Key message 4 – Providing good jobs, especially in services, and introducing a climate management mindset hold the key to achieving sustainability.

Responding to climate change will involve changes that touch all facets of the economy. Governments must juggle handling climate risks with engineering a transition away from carbon-intensive sources of growth. A climate management approach – where governments are strategically involved in preparing for and handling risks associated with climate change and the green transition – is necessary.

Climate change and the subsequent green transition will have profound effects. Previously attractive areas for agriculture may no longer be suitable, prompting movements of people into cities and less vulnerable areas. Drought-afflicted areas in Brazil have already seen capital outflows and declines in employment (Bustos et al. 2021). Natural disasters may generate large migration flows into congested cities, sparking potential social tensions as well as posing severe challenges for local labour markets to absorb them. Government programmes to help plan for these changes can play an important role in reducing the negative welfare consequences of climate change. Traditional social protection policies should expand to incorporate climate concerns directly into their mandates. Pre-emptive investments into housing in urban areas and in job search and matching initiatives can help prevent the swell of migrants from drowning out the capabilities of local service providers.

Opportunities in the labour market

Over time, the nature of work will also shift as jobs in traditional polluting industries will make way for new jobs in greener industries, including services. While these changes are natural elements of the growth process, they will have added pertinence for the ability of countries to adapt to climate change and pursue sustainable growth. This creates an opening for active governments to steer the economy into cleaner but also more resilient sectors. Because of advancements in technologies such as information and communication technology (ICT), the classical growth story of climbing the ladder from light to heavy manufacturing can now broaden to include growth driven by services. Cheap yet connected labour can deliver services and growth without generating as much pollution, especially in the earlier stages of development where firms may lack the capacity or finances to adopt practices and technologies that make their production cleaner. Industrial policies that help overcome coordination problems could play a helping role in ensuring these sectors emerge.

Credit: Getty Images. A view of a greenhouse, part of a project of the Environmental Protection Committee to prevent the price increase in food products in Addis Ababa, Ethiopia.

Role of environmental regulations and information

A climate management approach also involves establishing markets that can directly orient incentives for production and investment. Aware of their negative externalities, emissions and pollution are often regulated, yet in practice not closely enforced in developing countries. Removing conflicts of interest between pollution auditors and industrial firms in India (Duflo et al. 2013) has been one effective tool to ensure regulations are followed, as has leaning on local knowledge to target the worst offenders (Duflo et al. 2018). These regulations can ensure basic standards are met, but they do not generate efficient outcomes as the costs of abatement differ across and within industries. A market which enables firms to trade allowances to emit within overall defined boundaries could be a more efficient way to ensure pollution reduction goals are met. Experimental evidence from a new market for industrial particulate emissions in Gujarat, India found that plants assigned into the market reduced pollution between 20-30% relative to other plants (Greenstone et al. 2022).

Lastly, another tool to manage climate risks is to provide more accurate and detailed information on these risks. Choices on whether to migrate, adopt technologies, or invest into building skills in other sectors all depend on the perceived relative returns of these decisions and on how climate change may affect them. Information campaigns on the risks that a changing climate may bring can therefore be important. This is seen most clearly in the case of early-warning systems that raise alarm bells about impending natural disasters. By warning areas about incoming storms or floods, for instance, individuals can take quick preventative actions that can save lives and reduce the costs from such events. Governments need to play a coordinating role in generating and providing such information alongside existing efforts to support vulnerable populations from such disasters.