3.1 Introduction

23 Acknowledging that policy making involves inter-related sectors, governments have recently recognised the need for ministries devoted to transition-related policies. In 2017, as one example, France established a ministry responsible for environmental policy, transportation, national parks and housing policy, as well as for energy policy.

Technological innovation and large-scale investments are critical to the energy transition scenarios described in the 2021 edition of the World Energy Transitions Outlook (IRENA, 2021a). But as IRENA has shown, success hinges on suitable national policies and international co-operation. To undertake the transition and to see it through to its conclusion, a policy framework must be able to produce the socio-economic gains necessary for societal embrace and broad political support.

The best policies undergirding the energy transition rest on a systemic understanding of how socio-economic systems interact with global support systems (see Box 3.1). They also inform the design of measures that mitigate adverse impacts and guide a socio-economic transformation alongside the energy transition itself. The more developed countries aim largely to safeguard their welfare. Developing countries see the energy transition instead as a catalyst for alleviating poverty and spurring human development.

Recent initiatives to refashion government ministries23 reflect mounting awareness around the complexity of the energy transition. They acknowledge that traditional economic, social and demographic governing responsibilities are more intertwined than ever, and that a technologyoriented transition is by no means automatically socially just. Policy making is principally driven by national-level interests, but international interests – with their bilateral and multilateral dynamics – play an important role. The transition needs to be just and fair at the global level as well. International economic structures therefore deserve scrutiny.

Left to market dynamics alone, the distribution of transition benefits can be lopsided across countries, communities and economic sectors. What room is there for improving the distribution of transition benefits and burdens, considering existing economic structures?

A holistic global policy framework is needed for the energy transition to be successful and broadly beneficial

BOX 3.1 IRENA’s work on measuring the socio-economic impact of the energy transition

IRENA has been exploring the socio-economic footprint of energy transition roadmaps since 2016, with the aim to analyse key drivers and impacts and to provide insights to support energy transition planning and implementation at global, regional and national levels of decision making.

Throughout this series, IRENA has emphasised that a holistic global policy framework is needed for the energy transition to be successful and broadly beneficial. Different policy elements complement and reinforce each other, covering a spectrum of technical, social and economic issues to accelerate the transition and ensure its benefits are broadly shared and its burdens minimised. Figure 3.1 shows the main elements of this approach, beyond the policies most directly easing the deployment of renewable energy, i.e. a set of structural change and just transition policies.

2016 2017 2018

RENEWABLE ENERGY BENEFITS: MEASURING THE ECONOMICS

2020

GLOBAL RENEWABLES OUTLOOK

EDITION: 2020

ENERGY TRANSFORMATION 2050

THE POST-COVID RECOVERY

An agenda for resilience, development and equality

2019

GLOBAL ENERGY TRANSFORMATION

A ROADMAP TO 2050

2019 EDITION

WORLD ENERGY TRANSITIONS OUTLOOK

1.5°C PATHWAY

2021

RENEWABLE ENERGY MARKET ANALYSIS

AFRICA AND ITS REGIONS

IN COLLABORATION WITH

TRANSFORMING

THE ENERGY SYSTEM

– AND HOLDING THE LINE ON RISING GLOBAL TEMPERATURES

FIGURE 3.1 A holistic policy framework for the energy transition

DEPLOYMENT POLICIES INTEGRATING POLICIES ENABLING POLICIES STRUCTURAL CHANGE AND JUST TRANSITION POLICIES HOLISTIC GLOBAL POLICY FRAMEWORK

ENERGY ECONOMY PLANET

SOCIETY

Sources: IRENA (2021a)

Policy makers need to understand how the energy transition interacts with the economy at large and societal and planetary systems

The geography of core segments of the supply chains for renewable energy and other transitionrelated technologies – reflecting historically grown, yet highly unequal, economic structures and trade relations – largely determines where benefits will accrue without policy interventions. Additionally, the full accrual of these benefits depends on well-applied regulatory, fiscal and other policy tools. Different countries implement such measures with varying ability, depending on their own socio-economic systems and their institutional and taxation regimes. Yet, in the absence of an international collaborative framework, pronounced inequalities in outcomes could translate into transition barriers. Benefits are important, yes. But the distribution of costs imposed by the transition could be more important in securing commitments and resources in order to transform present patterns of consumption and production.

Distributional policies and impacts of the two scenarios

As with the 2021 edition of IRENA’s World Energy Transitions Outlook, this chapter analyses the differentiated socio-economic effects of both scenarios – first, the Planned Energy Scenario (PES, or the transition plans and commitments made through 2019) and, second, the 1.5°C Scenario, which accords with the Paris Climate Agreement. It deepens the analysis in WETO 2021 and complements the assessment presented in IRENA’s Regional Market Analysis for Africa (IRENA and AfDB, 2022) (see Box 3.2). It goes further within the 1.5°C Scenario by distinguishing between two policy baskets (see section 3.2) and focusing on distributional effects. This chapter will not assess the political likelihood of policy implementation. It analyses the likely socio-economic impacts.

