Making the European Green Deal Work for People The Role of Human Development in the Green Transition Javier Sanchez-Reaza Diego Ambasz Predrag Djukic Making the European Green Deal Work for People The Role of Human Development in the Green Transition Javier Sanchez-Reaza Diego Ambasz Predrag Djukic MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE © 2023 International Bank for Reconstruction and Development/The World Bank. 1818 H Street NW, Washington, DC 20433, USA. Telephone: 202–473–1000; Internet: www.worldbank.org. Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Cover image: stock.adobe.com. iv  Contents Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii Overview: A Human-Centered Green Transition...................................................................1 The European Green Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Net-zero emissions and decoupling economies from natural resource consumption. . . . . . . . . . . . . . . . . . 4 Financing the EGD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 The EGD can avoid previous transitions’ increased income disparities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 HD policies to enable the transition: leaving no person or place behind. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 HD policies to mitigate the costs of the transition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Skills to prevent further regional disparities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Public employment services will play a crucial role. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Social assistance and health services can mitigate some of the transition costs. . . . . . . . . . . . . . . . . . . . . . 12 HD policies to adapt individuals and households to a sustainable economy. . . . . . . . . . . . . . . . . . . . . . . . . . 13 Workers will need strong foundational skills to seize the opportunities created by the EGD. . . . . . . . . . . 13 Through research and innovation education can produce the technology needed to curb emissions. . . . 14 Education can create awareness and shift consumer demand for green products. . . . . . . . . . . . . . . . . . . . 15 The focus of the EGD should be the wellbeing of people . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1. The European Green Deal...............................................................................................19 The EGD can avoid previous transitions’ increased income disparities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 The EGD can avoid the increased income disparities of previous transitions. . . . . . . . . . . . . . . . . . . . . . . . 20 Two Questions, One Challenge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 The European Green Deal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Enabling the Green Transition and Addressing the EGD’s Unintended Consequences. . . . . . . . . . . . . . . . . . 23 The Circular Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Asymmetric Impacts of the EGD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Exacerbated regional inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Skills and income inequality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2. Economic Dynamics and Potential Impacts.....................................................................30 Economic Dynamics in the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 System Dynamics to Simulate the Changes in the HTGEM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Potential Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Policy Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 3. Human Development Policies and the Green Transition.................................................46 The Enabling Role of HD Policies to Reduce GHG Emissions and Support a Circular Economy. . . . . . . . . . . 47 Adapting to the Green Transition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Mitigating the Impact of the Green Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Skills and training. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 A regional perspective will be important . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Health. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Social protection and jobs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Policy Coverage and Preparedness in Strategic Documents: EU and Case-Study Countries . . . . . . . . . . . . . 70 4. Adapting to a Circular Economy......................................................................................72 Economic Growth, Material Consumption, and Productivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Human Development and Pressure on Planetary Boundaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 The EU’s Transition to the Circular Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 The transition to the circular economy, essential elements, and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 80 v  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Risks related to the transition to the CE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Monitoring performance on the circular economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 HD Policies for Ensuring a Just Transition to the CE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 5. Addressing the Unintended Consequences....................................................................92 Regional Impacts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 The nexus between the EGD and territorial imbalances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 The regional impacts of the EGD in the context of territorial polarization. . . . . . . . . . . . . . . . . . . . . . . . . . 94 Other factors determining regional winners and losers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 The green transition and the geography of discontent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 The relevance of place-sensitive policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Individual Impacts—Skills Transition Pathways. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Skills mismatches between green and brown jobs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Returns to skills in green and brown jobs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Transition pathways. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 6. Enabling a Human-Centered Green Transition..............................................................116 Making it Effective: Policy preparedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Making it Efficient: Financing the green and human transitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Making it Sustainable: Addressing discontent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Making it Attainable: Behavioral change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 References.........................................................................................................................122 Endnotes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Annexes.............................................................................................................................133 Annex A. The Human Transitions General Equilibrium Model (HTGEM). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Annex B. The HTGEM in a System Dynamics Model (SDM) perspective. . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Annex C. Calibration Strategy for the SDM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Annex D. Scenarios in the SDM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Annex E. SDM Additional Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Annex F. Methodology and Data Used in Defining Clusters in Principal Components Analysis. . . . . . . . . . . . 155 Annex G. Heat Maps Methodology and Results for Country Policy Analysis. . . . . . . . . . . . . . . . . . . . . . . . . 168 Annex H. Green Jobs Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Endnotes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Boxes 1 The EGD’s Three Objectives and Five Policy Levers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 SDM Literature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.1 The Compatibility of Infrastructure and Buildings with EGD goals . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.2 China’s Guizhou Aged Care System Develop Program Project. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 3.3 HD Infrastructure and the Green Transition in Croatia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 3.4 Investments in Quality Education Can Enable Green Technological Innovation and Adaptation. . 53 3.5 Educational Policy and Climate Change Opinions in Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 3.6 Common Challenges in Improving the Efficiency of Transportation. . . . . . . . . . . . . . . . . . . . . . . . . . 57 3.7 Education and Training in Poland and the Slovak Republic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 4.1 Pollution Challenges across EU Countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 4.2 Restoring Ecosystems and Biodiversity in the EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 4.3 The Circularity Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 5.1 The Distribution of Fossil Fuels versus Renewable Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 5.2 Place-Sensitive Strategies: Combining Efficiency and Equity in the EGD’s Implementation. . . . . 102 5.3 Regional Peer-Learning: Addressing EGD’s Trade-offs through Policy Learning. . . . . . . . . . . . . . . . . . . . 103 5.4 Identifying Transition Pathways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 vi Contents Figures O.1 Human Development and Human Capital Indices Adjusted by Environmental Pressure . . . . . . . . . 4 O.2 Nine Rs for the Circular Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 O.3 Annual Change Rate of GDP and DMC in EU Member States, 2000–2020 (%). . . . . . . . . . . . . . . . . 6 O.4 Change in Income Inequality in EU, 1993–2019 (Gini Coefficient) . . . . . . . . . . . . . . . . . . . . . . . . . . 8 O.5 Density Plots Green vs. Brown Jobs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 O.6 Green Job Transitions Example from Poland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 O.7 Difference in Socioeconomic Status and Learning Outcomes in EU Member States, TVET versus non-TVET Students . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.1 Change in Manufacturing Employment and Chinese Import Competition in OECD Countries, 1999–2007 (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.2 Change in Income Inequality in the EU, 1993–2019 (Gini Coefficient) . . . . . . . . . . . . . . . . . . . . . . 21 1.3 EGD’s Objectives, Actions, and Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1.4 Green Job Transition Example from Poland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.1 SDM Approach to Modelling the Brown Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2.2 SDM Approach to Modelling the Green Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2.3 SDM Approach to Modelling the Natural Resource Consumption. . . . . . . . . . . . . . . . . . . . . . . . . 38 2.4 SDM Approach to Modelling Skills and the Labor Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2.5 Simulation Results for EU Brown Production under the EGD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2.6 Simulation Results for EU Green Production under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 2.7 Simulation for Capital in the EU under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 2.8 Simulated Capital-Labor Ratios in the EU under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.9 Simulated Productivity in the EU under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.10 Simulated Productivity at the Country Level under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 2.11 Simulation for Skills’ Demand and Supply in the EU under the EGD. . . . . . . . . . . . . . . . . . . . . . . . 43 2.12 Skilled-Unskilled Workers’ Wage Differentials in the EU with the EGD. . . . . . . . . . . . . . . . . . . . . . 44 3.1 The Human Transitions Policy Framework: Enabling, Adapting, and Mitigating. . . . . . . . . . . . . . . 47 3.2 Human Development Stakeholder Action Matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 B3.1.1 Building and Renovation in an Energy and Resource Efficient Way. . . . . . . . . . . . . . . . . . . . . . . . . 50 B3.6.1 Accelerating the Shift to Sustainable and Smart Mobility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 3.3 Difference in Socioeconomic Status and Learning Outcomes in EU Member States, TVET versus non-TVET Students . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 3.4 Europe and Central Asian Countries’ Social Protection Spending. . . . . . . . . . . . . . . . . . . . . . . . . . 68 3.5 Social Protection’s Impact on Poverty (ECA Region). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 4.1 Source of (a) Global GHG Emissions and (b) the Nine Planetary Boundaries . . . . . . . . . . . . . . . . . 73 B4.1.1 A Net-Zero Pollution Ambition for a Toxic-Free Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 4.2 Domestic Materials Consumption in the EU by Material, 2000 (internal ring) and 2020 (external ring), Thousand Tons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 4.3 DMC and Non-energy DMC Per Capita in the EU and Selected Member States, 2000–2020 . . . . 77 4.4 Annual Change Rate of GDP and DMC in EU Member States, 2000–2020 (%). . . . . . . . . . . . . . . . 77 4.5 Non-energy Materials Productivity (GDP/Non-energy DMC), 2000, 2010, 2020 . . . . . . . . . . . . . . 78 4.6 Countries’ HDI Ranking, CO2 Emissions, and Material Footprint Per Capita . . . . . . . . . . . . . . . . . 78 4.7 Human Development and Human Capital Indices Adjusted by Environmental Pressure . . . . . . . . 79 4.8 Social Shortfalls and Ecological Overshoot in Case-study Countries. . . . . . . . . . . . . . . . . . . . . . . . 80 4.9 The “Butterfly Diagram” for the Circular Economy (panel a) and the Nine Rs Framework (panel b). . . 81 B4.2.1 Preserving and Restoring Ecosystems and Biodiversity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 4.10 Share of Manufacturing in Total GDP and Employment in the EU, 2018. . . . . . . . . . . . . . . . . . . . . 85 4.11 Participation Rate in Education and Training, 2010 and 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 4.12 Circular Economy in the EU, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 4.13 Recycling Rate of E-waste in the EU, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 4.14 The Calculation of the Circularity-adjusted Human Capital Index. . . . . . . . . . . . . . . . . . . . . . . . . . 88 vii  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE B4.3.1 Bi-plots of the Three Indices: Waste Management Index, Consumption and Production Index, and Secondary Raw Materials Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 4.15 Comparison of EU Country HCI Indicators, Adjusted for Circular Economy Performance . . . . . . . 90 5.1 Development Traps across EU Regions by GDP Per Head, 2001–2019 . . . . . . . . . . . . . . . . . . . . . 94 5.2 Cumulative Jobs at Risk by 2030 due to Phasing Out of Coal Energy Production. . . . . . . . . . . . . 95 5.3 CO2 Emissions from Fossil Fuels Per Head, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 B5.1.1 Increasing the EU’s Climate Ambition for 2030 and 2050. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 5.4 Regional Innovation Scoreboard, 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 5.5 European Quality of Government Index, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 5.6 Density Plots Green vs. Brown Jobs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 5.7 Density Plots Green vs. Brown Jobs in EU. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 5.8 Skills Advantage—Green vs. Brown Jobs across the Distribution. . . . . . . . . . . . . . . . . . . . . . . . . 107 5.9 Example of a Question Measuring Numeracy Skills Usage at Work . . . . . . . . . . . . . . . . . . . . . . . 107 5.10 Example of a Question Measuring Numeracy Skills Usage at Work . . . . . . . . . . . . . . . . . . . . . . . 108 5.11 Green Job Transitions for Renewable Energy Engineers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 5.12 Green Job Transitions for Environmental Inspectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 5.13 Green Job Transitions for Environmental Engineers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 5.14 Brown-to-Green Jobs Transitions for Geophysical Engineer–Mining Geophysics. . . . . . . . . . . . . 114 5.15 Brown-to-Green Jobs Transitions for Oil and Gas Processing Controller . . . . . . . . . . . . . . . . . . . 115 A.E.1 Simulation Results for Croatian Brown Production under the EGD. . . . . . . . . . . . . . . . . . . . . . . . 148 A.E.2 Simulation Results for Croatian Green Production under the EGD. . . . . . . . . . . . . . . . . . . . . . . . 148 A.E.3 Simulation for Capital in Croatia under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 A.E.4 Simulation for Capital-Labor Ratios in Croatia under the EGD . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 A.E.5 Simulation for Unskilled Labor Supply and Demand in Croatia under the EGD . . . . . . . . . . . . . . 149 A.E.6 Simulation for Skilled Labor Demand in Croatia under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . 149 A.E.7 Simulation for Skilled-Unskilled Wage Gap in Croatia under the EGD . . . . . . . . . . . . . . . . . . . . . 150 A.E.8 Simulation Results for Polish Brown Production under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . 150 A.E.9 Simulation Results for Polish Green Production under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . 150 A.E.10 Simulation for Capital in Poland under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 A.E.11 Simulation for Capital-Labor Ratios in Poland under the EGD . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 A.E.12 Simulation for Unskilled Labor Demand in Poland under the EGD. . . . . . . . . . . . . . . . . . . . . . . . 151 A.E.13 Simulation for Skilled Labor Demand in Poland under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . 152 A.E.14 Simulation for Skilled-Unskilled Wage Gap in Poland under the EGD. . . . . . . . . . . . . . . . . . . . . 152 A.E.15 Simulation Results for Slovak Brown Production under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . 152 A.E.16 Simulation Results for Slovak Green Production under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . 153 A.E.17 Simulation for Capital in the Slovak Republic under the EGD. . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 A.E.18 Simulation for Capital-Labor Ratios in the Slovak Republic under the EGD . . . . . . . . . . . . . . . . . 153 A.E.19 Simulation for Unskilled Labor Demand in the Slovak Republic under the EGD. . . . . . . . . . . . . . 154 A.E.20 Simulation for Skilled Labor Demand in the Slovak Republic under the EGD. . . . . . . . . . . . . . . . 154 A.E.21 Simulation for Skilled-Unskilled Wage Gap in the Slovak Republic under the EGD . . . . . . . . . . . 154 Tables 1 Policies for a Human-Centered Green Transition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.1 Role of TVET in Green Transition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 3.2 HD Policy Analysis Matrix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 3.3 Multi-Country Human Development Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 5.1 Log Hourly Wages in Green and Brown Jobs Explained by Skills, Age, Gender, and Sector. . . . 109 6.1 Heat-Map Policy Analysis for the Slovak Republic, Croatia, and Poland. . . . . . . . . . . . . . . . . . . . 118 A.F.1 Variables Identified and Used for the Statistical Profiling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 A.F.2 Tables for the Clustering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 A.H.1 Log Hourly Wages in Green and Brown Jobs Explained by Skills, Age, Gender, and Sector. . . . 171 viii Preface Preface T he damage to the environment caused by This report offers an analysis of the challenges for human activity in the last decades is an is- the European Union (EU) posed by the EGD and sue that involves people and entities across highlights the essential role that human develop- borders, and addressing this challenge re- ment will play in making the transition attainable quires the commitment and buy-in of all stakehold- and sustainable. The research in this report provides ers. The European Green Deal (EGD) represents a an in-depth analysis of the implications for the re- massive effort by the international community to gion and the potential of human development sec- adopt more environmentally sustainable practices at tors to drive changes in our society towards more a scale that can make a difference for current and environmentally conscious actions. In addition, the future generations. report analyzes important topics, such as equipping A human-centered approach is fundamental to people with green skills, monitoring and strengthen- achieving a just transition to the more sustainable ing labor market conditions, and improving the environment envisioned under the EGD. This report health sector, that can help Europeans take advan- discusses how human development policies will tage of the opportunities offered by the transition play a key role in achieving this goal. First, human and incites further research. development policies are indispensable to enable The report team and multiple expert reviewers of the green transition. For example, training the work- this report have collaborated to make this document force for greener jobs require higher skills compati- a catalyzer for further research and through policy ble with technology to make the transition feasible. dialogue, the development of purposeful strategies Second, human development policies are also and policies by governments and other stakehold- needed to help society adapt to a green economy. ers. Based on the Human Transitions General Equilib- Third, the level and size of the actions proposed in rium Model, as well as the use of econometrics, avail- the EGD could imply unintended consequences able literature, and focused country notes, the report with adverse effects, particularly for low-skilled provides analyses with important implications for a workers and lagging regions. Appropriate changes topic critical for European, and global, welfare. We to social protection programs, education and train- hope that the report will contribute to shaping the ing systems, and health services can reduce the policy agenda in the diverse contexts of the EU. hardships involved and help people and regions ad- just successfully. ix  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Acknowledgments T his report is part of the ASA “Advancing by a team led by Husein Abdul-Hamid and included the Human Development Agenda within Diego Ambasz, Maciej Jakubowski, and Domagoj the EU’s Green Deal.” The ASA was led by Račić. Finally, Poland’s just transition case study was a team including Diego Ambasz, Predrag led by Lucian Bucur Pop with a team comprised by Djukic, Karla McEvoy, and Javier Sanchez-Reaza, Tomasz Janusz Gajderowicz, Maddalena Honorati, under the supervision of Harry Patrinos (who also Maciej Jakubowski, and Sylwia Michalina Wrona. contributed some of the background work and In the process of creating a new outlook on the causal evidence), Rita Almeida, Cem Mete, and green transition, the report implied formulating in- Tanya Dmytraczenko. The team is grateful for guid- novative frameworks for analysis, rethinking the ance throughout the process to Fadia Saadah and role of human development policy and the unin- Gallina Andronova Vincelette. Rafael de Hoyos pro- tended consequences of climate action policy. In that vided key constant guidance. learning journey, exchange of knowledge and ideas This report was prepared by a Human Develop- with World Bank staff through authors’ workshops, ment team led by Javier Sanchez-Reaza and coordi- bilateral meetings across HD and with colleagues nated by Diego Ambasz, Predrag Djukic and Karla from SD and EFI, as well as with other leading insti- McEvoy under the supervision of Harry Patrinos, tutions, was crucial. To ensure that this exchange Cem Mete, Tanya Dmytraczenko and Rafael de was documented and produced a tangible effect on Hoyos, and the guidance from Fadia Saadah and the regional report and the four case studies, the Gallina Andronova Vincelette. The core team that team created and carried out the Human Develop- produced inputs for this report includes: Noam An- ment Transitions Seminar Series where the ideas at grist (Oxford University and Youth Impact), María the forefront of the debate were presented and dis- del Carmen Barrón Esper (Georgetown University), cussed with the participation from Circle Economy, Federico Bartalucci (London School of Economics), Chatham House, the Doughnut Economics Lab, the Stephen Geoffrey Dorey, Moulay Driss Zine Eddine Milken Institute, the European Commission, the El Idrissi, Tomasz Janusz Gajderowicz (University of OECD, among other institutions and scholars. Warsaw), Maddalena Honorati, Zohar Ianovici, Ma- Key to the knowledge exchange efforts was the ciej Jakubowski (University of Warsaw), Anshuman creation of an Advisory Group comprised of World Kamal Gupta, Kevin Alan David Macdonald, Gus- Bank staff and partner institutions. The team is grate- tavo Nicolás Paez Salamanca, Lucian Bucur Pop, ful for knowledge exchange, guidance and sugges- Domagoj Račić, Andres Rodriguez-Pose (London tions to the Advisory Group members that include: School of Economics), Nadima Sahar, William Shaw, Jack Barrie (Chatham House), Enrico Botta (OECD), María Alejandra Torres Cuello (Pontificia Universi- Esther Goodwin Brown (Circle Economy), Stephen dad Javeriana), and Sara Umaña (Universidad Na- Hammer (Adviser, SCCDR, WBG), Andrew Fanning cional de Colombia). (Doughnut Economics Action Lab), Thomas Farole The report benefited from the findings stemming (Lead Economist, SCADR, WBG), Matthew Fraser from four case studies. In the Croatia Green Buildings (Circle Economy), Tillman Heidelk (European Com- case study, Adrien Arnoux Dozol led a team including mission), Rafael de Hoyos (Program Leader, HECDR, Diego Ambasz, Ana-Maria Boromisa, Lucia Bra- WBG), Kumi Kitamori (OECD), Kevin Klowden jkovic, Stephen Geoffrey Dorey, Jure Kotnik, Danijel (Milken Institute), Elisa Lanzi (OECD), Jean-Francois Marasovic, Danica Ramljak, Tigran Shmis, and Ma- Lengelle (OECD), Timea Moreau-Tepliczky (Euro- ria Ustinova. The Research and Innovation case study pean Commission), Jamele Rigolini (Program Leader, for Poland led by Anna Koziel with a team that in- HECDR, WBG), Patrick Schroder (Chatham House), cluded Diego Ambasz, Jeremie Amoroso, Aleksan- Frank Siebern-Thomas (European Commission). dra Marta Kononiuk, Anna Gizela Krol-Jankowska, The report benefited from the wisdom, guidance Marek Kwiek, Domagoj Račić, and Pluvia Zuñiga. and suggestions of our peer reviewers. At concept The Slovak Republic skills case study was prepared stage, the team is grateful to Thomas Farole, Tazeen x Acknowledgments Fasih, and Truman G. Packard. For the decision Innovation, Lukasz Marek Marc; for the Slovak Re- meeting, the team is indebted to Thomas Farole, Ta- public skills case study, James Gresham, Iordan zeen Fasih, Stephen Alan Hammer, Jamele Rigolini, Petrov Iossifov, and Romina Miorelli; and for the and Tamer Samah Rabie. The team is also grateful Polish Just Transition, Aylin Isik-Dikmelik and for suggestions made by peer reviewers for each of Nithin Umapathi. A team at Communications De- the case studies during their quality enhancement velopment—led by Bruce Ross-Larson and includ- reviews. For Croatia Green Buildings, we thank En- ing Meta de Coquereaumont, Joe Caponio, and Mike rique Alasino, Olena Doroshenko, Jas Singh, and Crumplar—edited the report. Michael Alwan pro- Zuzana Stanton-Geddes; for the Polish Research and vided design and typesetting services. xi  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Abbreviations ALMP Active labor market programs LSI Latent semantic indexing ACF Aged Care Facilities LAC Latin America and Caribbean AWU Annual Work Unit MWM Medical waste management BMI Body Mass Index MFF Multiannual Financial Framework BAU Business as usual NRRP National Resilience and Recovery Plan CNE Carbon-neutral economy NSRD National Strategy of Regional CLD Causal Loop Diagrams Development 2030 CPC Central Product Classification NLP Natural Language Processing CEAP Circular Economic Action Plan NGEU Next Generation EU plan CE Circular Economy NUTS Nomenclature of Territorial Units for CAI Collective Action Initiatives Statistics CCB Compliance Certification Board OECD Organisation for Economic CGE Computable General Equilibrium Co-operation and Development models PHCI Planetary pressure adjusted Human DRT Demand-responsive training Capital Index DMC Domestic material consumption PHDI Planetary pressure-adjusted Human DICE Dynamic Integrates Climate-Change Development Index Economy PISA Programme for International Student ETS Emission Trading System Assessment ESG Environmental, Social and Governance PIAAC Programme for the International EFI Equitable Growth, Finance and Assessment of Adult Competencies Institutions PILRS Progress in International Reading ECA Europe and Central Asia Literacy Study EC European Commission RCT Randomized Control Trials EEA European Environmental Agency SRM Secondary Raw Materials EGD European Green Deal SRMI Secondary Raw Materials Index EUGD European Green Deal SVD Singular value decomposition EIB European Investment Bank SBCC Social and behavioral change EU European Union communication FTE Full-time equivalents SP Social Protection GE Green economy SPJ Social Protection and Jobs GTI Green training and involvement SSC Stomspar Check GHG Greenhouse gases SDG Sustainable Development Goals GDP Gross Domestic Produce SDM System Dynamics Model HCF Health care facilities TIMSS Trends in International Mathematics HUS Household Utility Subsidy and Science Study HCI Human Capital Index UN United Nations HD Human Development UNDP United Nations Development HDI Human Development Index Programme HTGEM Human Transitions General UNESCO United Nations Educational, Scientific Equilibrium Model and Cultural Organization IAP Individual Action Plan UNEP United Nations Environmental ICT Information and Communication Programme Technology VET Vocational Training IT Information Technology WLE Warm likelihood estimates IDB Inter-American Development Bank WEEE Waste from electric and electronic IPCC Intergovernmental Panel on Climate equipment Change WHO World Health Organization ILO International Labour Organization JRC Joint Research Centre xii Abbreviations European countries’ abbreviations AT Austria FI Finland MT Malta BE Belgium FR France NL Netherlands BG Bulgaria HR Croatia NO Norway* CY Cyprus HU Hungary PL Poland CZ Czech Republic IE Ireland PT Portugal DK Denmark IS Iceland* RO Romania DE Germany IT Italy SE Sweden EE Estonia LV Latvia SI Slovenia EL Greece LT Lithuania SK Slovak Republic ES Spain LU Luxembourg UK United Kingdom* Note: */Non-EU member xiii  OVERVIEW: A Human-Centered Green Transition MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE C limate change is the single most import‑ proper human development (social) policies to ant existential threat of our times. support this transition. In other words, to achieve Mounting average global temperature the objectives of the EGD, EU member states (MS) contributes to rising sea levels, more fre- must implement the right education, health, and so- quent extreme weather events, deteriorating biodi- cial protection policies to make sure that the transi- versity, and shifts in the sustainability of agriculture tion out of carbon leaves no one behind, particularly and aquaculture (Thompson 2020). By the end of the disadvantaged households. The EGD must be mind- decade, up to 132 million people could become poor ful of the short-term costs of the transition, address- (Jafino et al. 2020), and 80 million full-time jobs ing potential discontent in regions or groups of the could be lost due to climate change (ILO 2019a). A society that will be negatively affected. Providing further increase in global temperatures beyond 1.5 labor market opportunities and access to social degrees Celsius would have calamitous implications safety nets to individuals and families bearing the for human welfare (IPCC 2021b). costs of the transition is a necessary condition for a The European Green Deal (EGD) is the response successful implementation of the EGD. Otherwise of the European Union (EU) to the climate challenge. the EGD could exacerbate the already high levels of It will establish regulations and incentives to nudge income inequality and political polarization, jeopar- European society toward a more sustainable econ- dizing the continuity and sustainability of the green omy. It puts together policies, investments, subsidies, transition. In the long term, the EGD must support and regulations to achieve three core objectives: behavioral changes in consumers’ preferences that (i) net-zero emissions of greenhouse gas (GHG) emis- favor sustainable and green production processes sions by 2050, (ii) decoupling the economy from nat- and help avoid slipping back into old, environmen- ural resource consumption, and (iii) leaving no per- tally unsustainable consumption patterns. There- son or place behind during the transition (Box O.1). fore, human development policies—including edu- To achieve these ambitious goals the EGD com‑ cation, health, and social protection—should be at bines a wide range of regulations, policies, and in‑ the core of the EGD. terventions. The policy levers of the EGD can be This report identifies the human development classified into five broad categories: (i) improve the (HD) policies needed to enable the green transi‑ size and effectiveness of the EU emissions trading tion in Europe. From an economic point of view, system, (ii) promote energy efficiency of households the EGD policies will impact the economy’s relative and firms (including the renovation of buildings), prices to favor “green” over “brown” production (iii) increase the use of renewable energy, (iv) ex- and consumption. For instance, capping the pand the circular economy, and (v) regulate land use amount of carbon emission increases the price of and increase organic agricultural production. carbon-intensive goods, shifting consumption to en- But a green transition is only possible with an vironmentally sustainable consumer goods. In turn, enabling human transition—and only with the this demand shift increases the price of “green” Box O.1:  The EGD’s Three Objectives and Five Policy Levers The European Green Deal (EGD) aims at addressing climate change by transforming the Euro- pean Union (EU) into a modern, resource-efficient, and competitive economy with: 1. Net-zero greenhouse gas (GHG) emissions by 2050 2. Economic growth decoupled from natural resource consumption 3. No person or place left behind. The EGD is organized around five broad policy levers: 1. Emission trading system 2. Circular economy 3. Energy efficiency in households and firms 4. Investing and subsidizing renewables 5. Regulate land use and increase organic agricultural production. Source: EC 2022a. 2 Overview: A Human-Centered Green Transition  goods, creating incentives to boost production. In- economy to a green economy impacts people, HD creasing “green” production must be followed by policies are necessary for the transition to material- reallocating workers to those industries and out of ize (Table O.1). “brown” ones. The general equilibrium effect of the In the short run, social protection policies will EGD creates winners and losers—as is the case with be critical to mitigate the costs of the transition. any other transition. Two transmission mechanisms Workers in shrinking carbon-intensive industries link EGD policies with household well-being, both must get training opportunities. Training and re- operating through price channels. The first is a direct skilling programs must be closely linked to the price effect, whereby the price of energy rises, reduc- needs of the growing green industries and work in ing household well-being, particularly vulnerable collaboration with Public Employment Services ones that devote a significant share of income to (PES) to provide labor market opportunities to dis- cover energy bills. The second is a labor market placed workers. But even assuming a very effective channel with workers in carbon-intensive “brown” reskilling program and an efficient PES, some industries losing jobs and/or wages and workers in workers would need social assistance (income sup- green industries benefiting. port) to mitigate the transition costs, and in some This report identifies the HD policies that would cases, adapt to the new equilibrium through early enable the transition, mitigate the unintended con‑ retirement (pensions). sequences or costs of the transition, while adapting When a coal miner loses the only job he or she workers and households to a new reality where has ever had, more than a cash transfer and a train‑ environmental sustainability is prioritized. Since ing program is needed. Previous transitions show the transition from a carbon-based (brown) that mental health support is needed to mitigate the A green transition is only possible with an enabling human transition Table O.1:  Policies for a Human-Centered Green Transition Enable Adapt Mitigate Foundational skills Fungible skills Education R&D+Innovation TVET (e.g. upskilling) Behavioral change & Lifelong learning Mental health support Health Physical health protection systems Public Employment Services (e.g. reskilling) Active Labor Market Policies (ALMPs) PES orientation to new occupations SPJ Early retirement & bridge pensions Social registries & assistance (e.g. cash transfers) Source: Authors. 