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Policy challenge: Local economies and net-zero

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This page focuses on the challenge of how local economic policy may be affected by the transition to net-zero and provides links to our different evidence resources related to this. We also provide links to external content. We will be updating this page when we add new resources or as government policy is announced.

Why is thinking about net-zero important for local economic policy?

Policymakers around the world are aiming to meet the carbon emissions targets set out in the 2015 Paris Agreement. Meeting these targets for mitigation of climate change requires transformation of economies through building capacity needed by new green sectors, like zero carbon energy production, electric vehicle production, and carbon capture and storage, and helping existing sectors to reduce their carbon emissions. Adaptation to climate change also reshapes economies, for example through investments in flood defence technologies and infrastructure or heat resilient building design and urban planning.

Local economic policy needs to consider the impact of mitigation and adaption on local economic outcomes and the potential economic complications of transition, such as job losses in carbon-intensive sectors. This will matter for living standards, and by extension for helping ensure continued public support for climate policy.

  • What is the relationship between economic growth and transition to net zero, and can you even achieve both at the same time? This explainer from the Grantham Research Institute on Climate Change and the Environment discusses the issue: Can we have economic growth and tackle climate change at the same time?
  • The difference between climate adaption and mitigation, and how economic policy is related to them, are explained in this blog from the IMF.
  • One framework for thinking about the impacts of net-zero transition for different groups in society, including economic impacts on workers, is the concept of “just transition”. For more on what just transition can mean, including for local policy, you can read this explainer, also from the Grantham Research Institute: What is the just transition and what does it mean for climate action?

The UK policy context

The UK is legally committed to reaching net zero by 2050.

The UK Government have made becoming a clean energy superpower one of their five core missions and have said that a new green prosperity plan will focus on developing and strengthening green sectors and jobs. The new National Wealth Fund will target green sectors, and a new public energy company, Great British Energy, will support investment in renewable energy. The UK government have indicated that they aim to decarbonise the energy sector by 2030.

Our resources

Understanding the makeup of the local economy

A key step in thinking about the implications of net-zero transition for a local economy is having a clear understanding of the makeup of the economy and how it will be affected. A large proportion of local employment in carbon-intensive sectors may expose the local economy to larger impacts, but transition also offers economic opportunities.

  • Our policy challenge page on developing local industrial strategies includes a guide on using data to understand the local economy, with tips on data sources and advice on issues to be aware of with different data.
  • We also run training sessions on using data to understand the local economy. Keep an eye on our training page for the announcement of new dates for these sessions.

Supporting workers at risk of job losses

Some places may see employment shocks as a result of net-zero transition, where they have a larger proportion of employment from caron-intensive sectors, or businesses involved in supply chains for those sectors. In these instances, local economic policy will need to support workers into different forms of employment.

  • Our toolkit on responding to major job losses is aimed primarily at employment shocks that occur when large firms close, downsize or restructure in a single town or city, or when the effects of structural change are felt in communities where affected industries are geographically concentrated.

Supporting workers through skills training

Developing skills may be an important part of the policy response where workers need to transition from one sector or industry to another. Skills will also be important in terms of equipping future generations of workers for opportunities in net-zero economies.

Supporting local opportunities in R&D

Part of the transition to net-zero will require identifying new technologies, products and processes of production that can enable climate change mitigation or adaptation. The UK Government have made clear that they are interested in the UK being a global leader in cutting-edge green sectors. The scope for these kinds of opportunities in the local economy will depend on its sectoral makeup (for example whether there are research-focused businesses or major public sector research-focused employers) and the skills profile of local workers.

  • Our evidence review on innovation summarises research on the effectiveness of grants, loans and subsidies, and tax credits, for R&D outcomes. While local government does not currently have control over these policy levers, understanding their impact may be important given national government’s increasing interest in supporting green innovation in the UK.
  • Additionally, our toolkits on researcher co-location and supporting university spinouts (available at the same link) summarise the evidence on more granular approaches that local policymakers could undertake.

Public procurement as a tool for encouraging green business practices

Increasingly, local governments may use public procurement as a tool to bring about wider policy aims and benefits, for example through social value contracting.

  • Our rapid evidence review on local procurement finds some evidence that procurement can be effective in encouraging the adoption of green business practices and standards, where green criteria is included in procurement tenders.
  • It is important to consider the wider economic implications of using procurement in this manner, such as the potential for increased costs in procurement and whether it may be more cost effective to achieve the same outcome with a more dedicated policy lever. Our evidence briefing on local procurement (available at the same link) provides guidance on thinking through the local economic effects of using procurement for wider outcomes.

Green investments and policies and local economic outcomes

We have several resources which cover green-related investments and policies and look at the potential local economic impacts that come from them.

  • Our evidence review on local green investments looks at three areas: active travel infrastructure, energy efficiency investment, and natural capital. Overall, the evidence, though limited, suggests that local green investments of these types can have employment benefits, however how long-lived these jobs are is less clear, since building this infrastructure may be more labour intensive than maintaining it.
  • Our rapid evidence review on active travel infrastructure looks at the impact of walking and cycling infrastructure. For supporting uptake of active travel, it finds generally positive results. However, the results for local economic outcomes are much less clear. This resource is available on our public spaces evidence page.
  • Public transport investments may be used to try to reduce emissions from private vehicles. Investment in public transport is also a way of trying to stimulate local economies or reduce transport costs for businesses and workers. Our rapid evidence review on rail investment looks at the local economic impacts of this, and our two toolkits – on integrated ticketing, and on real-time information systems – both find evidence that these design elements can increase public transport ridership, though the evidence is less clear for real time information systems.
  • Our rapid evidence review on public spaces includes evidence on investment in green spaces. Such spaces may be important for both climate change mitigation and adaptation. Our review looked at what effect they might also have on local economic outcomes. Overall, the evidence suggests a mixed impact on property prices, with some limited evidence that urban property prices are more affected, and that new green spaces in an area can increase the likelihood of gentrification. Therefore, thinking about the economic effects of these types of interventions for existing residents may be important in ensuring such investments don’t disadvantage sections of the local population.

External resources