Key message 2 – Cities can deliver on sustainable growth objectives by leveraging existing comparative advantages and building new ones.

Climate change is transforming the global economy—and will continue to do so. On the demand side, the global move to net zero emissions will see a changing economic environment, bringing new opportunities for growth and job creation. Approximately 80% of global carbon dioxide emissions, and approximately 90% of the global economy, are already accounted for in current net zero commitments (Net Zero Tracker n.d.). On the supply side, climate change alters the relative ability of cities, countries, and regions to carry out certain economic activities. In particular, evidence shows that large parts of Africa will become too hot for certain types of agriculture, and policymakers will need to adapt by shifting to different crops or other economic sectors (Conte et al. 2021).

High-emitting developed economies are better positioned to push the technological frontier forward and invest in the necessary science that will be required to deliver the net zero transition. Meanwhile, green global value chains (GGVCs) will emerge, whereby various stages of activity contributing to the production of goods and services that facilitate this transition will be shared across the world.

Developing country cities need to get ahead of this by identifying, leveraging, and building green comparative advantages, positioning themselves to reap the benefits of this economic change and guard against the risks. A green comparative advantage is anything the city can do more competitively than others, by leveraging or building on its local economic capabilities (such as their skills and natural endowments), and which are aligned with sustainable growth objectives. Opportunities include designing or producing  goods and services underpinning the green transition, as well as processing minerals needed for low-carbon technologies or reducing the carbon intensity of existing goods. Without successful identification of existing and the development of new comparative advantages, regions will struggle economically and socially, and are likely to experience higher migration to more hospitable climates (Conte 2022).

Many new green opportunities are likely to be in cities, as many urban jobs, by virtue of their higher wages, indoor nature, and connection to global markets, are more resilient to the impacts of climate change. Furthermore, while global, GGVCs touch down in cities, and offer urban firms and workers an opportunity to contribute higher value-added goods in secondary and tertiary sectors (Crescenzi and Harman 2023). This could be in the processing of resources into an intermediate good, or facilitating the development, design, or distribution of a good. In low-income cities that are still developing, lower complexity products and services are a useful place to start. Figure 1 below shows the ranking of countries in Africa and Asia by green production potential, based on existing goods exports.

Figure 1: Africa and South Asia’s green production potential.

Source: Data from (Mealy and Teytelboym 2022).

Notes: This index measures, in relative terms, how much potential a country has to diversify into green, more complex products in the future (ranking ranges from 1—best positioned—to 122). This potential is based on the connectedness and complexity of products it is not yet competitive in. In other words, it shows which countries in Africa and South Asia are relatively most ready to leverage more complex, green GVCs in global trade. In Africa, it shows that South Africa, Senegal, Tanzania, and Uganda all have relatively high potential, with the latter rising significantly in recent years. In South Asia, it shows that India has one of the leading global green production potentials, with Sri Lanka and Pakistan also relatively far ahead. Grey indicates data unavailable. More information for application can be found at https://green-transition-navigator.org/.

Cities can also build their own comparative advantage through investments in the broader technologies that will attract greener firms. Examples include policies that support clean energy supply and lower-emitting infrastructure development. Simply designing cities with higher density, more greenery, and lower environmental pollution—covered in more detail in the companion piece Delbridge et al. (2022)—can play an important role in attracting these green firms. The same is true for regulations that protect the city’s natural capital. For example, accrediting processed forestry products with sustainable certification, or producing a good with higher environmental standards, such as increasing recycled content in cement or reducing carbon emissions in activities through renewable energy. In the tertiary sector, it could mean demonstrating climate commitments, such as the hospitality industry reducing water consumption through low-flow showerheads or reclaiming used water for ground-keeping (Grove et al. 1996).

Governments should proactively plan for this transition. GVC mapping is one tool to aid in the identification of comparative advantages—showing whether cities should compete on existing strengths or invest in developing new ones (For detail see Sutton (2014) and Frederick (2019)). To develop upgraded industries, cities need to engage with larger firms to understand what skills and infrastructure they might require for such upgrading to take place locally (Crescenzi and Harman 2022). With new industries, it is important to also consider what other countries are doing to leverage their comparative advantage. If cities attempt to specialise in the same or similar niches, the overall supply might outstrip demand. Alternatively, where demand is sufficiently high, cities might benefit from actively coordinating supply across a certain region. Continental bodies, such as the African Union with the African Continent Free Trade Area, or the South Asian Association for Regional Cooperation with the South Asian Free Trade Area, are useful bodies to coordinate economic action under collaboration rather than competition.