3  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE cost of switching career paths (Hollingsworth, system, enabling a circular economy; improvements Ruhm, and Simon 2017). In addition, preventive in the energy efficiency of housing and consumer health policies and services will be needed during the products; much greater use of renewable energy; adaptation phase for workers in the growing waste and reduced emissions from road transport, agricul- management industries and the circular economy. ture, and land use. There will be transition costs as Education systems must act now to produce firms adapt their mix of factors of production and long-term improvements in foundational skills workers acquire the necessary skills for the green (numeracy, literacy, and socio-emotional skills), economy to reach a new equilibrium. develop the technologies to cut emissions, and change consumer preferences. People with strong Net-zero emissions and decoupling foundational skills will be more capable of learning new skills and reinventing themselves into the new economies from natural resource occupations created by the green transition. Educa- consumption tion systems can also contribute to designing and Global growth over the past century relied heavily implementing a research and innovation agenda to on natural resource consumption. Every 1 percent produce the technologies required to curb emissions increase in global GDP was associated with a 0.8 per- and decouple economic growth from resource con- cent increase in the consumption of natural re- sumption. Finally, reformed education curricula can sources. The extraction and processing of resources increase awareness of man-made climate change, accounted for about half of global GHG emissions generate and maintain a sense of urgency in ad- and more than 90 percent of biodiversity loss. dressing environmental damages, and create inter- Countries with high or very high human devel‑ est in common well-being. All these changes can opment have also exerted significant pressure on encourage behaviors that contribute to reducing planetary boundaries. Adjusting the UNDP’s Hu- GHG emissions and the use of natural resources. man Development Index (HDI) to account for the use of natural resources and GHG emissions, con- siderably reduces the ranking of countries at the top The European Green Deal in the HDI (Figure O.1, panel a). Similarly, adjusting The EGD calls for policies that provide incentives the World Bank’s Human Capital Index (HCI) for for change, but that also restrict the actions of each country’s contribution to global environmental workers and firms. Reducing GHG emissions and pressure, consistently shows diminished rankings decoupling the economy from natural resource con- (Figure O.1, panel b). This relationship underlines sumption requires an effective emission trading the importance of new economic models that shift Figure O.1:  Human Development and Human Capital Indices Adjusted by Environmental Pressure a. HDI and PHDI b. HCI and PHCI 1.000 0.85 Planetary pressures adjusted HDI (2019) 0.900 0.80 Planetary pressure-adjusted HCI 0.800 0.75 ECA US Portugal 0.700 0.70 Sweden France Germany 0.600 0.65 Croatia Finland Belgium Poland Hungary Estonia Austria 0.500 0.60 Greece 0.400 0.55 Bulgaria Slovakia Romania 0.300 0.50 0.300 0.400 0.500 0.600 0.700 0.800 0.900 1.000 0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85 HDI (2019) HCI Source: Author’s elaboration based on UNDP (2020) (panel a), authors’ calculations using the World Bank (2020) (panel b). Note: 1. PHDI stands for Planetary-adjusted Human Development Index; PHCI stands for Planetary-adjusted Human Capital Index. 2. Planetary-adjusted indices takes into account a country’s level of carbon dioxide emissions and material footprint. 3. Relative to standard HDI/HCI (y-axes in both panels), countries above the 45-degree line show a higher level of HDI/HCI if environmental pressure is taken into account. The reverse is also true: countries under the 45-degree line have lower HCI/HCI when those environmental pressures are included. 4. Yellow dots represent EU member states. 4 Overview: A Human-Centered Green Transition  New economic models need to shift the focus from economic growth alone to include its impact on human welfare the focus from economic growth alone to accounting decouple economic growth from the consumption for growth’s impact on human welfare, as well as the of natural resources is the transition to a circular need to mitigate and adapt to climate change. economy. The circular economy is the systematic re- In the last 20 years, Europe has made significant covery and reuse of products and natural resources progress in decoupling growth from consumption, that minimize the extraction, consumption, and dis- but more is needed. Between 2000 and 2020, the EU posal of natural resources and maximizes resource economy grew 22.5 percent, while domestic material efficiency (World Bank 2022a). The ecological bene- consumption dropped from 6.5 gigatons to a little fits of embracing a circular economy model include over 6 gigatons, slightly more than 6 percent of total reduced dependence on primary raw materials and global domestic material consumption. During this a considerable reduction in GHG emissions and ex- period, renewable energy consumption more than ternality costs related to manufacturing, transporta- doubled as a share of total energy consumption, ris- tion, and built environment systems, with annual ing from 9 percent in 2000 to 22 percent in 2020. The savings of €600 million in primary raw materials 30 percent decline in fossil fuel consumption ac- costs (EEA et al. 2016). The reduced dependence on counted for more than 90 percent of total domestic primary raw material extraction will also reduce EU material consumption reduction. In contrast, the countries’ dependence on imports and exposure to consumption of metal ores rose by 4 percent, and the supply chain disruptions (EC 2018). consumption of biomass and nonmetallic ores de- Though the circular economy model has various creased only slightly. applications, the nine Rs framework is a widely One of the most critical policy actions within accepted benchmark for strategies to enable the the EGD to achieve net-zero emissions by 2050 and transition to the circular economy . The circular Figure O.2:  Nine Rs for the Circular Economy Source: Kirchherr 2017. 5  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Europe has a comprehensive plan to transition to a circular economy based on maximizing resource efficiency economy model has a biological cycle, in which nat- domestic material consumption growth (see Figure ural resources are returned to nature, and a technical O.3). Relative decoupling is observed in Austria, Cy- cycle, in which products, components, or natural re- prus, the Czech Republic, Finland, Luxembourg, sources are designed and marketed to reduce waste Malta, Poland, and the Slovak Republic. But no decou- significantly (Figure O.2). pling is observed in Bulgaria, Croatia, Estonia, Greece, But the transition to a circular economy has Hungary, Latvia, Lithuania, Romania, and Sweden. been slow and uneven. Since 2000, only a few EU The circular economy is promising, but its im‑ countries have achieved an absolute decoupling of plementation still needs to be improved. Circular economic growth from non-fossil fuel consumption economy sectors and activities account for less than (negative growth or absolute decline in non-energy 1 percent of EU GDP and less than 2 percent of em- domestic material consumption). The annual rate of ployment, with moderate variations across EU MS. change of non-fossil fuel domestic material con- Although the EU outperforms all other regions in sumption surpassed the average annual economic e-waste management, only three MS met the growth rate in 10 of the 27 EU countries. Absolute electric/electronic waste collection target for 2019: decoupling occurred in only six countries (France, 65 percent. Three countries have yet to meet the 2016 Italy, the Netherlands, Portugal, Spain, and Sweden). target: 45 percent. Part of the reason for the slow tran- The other countries have achieved relative decou- sition is that firms still find it cheaper to use raw ma- pling—an annual economic growth rate higher than terials than to reuse waste materials (World Bank Figure O.3:  Annual Change Rate of GDP and DMC in EU Member States, 2000–2020 (%) 9.5 Only a few MSs achieved absolute decoupling of GDP growth and RO non-energy DMC in the past two decades, implying that the latter are increasing in the majority of the EU 7.5 EE No decoupling 5.5 Annual change rate of DMC (%) LV LT 3.5 BG HR HU SE PL 1.5 MT Relative decoupling EL DE CY CZ DK BE LU FI SK FR AT IE −0.5 PT EU SI NL −2.5 IT ES Absolute decoupling −4.5 −1.0 0.0 1.0 2.0 3.0 4.0 Annual change rate of GDP (%) Source: Authors’ elaboration using Eurostat data. 6 Overview: A Human-Centered Green Transition  2022a). The implementation of the circular economy— waste management, production and consumption, The EGD can avoid previous and trade and use of secondary materials—is still transitions’ increased income emerging in Europe. disparities Every transition towards a new equilibrium in the Financing the EGD economy generates winners and losers, and, if not complemented with the right HD policies, the To make the green transition viable and equitable, EGD won’t be an exception. The asymmetric im- it must be congruent with economic and social pact of previous transitions such as globalization or needs in regions and sectors that rely heavily on car‑ technological progress increased income disparities bon- and fossil fuel-related industries.1 To that end, in high-income countries. Between 1970 and 2016, the European Commission (EC) established a Just the share of employment in occupations requiring Transition Mechanism mobilizing up to €150 billion mid-level skills in the United States (such as office from the Just Transition Fund, InvestEU, and the Eu- clerks, sales associates, and production workers) de- ropean Investment Bank (EIB) to support regions clined, while the number of high- and low-skilled and individuals most adversely affected by the occupations rose or remained largely unchanged green transition through worker reskilling, enter- (Autor 2019). A similar pattern is observed in Europe prise development, and circular economy projects between the 1990s and early 2010s, with the number (Más Rodriguez 2021). of occupations involving routine tasks decreasing Making the green and human transitions effi‑ throughout the period (Bussolo et al. 2018). This pro- cient in Europe requires adequate financing. The cess of hollowing the middle can be partly explained EC plans to direct at least €1 trillion (about 7.2 per- by the transitions triggered by trade and technology; cent of the EU’s 2020 GDP) over the next 10 years to for instance, OECD countries that traded more with support the EGD (EC 2020). Nearly half of the fund- China also lost more jobs in the manufacturing sec- ing will come from the EU budget. National co-fi- tor, which are typically mid-level skills—and mid- nancing will contribute around 10 percent, while de- dle-income—occupations. The loss of manufactur- velopment banks will contribute around 27 percent. ing jobs contributed to the increase in per capita The Just Transition Mechanism will contribute around household income inequality—measured by the 14 percent of funding; some of those funds are a com- Gini coefficient—observed in 19 of the 27 EU mem- bination of Invest EU with national co-financing. ber states between 1993 and 2019 (Figure O.4). Even with record amounts of public funds allo‑ Low- and middle-class workers bore the highest cated to the green transition, there is an estimated costs of the trade and technological transitions in gap of at least €2.5 trillion for the 2021–2027 period, the United States and the EU, partly explained by which the private sector will need to fill by funding insufficient or ineffective HD policies. This, in turn, environmental, social, and governance efforts (Brühl had adverse political consequences. The rise in in- 2021). Mechanisms that redirect public funding, tax- come disparities increased political polarization, ation, and consumption to green economy projects promoted mistrust in institutions, and strengthened can leverage private sector capital for the green the support for protectionist and populist policies transition. (Autor et al. 2020; Rodrik 2021). The emergence of 1. See chapter 5. To make the green transition viable and equitable, it must be congruent with economic and social needs in regions and sectors that rely heavily on carbon- and fossil fuel-related industries 7  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure O.4:  Change in Income Inequality in the EU, 1993–2019 (Gini Coefficient) 15 10 5 Netherlands Hungary Portugal Gini Coefficient Estonia Greece Poland Ireland France 0 Spain Slovenia Croatia Italy Lithuania Belgium Austria Germany Denmark Cyprus Czech Republic Finland Sweden Slovak Republic Romania Luxembourg Bulgaria Latvia −5 −10 −15 Source: World Bank. The EDG, like every transition towards a new equilibrium in the economy, generates winners and losers, and must be complemented with the right social policies political polarization in the United States and the EU transition that must be done. Therefore, education, can be traced back to the erosion of labor market op- health, and social protection systems, particularly in portunities for middle-skilled workers in manufac- lagging EU MS and regions, must receive the re- turing industries caused by trade liberalization and sources and technical support needed to mitigate the automation in the manufacturing sector (Autor et al. impact of the transition on disadvantaged house- 2020; Rodrik 2021; Klein and Winkler 2019). holds. The remainder of this overview describes the A more gradual phase-in of the trade and tech‑ HD policies that will enable the green transition, mit- nological transitions would have provided enough igate its short-term adjustment costs, and adapt time for adjustment or a proper design of the right households to a new, environmentally sustainable, HD policies to protect the well-being of at-risk equilibrium in the economy. workers. But gradualism is not an option for a green 8 Overview: A Human-Centered Green Transition  Decisive social policy action is needed to implement a green transition that must not be delayed specialization in the green economy. Employment HD policies to enable the growth and capital investments related to green in- transition: leaving no person or novations will likely cluster in a few core, prosper- place behind ous regions, as has been the case for other lead- ing-edge innovations (Atkinson et al. 2019). HD policies can enable the green transition through Meanwhile, other regions—often plagued by pre-ex- the provision of the technology and solutions isting economic, social, and institutional bottle- needed to address climate change and the educa‑ necks—risk falling further behind (McCann and tion to change behaviors. HD is also paramount in Soete 2020; Moreno and Ocampo-Corrales 2022). mitigating the unintended consequences of the tran- Ignoring the differential regional impact of the EGD sition, particularly job losses and declining relative will jeopardize its inclusiveness and long-term sus- wages among low-skilled workers. HD policies can tainability and could even derail the transition to a also help individuals and households adapt their low-carbon equilibrium. core skills, the focus of their education, and their consumption patterns in ways that support the green transition and the emergence of an environ- Skills to prevent further regional mentally sustainable equilibrium in the economy. disparities The EGD could have a significant impact on the High levels of carbon-intensive economic activity distribution of income across regions and individ‑ in some vulnerable EU regions are a vital determi‑ uals. Regions that rely heavily on exploiting fossil nant of the negative externalities expected with the fuels, energy-intensive production, or the linear pro- green transition. Regions with carbon-intensive duction model, many of which already have low- economies will bear additional costs and price in- er-than-average incomes, could be left behind. And creases stemming from carbon taxes. Three addi- shifts in demand for skills, driven by the green tran- tional factors increase a region’s vulnerability to the sition, could lead to job losses and declines in the relative income of lower-skilled workers. negative externalities of the EGD: low technological relatedness, weak regional innovative potential, and deficiencies in local governance. Vast differences in HD policies to mitigate the the technological relatedness of local industrial ca- pabilities, innovation potential, and quality of gov- costs of the transition ernance will increase the concentration of green in- The EGD will have asymmetrical impacts across vestment and skilled labor in leading regions beyond individuals and regions. Prosperous, innovative re- those related to agglomeration and brain drain ef- gions with a highly skilled workforce will benefit fects. In addition, without fair and adequate mitiga- while marginalized places could be left behind. Un- tion policies, higher energy prices will lead to declin- skilled workers in carbon-intensive industries will ing consumption and incomes in the hardest-hit need significant support in reskilling, cash transfers, regions and among disadvantaged households. and job placement services to seize potential job Skilled labor will flow from lagging regions to opportunities. more prosperous ones. Achieving regional special- The EGD will reshape the geography of jobs ization in green technologies and sustainable eco- and wealth between individuals and across the EU. nomic activities is likely to require preconditions that Some individuals and regions are set to tap into the need to be put in place everywhere, including a qual- opportunities offered by regional diversification and ified workforce, specialization in related economic 9  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE fields, and adequate infrastructure and facilities in learning outcomes are more significant among (Moreno and Ocampo-Corrales 2022). The inability low-skilled workers. The lowest-skilled workers in of lagging regions to profit from the opportunities green jobs have much higher skills than those in offered by the development and production of green brown jobs. Workers in green jobs use skills at work technologies—reflecting a mismatch between the and home more often than do workers in brown jobs. skills supplied by the labor force, and those de- The skill gap between green and brown jobs is manded by firms in the local economy—may lead to related mostly to differences in years of schooling job losses, dissatisfaction, and possibly a brain drain and partly to the use of skills. On average, half of (Fratesi and Rodríguez-Pose 2016). the difference in numeracy skills between workers Just as the poorest regions are likely to experi‑ in green jobs and those in brown jobs is explained by ence the most adverse impacts from the EGD, differences in schooling. People in green jobs have lower-skilled workers are likely to experience a higher numeracy because they are better educated decline in earnings relative to higher-skilled work‑ and use these skills more frequently. For low-skilled ers. Green jobs tend to be more skill-intensive than workers, the skills gap between green and brown brown jobs and to require higher proficiency in all jobs is almost entirely explained by years of school- types of skills than brown jobs, captured by differ- ing and skill use intensity. For the high-skilled work- ences in learning outcomes in numeracy, literacy, ers, years of schooling explain most of the gap, while and problem-solving (Figure O.5). These differences the use of skills is less strongly related. The EGD will reshape the geography of jobs and wealth between individuals and across countries Figure O.5:  Density Plots Green vs. Brown Jobs For major adult skills covered in the PIAAC survey Source: Authors based on PIAAC data. 10 Overview: A Human-Centered Green Transition  Mitigating the transition costs will require ac‑ return to skills. In Poland, for example, returns to tive labor market programs (ALMPs) for retraining skills are 5 percent higher in green jobs than in workers whose skill sets are ill-matched to the re‑ brown jobs. Current tools focus on boosting labor quirements of green jobs, and support for training demand and matching workers with companies new and potential workers in appropriate skills. based on existing skills. Innovative tools are re- Many countries have developed retraining strategies, quired. Tools that focus on measurable skills neces- at times linked to income support, for workers dis- sary for green and brown jobs, along with specific placed by economic transitions (including trade liber- information on what is required for transitioning to alization), privatization, and energy transitions. green jobs. An effective transition thus requires a But countries must also work on demand. They deeper evaluation of workers’ skillsets and the po- should provide companies with information and fi- tential for green transition pathways. nancial support to invest more profoundly in their Identifying the transition paths with the small‑ workers’ foundational and task-specific skills. Firms est differences between the skills required for are unlikely to offer the more demanding and long- brown versus green jobs would reduce the invest‑ term training that focuses on foundational skills (nu- ment required to move from a brown to a green meracy, literacy, and socio-emotional skills) without job. Using similarity indices (task level) along with subsidies to cover additional training costs. Several the PIAAC data (skills level) allows for pinpointing countries have competence centers to encourage the occupations with the most feasible brown-to- companies and individuals to participate in adult green transition. Poland provides an example of education and training and provide more formal brown-to-green job transitions (Figure O.6). Envi- recognition of achieved qualifications. ronmental engineers tend to possess higher or simi- lar skills than workers occupying similar jobs and at the same time are paid less. This mismatch would Public employment services will play a make it very difficult to meet the growing demand crucial role for environmental engineers by retraining workers Job matching by government programs and labor from similar occupations. Instead, the skills gap market agencies will require a shift in approach to could be narrowed by applying a policy mix aimed support workers in finding jobs during the green at human resources development and wage subsi- transition. Green and brown jobs also differ in dies (for example, by recycling carbon tax income). Figure O.6:  Green Job Transitions Example from Poland Note: Color represents green core index (0.1: e.g. Crisis management officer, 1: e.g. Wildlife or environmental conservation warden), values on edges reflect similarity scores, numbers in bubbles refer to major occupation groups. 11  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Skilled labor will flow from lagging regions to more prosperous ones Skill and wage analysis can yield important in‑ prices during the green transition. Information sys- sights for green employment policy. Enabling engi- tems need upgrading to improve the effectiveness neers to start a career in the renewable energy sector and efficiency of social protection programs. Better might require ALMPs, such as offering hiring subsi- social registries can more accurately identify vulner- dies to firms and institutions seeking to retrain re- able individuals to ease the impact of energy price newable energy engineers. For the green job of envi- rises on the poor without encouraging greater fossil ronmental inspector, skill and wage gaps across fuel consumption. Temporary income support will related jobs are less prominent, suggesting the po- be required for workers who lose jobs and cannot tential for transitions from several current occupa- transition to new jobs or attain new skills for their tions, such as crisis management officer or forestry current job. Conditional or unconditional cash trans- engineer (see Figure O.6). But because upskilling fer programs may also have a role during the green would still be required, targeted supply-side mea- transition. Early retirement and bridge pensions sures such as vocational training would be neces- could assist those who lose jobs, though they must sary. In a third example, workers in the greener oc- be carefully designed and targeted to avoid disin- cupation of environmental engineer possess on centivizing work. average similar or higher skills than workers in sim- Mental and physical health services are needed ilar current jobs but are paid less. This mismatch to respond to the labor market disruptions during would make it difficult to meet the growing demand the green transition and to help workers cope with for environmental engineers simply by retraining weaker employability and a loss of employment. workers from similar occupations. Such job transfers Ensuring that everyone has access to adequate could be encouraged by policies for human resource health protection and psychological support is es- development combined with wage subsidies. sential to prevent catastrophic and impoverishing health expenditures and to encourage the use of ap- propriate health services. This may require govern- Social assistance and health services can ment financing of healthcare or public health protec- mitigate some of the transition costs tion systems intended for the most vulnerable—for Social protection programs will be important in example, subsidies that even cover contributions for identifying and assisting the many vulnerable social health protection. households adversely affected by the rise in energy Mitigating the transition costs will require Active Labor Market Policies for retraining workers for the requirements of green jobs, and support for training new and potential workers in appropriate skills 12 Overview: A Human-Centered Green Transition  Job matching by government programs and labor market agencies will require a shift in approach to support workers in finding jobs during the green transition such as learning ability, effective communication, HD policies to adapt individuals leadership, and decision-making are soon expected and households to a to be critical for occupational mobility. sustainable economy People with strong foundational skills will be more capable of learning new skills and thus ob‑ Households and workers must adapt to an equilib‑ taining green jobs. Recent evidence shows the im- rium characterized by low carbon emissions and a portance of foundational skills—numeracy, literacy, significantly larger circular economy. This long-term and socio-emotional skills—as the basic pillars en- process starts by recognizing man-made climate abling life-long learning. Lack of foundational skills change and the damage we have done to our planet. dampens individuals’ capacity to acquire or up- This is the starting point for transitioning toward grade their professional competencies, preventing more sustainable behaviors and consumption pat- them from adapting to changing labor market condi- terns. Education at all levels should incorporate in- tions. PISA 2018 results indicate that around one in formation on climate change and sustainable behav- five 15-year-olds in the EU are low achievers (21.7 ior. In addition, the education sector can contribute percent in reading, 22.4 percent in mathematics, and with research and innovation focused on generating 21.6 percent in science) even though there are con- the technology needed to eliminate carbon emis- siderable differences among EU member states. In sions, reduce the consumption of natural resources, this context, the demand for foundational skills is set and find clean alternatives to energy production. to increase with the greening of the economy, tech- nological progress, and further integration of inter- Workers will need strong foundational national markets (World Bank 2018). skills to seize the opportunities created A growing literature shows that there are by the EGD cost-effective interventions to improve foundation skills. Early childhood education interventions tar- In the medium term, education systems should pro‑ geting children ages 0–3 and providing them with vide all students with fungible skills to enable the necessary nutrition, early stimulation, and life-long learning to perform different tasks in an meaningful interaction are highly effective, espe- increasingly dynamic labor market. Foundational cially among disadvantaged children. Providing in- skills will prepare the workforce to take on emerg- formation about the benefits associated with years ing occupations. ILO (2018a) asserts that skill de- of schooling and learning has proven to change be- velopment and training are essential for appropri- haviors and improve students’ efforts and learning ately implementing adaptation strategies, such as outcomes. Selecting, training, and incentivizing changes in infrastructure that contribute to the net- teachers and school directors within a coherent and zero emissions goal of the EGD. Furthermore, the transparent teacher career path improves student case study for the Slovak Republic, which accompa- learning. Finally, using technology to personalize nies this report, finds that education will play an es- the learning experience can also be a highly cost-ef- sential role in preparing the workforce to take on fective intervention (World Bank 2018, 2020). green jobs, primarily through the development of To ensure foundational skills for all students, foundational skills and attitudes. The study discusses EU MS must modernize their technical, vocational that regardless of changes in labor demand, core skills education, and training (TVET) systems. Half of all 13  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE students enrolled in upper secondary education in Through research and innovation the EU in 2019 (17.5 million), were enrolled in a vo- education can produce the technology cational track; and at least 2 million of them, were needed to curb emissions enrolled in work-based programs. Therefore, TVET institutions are central in the skill-formation process Universities are a unique place for experimenta‑ in EU countries. Identifying the professional compe- tion and learning and generating new knowledge tencies that will be demanded in the future and ad- and technological solutions for the green transi‑ justing the provision of TVET services accordingly is tion. Universities can support green innovation and poised to become more challenging, making many technology development in different ways: through training programs ineffective (Kluve et al. 2019; knowledge (from research) and new skills; by en- McKenzie 2017). gaging in R&D and innovation partnerships with TVET graduates with professional competen‑ industry or public actors; and by supporting the cies might enjoy favorable labor market outcomes transferring of new knowledge and technologies to in the short term but having more robust founda‑ industry and society (McCowan et al. 2021; Rading- tional skills seems to produce better results (Ha- er-Peer and Pflitsch 2017). nushek et al. 2017). According to PISA, TVET stu- Fostering academic entrepreneurship and the dents perform significantly worse than general acceleration of spinoffs (from science and research education students in reading, math, and science institutions) is also an important channel through (Figure O.7). Moreover, exam-based placements into which universities can support green technology general versus vocational secondary education development and diffusion. Improving funding (tracking), common in Europe, introduce an equity opportunities for technology development and ear- angle of TVET. In many EU MS, vocational systems ly-stage funding for clean tech startups as well as do not provide a labor market advantage over gen- incentives for academics to participate in such activ- eral education graduates. Therefore, the tracking ities are key to this development. system that usually complements TVET in the Euro- In deploying R&D partnerships, new approaches pean education systems could reproduce or even and new mindset are required, notably regarding exacerbate existing inequalities, dampen social mo- inter-disciplinarity in research and strengthened bility, and weaken the social contract, particularly in collaboration with non-academic actors (Trencher changing market conditions. This is particularly im- et al. 2014) and foreign organizations (Kwieck portant, as TVET students often come from disad- 2021). Delivering green innovation solutions often vantaged backgrounds compared to their peers in requires mobilizing a large range of competences general education (Figure O.7). and disciplines. Figure O.7:  Difference in Socioeconomic Status and Learning Outcomes in EU Member States, TVET versus non-TVET Students .5 .005 .4 .004 .3 .003 Density Density .2 .002 .1 .001 0 0 −10 −5 0 5 0 200 400 600 800 Index of economic, social and cultural status 2018 PISA Math score 2018 General track Vocational track General track Vocational track Source: World Bank computations using PISA 2018. 14 Overview: A Human-Centered Green Transition  Another way through which universities can Education can create awareness and shift support green technology development is through consumer demand for green products testing and demonstration of new solutions. By serving as “living laboratories” or test beds for new Cultural barriers, particularly a lack of consumer green technologies (for example, in renewable en- interest and awareness, are significant barriers to ergy, sustainable construction, electric mobility, and advancing the circular economy in Europe (Eckert urban smart grids, among others), universities can 2020). A high percentage of the population with only help assess the feasibility of innovations and their primary or lower secondary education is associated potential scalability to cities or industries. with a lower waste recycling rate. In contrast, ter- The green transition requires improvements in tiary education positively influences the recycling skills training for technology adoption and ensur‑ rate (Pelau and Chinie 2019). Improved education ing advanced human capital in future R&D proj‑ can facilitate the adoption of green technologies in ects and demands. In addressing these challenges, multiple ways. delivering the pool of STEM graduates is central. For instance, in Poland, the broad consensus of Likewise, a strategy for advanced human capital the need to reduce GHG emissions has been sup‑ (MSc and PhDs) is critical in deploying and imple- ported by teaching in schools. Climate change is- menting large new research and development proj- sues have been integrated into pre-primary, primary, ects. Finally, enhancing international cooperation in and secondary school curricula, and higher educa- education and research will be central for EU coun- tion. The national report “Climate Education in Po- tries to fulfill new national and European policy land” (Education 2021) discusses tools used to pres- commitments. ent climate change issues in schools and analyzes Universities play a crucial role in conducting basic requirements in education related to climate research activities and transferring knowledge and change. At the university level, the Warsaw-based new technologies to industry and public actors. As Collegium Civitas offers an MBA course in climate such, they can contribute meaningfully to address- and energy policy management, which presents the ing green innovation and transformation needs. EGD as a long-term EU project. Climate education is Specifically, universities can contribute to green in- provided in modern science centers, such as the Co- novation through education (new skills); by creating pernicus Science Center in Warsaw. And the national new knowledge (from research); and by engaging in environmental strategy provides a comprehensive innovative partnerships with public, private, and environmental climate and energy policy manage- civil society actors. ment. A 2021 opinion poll conducted by a national Finally, public research actors—both universi‑ Center for Public Opinion Polls in Poland found that ties and public research organizations—have a ma‑ 74 percent of the population supported the goal of jor role in facilitating the adoption of new green gradually leaving the coal-based energy sector, and sustainable technologies through social inno‑ while only 19 percent felt that energy production vation projects. This means supporting people and should be based mostly on coal. organizations to co-create, learn, adapt, and scale Incorporating issues related to climate change green solutions to social problems, such as working and green behavior into school curricula is a neces‑ conditions, health, transport, and heating. sity for all EU countries. While some related topics Universities play a crucial role in conducting research activities and transferring knowledge and new technologies to industry and public actors 15  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Incorporating issues related to climate change and green behavior into school curricula is a necessity for all EU countries are already included in most countries’ learning pro- behavior (Minelgaitė and Liobikienė 2021). In addi- grams, they do not provide a sufficient basis for un- tion, the literature shows that self-interest and inter- derstanding complex global challenges. For EU stu- est in the well-being of others can influence green dents, the understanding of climate change, can be behavior, the latter positively and the former nega- hampered by their understanding of science. While tively. Environmental concerns have a positive and EU students report that the environment is critical, significant relationship with pro-environmental be- they also feel they cannot do much about it. For ex- havior (Mayekar and Sankaranarayanan 2019). ample, in PISA 2018 nearly 70 percent of 15-year- Minelgaité and Liobikienė (2021) find that for Lithu- olds in Germany said that looking after the global ania that in 2011, concern over others’ welfare and environment is essential for them. Still, only around perception of environmental problems were the 40 percent said they could do something about the most positively influential on pro-environmental be- world’s problems. In Hungary, more than 80 percent havior. In 2020, self-interest and awareness of behav- of 15-year-olds worry about the global environment, ioral consequences showed a negative and signifi- but less than half feel they can do something about cant impact. Similarly, Al Mamun et al. (2018) find it. Thus, students will greatly benefit from learning that in low-income households, eco-literacy and about the green transition and global environmental self-efficacy influence attitudes toward green prod- challenges and being provided with tools to affect uct consumption, and attitude and perceived behav- issues at the local, national, and global levels. ior control influence intention towards green prod- This underlines the importance of ensuring that ucts. Tanner and Wölfing Kast (2003) find that students have a basic understanding of the science proper knowledge to identify pro-environmental of climate change, of steps to encourage discus‑ versus harmful products influences green consum- sions and exchanges of opinions—together with erism. Furthermore, evidence shows that education fact-checking—and of facilitating students taking related to environmental sustainability is related to local actions related to the environment. Education substantial reductions in carbon emissions. If educa- should be used to build ecology awareness in new tion that empowers students with knowledge and generations. Learning about sustainable behavior agency is not expanded to the millions of girls out of should be incorporated across subjects and grades of school in developing countries, society loses out on study. After regular classes, the school infrastructure their valuable contributions (Kwauk and Winthrop can serve as the cultural center for promoting a sus- 2021). Information dissemination and citizen in- tainable lifestyle and green transition for the broader volvement in green economy transition policy de- society. This practical usage of assets demonstrates a sign are necessary to achieve long-term success and sustainable way of thinking. contribute to the fulfillment of EGD policies. Efforts by educational programs to increase awareness of behavioral consequences, perception of environmental issues, and collective interest for The focus of the EGD should be common well-being can encourage behaviors that the wellbeing of people contribute to reducing GHG emissions. Incorpo- rating an increase in awareness of behavioral conse- Making the green transition sustainable requires quences in education programs can influence the addressing sources of household and worker dis‑ adoption of green behavior (Minelgaitė and Liobik- content. The EGD will reshape the spatial location of ienė 2021). The value-belief-norm theory holds that firms and jobs, and thus the concentration of wealth values influence attitudes and responsibility toward across European regions. This reconfiguration will environmental issues and pro-environmental have deep social implications, especially in the 16 Overview: A Human-Centered Green Transition  context of the rising territorial polarization across between brown and green jobs and focus on increas- Europe in the last decade or so. The interplay be- ing workers’ capacities and connecting workers to tween inadequate local endowments and exogenous jobs (Bulmer et al. 2021). global trends could exacerbate this territorial Making the EGD effective requires laying the polarization. proper policy groundwork. While top-down ap- The EGD can accelerate the trend of increasing proaches are necessary, the EGD alone cannot take spatial divides. In the absence of the proper comple- EU countries through to a circular and more sustain- mentary HD policies, people in lagging regions can able economy. A sustained and just transition re- become increasingly reluctant to support environ- quires national and subnational policies to be mental policies needed to reduce GHG emissions aligned and ready to support climate actions and and decelerate climate change. In vulnerable re- human development measures in education, health, gions, there is already evidence of a backlash against and social protection. Much more work needs to be measures to save the planet. Therefore, the best ap- done. There is ample evidence that the current frag- proach for limiting the negative impacts in lagging mented human development policy frameworks in regions is to apply place-sensitive measures that many high income countries—which consider, in a leverage each region’s socioeconomic potential for separate way, the needs of vulnerable groups, local contributing to the achievement of environmental risks, and funding and evaluation timelines—are in- targets (Iammarino et al. 2019). adequate to prepare societies for climate action A just and successful transition to a greener (Panic and Ford 2013). economy will require substantial upskilling and To restate this report’s central message: A sus‑ reskilling of the current labor force. Policy actions tainable green transition is impossible without a are required in two primary areas to provide more successful human transition. Therefore, human de- effective career guidance. One is to strengthen the velopment policies must be at the core of decoupling teaching and upgrading of foundational skills with economies from natural resources, adapting individ- a priority on socio-emotional skills, and another is to uals and societies for the new green economy, and provide data-driven career guidance and targeted mitigating the transition’s unintended consequences upskilling through ALMPs that facilitate transitions for everyone, especially the poor and vulnerable. 