The Reimagining the Economy Project and the Aspen Economic Strategy Group co-hosted a webinar on Local Labor Market Impacts of the Energy Transition, featuring Gordon Hanson, Peter Wertheim Professor in Urban Policy at Harvard Kennedy School and Faculty Director of the Reimagining the Economy Project, and John Podesta, Senior Advisor to the President for Clean Energy Innovation and Implementation. The conversation was moderated by Melissa S. Kearney, Director of the Aspen Economic Strategy Group and Professor at the University of Maryland.
The webinar was centered on Professor Hanson’s recent paper, which analyzes the spatial distribution of employment in fossil-fuel-intensive activities, the scope of potential job loss from the transition to clean energy, and policy options for easing the transition. The challenge we face is getting to a low carbon future in a way that meets our society’s standards of equity and fairness.
“There are three primary groups that will be impacted by the energy transition: workers that extract and refine fossil fuels, workers that use fuels to generate electricity, and workers in electricity intensive industries located near power sources. These jobs tend to be concentrated in smaller areas that are more remote and have highly specialized workforces.”
Parallels with globalization and trade
The panelists discussed the parallels between the energy transition and previous economic shocks such as the globalization or China Trade Shock. Professor Hanson noted that a major parallel between these two transitions is that the impacted areas contain workers with highly specialized skillsets, making adjustment more difficult. Concentrated, rapid job loss from mass layoffs can cause local recessions and long-lasting effects on impacted communities. Workers without a college education are not as geographically mobile, which results in them not taking up jobs that are created elsewhere during these transitions. For Mr. Podesta, the biggest difference between the energy transition and deindustrialization from trade policy is that the government views the energy transition as an opportunity to drive investment and jobs into places that need it. The White House is pursuing a “bottom up” strategy to make sure that there will be job growth in places that need it, and that existing infrastructure and workers are utilized in the new energy framework.
The panelists discussed the policy response that will be needed to make the energy transition as painless as possible for communities that are heavily dependent on the fossil fuel industry. Professor Hanson explained that more generous and long-lasting unemployment benefits are needed at the local level in places that experience mass layoffs to help workers financially while they acquire new skills. These workers also need clearer guidance on what skills employers are looking for and where they can go to acquire these skills. Better childcare and eldercare benefits are also helpful in giving workers the time to pursue skill acquisition. The key is that a federal government response is not sufficient to fully ease a transition of the magnitude of the energy transition. Community colleges, state and local governments, and employers all have a role to play in ensuring workers get the skills that are needed, and that they are hired into good jobs once they obtain these skills.
Mr. Podesta noted that from a policy standpoint, the architects of the Inflation Reduction Act understood the potential for adverse consequences from the energy transition for impacted communities and aimed to compensate for it by creating incentives to drive investment into these places. The IRA provides tax credits to employers that pay a prevailing wage and hire through certified apprenticeships. Additionally, many of the skills needed to build clean energy systems will align with skills that were used to build our original energy system, which should ease the skill adjustment needed from workers. The IRA is projected to create up to 9 million new jobs and these jobs will be dispersed across the country, including in places that are dependent on fossil fuel production. The mechanism through which the Inflation Reduction Act operates is by enhancing support from the private sector to drive investment into disadvantaged communities, with an end goal of creating a cycle of innovation.
Institutional coordination and trust
Mr. Podesta stated that the timing of the energy transition is driven by what the government sees on the ground. Monetary losses from severe weather events have substantially risen in recent years, and these events caused $163 billion in damage in 2022. We also likely don’t fully understand the indirect economic impacts that will result from a changing climate. The White House has set a goal to reduce emissions by 50% by 2030 and to reach net zero emissions by 2050. The goal is to work fast but deliberately, which will require action from other government agencies to increase efficiency and regulate emissions.
Professor Hanson expressed that policy changes should be viewed as adjustment frameworks as the government is often unable to dictate the timing of such transitions. To fully solve the problem of regional economic distress that may result from the energy transition, coordination and trust is needed from a variety of institutional actors. It is important to recognize that places that will be impacted are very heterogeneous in nature, and that a “one size fits all” policy won’t work to accommodate differences that exist across place. Mr. Podesta concluded by noting that the transition provides an opportunity to engage in an experiment to see whether large transitions can provide a platform to redirect investment to specific places through the tax code.
This report was authored by Jessie Dickens