other coal-producing activities. The policy response in the Ruhr is widely considered to be one of the more successful transitions in OECD countries (Sheldon, Junankar and De Rosa Pontello, 2018[32]; World Resources Institute, 2021[43]). When the local coal economy shut down in The Valleys, in South Wales, the United Kingdom, some workers were offered retraining, relocation allowances and state‑funded housing – though overall this transition suffered from a lack of strategic planning and the area suffered high unemployment and the depression of local businesses for decades (Sheldon, Junankar and De Rosa Pontello, 2018[32]).

Also, the increasing risks caused by climate change, including flooding, fires and mudslides, have been associated with the retreat of private home insurers in markets where climate risks are perceived as too high (see (Bellman, 2016[44])). As some private insurers are scaling back coverage, significantly increasing their rates, or eliminating coverage in high-risk communities altogether, some governments are introducing, strengthening or retooling government-run insurance schemes for flood damage or wildfires, for instance. Housing represents both a major expense and asset for households, with the impacts of climate change heightening risks of damage and destruction to housing and communities.

Across the employment, energy and housing risks associated with climate change (and climate change mitigation), identifying the people who will be negatively affected is a key component of increasing public acceptability of reform. With information on likely “winners” and “losers” of climate change mitigation policies in hand, governments are better-equipped to design social protection via new or existing social protection tools. Pre‑planning can also inform communication around social policies supporting climate change mitigation – a critical component impacting the likely success of reform (Malerba, 2022[45]).

[44] Bellman, L. (2016), Climate Change, Insurance, and Households: A Literature Review, https://www.diva-portal.org/smash/get/diva2:1059520/FULLTEXT01.pdf.

[39] Bezgrebelna, M. et al. (2021), “Climate Change, Weather, Housing Precarity, and Homelessness: A Systematic Review of Reviews”, International Journal of Environmental Research and Public Health, Vol. 18/11, p. 5812, https://doi.org/10.3390/ijerph18115812.

[1] Blanchard, O., C. Gollier and J. Tirole (2023), “The Portfolio of Economic Policies Needed to Fight Climate Change”, Annual Review of Economics, Vol. 15/1, pp. 689-722, https://doi.org/10.1146/annurev-economics-051520-015113.

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