17  1 THE EUROPEAN GREEN DEAL MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE T his report is an attempt to explore human between the 1990s and early 2010s, with the number development’s role in making the green of occupations involving routine tasks decreasing transition possible and at the same time throughout the period (Bussolo et al. 2018). This pro- serve to adapt society for a green econ‑ cess of hollowing the middle can be partly explained omy and mitigate the unintended consequences of by the transitions triggered by trade and technology; the European Green Deal (EGD). The report uses for instance, OECD countries that traded more with an analytical framework grounded on a general China also lost more jobs in the manufacturing sec- equilibrium model (GEM) to guide the discussion tor, which are typically mid-level skills—and mid- on possible EGD outcomes. It is structured in a way dle-income—occupations (Figure 1.1). The loss of that addresses the three core objectives of the EGD. manufacturing jobs contributed to the increase in Throughout the report, data-driven evidence, simu- per capita household income inequality—measured lations, policy analysis and best practices are em- by the Gini coefficient—observed in 19 of the 27 EU ployed to make a narrative in which the EGD rep- member states between 1993 and 2019 (Figure 1.2). resents opportunities that may not appear to Low- and middle-class workers bore the highest everyone or in every region in Europe. To better in- costs of the trade and technological transitions in form policy dialogue, the report benefits from the the United States and the EU, partly explained by evidence and discussion in four case studies on insufficient or ineffective HD policies. This, in skills, research and development (R&D), green turn, had adverse political consequences. The rise in buildings and just transition in three selected coun- income disparities increased political polarization, tries: Croatia, Poland, and the Slovak Republic.1 promoted mistrust in institutions, and strengthened the support for protectionist and populist policies (Autor et al. 2020; Rodrik 2021). The emergence of The EGD can avoid previous political polarization in the United States and the EU can be traced back to the erosion of labor market op- transitions’ increased income portunities for middle-skilled workers in manufac- disparities turing industries caused by trade liberalization and automation in the manufacturing sector (Autor et al. The EGD can avoid the increased income 2020; Rodrik 2021; Klein and Winkler 2019). disparities of previous transitions A more gradual phase-in of the trade and tech‑ nological transitions would have provided enough Every transition towards a new equilibrium in the time for adjustment or a proper design of the right economy generates winners and losers, and, if not HD policies to protect the well-being of at-risk complemented with the right HD policies, the workers. But gradualism is not an option for a green EGD won’t be an exception. The asymmetric im- transition that must be done. Therefore, education, pact of previous transitions such as globalization or health, and social protection systems, particularly in technological progress increased income disparities lagging EU MS and regions, must receive the re- in high-income countries. Between 1970 and 2016, sources and technical support needed to mitigate the the share of employment in occupations requiring impact of the transition on disadvantaged house- mid-level skills in the United States (such as office holds. The remainder of this overview describes the clerks, sales associates, and production workers) de- HD policies that will enable the green transition, mit- clined, while the number of high- and low-skilled igate its short-term adjustment costs, and adapt occupations rose or remained largely unchanged households to a new, environmentally sustainable, (Autor 2019). A similar pattern is observed in Europe equilibrium in the economy. There is no green transition without proper human development policies that enable it 20 1.  The European Green Deal Figure 1.1:  Change in Manufacturing Employment and Chinese Import Competition in OECD Countries, 1999–2007 (%) Source: Dorn and Levell (2021). Figure 1.2:  Change in Income Inequality in the EU, 1993–2019 (Gini Coefficient) 15 10 5 Netherlands Hungary Portugal Gini Coefficient Estonia Greece Poland Ireland France 0 Spain Slovenia Croatia Italy Lithuania Belgium Austria Germany Denmark Cyprus Czech Republic Finland Sweden Slovak Republic Romania Luxembourg Bulgaria Latvia −5 −10 −15 Source: World Bank. 21  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Just as importantly, the report also addresses the Two Questions, One Challenge second question: how to deal with the green transi‑ The planet faces a crisis. According to the Intergov- tion’s unintended consequences. Climate action in ernmental Panel on Climate Change (IPCC), the av- general, and the EGD in particular, impose on soci- erage global surface temperature has increased con- ety a number of policies that while providing an in- tinuously each of the last four decades, with an centive for change, also restrict both firms’ and estimated increase from 1850-1900 to 2010–2019 of workers’ actions. Curbing emissions through carbon 1.07 degrees Celsius likely caused by human activity caps is one example in which restrictions will induce (IPCC 2021a). Climate change is contributing to sea- change. At the same time, the European Union’s level rise, an increased frequency of extreme weather (EU) financing mechanisms and policies aim at re- events, encroachment on natural habitats that threat- ducing the impact on individuals and lagging re- ens a deterioration of biodiversity, and shifts in the gions. There is, however, a transition cost while sustainability of agriculture and aquaculture that firms adapt their mix of factors of production, and threaten the livelihoods of a significant share of the workers acquire the necessary skills for the green world’s population. Due to climate change, by 2030 economy. Some firms, unable to adapt, and some an additional 32 to 132 million people are likely to be workers vulnerable to labor market demand changes, poor (Jafino et al. 2020), global productivity is ex- will probably lose in the transition. This report also pected to be lower by an amount equivalent to 80 addresses the second question: what to do about those million full time jobs (ILO 2019a), and global health unintended consequences? These unintended conse- costs are expected to increase by US$2–4 billion (WHO quences stemming from a much-needed green tran- 2021).2 In addition, the Climate Vulnerability monitor sition, can only be addressed through human devel- estimates that about 400,000 lives will be lost in the opment policies. Upskilling and reskilling of workers, year 2030 due to climate related events (Thompson technology transfer and absorption, social assistance 2020). The expected further rise in global tempera- and safety nets, active labor market policies, and tures beyond 1.5 and 2 degrees Celsius above pre-in- support for mental health will all be vital for the dustrial levels, with temperatures in Europe expected transition to be sustainable in the long run. Costly to rise by more than the global average (IPCC 2021b), transitions can lead to widespread discontent. In as has calamitous implications for human welfare. much as the EGD depends on member countries’ This report addresses the role of human devel‑ willingness to act and comply, the green transition opment in enabling the green transition. The chal- depends on tackling that discontent. lenge imposed by climate change triggers two ques- tions. Climate change is a challenge that is increasingly driving the development agenda. The policy discus- The European Green Deal sions, and more importantly, the decisions that su- pra-national entities, international agreements, and The European Union established the EGD to ad‑ individual countries take, represent a most needed dress climate change. The goals of the EGD are to: climate action. That is the first question that climate (i) reduce green-house gas (GHG) emissions to no change triggers: what to do about it? This report aims more than 55 percent compared to 1990 levels, at addressing that question from the perspective of (ii)  decouple the economy from natural resource human development. The green transition can be consumption, while (iii) leaving no person or place described as a move towards an economy that re- behind (see more details on objectives, actions, and sults in human well-being, social equity, efficient use policies in Figure 1.3). Reducing GHG emissions re- of natural resources, and reduction of environmen- quires an effective EU emissions trading system, im- tal risks (United Nations Environment Programme provements in the energy efficiency of consumer [UNEP] 2011). There is no green transition without products and of housing, more use of renewable en- proper human development policies that enable it. ergy, and reduced emissions from road transport, Human development policies are needed to develop agriculture, and land use. Achieving a circular econ- an education system that is linked to labor market omy will mean reducing waste and finding new needs to provide the skills needed for a green transi- uses for it. Leaving no person or place behind will tion. And human development policies are also require policies to redress the adverse impacts of ris- needed to support an innovation system that deliv- ing energy prices, restrictions on fossil fuels, and ers the indispensable technology to curb emissions shifts in the demand for skills for some households or reduce waste and resource consumption. and regions. 22 1.  The European Green Deal Figure 1.3:  EGD’s Objectives, Actions, and Policies Objectives Zero net Leave no Decouple Core GHG person or economic emissions place growth by 2050 behind Actions Finance & Environment Research & Climate Energy Agriculture Industry Transport Regional & Oceans Innovation Development Policies Source: Based on European Commission’s information and EC (2022). Human development sectors will play a critical Enabling the Green Transition role in supporting the EGD and reacting to changes in economy and society as a consequence of EGD and Addressing the EGD’s policies. The green transition implied by the EGD Unintended Consequences would require massive efforts to improve skills (dis- HD sectors can contribute to the green transition cussed in the parallel case study for the Slovak Re- by reducing the use of fossil fuels and of waste in public), to bolster R&D (exemplified in the parallel their own operations. Reductions in the use of en- case study for Poland), to effect changes in con- ergy and greater reliance on renewables in schools sumption habits and supporting infrastructure (e.g., and health facilities can make a substantial contri- retrofitting buildings for energy efficiency, the sub- bution to meeting emissions targets while improv- ject matter of the parallel case study for Croatia), to ing health and creating jobs. Adopting green medi- facilitate job transitions (see Poland’s Just Transition cal waste management (MWM) and digitizing HD case study), to provide income support for workers delivery systems could increase the efficiency of adversely affected, and to address the challenges use of materials. Improvements in the sustainabil- faced by lagging regions. ity of water systems, including the management of 23  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE rainwater and stormwater, could help to mitigate support for training will have to expand to meet in- climate change risks. creased demand, particularly since employ- HD policies can play an important role in shift‑ er-funded training typically focuses on the skills re- ing demand to green products. Education at all lev- quired for the current job, while many workers will els, including the training of HD professionals, require new skills applicable to green jobs. Young should incorporate information on climate change workers with low skills and experience will face par- and sustainable behavior into curricula. Accredita- ticular challenges. Combining apprenticeships with tion requirements should promote health providers some traditional courses can help them gain practi- that are aligned with the EGD. Green behavior, re- cal experience and strengthen foundational skills. ferred to as actions that avoid harm to the environ- Lessons for active labor market programs for the ment as much as possible or benefit the environment green transition may be gleaned from programs tar- (European Commission [EC] 2012), in adults can be geted to workers displaced by other economic encouraged through social assistance programs and shocks, for example trade liberalization. investments in communications networks, coupled Government provision of job-matching services with labor regulations that provide for flexible work will play an important role in mitigating the ad‑ arrangements. Procurement policies could prioritize verse impact on low-skilled workers. Such pro- EGD-compliant suppliers and lower social health grams will need to undertake in-depth evaluations protection co-payments could be charged if provid- of workers’ skills, provide information on the skills ers are aligned with the EGD. required for transition to green jobs, facilitate access Transition to a carbon-neutral economy (CNE) to required training, and cooperate closely with will have unintended effects that will adversely training providers and employers. Monitoring activ- affect the poor and vulnerable. Increasing the price ities, for example analysis of job trends by region, of fossil fuels will increase the prices of food, heating could identify skill gaps, which would be taken into and transport services, which will particularly affect account in developing training programs and guide the poor. Land-based mitigation policies like refor- workers’ expectations on emerging jobs. estation can reduce land available for food produc- Training and support for workers adversely af‑ tion, threatening the food security of poor house- fected by the green transition should consider the holds and the livelihoods of poor workers. Many problems affecting lagging regions, which the green workers in energy-intensive industries could lose transition is likely to worsen (see below). Address- their jobs. The green transition will increase the re- ing large scale job loss may require a coordinated turns to skills, as explained above, thus reducing the package of cash assistance, employment and train- relative earnings of low-skilled, and predominantly ing schemes, and community-driven development low income, workers. projects. Surveys of the skills composition of work- Strengthening education and training at all lev‑ ers would be helpful in allocating training resources els is essential to moderate the adverse effects of across lagging regions. Investments in distance learn- the green transition. Improving foundational skills ing and technologies to facilitate cooperation between through basic education makes it easier to learn new innovation centers and lagging regions, comple- tasks, which will be critical for the green transition.3 mented by in-person research exchanges, can help Adult learning of foundational skills should focus increase capacity in lagging regions. Training in dig- on correcting gaps in particular skills, rather than ital skills and improving access to digital technology in providing general education classes. Government lagging regions would facilitate work at a distance. HD sectors can contribute to the green transition by reducing the use of fossil fuels and of waste in their own operations 24 1.  The European Green Deal The report also addresses a second question: how to deal with the green transition’s unintended consequences Disruptions to people’s lives due to the green environmental goals, can both support vulnerable transition will require changes in health services. households and contribute to the green transition. Organized screening programs and new technology The EGD will require substantial funding. that will make personal health monitoring more ef- Overall, the EGD is estimated to represent EUR 1 fective can improve preventive medicine and make trillion (around US$1.1 trillion) in investments, treatment timelier. Changes of profession and/or which represents around 7.2 percent of the EU’s 2020 residence, perhaps coupled with reduced incomes, GDP. The Next Generation EU (NGEU) plan, which will increase the need for physical and mental health will provide an anticipated allocation of EUR 806.9 support. And employment disruptions will increase billion for recovery from the pandemic, will allocate the importance of government support in ensuring a portion of these funds to achieve EGD goals. Each that everyone has adequate social health protection. EU member state was required to designate at least Climate change will exacerbate health problems and 37 percent of the planned investment towards the increase the frequency and severity of weather-re- green transition, and 30 percent of the NGEU funds lated shocks that could degrade health infrastruc- will be allocated as green bonds. Funds will be made ture. Agile technology can play a role in helping the available to assist regions and sectors that now rely health care industry to cope with environmental on carbon-intensive and fossil fuel related indus- changes. The urgent need to finance even EGD poli- tries, including through the Just Transition Fund, the cies should not come at the cost of reducing re- Modernisation Fund, and the European Investment sources to essential health services. Bank. Nevertheless, private sector support will be The green transition will present considerable essential to fill the estimated financing gap of €2.5 challenges to social assistance programs. Substan- trillion. Private sector green finance could be in- tial investments in information systems, for example creased by strengthening the knowledge of govern- social registries, will be necessary to identify vulner- ment regulatory bodies to facilitate green project able households. Assistance to households who can- implementation and informing local financial actors not adequately heat or cool their dwelling should on the opportunities in climate-resilient sectors. not encourage greater consumption of fossil fuels, which can be achieved by providing unconditional cash assistance rather than direct subsidies to utility The Circular Economy bills and helping poor households to achieve energy Global growth over the past century has relied savings or increase reliance on renewables. The heavily on the consumption of materials. Every funds generated by the removal of fossil-fuel subsi- one percent increase in global GDP was associated dies and the imposition of carbon taxes could be with a 0.8 percent rise in the consumption of materi- used to offset the disproportionate burden of these als, and the extraction and processing of materials policies on the poor. Addressing massive layoffs may accounted for about half of global GHG emissions require combinations of unemployment insurance, and over 90 percent of biodiversity loss. By contrast, severance or other forms of termination payments, economic growth in the EU over the last two de- early retirement incentives and social assistance. Such cades was decoupled from material consumption: programs need to be carefully designed and targeted between 2000 and 2020, the EU economy expanded to avoid work disincentives effects. Finally, paying by 22.5 percent while domestic material consump- individuals to provide environmental services, for tion (DMC) dropped from 6.5 gigatons to a little example cash assistance tied to land use and conser- over 6. This was mainly due to the decreased vation, and directing public works programs to 25  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Human development policies can play an important role in shifting demand to green products consumption of fossil fuels, as non-fossil energy ma- industries that will be subject to higher taxes or terials per capita decreased only marginally in the stricter regulation may suffer job losses. The circular EU and increased in several EU member states. economy will entail changes in demand for skills, Countries that achieved high and very high hu‑ and the variance in adult participation in education man development also exert greater pressure on and training between member states may indicate planetary boundaries. Countries that have ranked varying capacity in supporting workers to adjust. high and very high (above 0.7) on the United Na- The adoption of the CE has been slow and var‑ tions Development Program’s Human Development ies across member states. CE sectors and economic Index (HDI) also have relatively high CO2 emissions activities account for less than one percent of the and material footprint per capita. Adjusting the HDI EU’s GDP and less than two percent of total employ- to account for the use of materials and CO2 emis- ment, with moderate variations across member sions considerably reduces the ranking of those pre- states. Despite outperforming all other regions in the viously at the top. This underlines the importance of world with regards to e-waste management, only new economic models that aim to shift the focus three EU countries met the 2019 target of collecting away from economic growth to take into account its 65 percent of waste from electric and electronic impact on human welfare and the need to mitigate equipment while 3 countries have yet to meet the and adapt to climate change. 2016 target of 45 percent. Part of the problem in tran- The European Commission has adopted a com‑ sitioning to a CE, lies in relative prices: firms still prehensive plan to transition to a circular economy. find it cheaper to use raw materials than to reuse The circular economy (CE) refers to the systematic waste materials (World Bank, 2022a). recovery and reuse of products and materials by Principal components analysis can be used to minimizing the extraction, consumption and dis- gain insight into the relative progress of EU coun‑ posal of natural materials and maximizing resource tries in meeting the requirements of the circular efficiency. The transition to a circular economy is economy. Indices are calculated to represent perfor- projected to significantly reduce greenhouse gas mance on three categories of the CEAP monitoring emissions and externality costs related to manufac- framework: waste management, production and turing, mobility, and built environment systems; re- consumption, and the trade and use of secondary duce European countries’ dependency on imports, materials. Adjusting rankings on the human capital making them less exposed to potential disruptions index, where EU countries score quite high, by these to supply chains; generate a net employment in- three indices reduces the relative ranking of EU crease of about 0.3 percent in the EU by 2030 (the countries to near the bottom of the scale. impact on employment differs across sectors, how- A Just Transition to CE in the EU requires simi‑ ever); and improve both mental and physical health lar changes in education, social safety nets and by assisting to regulate local climate, noise, air and health monitoring as discussed above. Educating water pollution, as well as creating spaces that en- students of all ages about environmental objectives, courage active and healthy lifestyles. individual material footprint, and the need to shift Transition to a CE also will entail risks, with away from the linear mode of consumption would varying impact across communities and house‑ encourage behavior consistent with the circular holds. The expansion of waste treatment will expose economy. An expansion of social safety nets and in- more workers to hazardous materials, such as chem- corporation of climate-vulnerability in health fi- icals of concern (common in e-waste), food packag- nancing risk pooling processes will be necessary to ing fire retardants, and bio-waste compost. Commu- ensure that the burden of efforts to promote circular- nities and individuals that rely on products and ity will not fall on the poor through worsening 26 1.  The European Green Deal working conditions and shifting health impacts, re- transition will lead to large flows of skilled workers to duced livelihoods, or job losses. And efforts are nec- these favored regions, reducing the supply of skills essary to monitor the potential health risks associ- in lagging regions and rendering the adoption of cli- ated with the transition to the CE, particularly for mate mitigation policies and cutting-edge green communities close to recycling centers or landfills, technologies even more challenging. and to strengthen occupational health and safety Women and girls are key players in facilitating measures, particularly in waste management, work- the transition to low carbon economic growth, ing practices and energy generation. Finally, higher however they face challenges that could reduce education institutions should be encouraged to un- their potential contributions. Kwauk and Braga dertake research to support the transition to the CE, (2017) discuss how weather-related extreme events particularly quantification of the impact of the transi- affect women and girls in particular ways such as tion, means of extending the life of products, circular diverging them from education when needing to design manufacturing, and disposing of materials. spend time getting water or leading them to prema- ture marriage in order to reduce household resource scarcity. These situations impact girls’ skill-building Asymmetric Impacts of the EGD and can negatively affect their important role as change agents towards an environmentally sustain- Exacerbated regional inequality able economy. Furthermore, IRENA (2019) suggests The EGD could have a significant impact on the that greater participation of women in growing sec- distribution of income across regions and individ‑ tors adept to the policies in the EGD, such as the re- uals. Regions that rely heavily on the exploitation of newable energy sector, represent an opportunity to fossil fuels, energy-intensive production or on the promote fair distribution of socio-economic benefits linear production model, many of which already arising from the green economy transition. If women have lower-than-average incomes, could fall further and their perspectives are excluded from appropri- behind. And shifts in demand for skills driven by the ate skilling and renewable energy development, green transition could lead to job losses and declines their engagement and valuable contributions can be in the relative income of lower-skilled workers. compromised. Furthermore, these challenges are The significant differences in per capita in‑ further exacerbated by systems that obstruct com- comes and growth across EU regions could be exac‑ bining work-family life. erbated by the green transition. The phasing out of The implications for lagging regions in the ab‑ brown energy will adversely affect regions depen- sence of support policies are dismal. Demographic dent on coal production, which tend to be located in decline and brain drain could reduce local govern- lagging and poorer regions in the EU. Employment ment revenues and the quality of staff, impairing the reductions in steel and other industries dependent ability to design and implement development strat- on coal, or more broadly of high energy intensity, egies. Investment could shift towards regions and will further erode incomes in vulnerable regions. Per- cities with higher levels of infrastructure, skills and haps even more seriously, the green transition will governance, further depressing the demand for accentuate the locational advantages of richer, more workers and productivity in lagging regions. The dynamic regions with large pools of highly skilled winners from green transition policies are likely to workers, specialization in related economic fields, be already prosperous urban regions, and the losers and high-quality infrastructure and facilities. Rising the already weaker regional economies that will suf- demand for skilled workers driven by the green fer from outflows of capital and talent. The significant differences in per capita incomes and growth across EU regions could be exacerbated by the green transition 27  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE The relative decline of lagging regions will be knowledge and EU-wide objectives) and with inte- accentuated by three additional factors. The more grated activities (given the multi-dimensional ef- favored regions will be better placed to specialize in fects of the green transition). It is critical to tailor the green technologies and renewables because they al- mix of incentives and regulations used in furthering ready are more highly endowed with knowledge the green transition to local contexts. Given the related to the green economy. Green technologies are novel challenges in implementing the EGD, learning frequently located on the technological frontier and from regional peers will be crucial to identify best tend to require a wider range of competencies that practices. And investments in institutional capacity, are often far from traditional know-how, while green particularly in lagging regions, and coordination skills normally involve a greater intensity of mechanisms that assign roles and responsibilities non-routine skills. Thus, more innovative regions, among stakeholders and across government levels, which tend to be the richer and more dynamic ones, will be essential for effective implementation. will be in a better position to develop green technol- ogies. And lagging regions tend to have poorer gov- Skills and income inequality ernance, which will further impair their ability to attract investment in green activities. Workers in green jobs tend to be more skilled com‑ As incomes and opportunities deteriorate in pared to workers in brown jobs. Green jobs tend to lagging regions, support for addressing climate require higher proficiency levels of all types of skills change could decline. Opposition to the free mobil- than brown jobs do, as indicated by significant dif- ity of capital and labor, or economic integration in ferences between the distribution of levels of numer- general, already is on the rise, particularly in regions acy, literacy and problem solving (from the PIAAC that have experienced years of decline and per- survey) across brown and green jobs.4 Workers in ceived neglect, and among workers adversely af- green jobs tend to use skills at work and at home fected by foreign competition. The rise of support more often than workers in brown jobs do. The skills for anti-establishment parties, who often champion gap between brown and green jobs is mostly driven anti-green policies, could ultimately prevent the by the greater years of schooling among workers in implementation of the EGD. green jobs, as well as the more frequent usage of Place-sensitive policies are essential to address skills by workers in green jobs. The return to skills the negative impact of the green transition on lag‑ tends to be higher in green jobs than in brown jobs: ging regions. Such policies should take advantage for the case of Poland, estimating the relationship of each region’s attributes, to determine how that between earnings and an index for skills, an indica- region can benefit from green investments. Spatially tor of the greenness of jobs, and an interaction term blind policies would result in green investments be- between skills and the greenness of jobs, shows that ing dominated by richer, more dynamic regions, the significantly positive relationship between while place-based initiatives with little central direc- skills and wages is stronger in green professions.5 tion could run into implementation bottlenecks due The shift in demand towards green jobs will therefore to low capacity in the poorer regions. Instead, mean rising demand for high-skilled versus low- place-sensitive strategies should be differentiated by skilled workers, leading to a deterioration of income regional attributes and marked by strong coordina- distribution across the EU. Training workers in higher tion across governance levels (to reflect both local and greener skills will be essential to help address this. Identifying the transition paths with the smallest differences between the skills required for brown versus green jobs would reduce the investment required to move from a brown to a green job 28 1.  The European Green Deal Identifying the transition paths with the small‑ tend to possess higher or similar skills than workers est differences between the skills required for occupying similar jobs, and at the same time are brown versus green jobs would reduce the invest‑ paid less. This mismatch would make it very diffi- ment required to move from a brown to a green cult to meet the growing demand for environmental job. Using similarity indices (task-level) along with engineers by retraining workers from similar occupa- the PIAAC data (skills-level) allows to pinpoint the tions. It could be achieved by applying a policy mix occupations with the most feasible brown-to-green aimed at human resources development and wage transition. Poland is an example of brown-to-green subsidies (e.g., by recycling carbon tax income). job transitions (Figure 1.4). Environmental engineers Figure 1.4:  Green Job Transition Example from Poland Note: Color represents green core index (0.1: e.g., Crisis management officer, 1: e.g., Wildlife or environmental conservation warden), val- ues on edges reflect similarity scores, numbers in bubbles refer to major occupation groups. 