As with IRENA’s previous analyses of the energy transition and its socio-economic footprint, the indicators pertain to GDP, jobs and welfare. GDP remains the key measure for macroeconomic outcomes. Employment is how most people earn an income to support themselves and their families: jobs are thus a central metric for socio-economic outcomes. Beyond GDP and jobs, IRENA’s Energy Transition Welfare Index captures several dimensions of the transition: economic, social, environmental, distributional and energy access. What does the energy transition portend for most people? This report offers a nearly all-encompassing picture.

This chapter explores whether higher levels of international co-operation can improve GDP, jobs and welfare results in less developed and more vulnerable countries against a backdrop of reduced carbon pricing without worsening outcomes elsewhere, while trying to achieve net neutral outcomes at the global level. International co-operation could provide much-needed funds to three sets of countries: 1) countries with fossil fuel-dependent economies; 2) low-income countries pursuing sustainable development through the energy transition; and 3) countries that confront high levels of vulnerability in the face of tumultuous climate change impacts. The aim is to inform policy making so that it can trigger collaborative approaches required to facilitate the transition, while supporting the needed restructuring of economies.

BOX 3.2 Socio-economic outcomes: The PES and 1.5°C Scenario in Africa

The energy transition holds huge promise for the continent as African countries shift from carbon-intensive energy sources and improve energy access. On average, from 2022 to 2050, the 1.5°C pathway promises Africa GDP gains of 6.4% over those realised under PES. There are in addition net job gains of 3.5% and enormous welfare benefits (see Figure 3.2).

IRENA’s analysis shows that Africa could benefit from more diversified and less commodities-dependent economies, industrial development and innovation; these structural changes also bring greater climate stability and environmental sustainability. Equitable socio-economic development patterns across the continent depend on these outcomes. Also critical for a successful energy transition: public and private investment, international co-operation (including South-South co-operation) as well as ambitious industrial policies and exchange of technological know-how.

RENEWABLE ENERGY MARKET ANALYSIS

AFRICA AND ITS REGIONS

IN COLLABORATION WITH

FIGURE 3.2 Average differences between the 1.5°C Scenario and PES pathway in Africa, 2021-2050

More GDP +6.4%

More economy-wide jobs

+3.5%

Higher welfare index +25.4%

Source: (IRENA and AfDB, 2022).

The energy transition holds huge promise for African countries as they shift from carbon-intensive energy sources and improve energy access

Transition benefits depend on well-applied regulatory, fiscal and other policy tools

It should be noted that although this sensitivity analysis focuses on three policies – namely international co-operation, carbon pricing and redistribution – the implemented policy baskets include many other policies that support the transition (Box 3.3).

Future editions of the World Energy Transitions Outlook, together with forthcoming Regional Energy Transitions Outlooks, will provide extensive discussion of socio-economic footprints. The present report offers country-level examples that showcase the effects brought about by policy baskets; it also shows that results vary according to policy measures and underlying economic structures and dependencies.

Past editions discussed scenarios for time periods to 2030 and to 2050. Here, the focus is on outcomes by 2030, although observable benefits reflect the transition trajectory to 2050. In other words, policy choices adopted for the longer term also matter for the near-term period to 2030.

This chapter first discusses policy baskets PB-A and PB-B (section 3.2). It then describes their outcomes (sections 3.3 and 3.4). It concludes by summarising insights gained.

BOX 3.3 Policy baskets to enable and support the transition

IRENA’s socio-economic footprint analysis includes in its modelling a very diverse set of policies to enable and support a sustainable energy transition. Holistic planning and synergistic implementation can address the multiple angles of the interactions between the energy, economy and social systems more successfully than an approach that relies only on a limited number of interventions.

The Integrated Assessment Models that have carbon pricing as the main (and often sole) policy to drive the transition are a case in point. The resulting needed carbon prices are too high to be socio-politically feasible. Since IRENA’s analysis includes a diverse policy basket, the transition goals can be achieved with significantly lower carbon prices. It should be noted that with a diverse climate policy basket, the final level of carbon pricing needed to bring about an energy transition roadmap depends on the effective implementation of accompanying policies.

The IRENA socio-economic analysis assesses the following policies:

• International co-operation, supporting enabling social policies in all countries and addressing the international justice and equity dimensions

• Domestic progressive redistributive policies

• Carbon pricing, evolving over time with carbon prices differentiated by each country’s income level and special treatment of sectors with high direct impacts on people (households and road transport)

• Fossil fuel phase-out mandates in all sectors

• Phase out all fossil fuel subsidies

• Regulations and mandates to deploy transition-related technologies and strategies, including renewables, EVs, hydrogen and system integration through electrification and P2X

• Mandates and programmes for energy efficiency deployment in all sectors

• Policies to adapt organisational structures to the needs of renewable-based energy systems (such as in the power sector)

• Subsidies for transition-related technologies, including for households and road transport

• Direct public investment and spending to support the transition, with participation in all transition-related investments, but with special focus on enabling infrastructure deployment (EV charging stations, hydrogen infrastructure, smart meters, etc.), energy efficiency deployment and policy expenditure

• Policies to align international co-operation with transition requirements: earmarking of funds to transition-related investments, increasing social spending

• Public involvement in addressing stranded assets challenges, both domestically and internationally

• Policies to align government fiscal balances with transition requirements, addressing domestic distributional issues and aligning deficit spending with transition requirements.