29  2 ECONOMIC DYNAMICS AND POTENTIAL IMPACTS 2.  Economic Dynamics and Potential Impacts T his chapter aims at understanding the dy- shock to the economy, while the third objective tar- namics that lead to changes in the econ- gets some of the possible distributional impacts of omy that result in a green transition and the EGD’s reforms. These core objectives are import- human development challenges. With the ant to understand the EGD and the shock it rep- objective of pinpointing the transmission mecha- resents to the economy, and it is also one of the two nisms that allow for policies to move the economy factors that shape the structure of the report. The from a carbon-based (‘brown’) to a carbon-neutral other shaping factor is the HTGEM model (see An- (‘green’), the chapter conveys the main mechanisms nex A for details) that presents changes in the econ- that produce change. To do so, the chapter’s first sec- omy as a consequence of changes in relative prices. tion highlights the key elements in the Human Tran- The EGD’s first two core objectives are in fact a sitions General Equilibrium Model (HTGEM). The vector of policies organized around eight actions. HTGEM is the main analytical framework that Most of the changes in the economy and society as a shapes the report (see Annex A for details on the HT- consequence of these policies require that human GEM). The salient feature is that relative prices in development sectors are prepared to act on these both, the goods and services market, and factor mar- changes. The green transition implied by the EGD kets, result in asymmetrical impacts for firms, would require: (i) skills necessary for R&D (exempli- households and regions. The report then turns to fied in the parallel activity and case study for Po- translating the HTGEM to a System Dynamic Model land); innovation, product redesign, adapting con- (SDM) in order to estimate potential impacts in the sumption (e.g., retrofitting buildings for energy economy with the premise that SDMs have a clear efficiency, the subject matter of the parallel activity advantage since they, unlike Computable General and case study for Croatia); (ii) a labor market that is Equilibrium models (CGE) do not assume that mar- able to respond to technological change; and the (iii) kets clear. The simulations based on the Vensim ver- health perspective to implement some of the EGD sion (an SDM tool) of the HTGEM, can provide po- actions (e.g., farm to fork). Human development tential changes with respect to the business as usual emerges then as an enabling factor for the green (BAU) scenario. transition. In fact, the report emphasizes, earlier in chapter 1, that there is no green transition without a human transition. Economic Dynamics in the EGD The EGD actions’ impact can lead to changes in technology, skills and behaviors that will shape The HTGEM model and the EGD’s objectives consumption demand, firms’ choices, and workers’ shape the structure and analysis in the report. In preferences, but they can also lead to asymmetrical order to address climate change challenges, the EU impacts in the population. These are the main fac- established the EGD to (i) reduce green-house gas tors that the report highlights throughout. To do so, (GHG) emissions and (ii) decouple the economy the report’s analytical framework is based on the from natural resource consumption. In doing so, the HTGEM to better understand the interplay between EU, aware of potential externalities, also aims to (iii) the economy adapting to a new economy, the envi- leave no person and no place behind. The EGD’s ronment’s improvement as a consequence, the first two core objectives represent a policy-induced changes in consumption behaviors, and the impacts The EGD can lead to changes in technology, skills, and behaviors that will shape consumption demand, firms’ choices, and workers’ preferences, but they can also lead to asymmetrical impacts in the population 31  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE on the skills, the labor market and the health of Eu- regulations on energy efficiency, and products that ropean Union (EU) citizens. The GEM’s main trans- reduce the amount of waste, but ultimately the mission mechanisms are relative prices in both the move to a carbon neutral and circular economy still goods and services market, through ‘green’ econ- requires that consumers’ behaviors change. Without omy prices relative to the traditional ‘brown’ (tradi- that, as demand for products that comply with the new tional) economy. Similarly, in the labor market, once green and circular economy increases, their prices technological change starts and firms change labor could also increase. As the demand for carbon- demand, relative prices will trigger skilling prefer- economy products wanes, their prices will also de- ences by workers. The HTGEM computation strat- cline, and relative prices in the goods and services egy employs its equations in an SDM environment. market may increase in a direction that will make The advantage of this strategy is that it avoids some consumers think about replacing part of their con- of the most restrictive assumption in CGE models: sumption with carbon-based products (see HTGEM that markets clear at any given time. details in Annex A). Subject to regulations, that The SDM version of the HTGEM simulates change in relative prices can make long-run equilib- how EGD policies can have an effect on the envi‑ ria unstable, as further demand for carbon products ronment, the economy and on inequality. The EGD readjusts relative prices and makes demand swing employs six sets of policies to limit GHG emissions back and forth to products from the two economic to 55 percent compared to 1990 levels. The so called models. That is particularly true if trade with other ‘Fit for 55’, requires among other things an EU emis- countries allows it, even with a trade policy that in sions trading system that works, introduction of ac- theory requires trading partners to subject them- tions to improve energy efficiency at the level of selves to similar standards to those in the EU. Trad- products that consumers have access to, and im- ing partners of the EU in the developing world may provements in housing quality to make better use of have even greater hurdles to overcome to implement energy. It also means more use of alternative energy the requirements imposed by the EGD’s trading pol- sources, and new targets for CO2 emissions from icy. The level of oversight to carry out that policy transportation, among other actions. Taken together may limit the number of products—or the extent to these actions will impose restrictions on how energy which they are—that are truly ‘green’ and circular. is produced and how it is consumed. But it is not Thus, as later explored in this report, one of the bind- only about energy. Actions under the EGD will also ing constraints for long-run stable equilibrium is a steer the economy into designing products in such a change in consumer behavior. way that waste is avoided, finding new uses for At the same time, the EGD’s set of policies will waste, and a general move towards a circular econ- act both as a restrictor and an enabler of behavior. omy. In chapter 2, the GEM-based SDM in the report On the one hand, policies aiming at curbing emis- will produce simulations for the effects on: (i) the sions and limiting waste will restrict firms’ produc- environment, (ii)  production, (iii)  consumption, tion processes and product design. To reduce emis- (iv) skilled vs unskilled workers, (v) the labor market, sions, firms will have a decision to make: pay for the and (vi) wages. The idea is to present the reader with cost of their emissions through the European Trading a set of potential challenges that HD policies can ad- System (ETS) or change their technology. The former dress in the following chapters (chapters 3 through 5). will ensure that total emissions are capped and so one On the side of the consumers, they will have a firm’s decision to pay for its pollution will increase choice of products that will be restricted by the cost of other firms’ emissions—as the amount of Technological change, and more particularly innovation, is at the heart of the solution, but it will also trigger some challenges in the labor market 32 2.  Economic Dynamics and Potential Impacts Technological change would then lead to further concentration in space emissions available for production wanes. The latter successful places (see HTGEM details in Annex A). will confront the firm with a decision to opt for Backward and forward links across firms will ensure cleaner technology. For the economy as a whole, the that technological change occurs throughout these collection of firms that decide to alter their capi- successful firm ecosystems. tal-labor ratio through technology, will represent a As technological change occurs, labor demand process of capital deepening that entails productiv- will favor the employment of higher skills compat‑ ity gains at both levels, the firm and the economy ible with the new technology. The resulting widen- (see HTGEM details in Annex A). Cleaner technol- ing of the wage gap between skilled and unskilled ogy will help achieve the EGD’s intended objective. workers will provide incentives for workers to up- Similarly, restrictions on material use, such as plas- skill and integrate into the new green economy, and tics, will represent another challenge for the firm; to for new entrants in the labor market to choose their redesign products to limit waste. For the economy as a skills/education accordingly.6 With regard to infra- whole, those actions at the level of the firm will contrib- structure, retrofitting buildings, among other activi- ute to the EGD’s objective of decoupling the economy ties, will still require some degree of unskilled work- from natural resource consumption. ers. The model doesn’t assume that unskilled Technological change, and more particularly in‑ workers’ demand will fall and in fact the simulations novation is at the heart of the solution, but it will in chapter 2, show an increase in wages stemming also trigger some challenges in the labor market. from labor demand, for both sets of workers; how- Firms will either innovate with new technology or ever, the wage gap continues to expand, before it new and redesigned products and processes, or they actually contracts—depending on the scenario. The will adapt to the emerging technology by absorbing incentives will also be for workers in lagging re- it into their processes. But at the same time, these gions—particularly but not exclusively for skilled firm-level decisions will alter relative prices in the workers—to migrate to leading regions where labor market. The GEM (HTGEM) employed in this wages will rise. As workers migrate and send remit- report considers that market structures can differ tances back home, reservation wages in lagging re- from perfect competition. In fact, the HTGEM re- gions will rise. Firms in lagging regions will be con- quires other market structures such as oligopolies fronted with a dual challenge: trying to bridge the and monopolistic competition so that product differ- technological gap with limited available skills, and entiation and the market power exerted by innova- rising reservation wages. These technology-induced tion are possible and give way to the kind of technol- changes will lead to uneven distributional conse- ogy that is required by a green transition. The model quences in the form of further household and re- does not require all firms to innovate, but to partici- gional inequality (see HTGEM details in Annex A). pate in technological change by adaptation, transfer In the context described above, human develop‑ and absorption of technology. However, the closer a ment policies are one key instrument that can be firm is to the innovation frontier in the market, the used to adapt individuals to the new economy. more likely it is to innovate or adapt to the new tech- Chapter 3 of the report aims at exploring the sets of nology. Those firms able to transition to the green policies that can help individuals adapt to the green economy are most likely to be located in leading re- transition. On education, the system’s response to a gions in Europe where firms benefit from a pooled new set of skills not only at the tertiary, but second- labor market of skilled workers, the backward and ary level to meet the demand by technology will re- forward linkages across firms and the knowledge quire the use of new and traditional education poli- spillovers that yield productivity gains external to cies. Foundational skills and policies to ensure them the firm. Technological change would then lead to will also be even more relevant in the new economy further concentration in space. Capital in the form of as evinced in chapter 5’s skills’ analysis. This is the technology will continue to concentrate in firms discussion framed in the parallel activity and case- (closer to the technological frontier) located in study for the Slovak Republic. Quality education for 33  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Labor demand will favor higher skills compatible with the new technologies. The resulting widening of the wage gap will provide incentives for upskilling and reskilling women, and especially girls, will be important as it workers might be left out of the labor market. Miti- provides the green skills necessary in order to take gation policies involve adapting social protection on jobs in emerging sectors highly dominated by men, systems to accommodate those workers that lose out in addition to equipping them with skills that increase in the transition. However, just as importantly, gen- their adaptive capacity for climate change (Kwauk et uine stakeholder consultation from the outset (plan- al. 2019). For workers already employed, the changing ning stage) and throughout the process can signifi- labor demand will require active labor market policies cantly reduce the possibility of social conflicts (ALMPs) to reskill and adapt to a green economy. (World Bank 2018a). Health policies, both physical HD policies will need to intentionally address the and mental health, will be paramount in helping particular challenges stemming from the EGD. The workers cope with a transition that may impinge on challenge is not only to use traditional ALMPs, but their employability, family situation and potentially to do so considering occupational pathways to green their access to health care. Chapter 3 also addresses jobs as stated in the occupational/task-based analy- these and other policies that mitigate the impact of sis of pathways in chapter 5. Health policies will the EGD. The chapter also includes policy analysis contribute to healthier lives as air quality improves on preparedness for the green transition for the EU and leads to greater productivity. But challenges on and three countries selected for case studies. the focus for health services—particularly for those Human development is also crucial to achieve who have difficulty adapting to the new economy— other objectives in the EGD. To decouple the econ- may remain for policy makers to address. omy from natural resource consumption, Europe HD policies will also be crucial to mitigate the also needs to transition from a linear to a circular unintended effects of the EGD. Adaptation policies economy. Chapter 4 in the Regional Report discusses can go a long way in reducing the overall impact, why reducing waste in the first place is paramount, but some of the negative externalities of the EGD and how repurposing and recycling continue to be might be unavoidable. Job losses are likely in sectors important. These activities involve innovation and that will have to change, such as energy. Coal mine skills to improve product design and limit the result- closure jobs will at least partially be compensated by ing waste from production processes. Similarly, ef- gains elsewhere, such as renewable energy produc- fective recycling and repurposing requires the nec- tion. However, coal miners will likely require some essary skills and technology. Chapter 4 looks into adaptation to work in other energy production jobs ways in which HD is an enabler of such circular or in non-energy sectors. Job losses will not be lim- economy transition, and what can be done to miti- ited to coal production but might be more wide- gate the negative effects of linear-economy workers spread. This is the discussion that the parallel activ- losing out in the transition. ity, the Poland case-study on Just Transition, takes Asymmetrical impacts will require a mix of ad‑ on. While adaptation policies will help, some aptation and mitigation policies for individuals Human development policies are one key instrument that can be used to adapt individuals to the new economy 34 2.  Economic Dynamics and Potential Impacts and regions. In order to fulfill the core objective of leaving no one and no region behind, the EGD’s re- System Dynamics to Simulate gional development fund and the private sector fi- the Changes in the HTGEM nancing leveraging mechanism would provide some The SDM version of the HTGEM focuses on the relief, but more will likely be needed. On the indi- main elements driving the effect of green policies on vidual side, chapter 5’s analysis will shed light into the economy. The SDM simulations that will be pre- occupational pathways for workers to transition to a sented are not prescriptive. The SDM, like our GEM new economy, coupled with adaptive social safety (the HTGEM), is also based on a number of model- nets, so that impacts on individuals can be ad- ling assumptions that present their own limitations dressed. Regions are important not only to fulfill one (see full details of the SDM in Annex B).8 Neverthe- of the EGD’s three core objectives, but fundamental to the EGD’s long-term sustainability. Chapter 5 doc- less, the SDM approach is still a reliable option to uments exacerbated regional inequalities and identi- identify the problem, to model policies’ effects (see fies regions vulnerable to negative externalities Box 2.1 for a detailed discussion on SDMs), and lead- caused by the EGD. The chapter discusses policies that ing to results that can contribute to the policy discus- can supplement compensatory mechanisms and sion (UNEP n.d.). help regions integrate in the green transition. Chap- The SDM version of the HTGEM incorporates the ter 5 argues that failure to care for lagging regions may equations in the latter through interconnected mod- increase rising latent discontent, that through politics ules. The SDM then connects all the relevant vari- could jeopardize the EGD objectives as a whole.7 ables to two modules of production: one for the Box 2.1:  SDM Literature SDMs are used for ecological economic systems and energy transition systems modelling because they avoid some of the restrictions in CGE. Uehara et al. (2015) use a SDM that starts with a GEM and uses a stock and flow diagram to model two separate forms of production that require certain amount of capital, natural capital and labor. However, this model does not consider simulations regarding changes in its variables, the introduction of variables that may favor green production forms or any form of differentiation between the types of labor that may be required in the two forms of production that it explores. On the other hand, Blumberga et al. (2021) and Wu et al. (2021) on energy transition use stocks and flows and consider two forms of production: brown and green. However, these models do not take as foundation or derive in structuring a GEM and do not consider variables related to market structures following labor types, labor mobility between countries or capital. Furthermore, efforts beyond energy transition and ecological economic systems have been made to model the green transition represented by the EGD through SDM. Such efforts are reflected mainly in the work of Bassi et al. (2021) and Barbieri et al. (2021). The first of them is based on a literature review directed towards exploring the key elements considered within EGD in order to model them through the use of Causal Loop Diagrams (CLD) in Vensim. The model considers variables related to smart mobility, employment, consump- tion, GDP, waste generation, among other relevant variables for the implementation of the EGD. Subsequently, the authors take the developed model to carry out simulations and structure the conceptualization of a GEM. Although the model is used to identify the main indicators of the analyzed system, conceptualize the existing interconnections among these indicators and explore emerging dynamics of change with the use of feedback loops (Bassi et al. 2021), it also has the limitation of using a CLD instead of stocks and flows. According to Aronson and Angelakis (2018), stock and flow models take the analysis to a higher level of rigor as this type of models allow to distinguish between types of variables that are stocks, flows and parameters. It is not possible to make such distinction in a CLD, deriving in an enhanced comprehension of the system when it is modelled using stocks and flows. The work of Barbieri et al. (2021) follows the same structure as the work of Bassi et al. (2020) since it takes the same CLD as a starting point, and produce a GEM based on the results. To build their scenarios, Barbieri et al. (2021) take a BAU scenario as reference and develops scenarios with carbon tax and recycling mechanisms. Even though the model recognizes the importance of employment, it does not consider skilled or unskilled labor in its variables, labor mobility or upskilling of the available workforce as it is structured and simulated by applying its scenarios to the European case and not to a particular country. Furthermore, it does not consider dif- ferentiated production forms regarding green and brown productions, which has an impact over required green resources for each form of production, required capital investment and demanded labor for each one of them. 35  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Asymmetrical impacts will require a mix of adaptation and mitigation policies for individuals and regions green economy (Production1) and another for the Third, an SC2 scenario (called moderate-high in the brown or traditional economy (Production2). Both results), which have more aggressive rates than SC1 models result in consumption and waste but with (details in Annex D).10 different assumptions, while the green economy de- One crucial aspect of the modelling in this re‑ creases waste over time, the brown does not (see Fig- port, is that it allows for labor mobility across ures 2.1 and 2.2 for examples focusing on the brown countries, sectors and skill levels. For both cases and green economies respectively). These dynamics (SC1 and SC2), the possibility of labor mobility be- influence natural resource consumption as the EGD tween countries is assumed. However, for the Euro- demands (Figure 2.3), and on skills and factor mar- pean regional case, mobility is still considered local kets (Figure 2.4).9 to the extent that all countries belong to the same region and therefore all workers are considered lo- cal. Another salient feature of the SDM is the possi- Potential Impacts bility of transforming unskilled to skilled workers through training. While labor market signals (i.e. Three scenarios were built for the SDM simula‑ wages) will result in an increase in the supply of tions and calibrations at different levels were per‑ skilled workers, the SDM recognizes that the up- formed. Simulations using the SDM were calibrated skilling process will take time. Similarly, the SDM using a three-pronged approach: (i) macroeconomic also removes barriers to changes in consumer pref- data calibration, (ii) estimated equilibria conditions erences. Greener scenarios (SC1 and SC2) imply a and (iii) expert and literature review calibration (see preference for the consumption of greener goods. As full details of calibration strategy in Annex C). Simi- a consequence, the increase in green production will larly, three scenarios are considered for the SDM lead to the corresponding increase in capital invest- simulations. First, a business-as-usual scenario ments in that sector. (BAU) that considers no taxation over the consump- SDM simulation results show that the more ag‑ tion of natural resources, preferences and consump- gressive the green policies in the EGD, the greater tion remain as in the traditional economy. Second, a is the production shift from the traditional carbon SC1 scenario (called moderate in the results) that economy to a green economy. With respect to the assumes green taxes, natural recovery rates, con- BAU (when BAU=100), brown production contracts sumption preferences, maximum degradation rate in both the moderate and the moderate-high sce- and education cost as per the rates in Annex D. nario. The EGD imposes a significant impact on the One crucial aspect of the modelling in this report, is that it allows for labor mobility across countries, sectors and skill levels 36 2.  Economic Dynamics and Potential Impacts Figure 2.1:  SDM Approach to Modelling the Brown Economy Source: Authors, based on the equations in the HTGEM (see annex A). The green economy decreases waste over time, the brown does not Figure 2.2:  SDM Approach to Modelling the Green Economy Source: Authors, based on the equations in the HTGEM (see annex A). 37  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 2.3:  SDM Approach to Modelling the Natural Resource Consumption Source: Authors, based on the equations in the HTGEM (see annex A). These dynamics influence natural resource consumption and skills and factor markets Figure 2.4:  SDM Approach to Modelling Skills and the Labor Market Source: Authors, based on the equations in the HTGEM (see annex A). 38 2.  Economic Dynamics and Potential Impacts economy, and the adjustment is expected to occur in Complying with the EGD means that firms a relatively short period of time (Figure 2.5). Corre- need to invest in technology, which produces capi‑ spondingly, what is lost in production by traditional tal deepening in the economy. Investments in capi- means is compensated for by gains in the green tal for the EU show that the EGD represents an initial economy (Figure 2.6). Shifts in production are the shock for firms. Some firms will be unable to adapt result of changes in consumer preferences as they to a transforming green economy and have the pos- begin to favor goods that have been produced sibility of choosing a mix of factors of production in through green mechanisms to the extent that be- line with the technological demands imposed by the tween the two forms of production, this is the one EGD which implies a shift from low skilled workers that uses fewer natural resources and uses more and high investment in natural capital towards an skilled labor. On the other hand, the appearance of economy with higher demands of skilled workers green taxes also plays an important role in the reduc- and lower investments in natural capital. As a result, tion of production through brown mechanisms, as some firms may exit the market leading to a contrac- the use of natural resources is higher in this form of tion in investment in the short run (Figure 2.7). production this will bring higher costs for which it However, as firms closer to the technological fron- would be better to shift the production mechanisms tier can innovate, adapt or absorb new technologies, to green ones. Individual country simulations show surviving firms may take investment levels beyond similar patterns (Annex E). the BAU trajectory. Higher levels of capital will lead Simulation results show that the more aggressive the green policies in the EGD, the greater is the production shift from the traditional carbon economy to a green economy Figure 2.5:  Simulation Results for EU Brown Production under the EGD System-dynamics simulations using Vensim, 2022–52 120 100 As percentage of BAU 80 60 40 20 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal consumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share of green production forms of 90% and an education cost ratio of 1.3. 39  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 2.6:  Simulation Results for EU Green Production under the EGD System-dynamics simulations using Vensim, 2022–52 200 180 160 As percentage of BAU 140 120 100 80 60 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022); European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal consumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share of green production forms of 90% and an education cost ratio of 1.3. EGD implies a shift towards an economy with higher demands of skilled workers and lower investments in natural capital Figure 2.7:  Simulation for Capital in the EU under the EGD System-dynamics simulations using Vensim, 2022–52 130 120 As percentage of BAU 110 100 90 80 70 60 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022); European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal consumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share of green production forms of 90% and an education cost ratio of 1.3. 40 2.  Economic Dynamics and Potential Impacts to an increase in the capital-labor ratio and therefore made by firms that put in place new technologies, capital deepening in the economy (Figure 2.8). Simi- productivity will increase under either scenario, rel- lar results were found for individual country simu- ative to the BAU (Figure 2.9). However, in the case lations (Annex E). While capital investments are of individual country productivity trajectories, more nuanced in Croatia, they are the greatest in they seem to slightly differ. While Poland seems to Poland, at least in the long run.11 get the greatest productivity gains as a percent of the The EGD’s green transition has the potential to BAU, Croatia gets a more nuanced gain initially that deliver productivity growth as a consequence of later accelerates. The Slovak Republic seems to have technological change. As capital investments are the lowest productivity gains of the three cases for Figure 2.8:  Simulated Capital-Labor Ratios in the EU under the EGD System-dynamics simulations using Vensim, 2022–52 150 140 130 As percentage of BAU 120 110 100 90 80 70 60 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022); European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal consumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share of green production forms of 90% and an education cost ratio of 1.3. Figure 2.9:  Simulated Productivity in the EU under the EGD System-dynamics simulations using Vensim, 2022–52 140 130 As percentage of BAU 120 110 100 90 80 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022); European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal consumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption shares of green production forms of 90% and an education cost ratio of 1.3. 41  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE which the exercise was carried out (Figure 2.10 Pan- technologies, but in the long run, less attractive‑ els a and b). In fact, the Slovak Republic seems to ness for unskilled work will make their salaries lose productivity (under the moderate-high sce- grow too. As firms introduce technology to comply nario) in the initial years of the EGD to then accrue with EGD regulations, a higher demand for skilled modest gains (Figure 2.10 Panel c). Heterogeneity in workers will emerge (Figure 2.11, Panel b). Technol- productivity across countries could be the result of ogy will require the corresponding and compatible asymmetries in skills compatible with the new tech- level of skills to the detriment of unskilled jobs. In nological level. Nevertheless, the net effect for the the short run, demand for skilled workers will rise, EU is a clear gain in productivity resulting from the while for unskilled workers will, will decline (Figure capital-deepening process. 2.11, Panel a). Demand for skilled workers will send The EGD will galvanize workers to upskill the corresponding market signal through higher themselves given a growing demand to match wages. Depending on each individual’s skills gap, Complying with the EGD means that firms need to invest in technology, which produces capital deepening in the economy Figure 2.10:  Simulated Productivity at the Country Level under the EGD System-dynamics simulations using Vensim, 2022–52 a. Croatia b. Poland 120 150 140 As percentage of BAU 115 As percentage of BAU 130 110 120 110 105 100 100 90 80 95 70 90 60 2022 2027 2032 2037 2042 2047 2052 2022 2027 2032 2037 2042 2047 2052 c. Slovak Republic 110 108 106 As percentage of BAU 104 102 100 98 96 94 92 90 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022); European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal consumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption shares of green production forms of 90% and an education cost ratio of 1.3. 42 2.  Economic Dynamics and Potential Impacts Figure 2.11:  Simulation for Skills’ Demand and Supply in the EU under the EGD System-dynamics simulations using Vensim, 2022–52 a. Unskilled labor b. Skilled labor 250 130 200 120 As percentage of BAU As percentage of BAU 110 150 100 100 90 50 80 0 70 2022 2027 2032 2037 2042 2047 2052 2022 2027 2032 2037 2042 2047 2052 Business as usual Moderate scenario (Demand) Moderate-high scenario (Supply) Moderate-high scenario (Demand) Moderate scenario (Supply) Source: Own calculations based on Eurostat (2022); European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal consumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption shares of green production forms of 90% and an education cost ratio of 1.3. The EGD’s green transition has the potential to deliver productivity growth workers will react by trying to acquire the necessary a possible shortage in that segment of the market. In skills. In the short to medium run, labor supply for the long run, there is a possibility that wage inequal- unskilled jobs will contract as workers attempt to ity is even lower under a strong restriction implied reskill themselves to benefit from the exacerbated by the EGD compared to the moderate scenario.14 wage gap (Figure 2.11, brown/beige lines). Initially that is enough to meet demand. In the medium to long run, the labor market demand fills with the Policy Consequences skills from new entrants. As more unskilled workers are attracted to the reskilling process, there is the po- The EGD will bring about a new green economy tential that shortages in unskilled occupations lead that delivers on growth, but the policy challenge to a renewed demand for that segment of the labor lies in the political economy. Simulations in this market.12 The long run could see a convergence in chapter show that the EGD will lead to greater sus- demands for both, unskilled and skilled workers.13 tainability, will yield productivity gains as a result of Subject to the EGD’s astringency level, these capital deepening and investments in human capi- shifts in technology and skills’ demand may lead tal. Simulations also show that there will likely be to an increase in wage gaps between skilled and asymmetrical impacts at the individual and regional unskilled workers. Simulation results show that un- levels—and the rest of the report delves on this, par- der the moderate scenario, a higher demand for ticularly chapter 5. However, the aforementioned skilled workers will lead to an amplification of the benefits will depend on the political economy of the wage gap between skilled and unskilled workers green transition. Policy alignment and institutional (Figure 2.12). Under the most severe scenario, the readiness at the national, regional and local levels wage gap will widen even faster, but in the medium would require alignment with supranational visions to long-run, the wage gap starts to close given the and directives. Ensuring that HD systems function higher demand for unskilled workers resulting from in a way that deliver the inputs needed for the green 43  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 2.12:  Skilled-Unskilled Workers’ Wage Differentials in the EU with the EGD System-dynamics simulations using Vensim, 2022–52 160 150 140 As percentage of BAU 130 120 110 100 90 80 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022); European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal consumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption shares of green production forms of 90% and an education cost ratio of 1.3. The EGD will galvanize workers to upskill themselves given a growing demand to match technologies transition is paramount. The enabling capacity of shows that the country has significantly increased its education systems to deliver not only the skills, but investments in R&D+I. But Poland still needs to de- the research, development and innovation (R&D+I) fine viable models for ensuring social returns and for technological change to take place, is an essential socio-economic and environmental impacts of green element to make the EGD goals attainable. Similarly, R&D+I projects. Performance in green research, in- productivity gains will depend on health systems novation in general and eco-innovation is still insuf- being able to serve more productive workers at the ficient to meet the challenges of competitiveness, same time they cater for an ageing population. Ac- green transition, and sustainability. In addition to tive Labor Market Policies (ALMPs) will be required both, public and private sectors’ R&D+I capacity to target vulnerable workers to adapt to a green building, a key issue in Poland is improving the economy and contribute to a new productive model quality of public research and its role in transferring based not only on new technologies, but also on a knowledge and technology solutions to industry circular approach to production and consumption.15 and society. Addressing green innovation challenges Without these policies and systems, and institutional in Poland, requires new approaches: (i) the use of alignment at multiple levels of government, growth mission-driven approaches, (ii) the promotion of in- and productivity trends may not follow the path and novation partnerships in funding programs, and simulations, described in this report. (iii) the use of public procurement programs (pre- Some of the key variables triggering the EGD’s commercial procurement or PCP) are promising benefits, require intentionally setting the out‑ venues for action. But a necessary condition for it is comes. For instance, the R&D case study for Poland that the research takes further steps to improve 44 2.  Economic Dynamics and Potential Impacts Skilled worker demand will amplify the wage gap with unskilled workers governance and policy frameworks for science and thus, capital deepening and productivity gains. To research institutions, and their engagement in re- make these gains possible, the corresponding hu- search projects targeting green innovation and sus- man development policies are needed (the enabling tainability challenges. role of HD). At the same time, changes in relative Policy analysis should consider that EGD will prices, notably but not exclusively wages, can lead represent a shock to firms and workers that will lead to asymmetrical impacts across segments in the la- to capital deepening and productivity gains, but at bor market and result in exacerbated inequality. To the same time can lead to disproportionate gains address these challenges, human development poli- for skilled workers and potentially lead to an exac‑ cies can help individuals adapt to a green economy erbation of inequality through salaries. Policies to and mitigate the effects of unintended consequences curb emissions and decouple the economy from nat- stemming from a much-needed green transition. These ural resources can lead to technological change and policy roles for HD, are the subject of chapter 3. 45  3 HUMAN DEVELOPMENT POLICIES AND THE GREEN TRANSITION 3.  Human Development Policies and the Green Transition T he EGD require intentional policies to that support the green transition. The third section attain its goals, but also intentional addresses how human development policies can help adapting and mitigating actions for a hu‑ to mitigate unintended consequences of the transi- man transition. The European Green Deal tion, in particular the potential for job losses and de- (EGD) aims at addressing the challenges posed by clining relative wages for low-skilled workers (see Fig- climate change by reaching net-zero emissions by ure 3.2 for a matrix of stakeholders involved according 2050 and decoupling economic growth from natural to the identified role of each type of policy). The resource consumption, while ensuring that no per- fourth section reviews the coverage of these policies son or place is left behind (European Commission in recent strategy documents for three EU countries. 2019a). The first two goals are essential to the sus- tainability of European, and global, societies. Since the policies necessary to reach the first two goals will The Enabling Role of HD have important distributional consequences, and in Policies to Reduce GHG some cases could severely reduce the incomes of the Emissions and Support a more disadvantaged households and regions, the last goal is critical to social justice and to maintain- Circular Economy ing support for the reform program. The OECD The EGD encourages the greening of enterprises, points out that the transformation entailed by the which will require the skills to enable it and con‑ green economy transition will need to be managed sequently, the appropriate mechanisms in the edu‑ in an intentional way, including via social invest- cation sector. This may include producing environ- ments and strengthening dialogue, to avoid a disor- mental outputs or adopting environmental processes derly transition that leaves communities left behind within the enterprise. Green and decent jobs are ex- (OECD 2020a). pected to require higher skill levels, be present in This chapter considers three ways in which hu‑ large part in green industry sectors, and call for man development policies can affect the green tran‑ skills that complement environmentally sustainable sition. The first section discusses policies that can technology and innovation (Poshen 2015). Wagner play an enabling role in contributing to a reduction (2013) comments on the relevance of education to in greenhouse gas (GHG) emissions and increased drive a green energy transition by providing people efficiency in the use of materials (see policy frame- with skills to enable the use of renewable energy re- work in Figure 3.1). The second section addresses sources and implement environmentally conscious policies that can help individuals to adapt in ways practices (see below for a discussion of policies to Figure 3.1:  The Human Transitions Policy Framework: Enabling, Adapting, and Mitigating Source: Authors. 47  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE The EGD encourages the greening of enterprises, which will require the skills to enable it and consequently, the right education policies Figure 3.2:  Human Development Stakeholder Action Matrix Enable Adapt Mitigate Stakeholders Foundational skills Flexible education Supra, national, regional, and local governments Education quality Civil society Educational attainment Non-governmental organizations Education Curriculum adaptation Research, Technical and Development and Vocational Education Innovation (R&D+I) and Training (TVET) Mental and physical health support Supra, national, regional, and local governments Strategic financing & procurement Monitoring and evaluating Private sector Health Universal Health Coverage impact on health Civil society Climate-smart health education Promotion of healthy lifestyles and behaviors Reskilling Supra, national, regional, and local governments Labor code Private sector Social Public employment services orientation to new occupations Civil society Protection and Private-public cooperation Unions Jobs Non-governmental organizations Social insurance Social assistance Compensation Source: Authors. improve the skills required for the green transition). as changes in infrastructure that contribute to the The author emphasizes adult learning to assist net-zero emissions goal of the EGD. Furthermore, workers to transition jobs and the need for offered the parallel case study for the Slovak Republic finds credentials to be accessible, valuable to employers, that education will play an important role in the portable, and conducive to continued career devel- preparation of the workforce to take on green jobs, opment. For example, the Institute for Career Devel- especially through the development of foundational opment in the United States coordinated green jobs skills and attitudes. The study discusses that regard- training in their career development model, which less of changes in labor demand, core skills such as focuses on portable skills, customized training, and learning ability, effective communication, leader- schedules appropriate for adult learners. The author ship, and decision-making are expected to be key for recognizes adult learning as a key element of green occupational mobility. sector growth and local retainment of emerging jobs. The health sector can be an enabler of the green Foundational skills will be important for the transition through the integration of green prac‑ preparation of the workforce to take on emerging tices coherent with the EGD. Chakraborty et al. occupations. ILO (2018a) asserts that skill develop- (2021) explore how healthcare systems constantly ment and training are important for the ability to interact with the environment, acknowledging the appropriately implement adaptation strategies such importance of considering this relationship and the 48 3.  Human Development Policies and the Green Transition adaptations that may be prompted from changes in climate change and the contributions of including the environment. The authors echo the health indus- climate-change related health challenges in health try’s actions to incorporate environmental sustain- professions’ curricula. The authors argue that a more ability into healthcare systems which contributes to aware healthcare workforce can better prepare to ad- lower levels of pollution-generation and decreased dress changing disease profiles influenced by cli- operational costs. mate variability. Nayna Schwerdtle et al. (2020) also Involving health-sector employees in green ac‑ point to the implications of building awareness of the tivities is important to facilitating the green transi‑ contributions of the healthcare system to GHG emis- tion. Mousa and Othman (2020) report that “green sions in adopting practices that will mitigate them. hiring” and “green training and involvement” (GTI) Changes in infrastructure in the HD sector can were the most influential human resource manage- make an important contribution to the achieve‑ ment practices for environmental sustainability in ment of net-zero emissions by 2050. Key improve- the health sector. The benefits of employee involve- ments include building efficiency, transportation, ment in sustainable practices in the health sector energy sources, waste and water systems (Cort and through “green training and involvement” include Esty 2020). The authors describe the implications of contributions to the reduction of pollution and im- green infrastructure including improved health out- proved waste management and resource use. In comes, a reduction in carbon emissions by sectors their analysis of the intersection between humani- that are currently big players, and economic devel- tarian aid and the healthcare sector, Nayna Schwerd- opment. The authors also mention retrofitting of tle et al. (2020) touch on the role of a healthcare buildings as a possible area of job creation while re- workforce aware of the health risks associated with ducing emissions (Box 3.1). Paired with these plans Foundational skills will be important to prepare the workforce for emerging occupations Box 3.1:  The Compatibility of Infrastructure and Buildings with EGD goals EU countries face a variety of challenges in ensuring the efficiency and sustainability of infrastructure and buildings. Principal components analysis can provide some insight into these issues by grouping countries according to common problems (see Annex F for the data and methodology used). In some cases, this analysis reveals policy priorities that apply to the countries in each cluster. Except for two countries (Iceland and Malta) with atypical issues, the analysis defines four major clusters. The clustering displays a very strong geographical connectivity, meaning that the issues linked with infrastructure and building still have heavy links to the histor- ical development of the different geographical areas in Europe. Cluster 1, which includes Lithuania, Estonia, and Latvia, has the highest share of rail and inland waterways in total freight (63.3 percent) and is increasing its share of trains, and its recycling rates higher than the other countries. However, it is also rapidly increasing its share of air emissions and the share of the population living in deteriorated housing conditions. Moreover, this cluster’s share of EU research and development has fallen, and it has the lowest number of patent applications. Latvia’s manufacturing sector, for example, generated almost 0.84 grams of particulates (less than 2.5µm) per Euro of value added in 2019, which is the highest in the EU, while its patent applications to the European Patent Office were reported as 11.50 per million inhabitants in the same year, which is among the lowest. (Continued next page) 49  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Box 3.1 (continued) Figure B3.1.1:  Building and Renovation in an Energy and Resource Efficient Way Wards clustering Source: Author’s calculations. Note: Iceland, Norway and the United Kingdom, which are non-EU members, were included for benchmarking purposes only. In cluster 2, which includes Bulgaria, Romania, Croatia, Poland, the Slovak Republic, Slovenia, Hungary, the Czech Republic, and Italy, overcrowding rates and the exposure of people to air pollution are increasing more rapidly than in any other cluster. In contrast, settlement area per capita is declining, indicating that there aren’t large urbanization processes taking place, and air emissions from the industry are falling. But the gross domestic expenditure on R&D is also decreasing at the highest rate of the region. In general, this is the cluster confronting the greatest challenges on the quality of living in the cities and the decline in research. More work is needed in these countries to improve the livelihood conditions of the urban areas, and how to do it via the strengthening of their local research and academic environments. Cluster 3, which includes Norway, Finland, Sweden, Luxembourg, Denmark, Netherlands, Belgium, Austria, and Germany, has the highest level of patents, although the share of individuals with tertiary education is declining. Levels of noise reported by the population are increasing and the share of trains and buses is declin- ing at the fastest rate among all the clusters. Cluster 4, which includes Cyprus, Ireland, United Kingdom, Spain, France, Greece, and Portugal, has been increasing its recycling at a rate only second to cluster 1. Moreover, this group shows the highest decline in the share of people living under deteriorated conditions, presence of crime and noise, and other problems. This cluster seems to have the highest improvements in these indicators, and it is worth analyzing them in detail to draw lessons that can help the other clusters. for infrastructure adaptation comes an expected in- development. In addition, the parallel case study on crease in demand for the human capital to execute it. Croatia discusses the need for “green buildings” The Slovak Republic parallel study offers insights training of high-skilled and low-skilled construction into the significance of social partner involvement in sector professionals to enable a transition to more the assessment for green skills demand via employer environmentally friendly infrastructure. surveys and other monitoring activities, as well as The buildings and operational processes in HD the stable funding to maintain such initiatives. Fur- sectors can contribute to the goals of the EGD. The thermore, the Pact for Skills launched by the Euro- use of new technologies in the design of health facil- pean Commission represents an opportunity for this ities can minimize resource use in their operation kind of shared stakeholder engagement in skill (see Box 3.2 on China’s project, and 3.3 on the 50 3.  Human Development Policies and the Green Transition Box 3.2:  China’s Guizhou Aged Care System Develop Program Project This project is constructing energy efficient Aged Care Facilities (ACFs) with energy saving measures exceed- ing the regular standard requirements of the Government. The building and operation of the ACFs include climate-smart considerations such as energy-saving architecture, energy-saving materials and equipment introduced to reduce heat transmission and infiltration, installation of energy saving lighting equipment and intelligent light control systems, utilization of renewable energy such as solar energy and biogas, and energy efficiency IT infrastructure. Box 3.3:  HD Infrastructure and the Green Transition in Croatia Croatia provides a useful example of the issues surrounding the greening of HD infrastructure. There is a need to renovate or replace aging schools and hospitals, some of which do not meet the minimum requirements in terms of mechanical stability, fire safety, and health protection, and are poorly adapted to deal with extreme weather events or disasters. The hospitals are the worst performing public buildings, and the ongoing national reforms are not adequately addressing this issue. There is a significant financial gap among infrastructure investment needs, available funding, and absorption capacity, which was exacerbated by destruction from the recent devastating earthquakes and disruptions during the COVID-19 pandemic. The vast majority of recently built schools in Croatia exceed the spatial standards by 20-100 percent, which increases the investment required, operational costs and carbon footprint. On the other hand, there is no evidence on schools that go beyond minimal requirements in terms of energy efficiency or indoor environmental quality. Addressing all of the HD infrastructure issues in Croatia will require concerted efforts. While the Croatian regulatory framework is aligned with key EU requirements for buildings to a certain extent, further harmoniza- tion is needed. A more robust information exchange and greater policy coordination is necessary across the several Croatian institutions that play a role in setting the requirements for, or constructing, schools and med- ical facilities. Regulatory measures should introduce a formal obligation for building renovation and regular maintenance practices. Greater emphasis on education and training is required to impart the skills required for green construction. More broadly, the transition to a more ‘green’ and environmentally sustainable economy will require skills development for both high-skilled and low-skilled professionals, especially in building design, construction and maintenance sectors. Croatia could also benefit from learning the best international practice in construction of ‘green’ buildings in both health and education sectors. challenges facing Croatia in reducing GHG emis- such as registration, payments (through e-wallets, sions tied to HD infrastructure), while optimizing not just e-payments),16 and service delivery can help staff and patients’ experience. This includes cli- reduce the overall carbon footprint of programs mate-smart health facilities that (i) are resilient and through reducing travel to carry out each of these adapted to anticipated climate risks to health infra- steps.17 One-stop-shop and social service center con- structure, and (ii) play their part in mitigating their struction, when replacing older energy inefficient own net GHG emissions. Indeed, construction could infrastructure, can reduce GHG emissions. help to reduce emissions by sequestering carbon if The participation of citizens through the acqui‑ the more ambitious and innovative ideas are taken sition of knowledge and active involvement in the on board, such as using health sector land to reforest green transition strategy is key to its success. Lupi areas or by using large health care facilities (HCFs) et al. (2021) explore Collective Action Initiatives to generate renewable energy through solarization/ (CAIs) and their use in environmentally friendly ef- urban wind. Adopting green medical waste man- forts, particularly in the energy sector. Interestingly, agement (MWM) also could contribute to an effi- the most popular activities of Civil Society Mobiliza- cient use of materials. Digitizing delivery systems, tion involved in CAIs were lobbying, participation 51  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE in campaigns, and making political recommendations. Finally, public research actors—both universi‑ In addition, the authors’ research shed light on CAIs ties and public research organizations—have a ma‑ as an instrument of civil society participation via so- jor role in facilitating the adoption of new green cial innovation. Citizen participation occurs from and sustainable technologies through social inno‑ the development of CAIs to a key role in the financ- vation projects. This means supporting people and ing of such initiatives. organizations to co-create, learn, adapt, and scale Universities are a unique place for experimenta‑ green solutions to social problems, such as working tion and learning and generating new knowledge conditions, health, transport, and heating. and technological solutions for the green transi‑ Monitoring and analysis of labor market dy‑ tion. Universities can support green innovation and namics are highly linked with skilling programs technology development in different ways: through and represent an important factor in enabling the knowledge (from research) and new skills; by en- green transition. Camaren (2019) highlights the role gaging in R&D and innovation partnerships with of the fourth industrial revolution and green tech- industry or public actors; and by supporting the trans- nology in job creation and economic development ferring of new knowledge and technologies to indus- dynamics. He explores the idea that the introduction try and society (McCowan et al. 2021; Radinger-Peer of new technologies in the context of the green tran- and Pflitsch 2017). sition will necessitate a workforce to manage the de- Fostering academic entrepreneurship and the ployment, installation, operation, and maintenance acceleration of spinoffs (from science and research of these (Camaren, 2019). The increase in demand institutions) is also an important channel through for these activities will require a job market prepared which universities can support green technology to adopt them. Furthermore, a workforce prepared development and diffusion. Improving funding to take on green jobs has the potential to contribute opportunities for technology development and ear- to the EGD goals from the workplace. Luca et al. ly-stage funding for clean tech startups as well as (2019) find a positive and statistically significant cor- incentives for academics to participate in such activ- relation between resource-efficiency actions, as de- ities are key to this development. fined by their resource-efficiency index which in- In deploying R&D partnerships, new ap‑ cludes actions companies are taking to be more proaches and new mindset are required, notably resource efficient, and green employment. regarding inter-disciplinarity in research and In light of the expected increase in demand for strengthened collaboration with non-academic ac‑ higher skills to fulfill jobs that will make the tran‑ tors (Trencher et al. 2014) and foreign organizations sition attainable, it is valuable to consider the po‑ (Kwieck 2021). Delivering green innovation solu- sition of low-skilled workers that would face these tions often requires mobilizing a large range of com- dynamics. Peters (2014) highlights the need to pay petences and disciplines. attention to elements of emerging jobs such as Another way through which universities can whether these come with decent wages, good pros- support green technology development is through pects, and accessibility to low-skilled workers. testing and demonstration of new solutions. By Moreover, Sofroniou & Anderson (2021) discuss how serving as “living laboratories” or test beds for new existing occupations that are expected to increase in green technologies (for example, in renewable en- demand without requiring changes in the job itself or ergy, sustainable construction, electric mobility, and the skills necessary to perform it might represent an urban smart grids, among others), universities can opportunity to absorb low-skilled workers. How- help assess the feasibility of innovations and their ever, it is important to candidly assess the remuner- potential scalability to cities or industries. ation level and quality of these jobs in line with the The green transition requires improvements in principle of a just transition outlined in the EGD. skills training for technology adoption and ensur‑ ing advanced human capital in future R&D projects and demands. In addressing these challenges, deliv- Adapting to the Green Transition ering the pool of STEM graduates is central. Likewise, Education can play an important role in shifting a strategy for advanced human capital (MSc and PhDs) consumer demand to green products. Cultural bar- is critical in deploying and implementing large new riers, particularly a lack of consumer interest and research and development projects. Finally, enhanc- awareness as well as a hesitant company culture are ing international cooperation in education and re- viewed as the key barriers to advancing the circular search will be central for EU countries to fulfill new economy in Europe (Eckert 2020). A high percentage national and European policy commitments. 52 3.  Human Development Policies and the Green Transition of the population with only primary or lower sec- understanding complex global challenges. For a ondary education is associated with a lower waste number of EU students, the understanding of cli- recycling rate, while tertiary education has a posi- mate change, can be hampered by their understand- tive influence on the recycling rate (Pelau and ing of science. While many EU students report that Chinie, 2019). Improved quality of education can the environment is very important to them, they also facilitate adoption of ‘green’ technologies through feel they cannot do much about it. For example, in multiple ways (see Box 3.4). In Poland, broad consen- PISA 2018 nearly 70 percent of 15-year-olds in Ger- sus of the need to reduce GHG emissions has been many said that looking after the global environment supported by teaching in schools (Box 3.5). is important for them, but only around 40 percent Incorporating issues related to climate change said they can do something about the problems of and green behavior into school curricula is a neces‑ the world. In Hungary, more than 80 percent of sity for all EU countries. While some related topics 15-year-olds worry about the global environment are already included in most countries’ learning pro- but less than half feel they can something about it. grams, they do not provide a sufficient basis for Thus, students will greatly benefit from learning Box 3.4:  Investments in Quality Education Can Enable Green Technological Innovation and Adaptation The importance of skills and, subsequently, the role of education in research and development is well estab- lished, and a number of studies have linked skills and human capital to the ability of firms to comply with envi- ronmental regulations and reduce pollution. Besides these, recent research shows that such investments can also have long lasting benefits in mitigating inequalities arising out of environmental policies such as carbon pricing. Macdonald and Patrinos (2021) analyze how education quality interacts with carbon pricing’s effect on car- bon emissions, output, and wage inequality, by estimating a general equilibrium, overlapping-generations model. They find that if education quality increased, a carbon tax would have a stronger impact on reducing carbon emissions and a less detrimental effect on output because a higher quality education system is better able to respond to the demand for higher skilled workers. Having higher quality education increases the elas- ticity of skill supply and, as a result, mitigates a carbon tax’s economic costs including output loss and wage inequity between the wealthy and poor, and enhances its effect on emissions reduction. The research thus shows that carbon pricing that is accompanied by improvements in education quality will result in better environmental and economic outcomes when carbon pricing is used to reduce emissions. Source: Macdonald and Patrinos 2021. Box 3.5:  Educational Policy and Climate Change Opinions in Poland There is broad acceptance in Poland of the need to reduce reliance on coal. A 2021 opinion poll conducted by CBOS, a national Center for Public Opinion Polls, found that 74 percent of the population supported the goal of gradually leaving the coal-based energy sector, while only 19 percent felt that energy production should be based mostly on coal. Climate change issues have been integrated into school curricula in preprimary, primary and secondary schools, and in higher education. The national report “Climate Education in Poland” (Education 2021) dis- cusses tools used to present climate change issues in school and analyzes basic requirements in education related to climate change. At the university level, the Warsaw-based Collegium Civitas offers an MBA course in management of climate and energy policy, which presents the EGD as a long-term EU project. Climate educa- tion is provided in modern science centers, such as the Copernicus Science Center in Warsaw. And the national environmental strategy provides for a comprehensive environmental education from the earliest years. 53  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Education can play an important role in shaping behaviors and shifting consumer demand to green products about the green transition and global environmental can influence green behavior, the latter positively challenges, as well as being provided with tools to and the former negatively. Environmental concerns affect issues at the local, national, and global level. have a positive and significant relationship with All of this underlines the importance of ensuring pro-environmental behavior (Mayekar and Sankara- that students have a basic understanding of the sci- narayanan 2019). Minelgaité and Liobikienė (2021) ence of climate change, of steps to encourage discus- find for Lithuania that in 2011, concern over others’ sions and exchanges of opinions (together with fact welfare and perception of environmental problems checking), and of facilitating students taking local were the most positively influential on pro-environ- actions related to the environment. Education mental behavior. In 2020, self-interest and awareness should be used to build ecology awareness in new of behavioral consequences showed a negative and generations. Learning about sustainable behavior significant impact. Similarly, Al Mamun et al. (2018) should be incorporated across subjects and grades of find that in low-income households, eco-literacy and study. After regular classes, the school infrastructure self-efficacy influence attitudes toward green prod- can serve as the cultural center for the promotion of uct consumption, and attitude and perceived behav- a sustainable lifestyle and green transition for the ior control influence intention towards green prod- broader society. This effective usage of assets demon- ucts. Tanner and Wölfing Kast (2003) find that strates a sustainable way of thinking. proper knowledge to identify pro-environmental vs. Efforts by educational programs to increase harmful products influences green consumerism. awareness of behavioral consequences, perception Furthermore, evidence shows that education related of environmental issues and collective interest for to environmental sustainability is related to substan- common well-being can encourage behaviors that tial reductions in carbon emissions. If education that contribute to reducing GHG emissions and the use empowers students with knowledge and agency is of materials. Incorporating an increase of awareness not expanded to the millions of girls out of school in of behavioral consequences in education programs developing countries, society loses out on their valu- can influence adoption of green behavior (Minel- able contributions (Kwauk & Winthrop 2021). Infor- gaitė and Liobikienė 2021). The value-belief-norm mation dissemination and citizen involvement in theory holds that values influence attitudes and re- GE transition policy design are necessary to achieve sponsibility towards environmental issues as well as long-term success and contribute to the fulfillment pro-environmental behavior (Minelgaitė and Lio- of EGD policies. bikienė, 2021). In addition, the literature shows that Adults also need encouragement to undertake self-interest and interest in the well-being of others actions to support the green transition. Györi, Education can play an important role in shaping behaviors and shifting consumer demand to green products 54 3.  Human Development Policies and the Green Transition Adjusting the education sector to meet the emerging needs of the labor market will be key to adapting to a more environmentally conscious economy Diekmann and Kühne (2021) suggest cash combined promote and support the accreditation of other pro- with behavioral inspired nudges and communica- viders—which would align those with EGD as well. tion campaigns to promote climate friendly behav- Procurement policies in HD sectors can assist in ioral change. The authors point out that social and the green transition. Procurement should prioritize behavioral change communication (SBCC) have had suppliers that are compliant with EGD policies. a large impact on improving key health behaviors New skills will be required to apply green technolo- and outcomes in developing countries. 18 But to gies (EGD aligned) to the design and production of achieve persistent behavioral changes so that the de- pharmaceuticals, equipment and devices. Financial cline of emissions becomes permanent, targeted in- protection schemes are able to develop strategic pur- vestments in communication networks can be part chasing arrangements where the third-party payer of a green recovery package, provided measures are could, for example, favor health providers that are taken also to reduce the environmental footprint of aligned with the EGD through lower co-payments if digital technologies. Such measures may also need beneficiaries use their medical services instead of to be accompanied by new regulation that facilitates health care provided by other non-aligned facilities. and encourages behavioral changes over the longer Furthermore, payers could stimulate EGD policies term, which may include flexible working arrange- through different provider payments schemes, (e.g., ments or a right to work from home when feasible, use innovative approaches like Results Based Fi- as debated in Germany19 (Reuters 2020, 54). nancing or other options for contract management Adjusting the education sector to meet the with healthcare providers that ensure they either al- emerging needs of the labor market will be key to leviate negative aspects of EGD policies or facilitate adapting to a more environmentally conscious the implementation of the EGD itself). economy. Government support for research in cli- The health sector can play an important role in mate-related issues across formal education contexts monitoring, research and policies in areas import‑ in private and public institutions can contribute to ant to the green transition. Strengthened epidemio- skills adaptation (ILO 2018b). Specifically, engineer- logical and population health status surveillance ing and architecture are two education sectors that would help to direct health sector resources. Re- have implemented climate-related adaptation training search into the health impacts of EGD policies could into their programs, such as in postgraduate courses. identify likely trends in health issues as the green The training of HD personnel should reflect transition progresses. Health experts should contrib- EGD goals. EGD relevant topics (climate change, ute to decisions on urbanization and urban renova- pollution management, circular economy, etc.) tion efforts (e.g., positioning and orientation of the should be incorporated into curricula for training of buildings, distance between buildings, content of new health workers (medical, nursing schools, etc.), areas between buildings, etc.) and mass transport and EGD topics should be incorporated into con- planning (e.g., prioritizing mass and low carbon/ tinuing professional development and professional carbon neutral means of transport) (Box 3.6 dis- accreditation structures. Accreditation requirements cusses the challenges facing EU countries in the can be defined in ways that promote health provid- transport sector). Novel technologies aligned with ers that are aligned with the EGD. Purchasers could the EGD should be assessed for the potential of un- favor those providers, while authorities could intended health consequences. 55  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE demand for skills, resulting in further increases in Mitigating the Impact of the the earnings of high-skilled relative to low-skilled Green Transition workers (see chapter 2). The risk of unemployment Transition to a carbon-neutral economy (CNE) will is high during the transition to a low-carbon econ- have a host of consequences for growth and wel‑ omy, especially for vulnerable people with lower fare in the EU. Some of these effects will reduce wel- education (World Bank 2021b).24 Although the ILO fare and affect the distribution of income between estimates a net increase in direct and indirect jobs groups—for example when carbon taxes result in from the green economy transition, employment in higher prices or when clean energy regulations re- natural resource intensive and fossil-fuel related sec- sult in job losses in a polluting sector. Carbon taxes tors is expected to decrease (ILO 2018c). In addition, and regulations designed to spur shifts to (more ex- employees with sector-specific skill sets in the fossil pensive) low-carbon technologies can increase the fuel industry may experience some of the stranded price of basic goods and services like food, heating, assets’ effect expected from the green transition (van and transportation and so aggravate poverty (World der Ploeg and Rezai 2020, 288). While some job dis- Bank 2021c).20 The poor and middle class spend a placement will be compensated by employment larger share of their consumption basket on food, growth in low-carbon and other industries, it will housing and transport services, and are thus more not necessarily be employment of the same skill vulnerable to uncompensated increases in energy level, which could negatively affect low-skilled dis- and food prices that could be caused by the transi- placed workers (Saget et al. 2020).25 Providing the tion to a CNE. education and training necessary for workers to Policies to transition to a CNE can result in sig‑ move to higher-skilled jobs in the green sector will nificant shifts in the demand for workers and the play an essential role in mitigating the impact on ability to sustain livelihoods. Efforts to transition workers adversely affected by the green transition away from fossil fuel extraction can lead to job losses and in reducing the overall cost to the society, in terms in energy-intensive industries, and efforts to prevent of unemployment and social tensions. The parallel land clearance for agriculture or incentivize the pro- case study on the Slovak Republic emphasizes that duction of biofuels can disrupt agriculture-based labor market monitoring and skilling programs that livelihoods (Costella et al. 2021).21 Policies that make cover the economy as a whole, rather than limiting it livelihoods unsustainable could also prompt dis- to specific green jobs, will be most effective in unfold- placement (World Bank 2022).22 Experience with ing the potential of skill-matching. This highlights the deindustrialization, transitions away from coal, and importance of transversal green skills that can be ap- trade liberalization show that regions experiencing plied to occupations in traditional sectors that might significant job displacement can be affected in the increase their green activity, in addition to the devel- long term (Cunningham 2021).23 In order to direct opment of new green occupations. Vocational training human capital in a strategic and intentional manner hints at being a key channel to train workers with the to assist the adaptation of carbon-intensive indus- skills identified via monitoring of the labor market. tries and other sectors where job opportunities are anticipated to decrease, stakeholders must place ef- Skills and training fort in monitoring changes in the labor market and appropriately direct skilling of workers. Improving individual consumption and produc‑ Low-skilled workers may experience significant tion behaviors is an important cornerstone in the job losses and a decline in their relative earnings. EGD. Individual choices such as purchasing more The growth of the green economy will raise the energy efficient appliances, choosing public Low-skilled workers may experience significant job losses and a decline in their relative earnings 56 3.  Human Development Policies and the Green Transition Box 3.6:  Common Challenges in Improving the Efficiency of Transportation Transportation is highly linked with GHG emissions and with energy demand. The form and magnitude of prob- lems confronting efforts to reduce GHG emissions from the transport sector differ across EU countries. Prin- cipal components analysis can provide a snapshot of these issues by defining groups, or clusters, of countries according to common challenges (see Annex for data and methodology used). This can be helpful in present- ing a summary indicator of problems that takes into account country differences, and can reveal commonalities that could be addressed by similar policy approaches. Except for two countries with atypical conditions (Ice- land and Germany), the analysis generates four clusters of EU countries according to the challenges involved in reducing emissions in the transport sector (see figure B3.6.1). Figure B3.6.1:  Accelerating the Shift to Sustainable and Smart Mobility Wards clustering Source: Author’s calculations. Note: Iceland, Norway and the United Kingdom, which are non-EU members, were included for benchmarking purposes only. Cluster 1, which includes Italy, Spain, France, Netherlands and United Kingdom, has the highest values in number of passengers using air transport (with the exception of Germany) as well as highest percentage of population using cars for transportation (ranging from 82 percent for Italy to 87 percent for United Kingdom). Moreover, it also has the largest increases in most of the transport variables, showing that transport infrastruc- ture is large and has been growing. Therefore, the focus of these countries should be on increasing the sustain- ability of the current transport system. Cluster 2, which includes Romania, Estonia, Latvia, Bulgaria, Lithuania, Croatia and Slovenia, is the opposite to cluster 1. It has the lowest values of transport of passengers and goods, although the rate of increase is high. On the one hand, there is a strong need for the infrastructure to catch up with the changes in volume of trade and transport, but on the other hand there is a need, and an opportunity, to do it in a sustainable way. Cluster 3, which includes Poland, Hungary, the Czech Republic, Austria, and the Slovak Republic, contrasts with the previous clusters as its transport indicators are declining, but it has the highest increase in motorway infra- structure and the smallest percentage of population using cars for transportation (74.8 percent). This would imply that the transport infrastructure is designed for increased trade, but the volume of goods is insufficient to use the system efficiently. Therefore, these countries need to consider whether slowing the growth of transport infrastructure would be desirable, given the environmental consequences of growth and the limited demand. Cluster 4, which includes Portugal, Cyprus, Greece, Ireland, Malta, Lithuania, Finland, Sweden, Norway, Belgium and Denmark, has similar conditions to cluster 3, yet road infrastructure is decreasing, and the volume of goods and passengers is lower, but is declining at a lower rate than in cluster 3. Thus, this cluster should con- sider the same issues as for cluster 3, but as this group of countries is not so focused on increasing their road infrastructure, there is perhaps a greater opportunity to focus on the sustainability of transport infrastructure. 57  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE transport over private cars, as well as individual pol- standards and provision of skills. Similarly, in Esto- icy preferences such as favoring taxes on fossil fuels nia, after the implementation of education reforms can contribute significantly to reducing carbon that support foundational skills development such emissions. While changing individual beliefs and as improved teacher education, adaptation of curric- behaviors is difficult for a number of reasons, one ula to match a changing economy, and guaranteed promising approach is through education. access to early childhood education, national learn- Education before the individuals become adults ing outcomes in math, reading and science have is crucial to shape behaviors towards sustainable risen to the top among EU countries. Furthermore, consumer preferences. Angrist et al. (2023) estimate Estonia has the highest proportion of students in the the causal effect of education on a series of pro-cli- lowest socioeconomic quartile who performed at the mate beliefs and behaviors by exploiting compul- highest PISA quartile at the national level (see the sory schooling laws across multiple European coun- parallel case study for the Slovak Republic). Attract- tries. They combine a new harmonized dataset on ing high-quality teachers to the educational system compulsory schooling law changes in Europe intro- can make a critical contribution to strengthening duced by the World Bank with the European Social foundational skills, an area where improvements are Survey (ESS) data on pro-climate beliefs and behav- required in some EU countries. For example, salaries iors as well as voting behavior. While existing litera- for teachers in the Slovak Republic are only around 70 ture on the causal relationship between education percent of the average salary for those with tertiary and environmental outcomes is mixed, the analysis education, and only about 4 percent of teachers be- suggests that there is substantial heterogeneity by lieve that the profession is valued by society.26 country, making it possible to estimate some strong Providing training of foundational skills for and precise effects at the reform level. The strong adults is a major challenge. Very few adults can go correlation between education and climate beliefs is back to formal schooling, even if it is adapted to their in part causal. daily schedules. According to Eurostat data, less than 2 percent of low-educated adults in the EU par- Workers will need strong foundational skills ticipated in any type of formal learning in 2016 (Eu- to seize the opportunities afforded by the EGD rostat TRNG_AES_102).27 Courses for adults need to be highly flexible and focus on skill gaps rather than Foundational skills play a key role in the transition providing full courses similar to those offered for to green jobs. People with strong foundational skills children and youths. It is necessary to develop tools will be more capable of learning new skills and thus that can quickly assess levels of foundational skills obtaining green jobs. Workers in green jobs tend to in adults and develop training schemes that fill the have higher levels of foundational skills than work- most important skill gaps for groups of adults with ers in brown jobs do, and the return to skills tends to similar challenges. Several European countries have be higher in green than in brown jobs (see chapter 5). established centers that recognize prior learning of Thus, education systems should strengthen empha- adults to support them in further skills upgrading sis on equipping students with foundational skills, and formal recognition of their qualifications, but which would improve their preparation for green these are still relatively small-scale efforts (see OECD jobs and help to limit rising inequality caused by 2021).28 As reflected in the Slovak Republic parallel higher returns to skills from the green transition. case study, VET is expected to be a major avenue for This is indeed the experience shown in the Slovak Re- green occupation training for existing and new occu- public’s case study. However, as in the Slovak Repub- pations using an approach of analysis of market de- lic, foundational skills development needs to be ac- mand. Targeted training of foundational skills fol- companied by a strong greening of occupational lowed by specific training for tasks required in green Foundational skills play a key role in the transition to green jobs 58 3.  Human Development Policies and the Green Transition Higher returns to skills in green jobs are observed also among workers with lower formal education levels, so equipping students in vocational education with foundational skills is increasingly important jobs will be essential for a large number of workers of considerable additional resources might be re- who currently have little chance of landing green quired (EU 2021).32 Low-skilled workers find it par- jobs that could guarantee similar wages as in their ticularly difficult, or unproductive, to take up train- now-disappearing brown jobs. ing courses. For example, in the Slovak Republic, Higher returns to skills in green jobs are ob‑ participation by low-skilled adults in lifelong learn- served also among workers with lower formal ed‑ ing is about a fourth of participation levels among ucation levels, so equipping students in vocational those with tertiary qualifications.33 Moreover, in education with foundational skills is increasingly many cases training, and in particular on-the-job important. Students in vocational education tend to training, focuses on skills directly related to current have much lower performance in foundational skills job-related tasks. Since green jobs often require dif- than students in general education do (European ferent kinds of tasks than brown jobs do (see chap- Commission 2019b).29 In the Slovak Republic, for ex- ter  5), workers may have difficulty in obtaining ample, VET students achieve lower results on stan- training that assists in job transitions required for the dardized tests of foundational skills than general European Green Deal. Thus, the government’s role education students with similar socioeconomic in providing or funding job-specific training may backgrounds do (the difference is attributable to the have to rise. For well-educated individuals, training relatively poor performance of VET students from should be offered depending on their specific skills higher-than-average socioeconomic backgrounds).30 set towards mastering additional tasks required in Underachieving students have limited options for green professions that could accommodate their cur- further education, and PIAAC data show that adults rent skill set. In this regard, possible transition pat- with limited skills have higher probability of unem- terns for different professions should be well-under- ployment, lower wages, and a greater deterioration stood before offering training (see chapter 5). The challenges countries face in improving their training of skills with age than workers in skills-intensive systems differ significantly across the EU, calling for professions do (OECD 2021a). Successful education differences in policy emphasis (Box 3.7 illustrates this reforms in countries like Estonia and Poland demon- for the case of Poland and the Slovak Republic). strate that improving teaching of foundational skills Obtaining a green job will be particularly diffi‑ in vocational education is possible (Crato 2021).31 cult for young people who are neither working nor These countries share similar features, with the key in education or training. Individuals whose skills characteristics being a relatively long period of gen- and work experience are limited are likely to be dis- eral curricula teaching, late selection to vocational couraged at the growing earning gaps between low- schooling, and national examinations to ensure stu- and high-skilled workers due to the green transition. dents reach certain learning outcomes. Providing flexible education and training for these groups that will recognize gaps in foundational Training is key to the success of the EGD skills is crucial. Young adults who left education are Adequate training will be critical to workers taking rarely interested in repeating traditional school advantage of the opportunities offered by the green courses, but combining apprenticeships with some transition. In a number of European countries, the traditional courses to upgrade foundational skills provision of adult training is limited, so the devotion could encourage participation. Examples of such 59  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Box 3.7:  Education and Training in Poland and the Slovak Republic The Slovak and Polish economies both rely on manufacturing as the main provider of jobs for low-skilled work- ers. While in Poland the skills of adults are lower than in the Slovak Republic and participation in adult training is one of the lowest in the EU, Polish reforms of the school system increased student foundational skills to levels found in just a few EU countries. In the Slovak Republic, current student performance in math, science and reading is far below expectations, while adult numeracy skills are above averages for the OECD and EU. The two countries need to solve different issues in their education and training system, while they could learn from each other. The Slovak Republic has much to learn from the reforms of school structure, curricula, examina- tions, and other components of the well-functioning Polish education system. Poland can learn from the Slovak Republic on how to provide adult training more effectively to increase participation and provide more effective upskilling of workers. institutions can be found in the Netherlands and including structural transformation, privatization, other European countries. They require investments and energy transitions. These include programs in and proper incentives for employers to provide di- Poland (Mining Social Package) to assist with a tran- rect job experience for trainees. Adult education cen- sition from coal, in the EU (European Globalization ters should also provide up-to-date career guidance Adjustment Fund) to assist with economic restruc- and counselling services to help address other than turing, in Canada (Industrial Adjustment Services) skills-related barriers for employment. To prevent to assist during economic transitions likely to lead to discouragement and wrong career choices, students large-scale job displacements, and in the United in secondary schools also should be offered oppor- States (Trade Adjustment Assistance) to assist with tunities to experience different jobs and explore pos- openness to trade (Cunningham and Schmillen 2021). sible educational and professional options. PISA Programs in some countries focus on training in data show that with the exception of Germany, most the skills required for green jobs. The USA’s Civil- 15-year-olds in European countries did not have ian Climate Corps initiative aims to create ‘good such opportunities (OECD 2021a).34 jobs’ for young people and train them for environ- Active labor market programs (ALMPs) can play mentally friendly careers. It plans to put 1.5 million an important role in making workers who are unem‑ Americans through federally funded projects that ployed or inactive as a result of the green transition help transition to a clean economy over a five-year more employable by adapting their skill set to green period (Ed Markey Press Release 2021). 36 jobs. According to Card et al. (2017), ALMPs have neg- Companies should be provided with informa‑ ligible effects in the short run, but turn positive a few tion and financial support to make deeper invest‑ years after completion of the program, particularly ment in foundational and task-specific skills of for those that emphasize human capital accumula- workers. Firms are unlikely to provide the more de- tion. They can also support new workers in gaining manding and long-term training that focuses on the appropriate skills for the new labor market (ILO foundational skills without subsidies or vouchers to 2017).35 Many countries have developed retraining cover the financial costs of additional training. Gov- strategies, at times linked to income support, targeted ernments can also encourage companies and public to workers displaced by economic transitions, institutions to recognize such learning, even if it Obtaining a green job will be particularly difficult for young people who are neither working nor in education or training 60 3.  Human Development Policies and the Green Transition Active labor market policies can play an important role in making workers who are unemployed or inactive as a result of the green transition more employable by adapting their skill set to green jobs does not lead to a formal degree. Several countries five 15-year-olds in the EU are low achievers (21.7 have established competence centers to encourage percent in reading, 22.4 percent in mathematics, and companies and individuals to participate in adult 21.6 percent in science) even though there are con- education and training, but also to provide tools for siderable differences among EU member states. In more formal recognition of achieved qualifications this context, the demand for foundational skills is set (OECD 2021b). to increase with the greening of the economy, tech- nological progress, and further integration of inter- Education needs to provide students with national markets (World Bank 2018). foundational, modern, and fungible skills A growing literature shows that there are cost-effective interventions to improve foundation In the medium term, education systems should skills. Early childhood education interventions tar- provide all students with fungible skills to enable geting children ages 0–3 and providing them with life-long learning to perform different tasks in an the necessary nutrition, early stimulation, and increasingly dynamic labor market. Foundational meaningful interaction are highly effective, espe- skills will prepare the workforce to take on emerging cially among disadvantaged children. Providing in- occupations. ILO (2018a) asserts that skill develop- formation about the benefits associated with years ment and training are essential for appropriately of schooling and learning has proven to change be- implementing adaptation strategies, such as changes haviors and improve students’ efforts and learning in infrastructure that contribute to the net-zero emis- outcomes. Selecting, training, and incentivizing sions goal of the EGD. Furthermore, the case study teachers and school directors within a coherent and for the Slovak Republic, which accompanies this re- transparent teacher career path improves student port, finds that education will play an essential role learning. Finally, using technology to personalize in preparing the workforce to take on green jobs, the learning experience can also be a highly cost-ef- primarily through the development of foundational fective intervention (World Bank 2018, 2020). skills and attitudes. The study discusses that regard- To ensure foundational skills for all students, less of changes in labor demand, core skills such as EU MS must modernize their technical, vocational learning ability, effective communication, leader- education, and training (TVET) systems. Of the ship, and decision-making are soon expected to be 17.5 million students enrolled in upper secondary critical for occupational mobility. education in the EU in 2019, about 8.5 million of People with strong foundational skills will be them—almost half of the total—were enrolled in a more capable of learning new skills and thus ob‑ vocational track, of which at least 2 million were en- taining green jobs. Recent evidence shows the im- rolled in work-based programs. Therefore, TVET portance of foundational skills—numeracy, literacy, institutions are central in the skill formation process and socio-emotional skills—as the basic pillars en- in EU countries. Identifying the professional compe- abling life-long learning. Lack of foundational skills tencies that will be demanded in the future and ad- dampens individuals’ capacity to acquire or up- justing the provision of TVET services accordingly is grade their professional competencies, preventing poised to become more challenging, making many them from adapting to changing labor market condi- training programs ineffective (Kluve et al. 2019; tions. PISA 2018 results indicate that around one in McKenzie 2017). 61  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Table 3.1:  Role of TVET in Green Transition Domain Role of TVET Policy measures Examples/ Best Practices from Countries Demand Side Assessing the change in Regular Industry wide The European Union initiated the DRIVES Skills Needs demand for skills due to the assessments to identify (Development and Research on Innovative Vocational Assessment green transition through growing sectors Skills) project with an aim to analyze the demand for employer surveys and track change in and offer of skills in the automotive industry in order demand for skills to map out a dedicated skills agenda. The project involved 24 partners in the automotive sector from 11 EU Countries. Supply Side Individual skills assessment Structured skills In Greece, a pilot program was done to profile needs of Skills Gap through training providers assessment surveys for individuals and provide in-depth counselling sessions Assessment and employees profiling the workforce and differentiation of recommendations. In addition, and identifying their a demand-responsive training (DRT) component was needs introduced to make regionally relevant professional skills development training available on a continuous basis to registered unemployed participants. Profiling helped differentiate workers into appropriate channels of support (directed to training, public works, or online services, for example). Monitoring activities to Job matching In response to a mismatch between VET school’s results identify skill gaps, develop programs by and labor market demand in the Slovak Republic, a congruent training programs government and labor project was implemented to explore regional employer and inform the population of market agencies to needs and VET school offerings in a collaborative workers on expectations for support workers in effort with regional Education Departments in order to emerging jobs. finding jobs during the develop a strategic plan for adjustment of VET schools green transition. to harmonize with labor market dynamics Upskilling and Green occupation training for Targeted supply side The Republic of Korea reorganized some VET schools Reskilling new skills as well as improving measures for providing into green skills development schools with specialized traditional skills workers in brown jobs courses in areas such as renewable energy, carbon with the necessary reduction energy, LED applications, and the green skills required to transportation sector transition to green jobs Industry tie-ups to introduce Enabling tie-ups To help students be better prepared to successfully new skills in existing between vocational enter a rapidly evolving workforce, Clumio (India) is workforce training providers and actively offering tie-ups and programs with colleges industry for continuous to offer internship opportunities for computer science skilling programs students Designing and standardizing Revamping curricula The Philippines Technical Education and Skills curricula for vocational of traditional skill Development Authority (TESDA) has identified specific training in new skills in development courses courses with green competency component and works coordination with training to include new skills with the private sector to standardize trainings and partners and industry establish training regulations Improving Students in vocational Introducing lifelong Estonia and Poland have revamped their education Foundational education generally found learning programs with system with increased focus on foundational skills in Skills to have lower foundational emphasis on improving vocational schools skills than students in foundational skills in general education which vocational education makes obtaining green jobs more difficult, especially for Creating incentives While examples of government incentivizing trainings graduates whose specific for industries to cover in private sector are rare, Germany has seen a strong skill sets don’t match future the costs of long-term private sector involvement in skilling. Private sector demand in the green economy. training that focuses on companies such as Acciona (Spain) have also tied up foundational skills with universities to provide employees with short and TVETs can broaden their duration courses in green and environmental subjects. focus from narrowly defined technical training to incorporating foundational skills in order to increase employment opportunities. 62 3.  Human Development Policies and the Green Transition TVET graduates with professional competen‑ transition. Currently available tools focus on labor cies might enjoy favorable labor market outcomes demand and matching workers with companies on in the short term but having more robust founda‑ the basis of existing skills. Tools are required that fo- tional skills seems to produce better results (Ha- cus on measurable skills necessary for old and new nushek et al. 2017). According to PISA, TVET stu- jobs, along with specific information on what is re- dents perform significantly worse than general quired for transition to green jobs. Effective transi- education students in reading, math, and science tion requires more in-depth evaluation of workers’ (Figure 3.3). Moreover, exam-based placements into skill sets and the potential to follow the green transi- general versus vocational secondary education tion pathways outlined in Chapter 5. Ready-to-use (tracking), common in Europe, introduce an equity agile skills and preferences diagnostic tools can as- angle of TVET. In many EU MS, vocational systems sess the cognitive and non-cognitive characteristics do not provide a labor market advantage over gen- of the local population, providing critical information eral education graduates. Therefore, the tracking to firms interested in investing in the area. The proof- system that usually complements TVET in the Euro- of-concept diagnostic exercise was conducted as a pean education systems could reproduce or even part of World Bank technical assistance for three exacerbate existing inequalities, dampen social mo- transforming regions in Poland (forthcoming), show- bility, and weaken the social contract, particularly in ing that agile research leads to valuable insights. changing market conditions. This is particularly im- One approach that could be supported by EU portant, as TVET students often come from disad- funds involves skills centers conducting individ‑ vantaged backgrounds compared to their peers in ual skills assessments and working closely with general education (Figure 3.3). training providers and employees. A client-cen- tered approach should be supported by the develop- Training needs to be paired with helping ment of a skill profile of each jobseeker. For example, people to find a job in Greece a pilot program involving three ALMPs Job matching by government programs and labor included profiling, in-depth counseling sessions and market agencies will require a shift in approach to differentiation of recommendations through the support workers in finding jobs during the green elaboration of an individual action plan (IAP). In Training needs to be paired with helping people to find a job Figure 3.3:  Difference in Socioeconomic Status and Learning Outcomes in EU Member States, TVET versus non-TVET Students .5 .005 .4 .004 .3 .003 Density Density .2 .002 .1 .001 0 0 −10 −5 0 5 0 200 400 600 800 Index of economic, social and cultural status 2018 PISA Math score 2018 General track Vocational track General track Vocational track Source: World Bank computations using PISA 2018. 63  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE addition, a demand-responsive training (DRT) com- neutral, circular economy. For example, Philippines ponent was introduced to make regionally relevant implemented efforts to promote green jobs through professional skills development training available the adoption of the “Green Jobs Act,” which was de- on a continuous basis to registered unemployed par- signed to generate, sustain and incentivize green jobs ticipants. Profiling helped differentiate workers into to develop an environmentally friendly economy. Pri- appropriate channels of support (directed to train- vate businesses are incentivized to hire employees ing, public works, or online services, for example). skilled in preserving the environment and to retrain Strong evidence of what does and does not their current employees. The government has also work is essential for effective policy making. The formulated human resources development roadmaps main sources of data on the quality of education are for several industries and will maintain a database of the large-scale student assessments (PISA, TIMSS green careers, professions and skills (ILO 2019b). and PILRS) and PIAAC data. However, these sources are limited and do not provide enough evidence A regional perspective will be about the quality of education. The most significant important information gaps, that are essential for designing tai- lored policies are: (i) Assessment of motivation to- Private sector support measures can be tailored to wards educational and professional pathways; local economic challenges. For example, a Mines (ii) assessment of the preferences toward green tran- Closure and Social Mitigation project in Romania, in sition; and (iii) investigation to understand hetero- addition to cash-based compensation, included sup- geneous incentives for the green transition. port of a newly created agency with the mandate to Monitoring activities could identify skill gaps, deal with the consequences of the mine closures, em- develop congruent training programs and inform ployment and training incentives schemes, commu- the population of workers on expectations for nity-driven development projects, and a micro-credit emerging jobs. Monitoring and analysis of job program. The project supported the creation of more trends by region can help identify the quantity and than 13,000 jobs, and in project communities almost type of green jobs expected, paired with training half of those affected by mine closures found other programs to facilitate the reallocation of workers sources of employment (World Bank 2006). Encour- and the preparation of the labor force to take on new aging public-private partnerships to support work- and emerging green jobs highly associated with re- ers with the most demanding transition patterns can newable energy and infrastructure related activities. be an effective way to improve labor offices’ effi- For example, in response to a mismatch between VET ciency. RCT evaluation of privately provided job school’s results and labor market demand in the Slo- counselling and training in Małopolska region in vak Republic, a project was implemented to explore Poland is an example of effective solutions that are regional employer needs and VET school offerings in often avoided due to limited incentives for develop- a collaborative effort with regional Education Depart- ing public-private partnerships (Gajderowicz and ments in order to develop a strategic plan for adjust- Jakubowski 2021). ment of VET schools to harmonize with labor mar- Strengthening skills also should have a regional ket dynamics (refer to parallel case study on the focus. There are large differences across regions Slovak Republic). Information from job monitoring (within countries) in terms of education attainment, activities may hint at areas of opportunity for green wages, and employability. The green transition is job creation and point to possible industries of focus likely to accentuate recent trends of increasing re- for skilling and reskilling of the labor force. turns to skills, so that these regional disparities Labor codes and policies can be revised to pro‑ might further enhance the economic gap between tect workers during the transition to a carbon central and lagging regions (see Chapter 5). To Private sector support can be tailored to local economic conditions 64 3.  Human Development Policies and the Green Transition Strengthening skills also should have a regional focus effectively allocate resources for additional training in-person cooperation is often necessary to establish to the lagging regions, it is first necessary to under- strong and productive links, so that supporting re- stand well skills composition and possible job tran- search exchanges between close regions remains im- sition patterns in different regions. For example, portant. Current exchange schemes encourage re- analysis for Poland shows that various regions have searchers to travel to leading institutions and very different job opportunities, and adults in brown jobs often, these exchanges are mainly between top uni- might require different upskilling options unless versities or research institutions. Promoting exchanges they wish to migrate to other regions. Also, invest- between regional leaders and country-leading institu- ments in enhancing the capacities of labor offices to tions might further enhance the potential of less-de- strengthen their assessment capacities and improve veloped regions to enhance their possibilities to pro- labor demand monitoring might be more effective vide high-quality education. than providing general training grants. Investment in digital skills to facilitate work at Digital technologies can make an important con‑ a distance could support incomes in lagging re‑ tribution to addressing the problems less-developed gions. However, in the whole of EU more than 20 regions will face during the green transition. percent of adults do not possess even basic Less-developed regions often suffer from brain problem-solving computer skills (PIAAC data). drain and insufficient capacity to invest into R&D or Among older and less-educated workers this per- create effective innovation clusters. Investments in centage is even higher, especially in countries like digital technologies can increase opportunities for Poland where adult training and usage of computers distant learning and facilitate cooperation and ex- is relatively low. However, lack of sufficient digital change of ideas. Supporting cooperation between skills is also a barrier for distant work to younger innovation centers and less-developed regions adults. Developing their digital skills to solve prob- through digital technology can provide the former lems using technology will enhance working oppor- with access to skilled labor and infrastructure at sig- tunities also in the less-developed regions. Eurostat nificantly lower costs, and the latter with growth data show that almost 80 percent of adults in Neth- opportunities, assuming the local potential to de- erlands and Finland self-report to have basic digital velop talent is not underutilized. Supporting coop- skills, compared to around 50 percent or less in Hun- eration between local and top higher education and gary, Italy, Poland, Romania and Bulgaria (Eurostat research institutions is crucial to develop less-devel- 2022b).37 Moreover, while nearly all households in oped regions’ capacity to provide skilled labor and the EU have access to the internet, the quality and facilitate innovations in the long-term. Nevertheless, speed of their connection is often not sufficient for Digital technologies can make an important contribution to addressing the problems less-developed regions will face during the green transition 65  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE The health sector will play an important role in responding to the labor market disruptions expected during the green transition work-related purposes. Also, it involves costs. Over- the increase in changes in employment, often accom- all, differences between regions in digital skills, in- panied by periods of unemployment, ensuring that frastructure and costs pose a barrier to their further all individuals have adequate social health protec- development and increased reliance on distant work tion is essential to moderate risks related to cata- and services. strophic and impoverishing health expenditures, and to foster access to and use of appropriate ser- vices. This would include health care that would be Health government financed or financed through different The potential for disruption to people’s lives gen‑ public health protection systems with special con- erated by the requirements of the EGD will increase cern for the vulnerable (for example, that the Gov- the importance of monitoring individuals’ health ernment’s subsidies cover even their contributions status. For example, organized screening programs for the health insurance or co-payment). and other examinations can identify diseases in the The health sector will also be key in facilitating early stage. New technologies and connectivity en- the green transition in its capacity to remain resil‑ able innovative ways to strengthen disease preven- ient and ability to offer its services to the popula‑ tion and lifestyle monitoring. Telemedicine is an tion as direct and indirect climate-related health option of particular importance to be considered to issues continue to arise. Ebi et al. (2018) discuss the support addressing health impacts in lagging re- importance of the adaptive capacity of the health gions. Already existing personal gadgets report on sector in order to deal with the challenges of climate physical activity, heart rate, blood pressure, etc. With variability. Countries’ adaptability and strategy in further technological advancements, almost con- the health sector may help build resilience for the stant monitoring of health status and behavior, many health centers and its only tertiary hospital lo- through various parameters, would be possible. Sig- cated near the seashore. In addition, revising health- nificant diversions from the normal level of parame- care SPJ policies are key to address the challenges of ters would indicate to an individual seeking medical the most vulnerable in accessing healthcare under care—which would make preventive and treatment difficult conditions brought about by climate-related actions ever timelier. events. Another approach to make the healthcare in- The health sector will play an important role in dustry more adaptable and resilient to environmen- responding to the labor market disruptions ex‑ tal changes is the use of agile technology pected during the green transition. For many peo- (Chakraborty et al. 2021). ple, the EGD will result in changes of profession Strengthening human capital in an EGD envi‑ and/or residence, as well as reduced incomes. In- ronment will not be possible without adequate creased provision of physical and mental health ser- funding of the health sector. The increased demand vices will be essential for ensuring that health care for health services outlined above emphasizes the delivery responds to changing circumstances. With importance of sufficient funds to deliver efficient, Better social registries improve the ability to identify vulnerable individuals more accurately 66 3.  Human Development Policies and the Green Transition effective, innovative and climate-smart health care between social protection expenditures and ener- despite the pressures to use resources elsewhere. gy-poverty reduction at the country level for mem- Disinvesting of the health sector is not a solution to ber states of the EU. Conscious of the challenges finance even EGD policies. faced by lower-income households to access energy at affordable prices, social protection measures must be studied to assess ways to include the most vulner- Social protection and jobs able in the green transition in a sustainable manner Social protection programs will play a key role in given the long-term nature of the EGD’s goals. In identifying and assisting individuals who are addition to providing sufficient income, the analysis harmed by the green transition. The Just Transition and proposal of appropriate alternatives to air con- Fund specifies that activities backed by the fund ditioning in the context of energy-poverty and in- must contribute to the alleviation of the negative im- vestment in such adaptation of infrastructure can pacts of the green transition, including employment help mitigate these effects (Thomson et al. 2019). loss, to help mitigate its unintended consequences Desvallées (2022) finds that housing providers adopt (Fleming and Mauger 2021). Sabato and Frotenddu passive measures to provide thermal services that (2020) emphasize the importance of strengthening avoid heating and cooling appliances, nevertheless, social services and income security as an important low-income households closely monitor energy use factor in the just transition, especially for sectors as they struggle to cover related expenses. Programs most negatively affected by the departure from fos- can help poor households to insulate homes, move sil-fuels and other carbon-intensive industries. to solar energy, or undertake other improvements Investment in information systems used in so‑ that will reduce energy costs. cial protection programs will be important for sup‑ The impact of energy price rises on the poor can porting the green transition. Better social registries be eased without encouraging greater fossil fuel improve the ability to identify vulnerable individu- consumption. In Ukraine, for example, the Govern- als more accurately. In Chile, for example, post-di- ment embarked on the re-parametrization of the saster household-level data collection tools that are household utility subsidy (HUS), aimed at reducing integrated into the social protection system allowed its coverage and improve its targeting, and to allevi- for a better assessment of the level of support needed ate energy poverty. The reform effort strengthened by disaster-affected households (Bowen et al. 2020). incentives for HUS beneficiaries to spend less on Better information also can help tailor the response energy-related utility services and to invest in en- to people’s profile and needs. Risks do not affect eth- ergy efficiency. The project supports new eligibility nic minorities, women and men, girls and boys rules for the HUS that restrict the provision of exces- equally; and the ability to cope with shocks also var- sive energy subsidies and thus results in lower ies substantially according to people’s profile and household energy consumption. In Albania, house- identity. holds identified as vulnerable received cash benefits Social protection programs will have to address intended to offset the cost of electricity. Payments are the many vulnerable households adversely af‑ unconditional: eligible households do not need to fected by the rise in energy prices. For instance, hot consume a specific amount of electricity (or, in fact, temperatures can mean a risk to vulnerable house- any electricity at all) to receive the benefit. In 2017, holds lacking energy-efficient cooling infrastructure the Bank provided technical assistance on targeting in the context of the green transition. Rodriguez-Al- this assistance to better address energy poverty varez et al. (2021) find a positive relationship (World Bank 2017). Social protection programs will have to address the many vulnerable households adversely affected by the rise in energy prices 67  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Existing and rising poverty and vulnerability in stemming from energy price increases hint at poten- Europe can be addressed through carbon-abating tially greater needs. Additionally, in some countries policies. The Europe and Central Asia (ECA) region where the influx of Ukrainian refugees and dis- already spends on average 9.2 percent of GDP, and placed population groups (e.g. Poland, Bulgaria), some countries like Poland nearly 13 percent of GDP, SP needs are mounting. The EGD’s unintended con- in SP interventions, including social assistance mea- sequences may place an additional burden on gov- sures, which in turn include targeted energy subsi- ernments to meet growing needs. But at the same dies (Figure 3.4) that have a real impact in poverty time, the EGD can be an opportunity. The savings reduction (Figure 3.5). However, recent pressures from the removal of fossil-fuel based subsidies, as Figure 3.4:  Europe and Central Asian Countries’ Social Protection Spending 18 16 14 12 10 % of GDP 8 6 4 2 0 7 7 2 9 7 7 KD 014 9 7 6 E 17 9 7 7 7 9 6 6 7 7 6 EO 017 M 18 7 9 7 7 7 01 01 01 01 BG 201 H 201 BL 201 UN 01 KG 201 ES 201 LV 01 CZ 201 AL 201 RU 201 TU 201 1 01 01 KS 201 AZ 201 KA 201 TJ 01 SV 201 01 0 M - 20 AR 20 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 - - - - - - - - - - - - - - R U L B B R R Z T A E B S R A H U V E Z K K RV PO UK N SR UZ RO D LT BI M M G H General subsidies Labor market programs Social assistance Social care services Social insurance Source: SPEED (Social Protection Expenditure and Evaluation Database for Europe and Central Asia). 2022. Database, Washington, DC: World Bank. https://worldbankgroup.sharepoint.com/sites/SPL/ecaspeed/Pages/index.aspx. Figure 3.5:  Social Protection’s Impact on Poverty (ECA Region) TJK - BIH - KGZ - MNE - UKR - MKD - TUR - ARM - ALB - POL - KSV - SRB - ROU - MDA - KAZ - BGR - GEO - 2011 2007 2018 2015 2018 2017 2018 2018 2017 2016 2017 2018 2016 2018 2018 2007 2018 0 Percentage point reduction in poverty −1 −2 −3 −4 −5 −6 Source: SPEED (Social Protection Expenditure and Evaluation Database for Europe and Central Asia). 2022. Database, Washington, DC: World Bank. https://worldbankgroup.sharepoint.com/sites/SPL/ecaspeed/Pages/index.aspx. 68 3.  Human Development Policies and the Green Transition The impact of energy price rises on the poor can be eased without encouraging greater fossil fuel consumption well as carbon taxes, could be redirected to offset the that in addition to SPJ policies, successful mine clo- disproportionate burden the poor bear through car- sures require ex-ante investment in local capacity bon taxes. Through the relocation of these funds to building (World Bank 2020b). According to Cun- social protection, governments can implement these ningham and Schmillen (2021), sound management mitigation reforms without hurting the poor and of job displacements can contribute to mitigating the vulnerable, which opens the fiscal space to social consequences, strengthen morale and produc- strengthen social protection. tivity, and improve the efficiency of structural change. Temporary income support will be required for Programs also can pay individuals to support workers who lose jobs and cannot transition to the environment. Payments for environmental ser- new jobs/attain new skills for their current job. vices are essentially CTPs with conditionalities tied Cash transfer programs (CTPs) have been used to to land-use and conservation. Their main objective is protect the poor and vulnerable affected by shocks. to incentivize beneficiaries to conserve environmen- CTPs can be a useful tool to mitigate the unintended tal assets or use them in a sustainable manner. These consequences of the green transition. In situations programs can, for instance, support behavioral such as mine closures in Poland, where some work- changes to manage critical ecosystems, such as for- ers, because of age, for example, will not transition to ests and small fisheries. Albania, for example, re- new jobs and who will need support for some time cently undertook several tasks, including the draft- after losing their source of income, temporary in- ing of watershed payment agreements, to create the come support can be channeled through: (i) sever- enabling framework for supporting sustainable nat- ance or other forms of termination payments; (ii) un- ural resources and livelihoods through provision of employment insurance; (iii)  social assistance ecosystem services.38 Alternatively, programs can payments; and (iv) early retirement incentives. The inform households about changes in behavior that most vulnerable, i.e., younger workers with term con- would contribute to the green transition. For exam- tracts and the self-employed, will be those most in ple, Germany’s Stromspar Check (SSC) advisers need of complete packages to cushion the impact of provide free consulting services to low-income unemployment through social assistance programs. households on how to save energy and water, among More generally, social insurance is an important other issues relevant to the green economy. The source of support for those who temporarily lose group has advised more than 382,000 households their jobs. Early retirement schemes and bridge pen- since 2008, with average cost savings per household sions could also assist those who lose jobs as a result between 100-250 euros a year Cedefop (2018c).39 Fi- of the green transition, though they have to be care- nally, public works programs used to provide tem- fully designed and targeted to avoid work disincen- porary income support can be directed to the provi- tives effects. Not only that, but experience shows sion of environmental goods. For example, a Temporary income support will be required for workers who lose jobs and cannot transition to new jobs/attain new skills for their current job 69  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE program in Armenia paid participants to plant trees new policy framework, and a third set that may along riverbeds to protect the country from erosion serve both purposes (Table 3.2). The policy state- and floods. More than 2 million trees had already ments in strategic documents from the three coun- been planted as of June 2020 (OECD 2020b).40 tries were coded by the policy areas from Table 3.1 to produce a matrix indicating the coverage area of policies in each document (Table 3.3). Policy Coverage and The extent of policy coverage differs consider‑ Preparedness in Strategic ably across the three countries. None of the three Documents: EU and mention all of the policy areas from Table 3.1 in their strategy documents. Croatia has the broadest cover- Case-Study Countries age and Poland the narrowest, particularly in educa- The challenges that EU countries face in support‑ tion and health.41 Coverage in the Slovak Republic ing the EGD, and the degree of progress in imple‑ and Croatia is similar in health and education, but menting policies to address these challenges, var‑ coverage is much broader in Croatia for policies re- ies considerably across countries. Some insight into lated to social protection and jobs. To an extent, these the extent of government involvement in the policies differences in policy coverage reflect the varying eco- required to achieve the green transition can be nomic positions of the three countries: gleaned by the coverage of relevant issues in gov- • The EC found that Croatia’s Recovery and Resil- ernment strategies. Of course, reading statements in ience Plan addresses a significant subset of the strategy documents is not the same as observing challenges and recommendations from the Euro- programs being implemented or the allocation of pean Semester. Croatia’s broad coverage is con- budgetary resources. But at this early stage of the sistent with the generally positive response to the EGD, such statements are a useful signal of govern- EGD (Slijepčević and Villa 2021)42—the European ment intentions. We examined strategic documents Investment Bank found that 85 percent of Croa- in Croatia, Poland, and the Slovak Republic issued tians believe climate change has negative impact since the EGD to provide a snapshot of the coverage (one of the highest percentages in the EU) and of policy areas critical to achieving the green transi- Croatia needs to increase energy independence, tion that have been discussed in this chapter (the as it currently imports 56 percent of its energy. documents reviewed are listed in the Annex G). These can be divided between policies designed to • While the Slovak Republic is one of the fastest mitigate the impact of the unintended consequences growing countries in the EU, the country faces of the EGD on individuals and regions adversely af- socio-economic challenges due to poor educa- fected, those designed to help societies adapt to the tional outcomes, weak health outcomes, and one Table 3.2:  HD Policy Analysis Matrix Sector Mitigating Mitigate and Adapt Adapting Education 1. Foundation skills 1. Dynamic curricula 1. Adapt schools to learning under climate 2. Human capital 2. Involvement of private change development sector in curricula 2. Improved educational attainment will raise 3. Innovation changes climate awareness Health 1. Promote healthy lives 1. Use strategic purchasing 1. Health-sector skills in line with EGD 2. Continuity of service to promote EGD aligned 2. Invest in healthy lives to improve productivity delivery, including mental suppliers 3. Green Hospitals to progress towards carbon health support neutrality and Human Capital outcomes 3. EGD impact monitoring 4. Promote universal social protection Social protection 1. Integrated social 1. Foster private sector 1. Adapting reskilling framework to new demand and jobs assistance cooperation 2. Adapting PES activities to new occupation 2. Compensation and 3. Adapting labor code retraining 4. Adapting social insurance 70 3.  Human Development Policies and the Green Transition Table 3.3:  Multi-Country Human Development Policy Analytical matrix for the Slovak Republic, Croatia, and Poland Human development sector Strategy document Education Health Social protection and jobs The Slovak Republic 1.1 1.2 1.3 2.1 2.2 3.1 3.2 4.1 4.2 4.3 4.4 5.1 6.1 6.2 6.3 7.1 7.2 8.1 9.1 9.2 9.3 9.4 Recovery and Resilience Plan, EC x x x         x x   x   x   x x             Working Group Response Integrated National Energy and                             x x x x         Climate Plan for 2021–2030 Strategy of Environmental Policy x           x                     x         until 2030 Low-Carbon Development Strategy                                             until 2030 Croatia 1.1 1.2 1.3 2.1 2.2 3.1 3.2 4.1 4.2 4.3 4.4 5.1 6.1 6.2 6.3 7.1 7.2 8.1 9.1 9.2 9.3 9.4 Recovery and Resilience plan, x x x x       x     x     x x x x   x   x x EC Working Group Response National Reform Programme, 2020 x x x         x     x         x x   x     x National Development Strategy x x       x                     x   x       2030 Poland 1.1 1.2 1.3 2.1 2.2 3.1 3.2 4.1 4.2 4.3 4.4 5.1 6.1 6.2 6.3 7.1 7.2 8.1 9.1 9.2 9.3 9.4 National Strategy of Regional     x         x               x x x         Development 2030 of the lowest levels of life expectancy in the EU.43 Poland’s path in the EGD faces internal political Analysis of the Slovak Republic’s Recovery and challenges due to its heavily coal-dependent en- Resilience Plan (2020) found that it has a strong ergy sectors. The tensions between Poland and focus on inclusive education, improvements to the EU over the rule of law principles, as well as the health system, public governance and pro- tensions about burden sharing, climate energy ductivity-enhancing green and digital transi- market integration, and energy security concerns tions. The EC notes that the Slovak Republic lacks have resulted in funding from the EU to Poland adequate investment in the green transition: most being put on hold (Elkind and Bednarz 2020).44 funding is going to Cohesion Policy and public However, the economics of the coal industry in Poland are beginning to shift (employment in the finance, with some for-environment protection coal mining industry has dropped significantly and resource efficiency. since 1990) and there is growing public support • Poland’s Recovery and Resilience Plan has still for climate policies, particularly in light of low air not been approved by the EC/EU and as a result, quality (of the top 50 EU cities with worst air there has not yet been an EC analysis of the plan. quality, 36 are in Poland). 71  4 ADAPTING TO A CIRCULAR ECONOMY 4.  Adapting to a Circular Economy among the largest emitters (Cohen et al. 2018). In Economic Growth, Material 2021, materials management in industry and agri- T Consumption, and Productivity culture alone accounted for 27 percent of the total 47 he rapidly expanding extraction and con‑ gigatons of GHG emissions (Figure 4.1). As such, sumption of materials, which propelled materials extraction and consumption are said to global economic growth in the past cen‑ cause the transgression of several planetary bound- tury, is increasing the pressure on, or aries (Person et al. 2022; Wang-Erlandsson et al. 2022), transgression of, planetary boundaries. Over the including biogeochemical cycles, land use, chemical past century, the twenty-three-fold growth in global pollution (novel entities), and freshwater change GDP was accompanied by a near parallel increase in (see Box 4.1 for a discussion of the common chal- material extraction; for every one percent increase in lenges EU countries face in controlling pollution). global GDP, material consumption increased by 0.8 During the last two decades, economic growth percent. Since the beginning of this century alone, in the EU has been decoupled from material con‑ the near tripling of GDP increased global material sumption, mainly due to the decreased consump‑ consumption per capita by 30 percent, from approx- tion of fossil fuel materials. Between 2000 and 2020, imately 9.4 to 12.27 tons.45 Notwithstanding the con- the EU economy expanded by 22.5 percent while tribution of GDP growth to poverty reduction and domestic material consumption (DMC) dropped human development, the linear economic model from 6.5 to a little over 6 Gigatons, slightly over six (take-make-use-dispose) it relies upon, is depleting percent of total global DMC. This reduction marks the Earth’s finite resources and is a major contribu- an absolute decoupling of economic growth from tor to climate change: extraction and processing of material consumption. During this period, the share natural resources is responsible for approximately of renewable energy of total energy consumption 50 percent of global GHG emissions and over 90 per- more than doubled, rising from nine to 22 percent in cent of biodiversity loss (UNEP 2019).46 Even with 2020. The decrease in consumption of fossil fuel ma- intentional actions to reduce GHG emissions, the terials by over 30 percent accounted for more than 90 emissions-output elasticity stood at an average of 0.6 percent of the total reduction in DMC. In contrast, Figure 4.1:  Source of (a) Global GHG Emissions and (b) the Nine Planetary Boundaries a. Planetary boundaries BIOSPHERE INTEGRITY E/MSY BII CLIMATE CHANGE (Not yet quantified) NOVEL ENTITIES (Not yet quantified) LAND-SYSTEM CHANGE STRATOSPHERIC OZONE DEPLETION FRESHWATER USE ATMOSPHERIC AEROSOL LOADING (Not yet quantified) OCEAN P ACIDIFICATION N Below boundary (safe) BIOGEOCHEMICAL In zone of uncertainty (increasing risk) FLOWS Beyond zone of uncertainty (high risk) (Continued next page) 73  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 4.1 (continued) b. Sources of emissions 80 70 Global GHG emissions in Gt CO2-eq 60 50 40 30 20 10 0 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Transport End users Industry Energy supply Agriculture Sources: Panel (a), Planetary boundaries, designed by Azote for Stockholm Resilience Centre, based on analysis in Persson et al. (2022) and Steffen et al. (2015); Panel (b), OECD (2018). The take-make-use-dispose model of GDP growth is depleting the Earth’s finite resources and is a major contributor to climate change Box 4.1:  Pollution Challenges across EU Countries EU countries face a variety of challenges in reducing pollution of land, water and air. Principal components analysis can provide some insight into these issues by grouping countries according to common problems (see Annex F for the data and methodology used). In some cases, this analysis reveals policy priorities that apply to the countries in each cluster. Grouping countries according to the degree of pollution they face reveals two countries that have very atypical conditions (Iceland and Malta), and four clusters with reasonable sizes. Cluster 1, which includes United Kingdom, Germany, Spain, France and Italy, has the highest values of sew- age sludge production (1289 thousand tons in 2019) and disposal as well as the highest values of water and freshwater abstraction. It also has the lowest shares of population facing problems accessing quality water and the lowest average value for the water stress index. Overall, the evidence suggests that these countries do not present social problems linked to the use of water, but as they are the largest users of the resource, they should focus on making its use more efficient and develop recycling alternatives in cases that climate change events affect the current available water resources in the area. (Continued next page) 74 4.  Adapting to a Circular Economy Box 4.1 (continued) Figure B4.1.1:  A Net-Zero Pollution Ambition for a Toxic-Free Environment Wards clustering Source: Author’s calculations. Note: Iceland, Norway and the United Kingdom, which are non-EU members, were included for benchmarking purposes only. Cluster 2, which includes Romania, Latvia, Bulgaria and Lithuania, display an opposite story. This cluster has the lowest values of sewage and sludge production (87 thousand tons) and disposal. Most of their water comes from surface sources, as they have the fewest underground sources. However, they have the highest levels of population facing water challenges (10.4 percent) with Romania having the highest percentage (21.2%) of pop- ulation not having proper bath and toilet facilities. Moreover, the countries in this cluster are getting worse on this indicator, at a higher rate than in any other cluster. However, this cluster also has the highest rate of decline on nitrogen oxides and particles from transport. The countries in this group seem to have significant challenges on the social aspect of water usage and the implications this can have for health. The recommendation in this case is to focus resources in improving sustainable access. Cluster 3, which includes Estonia, Greece, Portugal, Lithuania, Hungary, the Czech Republic, Austria, Bel- gium, Finland, Denmark, Sweden, Netherlands, and Norway, has average results compared with the other three clusters regarding water pollution. It has the smallest population shares connected to urban wastewater and collection systems, but has also seen rapid improvement in this area. In contrast this cluster is rapidly increasing greenhouse gas emissions by sector as well as their intensity. The cluster saw its water productivity decrease by 16.1 in purchasing power standard (PPS) per cubic meter, which is the highest among all clusters. Thus, while the focus on pollution is more linked to greenhouse gases and sectors such as energy and trans- port, water could become a major problem in the future. Cluster 4, which includes Poland, Cyprus, Croatia, the Slovak Republic, Ireland and Slovenia, has a similar structure to cluster 2, but with major gaps with respect to cluster 1. It does have low values of sewage sludge production and the water abstraction is the lowest among the clusters. It also presents the highest shares of population not connected to any wastewater collection system and the highest values of the water exploitation index. Adding to the former challenges, this area has the highest increment in emission of nitrogen oxides and particles linked to transport, and while quality water is decreasing, water abstraction is increasing. Thus, there is an urgent need for policies to find alternative sustainable sources of water that would not degrade the avail- ability and quality of the resource over the long run. 75  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE the consumption of metal ores increased by four per- of the 27 EU member states, including Croatia. Ab- cent, while consumption of biomass and non-metal- solute decoupling, meaning negative growth or ab- lic ores decreased only incrementally (Figure 4.2). solute decrease in non-energy DMC, occurred in Though consumption of non-fossil energy ma‑ only six member states (France, the Netherlands, terials decreased across the EU, it increased in mul‑ Spain, Portugal, Italy, and Sweden). At the same tiple EU member states. In per capita terms, EU time, the rest have shown relative decoupling—an DMC fell from 15.4 to 13.4 tons, while non-fossil en- annual economic growth rate higher than DMC ergy materials only reduced by 0.6 tons, from 11.59 growth (Figure 4.4). to 10.9 tons a year in 2020. Yet, the decrease in the Non-fossil material productivity increased in latter has not been similar across all EU member the EU, with significant improvement in several states (MS). Consumption of non-fossil energy mate- member states. Material productivity, a measure- rials increased in 11 out of the 27 EU member states, ment of economic output per amount of materials with the highest increases observed in Romania and consumed, has increased across the EU, barring Ro- Estonia, rising by 22 and 15 tons per capita, respec- mania, Hungary, Sweden, and Denmark. The lack of tively. In Croatia, Poland, and the Slovak Republic, improvement in non-fossil material productivity in non-energy DMC per capita increased by 3-4 tons these four MS is related to the notion that DMC per capita during the same period (Figure 4.3). growth outpaced GDP growth. The more economi- Only a few EU MS achieved absolute decou‑ cally advanced EU member states (Belgium, the pling of economic growth from non-fossil material Netherlands, Germany, France, Luxemburg, Italy, consumption. Between 2000 and 2020, the annual Ireland) have seen the most considerable improve- rate of change of non-fossil material DMC surpassed ments in material productivity during the past two the average annual economic growth rate in ten out decades (Figure 4.5). Reduced fossil fuel consumption comprised a majority of the decline in domestic natural resource consumption Figure 4.2:  Domestic Materials Consumption in the EU by Material, 2000 (internal ring) and 2020 (external ring), Thousand Tons 2020 25% 23% 18% 24% Biomass 2000 Metal ores 4% 5% Non-metallic minerals Fossil energy 53% materials 48% Source: Authors’ elaboration using Eurostat data. 76 4.  Adapting to a Circular Economy Figure 4.3:  DMC and Non-energy DMC Per Capita in the EU and Selected Member States, 2000–2020 20 18 16 15.40 13.4 DMC, tons per capita 14 12 11.59 10.90 10 8 6 4 2 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 EU-27 Croatia Poland Slovakia EU 27+Energy Source: Authors’ elaboration using Eurostat data. Though consumption of non-fossil energy materials decreased across the EU, it increased in multiple member states Figure 4.4:  Annual Change Rate of GDP and DMC in EU Member States, 2000–2020 (%) 9.5 Only a few MSs achieved absolute decoupling of GDP growth and RO non-energy DMC in the past two decades, implying that the latter are increasing in the majority of the EU 7.5 EE No decoupling 5.5 Annual change rate of DMC (%) LV LT 3.5 BG HR HU SE PL 1.5 MT Relative decoupling EL DE CY CZ DK BE LU FI SK FR AT IE −0.5 PT EU SI NL −2.5 IT ES Absolute decoupling −4.5 −1.0 0.0 1.0 2.0 3.0 4.0 Annual change rate of GDP (%) Source: Authors’ elaboration using Eurostat data. 77  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 4.5:  Non-energy Materials Productivity (GDP/Non-energy DMC), 2000, 2010, 2020 9 Material-resource use (GDP/DMC, euros per kg) 8 7 6 5 4 3 2 1 0 ly n ta 27 ia ce nd ria ce us nd a d tia Bu ia um ia en ia Cr l th y Ro ria y k a ia s g ga xe nd r an ar hi ni ai an ur Ita tv n en ak an ga al pr an e st oa a ed la la Sp to ec ua m rtu EU gi bo La m re M lg Lu rla nl ov m Au ov Ire Cy Po un Fr en Es l Sw Cz er G Fi Be Po he m Sl Sl H Li D G et N 2020 2000 2010 Source: Authors’ elaboration using Eurostat data. welfare to citizens, its impact on planetary pressures Human Development and has only recently been presented. Countries that Pressure on Planetary have ranked high and very high (above 0.7) on the Boundaries HDI also have relatively high CO2 emissions and material footprint per capita (Figure 4.6). Countries that achieved high and very high human Countries with a high ranking in human devel‑ development also exert greater pressure on plane‑ opment and human capital indices see their rank‑ tary boundaries. The United Nations Development ing decline significantly if planetary pressures are Program (UNDP) Human Development Index taken into account. In a recent effort to demonstrate (HDI) is a relative measurement of health, educa- how human development outcomes relate to these tion, and income outcomes in a given country. two factors, the UNDP created an experimental in- Though a high ranking on the HDI implies greater dex using the HDI and an adjustment factor that Figure 4.6:  Countries’ HDI Ranking, CO2 Emissions, and Material Footprint Per Capita a. HDI ranking and CO2 Emissions (production) per capita b. HDI ranking and materials footprint per capita 40 50 35 45 Materials Footprint per capita (t) CO2 emisisons per capita (t) 40 30 35 25 30 20 25 15 20 15 10 10 5 5 0 0 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 HDI (2019) ranking HDI (2019) ranking Source: Hickel 2020. 78 4.  Adapting to a Circular Economy accounts for the materials footprint and CO2 emis- growing evidence that combating poverty and pro- sions. Comparing countries’ planetary pressure-ad- viding adequate living standards can be attained justed human development index (PHDI) to the HDI without significant global emissions growth (IPCC ranking reveals that countries previously ranked at 2022b). In contrast, newly developed economic the top now receive a significantly lower ranking models that aim to shift the focus away from eco- due to the impact on the environment. Drawing on nomic growth while taking account of the need to the UNDP’s adjustment factor, and the World Bank’s mitigate and adapt to climate change are gaining Human Capital Index—a measurement of the po- greater recognition of their potential to inform poli- tential human capital a child born today will attain cymaking (EEA 2021). The doughnut economics by the age of 18—we calculated the planetary pres- framework, which measures countries’ attainment sure adjusted HCI (PHCI). Most EU member states of the UN’s Sustainable Development Goals and that rank higher on the HCI, also drop significantly transgressions of planetary boundaries, demon- lower due to their relative higher pressure on plane- strates how no country has managed to bring its cit- tary boundaries (Figure 4.7). Noticeably, the Slovak izens to live inside the ‘safe and just space’ (Fanning Republic also drops 0.1 points on the PHCI. et al. 2021). Examining the performance of Croatia, Alternative economic models that focus on hu‑ the Slovak Republic, and Poland using the Dough- man welfare and environmental impact may pro‑ nut Economics framework further highlights how vide policymakers with valuable insights. Re- some countries have transgressed several planetary cently, there has been a growing awareness that boundaries during the past two decades while not GDP, and thus GDP growth, may not be a suitable attaining all social objectives specified by the Sus- metric for assessing human well-being, particularly tainable Development Goals (SDGs). Specifically, all when considering the efforts required to tackle cli- three countries mentioned above did not meet their mate change (IPCC 2022b). Furthermore, there is life satisfaction and employment targets (Figure 4.8). Most EU countries with higher HCI rankings drop once their relative higher pressure on planetary boundaries is considered Figure 4.7:  Human Development and Human Capital Indices Adjusted by Environmental Pressure a. HDI and PHDI b. HCI and PHCI 1.000 0.85 Planetary pressures adjusted HDI (2019) 0.900 0.80 Planetary pressure-adjusted HCI 0.800 0.75 ECA US Portugal 0.700 0.70 Sweden France Germany 0.600 0.65 Croatia Finland Belgium Poland Hungary Estonia Austria 0.500 0.60 Greece 0.400 0.55 Bulgaria Slovakia Romania 0.300 0.50 0.300 0.400 0.500 0.600 0.700 0.800 0.900 1.000 0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85 HDI (2019) HCI Source: Author’s elaboration based on UNDP (2020) (panel a), authors’ calculations using the World Bank (2020) (panel b). Note: Yellow dots represent EU member states. 79  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 4.8:  Social Shortfalls and Ecological Overshoot in Case-study Countries a. Croatia b. Poland c. Slovakia Note: The Y-axis measures the distance away from achieving the SDGs, and the X axis measures transgression of planetary boundaries. A country with no so- cial shortfall and no transgression of planetary boundaries will thus be found on the top-left corner. As can be seen, richer nations, which achieved most of their SDGs but transgressed planetary boundaries are clustered across the upper X-axis, with Canada, the US, and Australia showing the highest levels of transgression. In contrast, poorer nations, due to their social shortfall (missing SDGs targets) and limited impact on planetary boundaries, are located on the Y-axis, depending on the average extent of their social shortfall. The bottom figures present the social shortfalls and ecological overshoot of Croatia, the Slo- vak Republic, and Poland 1992 vs 2015. The shaded red color represents the 2015 results. option for mitigating and adapting to climate The EU’s Transition to the change and attaining several SDGs. The CE model Circular Economy advances systematic ways for the recovery and re- use of products and materials through closing pro- The transition to the circular economy, duction and consumption loops. The transition to essential elements, and benefits the CE model is regarded as a viable instrument for meeting several SDGs, including SDG 6 (Clean Wa- By minimizing the extraction, consumption, and ter and Sanitation), SDG 7 (Affordable and Clean disposal of natural materials and maximizing re‑ Energy), SDG 8 (Decent Work and Economic source efficiency, the CE is regarded as a viable Growth), SDG 12 (Responsible Consumption and 80 4.  Adapting to a Circular Economy Production), and SDG 15 (Life on Land). Recent the CE model has various applications, the nine Rs country-level evidence has also shown that munici- framework (Potting et al. 2017), has been widely ac- pal waste management has contributed significantly cepted as a benchmark for strategies that enable the to countries’ environmental, social, and economic transition to the CE (Figure 4.9). The butterfly dia- goals, including reducing global GHG emissions gram, presented by the Ellen MacArthur Founda- and improving economic security and working con- tion, provides a visual representation of two types of ditions for lower-income urban populations (World cycles in the CE model: a biological cycle (left), Bank 2022b). Lastly, the IPCC (2022b) has found where natural materials are returned back to nature, ‘moderate evidence that CE can reduce overall emis- and a technical one, where products, components, or sions, energy use, and activity levels, with medium materials are designed and marketed to significantly agreement on the scale of potential saving. Though reduce waste. By minimizing the extraction, consumption, and disposal of natural materials and maximizing resource efficiency, the CE can help address climate change and attaining SDGs Figure 4.9:  The “Butterfly Diagram” for the Circular Economy (panel a) and the Nine Rs Framework (panel b) a. The “butterfly diagram” RENEWABLES FINITE MATERIALS RENEWABLES FLOW MANAGEMENT STOCK MANAGEMENT FARMING/COLLECTION1 PARTS MANUFACTURER BIOCHEMICAL FEEDSTOCK PRODUCT MANUFACTURER REGENERATION RECYCLE BIOSPHERE SERVICE PROVIDER REFURBISH/ SHARE REMANUFACTURE REUSE/REDISTRIBUTE BIOGAS CASCADES MAINTAIN/PROLONG 6 2803 0006 9 CONSUMER USER ANAEROBIC DIGESTION COLLECTION COLLECTION EXTRACTION OF BIOCHEMICAL FEEDSTOCK 1 Hunting and fishing 2 Can take both post-harvest and post-consumer waste as an input SOURCE Ellen MacArthur Foundation Circular economy systems diagram (February 2019) MINIMISE SYSTEMATIC www.ellenmacarthurfoundation.org LEAKAGE AND NEGATIVE Drawing based on Braungart & McDonough, EXTERNALITIES Cradle to Cradle (C2C) (Continued next page) 81  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 4.9 (continued) b. The nine Rs framework Sources: Ellen MacArthur Foundation for panel a; Kirchherr (2017) for panel b. The CE could pose significant health risks to communities and individuals that engage in waste treatment The European Commission has adopted a com‑ biodiversity challenges the EU faces). The EC is de- prehensive plan to transition to the circular econ‑ termined to make the CE a backbone of the EU in- omy, an integral part of the EGD. Recognizing the dustrial strategy, including by enabling circularity in potential benefits of the CE model, the EU adopted a new areas and sectors, normalizing life-cycle assess- comprehensive package to support its member ments of products, and broadening eco-design as states in implementing it. The Circular Economic much as possible (EC 2020). Action Plan (CEAP), adopted in 2020, includes legis- The transition to the CE is projected to include lative and non-legislative measures that target re- multiple benefits, though its distributional effect ducing reliance on the extraction of raw materials in requires further research. Recent efforts to quantify seven product value chains.47 The transition to a CE the impact of the transition to the circular economy model is one of the main pillars of the EGD and a highlighted multiple benefits, including economic, prerequisite for achieving the climate neutrality and ecological, health, and social. The increased use of biodiversity loss objectives (Box 4.2 provides a prin- secondary materials in manufacturing, mobility, and cipal components analysis that sheds light on the built environment systems is projected to result in 82 4.  Adapting to a Circular Economy Box 4.2:  Restoring Ecosystems and Biodiversity in the EU EU countries face a variety of challenges in restoring ecosystems and biodiversity. Principal components anal- ysis can provide some insight into these issues by grouping countries according to common problems (see Annex for the data and methodology used). In some cases, this analysis reveals policy priorities that apply to the countries in each cluster. Except for two countries (United Kingdom and Malta) with atypical issues, the analysis defines four major clusters. Cluster 1, which includes Estonia, Latvia, Iceland, Norway, Finland and Sweden, has the highest share of for- est area among clusters, and while it doesn’t have a large surface area under Natura 2000, it is the cluster that is increasing it the most. Also, it has the lowest soil sealing index and lowest erosion levels. This strongly sug- gests that nature is still significantly preserved, so that policies should aim for protection rather than recovery. Figure B4.2.1:  Preserving and Restoring Ecosystems and Biodiversity Wards clustering Source: Author’s calculations. Note: Iceland, Norway and the United Kingdom, which are non-EU members, were included for benchmarking purposes only. Cluster 2, which includes Netherlands, Latvia, German, the Czech Republic, France, Belgium, Denmark and Ireland, is an average cluster. Due to the geographical location of its members, it has a relatively high percent- age of bathing sites with excellent water quality, it also has a very low soil erosion rate. However, the cluster has limited forest coverage or protected sites. In contrast to the first cluster, greater efforts are required in restoration and protection of ecosystems; it can’t only rely in conservation. Cluster 3, which includes Croatia, Cyprus, Belgium and Poland, is doing poorly with respect to the previ- ously mentioned indicators. It has a good share of forest and has the highest share of Natura 2000 surface area, but it also has the highest rate of deforestation of all the clusters. Indeed, three of its four countries are in the highest top 5 EU countries in terms of deforestation. Moreover, the bathing sites are the smallest (on average) of all the area. In this case the recommendation goes beyond restauration, and to develop policies to stop the processes causing the environmental damage. Cluster 4, which includes Greece, Estonia, the Slovak Republic, Hungary, Romania, Lithuania, Portugal, Slo- venia, Austria, and Italy, is mostly the Mediterranean and the Danube. This cluster has large shares of surface area designated under Natura (in average, only below cluster 3). Nevertheless, it has the highest percentage of area affected by severe soil erosion (9.9% in 2016, with Italy having the highest share of 24.9%) and there are increasing challenges in the reduction of water quality. Therefore, this cluster needs to focus strongly on the degradation of the ecosystem services (water and soil). 83  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE annual savings of 600 million euros worth of pri- Yet, the distributional effect of this transition is not mary raw materials in the EU (EEA 2016). Ecological fully clear and is dependent on the actions that indi- benefits include the reduced dependence on ex- vidual MSs implement in order to address it. traction of primary raw materials and a significant The CE could pose significant health risks to reduction in GHG emissions and externality costs communities and individuals that engage in waste related to manufacturing, mobility, and built envi- treatment. The transition to the CE, and specifically ronment systems. The reduced dependency on pri- the increased dependence on waste treatment, poses mary research extraction will also reduce European significant health risks to communities and groups countries’ dependence on imports, making them that are more represented in this sector. A World less exposed to potential disruptions to supply Health Organization (WHO) assessment of the po- chains (EC 2018). Recent estimates predict that a tential health impact of the transition to the circular transition to the CE can generate a net employment economy concluded that since vulnerable communi- increase of circa 0.3 percent or between 650,000 - ties are disproportionally represented in lower skills 700,000 jobs in the EU by 2030 (EC 2018). Yet, these sectors such as waste management, they may face estimates include diverging impacts between sec- greater health risks due to their exposure to hazard- tors, with a significant increase in the waste manage- ous materials: chemicals of concern (common in ment sector and a negative impact on employment e-waste), food packaging, fire retardants and bio- in the construction sector of above 0.10 percent. waste compost (WHO 2018). At the same time, vul- The transition to CE is projected to result in nerable communities, specifically those residing in multiple direct and indirect health benefits. Imple- areas of increased environmental risks, are projected menting circular practices improves both mental to benefit more from the reduced emissions and air and physical health of individuals by assisting to pollution attributed to the CE. Though the overall regulate local climate, noise, air and water pollution, distributional effect of both the negative and positive as well as creating spaces that encourage active and health benefits require further research, there are sig- healthy lifestyles. Furthermore, the increased avail- nificant health risks that need to be addressed. ability of spare parts is projected to result in savings Job elimination is projected to impact commu‑ of about EUR 170 million for European hospitals nities and individuals that rely on industries that (WHO 2018). will be deemed obsolete and cannot be adjusted to CE. The importance of the manufacturing sector, which is central to the CE, varies significantly across Risks related to the transition to the CE EU member states. Manufacturing accounts for as The impact from the transition to the CE will vary high 35 percent of total employment in Ireland, and significantly between economies and communi‑ as low as 13 percent in Luxemburg. While the overall ties. Besides potential benefits attributed to the tran- transition is projected to result in a net positive gain sition to the CE highlighted above, there are also across the EU, member states and regions that can considerable risks that need to be addressed to en- more easily adopt CE practices are more likely to gain sure that no communities or regions are bearing a jobs, while those who face greater challenges are disproportionate amount of the potential negative likely to experience job elimination (Figure 4.10).48 externalities. The risks associated with the transition The variance in adult participation in education to the CE include health risks and job elimination. and training between member states may indicate Job elimination is projected to impact communities and individuals that rely on industries that will be deemed obsolete and cannot be adjusted to CE 84 4.  Adapting to a Circular Economy Figure 4.10:  Share of Manufacturing in Total GDP and Employment in the EU, 2018 40 35 30 Share of total (%) 25 20 15 10 5 0 27 g us G a e he ce s ain Po ia Cr l Sw ia De en Es k Be ia Bu m ia Fi y d Au a Po a Ro d G nia H ny Re ary Cz Slo lic Re nia Ire c d ga nd ar l i alt i i ec ur an lan lan Ita bl tv t n ar an str iu b pr N ran a oa ed Sp to a ve nm g rtu EU bo m La pu pu rla re M lg lg nl hu m Cy ov un er F m Lit xe et ak h Lu ec Sl Value added Employment Source: Author’s elaboration using Eurostat data. Circular activities are projected to increase demand for low-medium level skills in sectors such as remanufacturing, repair and recycling and may also replace high-skill manufacturing jobs with low-skill service jobs related to the sharing economy and digitization varying capacity in supporting workers to adjust to Monitoring performance on the circular change in the demand for skills. Circular activities economy are projected to increase demand for low-medium level skills in sectors such as remanufacturing, re- The adoption of the CE varies significantly across pair and recycling and may also replace high-skill member states, according to the monitoring frame‑ manufacturing jobs with low-skill service jobs re- work adopted for the CEAP. The European Com- lated to the sharing economy and digitization (World mission’s monitoring framework includes ten indi- Bank 2022a). As such, facilitating the transition to CE cators divided into four categories: production and requires enabling workers to adapt to changing de- consumption, waste management, secondary raw mand in skills. In 2016, adult participation in train- materials, and competitiveness and innovation. ing varied from below 10 percent in EU member Each of the first three categories includes 11, 38, and states such as Croatia, Romania, Bulgaria, and 39 indicators. The competitiveness and innovation Greece to above 50 percent in the Netherlands, category consists of two sub-categories: private in- Austria and Hungary. This dispersion implies that vestments, jobs, and gross value added related to not all member states have the capacity to support circular economy sectors and patents related to recy- adult workers in adjusting to the transition to CE cling and secondary materials. In 201849, across the and thus risk widening existing gaps (Figure 4.11). EU, CE sectors and economic activities accounted 85  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 4.11:  Participation Rate in Education and Training, 2010 and 2020 Percent of people aged 25–64 in the last 4 weeks 2010 and 2020 35 The share of adults (25–64 years old) who participated in training 30 in the past 4 weeks increased across the EU but remains low or decreased in several members states 25 Share of total (%) 20 15 10 5 0 27 d ia Re ia Cr c Po a G d e Cz Hu s Re ry ic ia Lit ly Be ia G um Sl ny Po ia Ire l ain Au a m e ia E g he ia s Fi k en Sw d ga u nd i ar ti alt ec c ur lan lan an bl bl Ita an ar tv an en str n a pr a Lu Fran oa ed Sp N sto ec ng nm rtu EU i bo m pu pu La re rla ov Bulg M lg nl m hu ov Cy er Ro De xe et ak h Sl 2010 2020 Source: Author’s elaboration using Eurostat data. Countries and regions that can more easily adopt circular economy practices are more likely to gain jobs for less than one percent of the EU’s GDP and less Audits concluded that several member states lack than two percent of total employment, with moder- the necessary resources to carry out the legally re- ate variations across member states (Figure 4.12). quired controls to avoid mismanagement of e-waste The share of CE-related employment in total em- (ECA 2021).51 The failure to reach targets is further ployment is highest in Lithuania at 2.7 percent and hampered by the lack of reliable data on end of life of lowest in Belgium at 1.1. The circular economy sec- EEE, which leaves ample room for potential health tor accounts for as high as 1.5 percent of value added risks associated with mismanagement of the WEEE. in Croatia and less than 0.5 percent in Greece. One reason may be related to market mechanisms. Despite ongoing efforts, the EU has not met its Firms still find it cheaper to use raw materials than e-waste management targets, with several member reusing waste materials (World Bank 2022a). states lagging significantly behind. Despite outper- A circularity index is calculated to measure the forming all other regions in the world with regards relative progress of MSs in three categories of the to e-waste management, in 2019 the EU collected CEAP monitoring framework. The information less than 50 percent of total waste from electric and contained in the sub-list of variables is processed via electronic equipment (WEEE), well below its 2019 principal component analysis to obtain a single in- target of 65 percent. Bulgaria, Croatia and Poland dex that aims to measure the relative progress of in- are the only member states that met the 2019 target dividual member states in the first three categories set by the EC directive on e-waste management, of the CEAP monitoring framework (Box 4.3).52 The while others, including Romania, Italy and Portugal result of this exercise resulted in an index that (i) takes have yet to meet the 2016 target of 45 percent (Figure into account the variance structure of the topic vari- 4.13).50 An assessment by the European Court of ables, (ii)  synthesizes the latent information 86 4.  Adapting to a Circular Economy Figure 4.12:  Circular Economy in the EU, 2018 Gross value added as a share of GDP and circular employment as a share of total, 2018 3.0 2.5 2.0 Share of total (%) 1.5 1.0 0.5 0 m ia 27 k l ic en ce s ce ia ria nd y ly ia us n a ry ia tia ga nd ar an ni ai bl Ita an tv ar en ga iu pr e an st oa ed la Sp ua m rtu EU m pu La re rla lg lg m Au ov Po Cy un Fr en Cr Sw th er Bu G Be Po Ro he Re Sl H Li D G et ak N ov Sl Value added at factor cost— Employment percentage of gross domestic product (GDP) Source: Author’s elaboration using Eurostat data. The CE accounts for less than one percent of the EU’s GDP and less than two percent of total employment Figure 4.13:  Recycling Rate of E-waste in the EU, 2018 90 80 70 60 Rate of recycling (%) 50 40 30 20 10 0 27 a ce ce a y d um s n a ic g en ic ria d ry nd a ia k tia nd an ar ni ni vi ni ai ur an an bl bl ar ga an e st oa ed la t e ua Sp to m EU gi bo m La pu pu re rla lg l nl Au ov Po Ire un Fr en Cr Es l Sw th er Bu G Fi Be he m Re Re Sl H Li D G xe et ch ak Lu N ov e Cz Sl 45% Target 65% Target Share of EEE waste recycled as percentage of average weight put on the market in the preceding years Source: Author’s elaboration using Eurostat data (CEI_WM050). 87  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE regarding the topic while removing idiosyncratic in- components analysis is taken into account (referred formation for each of the variables, and (iii) allows to as the scaled HCI). Relatively high performance standardized rankings between countries based on on the WM index improves the relative HCI ranking their performance. The latest available year was of some countries, while others drop to the bottom used for each indicator (Figure 4.14). of the ranking (Figure 4.15). Ranking of performance The relative ranking of EU countries on the Hu‑ on the PCI does not change the relative ranking of man Capital Index changes when performance on countries on the HCI significantly. In contrast, rela- the three indices created by the principal tive performance on the SRMI substantially reduces Figure 4.14:  The Calculation of the Circularity-adjusted Human Capital Index Source: Authors. Box 4.3:  The Circularity Index Three sub-indices are constructed and then combined to calculate the human capital index adjusted for per- formance on the circular economy: • The waste management (WM) index combines indicators for recycling municipal waste, packaging (which includes several sub-variables such as plastic, glass, and wood), construction and demolition, and e-waste. The essential variables due to the correlation structure are bio-waste, municipal waste, and packaging, as they have the highest weights (and therefore, they are at the core of the component). • The consumption and production (PC) index compromises two indicators: the generation of waste (excluding major mineral wastes) (i) per GDP and (ii) per DMC. Due to the high relation of the two indica- tors in the consumption and production index, the generation of waste per GDP explains 72.8 percent of the full sample variance and thus, it is considered to capture the core essence of the waste generation challenge. • The Secondary Raw Materials (SRM) index includes indicators on the trade and use of secondary materi- als, both imports and exports from the EU. the biplot for the secondary raw materials (SRM) index shows that all the variables are highly related and aligned with the circular material use rate. Indeed, the index alone explains 67.91 percent of the sample variance, making it ideal for the analysis. (Continued next page) 88 4.  Adapting to a Circular Economy Box 4.3 (continued) As can be observed from the biplot in Figure B4.3.1, all the variables for all three indices present the same direction, supporting the fact that the values of the principal components follow the same logic as the variables (higher values of each index mean higher values of the components of that index). Higher values of the WM and SRM indices, and lower values of the PC index, indicate greater integration into the circular economy. Figure B4.3.1:  Bi-plots of the Three Indices: Waste Management Index, Consumption and Production Index, and Secondary Raw Materials Index   the relative ranking of most countries on the HCI. Lastly, adjusting performance on the HCI by the cir- HD Policies for Ensuring a Just cularity adjustment factor that combines all three Transition to the CE indices yields a measurement of the amount of ‘cir- A Just Transition to CE in the EU requires evi‑ cular human capital’ a child born today accumulated dence-based policymaking that aims to mitigate by the age of 18. As can be observed in the bottom possible negative externalities and ensure both right figure, all the results of the circularity adjust- benefits and risks are distributed equally across ment factor significantly reduce the relative ranking EU regions. As highlighted above, the transition to of EU countries to near the bottom of the scale. the CE involves several risks related primarily to job 89  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 4.15:  Comparison of EU Country HCI Indicators, Adjusted for Circular Economy Performance a. HCI WM Adjusted b. HCI PC Adjusted 1 1 Scaled HCI WM Adjusted Scaled HCI PC Adjusted 0.8 0.8 0.6 0.6 0.4 0.4 0.2 0.2 0 0 0 0.2 0.4 0.6 0.8 1 0 0.2 0.4 0.6 0.8 1 Scaled HCI Scaled HCI c. HCI SRM Adjusted d. HCI Total Adjusted 1 1 Scaled HCI SRM Adjusted Scaled HCI Total Adjusted 0.8 0.8 0.6 0.6 0.4 0.4 0.2 0.2 0 0 0 0.2 0.4 0.6 0.8 1 0 0.2 0.4 0.6 0.8 1 Scaled HCI Scaled HCI Source: Authors. loss and the health implications of increased em- and systemic factors rather than technological ones ployment in the management of hazardous materi- appear to be the main barriers to the circular busi- als. Also, an unequal transition to the CE may fur- ness transition’ (EEA et al. 2016).53 Furthermore, the ther widen economic disparities between EU IPCC concluded that changing current perceptions member states, as linear economic modes of produc- of production, consumption and disposal practices, tion become obsolete and less economically viable. and business models requires a holistic change in Ensuring a just transition to the CE thus requires educational institutions to the type of education that policymakers both at the national and regional level recognizes ecological barriers and objectives and hu- to adopt policies that will enable their citizens to man well-being (IPCC 2022). Improved education avoid risks and maximize potential benefits, such as can not only act as an effective lever to transition to job creation and an improved environment. pro-climatic beliefs and behaviors in certain contexts As discussed in the policy agenda in chapter 3, (Angrist et al. 2023) but also multiply positive effects changes in education, social safety nets and health of other environmental policies such as carbon pric- monitoring will play an important role in achiev‑ ing (Macdonald and Patrinos 2021). ing a just transition to the circular economy. Edu- Social safety nets are integral to ensuring that cating students of all ages about environmental ob- communities and regions negatively affected by the jectives, individual material footprint, and the need transition are not left behind. EU member states dif- to shift away from the linear mode of consumption is fer significantly with regard to the share of industry, an integral part of a successful transition to the CE construction, manufacturing, and agriculture in to- and ensuring that all communities may benefit tal GDP and employment. Combining circular econ- equally from it. A recent assessment of the barriers to omy policies with social protection measures will be the transition to the CE in Europe found that ‘cultural necessary to ensure that the burden of efforts to 90 4.  Adapting to a Circular Economy promote circularity will not fall on the poor through Higher education institutions should be di‑ worsening working conditions and health impacts, rected to support the type of innovative, CE-fo‑ reduced livelihoods, or job losses. In addition, fur- cused research required to facilitate the transition thering women and girls’ education will be import- and measure its impact. CE-related research was ant in order to counter the disparate levels of wom- found to be fragmented across various disciplines en’s workforce participation when compared to and often shows different perspectives on and inter- their male counterparts in industries such as the re- pretations of the concept and thus its potential soci- newable energy sector (IRENA 2019). etal and environmental impact (WHO 2018). This The health sector in every member state should in- fragmentation may have resulted in the limited evi- crease efforts to quantify and monitor the potential dence found by the IPCC on the potential impact of health risks associated with the transition to the CE. the CE model in reducing GHG emissions and com- Specifically, health outcomes in communities that re- bating climate change. To address this knowledge side by recycling centers of hazardous materials or gap, higher education institutions could be directed landfills of bio-waste should be monitored more to support the efforts to research and quantify the closely. Furthermore, occupational health and safety impact of the transition to the CE. Furthermore, measures need to be strengthened to address the health member states could make more significant efforts risks associated with CE transition. The waste manage- to utilize high education institutions as conduits for ment sector specifically requires a robust enforce- the type of innovative research required to extend ment mechanism for health and safety standards. the life of products, circular design manufacturing, and disposing of materials. 91  5 ADDRESSING THE UNINTENDED CONSEQUENCES 5.  Addressing the Unintended Consequences T he European Green Deal could have a sig‑ The nexus between the EGD and nificant impact on the distribution of in‑ territorial imbalances come across regions and individuals. Re- gions that rely heavily on the exploitation The green transition will take place in an already of fossil fuels or on energy-intensive production, polarized territorial context. There was significant many of which already have lower than average in- convergence across European regions in the run-up comes, could fall further behind. And the increased to the global financial crisis (Eurostat 2022b). How- demand for skills driven by the green transition ever, territorial inequalities widened with slow could further reduce the earnings of lower-skilled growth and recession from 2009 to 2013 and contin- workers relative to higher-skilled workers. Ensuring ued during the recovery from 2013 to 2019 (Euro- that the EGD does not further impair the welfare of pean Commission 2022). Having swaths of regions regions and workers who have already experienced failing to achieve strong GDP per capita growth has relative declines in income is essential for social jus- contributed to create non-negligible territorial im- tice and to limit opposition to achieving the green balances across the EU (Iammarino et al. 2019). transition. The chapter begins with a discussion of Three types of regions, at various levels of in‑ the differential regional impacts of the EGD, and come, can be viewed as in a development trap. Sev- then turns to the impact on individual workers. eral regions in Italy (e.g., Calabria) and Greece (e.g., Analotiki Makedonia and Dytiki Ellada) display ex- ceptionally low GDP per capita, receive substantial Regional Impacts cohesion funds from the EU, but have so far failed to The EGD will entail a radical reconfiguration of sustain long-term growth (Figure 5.1). A second, production and consumption activities across Eu‑ wider group of underperforming, develop- ropean countries and regions. Whereas some re- ment-trapped regions have GDP per capita levels gions are set to tap into the opportunities offered by that are slightly below the EU average. This club in- regional diversification and specialization in the cludes regions in the Italian Mezzogiorno, Portugal, green economy, other regions—often plagued by Greece, and Cyprus, but also in more developed pre-existing economic, social, and institutional bot- countries, such as Belgium and France. Finally, there tlenecks—will risk falling further behind (McCann is a group of regions with above-average GDP per and Soete 2020; Moreno and Ocampo-Corrales 2022). head where economic dynamism has stagnated, if Neglecting the differential impact, the EGD will have not declined. These regions are located in north Italy, on different regions would jeopardize its inclusive- central France, and continental Denmark, among ness and long-term sustainability, and conceivably other countries (Iammarino et al. 2020). could derail the transition to low-carbon societies. These three groups of regions share a number of This section discusses the interplay between common traits, including low human capital (often achieving the targets of the EGD to enhance sustain‑ meaning a smaller share of high-skilled workers with ability on the one hand, and territorial inclusive‑ higher education (Männasoo et al. 2018); less innova- ness and cohesion on the other. The section first con- tion-prone ecosystems than their more dynamic siders the potential for changes envisioned by the counterparts (de Dominicis et al. 2013; Kharas and EGD to exacerbate regional polarization across Eu- Kohli 2011); lower institutional quality and weaker ropean countries. This is followed by an analysis of social capital endowments, resulting in lower gov- the risks of social discontent from leaving places and ernment efficiency, accountability, and transparency regions behind during the green transition, along (Rodríguez-Pose and Ketterer 2020); demographic with a discussion of how place-sensitive strategies crises reflected in higher old-age dependency ratios could facilitate the implementation of the EGD that (Farole et al. 2018); and, in rural trapped regions, taps into the economic potential of all regions—in- great reliance on agricultural production (European cluding those with a weaker economic potential. Commission 2022; Iammarino et al. 2019). The green transition will take place in an already polarized territorial context 93  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 5.1:  Development Traps across EU Regions by GDP Per Head, 2001–2019 Source: Authors’ elaboration based on Iammarino et al. (2019). Note: Development traps calculated as the relationship between a region’s GDP/head change over time and GDP/head change of the country which the region belongs to and the EU average. Three types of regions, at various levels of income, can be viewed as in a development trap The regional impacts of the EGD in the to the negative impacts of the phasing out of brown context of territorial polarization energy production (EU 2017; OECD 2019), in partic- ular the loss of jobs (JRC 2018). Figure 5.2 shows the The negative impacts of shrinking the coal indus‑ geographical distribution across the EU of the risk of try on employment and economies in regions host‑ job losses from phasing out coal production. ing coal mining activities and coal-fired power The transition will require more territory-tar‑ plants are often overlooked. There are 103 European geted financial outlays of State aid and social wel‑ (NUTS-2) regions that host at least one coal-fired fare policies. The need for additional social funds power plant. Forty-one regions still host at least one disbursed by regional governments, together with a coal mine (JRC 2018). It is estimated that the coal sec- reduced tax basis deriving from a smaller workforce, tor directly employs around 240,000 workers, with may contribute to the erosion of local and regional an additional 215,000 jobs linked to the coal value authorities’ budgets. The allocation of EU funds to chain. Lagging and poorer regions are more exposed support the finances of regional governments whose 94 5.  Addressing the Unintended Consequences Figure 5.2:  Cumulative Jobs at Risk by 2030 due to Phasing Out of Coal Energy Production Source: Authors’ elaboration based on Joint Research Centre (2018). Note: Jobs are cumulative. Lagging and poorer regions are more exposed to the negative impacts of the phasing out of brown energy production economies rely heavily on the coal industry will be employment, and dependent on external technological essential to support local finances and social safety inputs (Muro et al. 2019; McCann and Soete, 2022). nets, while ensuring a just transition. This may exacerbate socio-economic bottle‑ The phasing out of brown energy may nega‑ necks in coal producing or dependent regions. Ac- tively impact related industrial and economic sec‑ cording to their GDP index, regional economies with tors. For instance, the steel industry and the jobs as- coal power plants and coal mines have lower per sociated with it may also suffer, given the reliance of capita incomes than peers with a lower coal depen- these industries on coal (JRC 2018). This may further dency (JPR 2018). Some coal-dependent regions al- contribute to the loss of employment in vulnerable re- ready display high unemployment rates. For exam- gions. The regions affected will need to face both a dig- ple, the unemployment rate in Dytiki Makedonia in ital and ecological transition in places that are tradi- Greece, where the GDP per capita level is only 75 tionally more carbon-intensive, polarized in terms of percent of the national average, has hovered above 95  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE 30 percent over the past decade. The transition away components analysis of the dependence of EU mem- from brown energy could add another 3.5 percent of bers on fossil fuels). Without adequate and fair miti- employment loss (Eurostat 2022). gation policies, higher prices will translate into de- High levels of carbon-intensive economic activ‑ clines in consumption and overall incomes in the ity in some vulnerable EU regions are a key deter‑ hardest-hit regions. minant of the negative externalities expected with The indirect effects of the EGD, in terms of the green transition. GHG per head vary across the movements of labor and the reallocation of eco‑ EU and within countries, based on the level and nomic and social assets, may have an even greater composition of economic activity, the energy effi- impact on the distribution of wealth across EU re‑ ciency of production factories and buildings, the use gions than the direct effects will. Especially during of renewable energy, and land use (Figure 5.3). Ac- the transition period, employment growth and capi- cording to Känzig (2021), regions with carbon-inten- tal investments related to green innovations will tend sive economies will bear the brunt of the additional to cluster in a small number of core prosperous re- costs and price increases stemming from the intro- gions, as has been the case for other leading-edge in- duction of carbon taxes (Box 5.1 provides a principal novations in the past decades (Atkinson et al. 2019). Skilled labor will flow from lagging- and falling- behind regions to more prosperous ones Figure 5.3:  CO2 Emissions from Fossil Fuels Per Head, 2018 Source: Authors’ elaboration based on Crippa et al. (2019). 96 5.  Addressing the Unintended Consequences Box 5.1:  The Distribution of Fossil Fuels versus Renewable Energy This chapter focuses on regional analysis, a level of disaggregation where it is possible to identify areas depen- dent on fossil fuels or carbon-intensive production. Each EU country, however, displays a mix of dependence on fossil fuels and renewables, so it can be difficult to demonstrate efficiently the challenges facing individual countries, or to understand how these challenges are shared across the EU. Principal components analysis is one approach to addressing the second question in a summary way (see Annex for the methodology and data used). Our goal is to define groups of EU countries, or clusters, within which countries are in similar positions in terms of dependence on carbon, and where similar policies might be adopted to support the green transition. Except for three countries (Iceland, Norway and Estonia), which have quite atypical conditions, EU countries can be grouped into three clusters. Cluster 1, which includes Luxembourg, Ireland, Netherlands, Czech Republic, Poland, Austria, Germany, Slo- venia, France, the Slovak Republic and United Kingdom, has the lowest share of renewable energy in gross final consumption. Although the share is improving, it is improving quite slowly as compared to the other clusters and the atypical countries. For example, renewable energy sources contribute just 11.7 percent to the gross energy consumption in Luxembourg and 14 percent in Netherlands. Also, this group has one of the highest lev- els of CO2 emissions from new cars (111.5 g per kilometer). The countries in this cluster need a significant push in looking for new sources of clean energy and to control elements such as the acquisition of cars. Figure B5.1.1:  Increasing the EU’s Climate Ambition for 2030 and 2050 Wards clustering Source: Author’s calculations. Note: Iceland, Norway and the United Kingdom, which are non-EU members, were included for benchmarking purposes only. Cluster 2, which includes Denmark, Finland, Malta and Sweden, has the opposite challenge as cluster 1. It has the lowest emissions of greenhouse gasses (9.7 tons of CO2 equivalent per capita), but fossil fuel sources are growing, and the increment is the highest of the three clusters. On the other side, it is reducing its share of renewable resources (which is the greatest of the three clusters) but this reduction is significantly small compare with the other clusters. The evidence suggests that the countries are doing in general very well in terms of the EGD targets, and there are several lessons that can be learned from them. Yet it is important to keep checking the increment of greenhouse gas emissions before it becomes a challenge. Cluster 3, which includes Belgium, Portugal, Greece Spain, Italy, Cyprus, Bulgaria, Lithuania, Hungary, Roma- nia, Croatia and Latvia, has a very high share of CO2 emissions from new cars, similar to cluster 1. The share of renewable resources is lower than cluster 2, and it does produce more greenhouse gases, but not as bad as cluster 1. For this reason, these countries are in a middle scenario where identification of new energy sources is important, but there is also a need to reduce the current sources as part of the green transition. 97  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Demographic decline and brain drain may further reduce the quality of governance in vulnerable regions Skilled labor will flow from lagging- and fall‑ low-skilled workers. More generally, however, as ing-behind regions to more prosperous ones. Re- the movement of the less skilled is increasingly lim- gional specialization in green technologies and sus- ited by barriers to mobility, including language bar- tainable economic activities is likely to require a riers, and high living costs in prosperous regions range of pre-conditions, including a qualified (Diamond 2016; Giannone 2017), lagging areas will enough workforce, specialization in related eco- be increasingly left with lower-skilled workers and nomic fields, and adequate infrastructure and facili- lower-productivity firms (Farole et al. 2018). ties (Moreno and Ocampo-Corrales 2022). Dispari- Demographic decline and brain drain may fur‑ ties across regions in terms of specialization in ther reduce the quality of governance in vulnera‑ knowledge-intensive sectors are already high. The ble regions. Demographic decline tends to reduce inability of lagging regions to tap into the opportu- local government incomes and boost costs (ESPON nities offered by the development and production of 2020b), while the migration of talent to more pros- green technologies, such as renewables, may lead to perous regions may lower the quality of staff. Such a loss of employment and a mismatch between the la- deterioration of governance can, in turn, inhibit the bor force skills level and demand within the local development potential of lagging and develop- economy, generating dissatisfaction and possibly ment-trapped regions, given their reduced capabili- brain drain (Fratesi and Rodríguez-Pose 2016). ties to design and implement successful development Brain drain triggers a wide array of detrimental strategies (European Commission 2017a and b). consequences for the source region , including The green transition also may redirect capital in‑ lower levels of human capital investment and nega- vestments towards regions and cities where pre-con‑ tive demonstration effects that push students to ei- ditions in terms of infrastructure, skills, and gover‑ ther leave after acquiring a higher education degree nance are more favorable. Across the EU, metropolitan or abandon high level education altogether (Brzo- areas account for 55 percent of expenditure and 64 zowski 2007). Already vulnerable regions may find percent of public investments in climate and environ- themselves deprived of their brightest human capi- mental actions (OECD 2019b), due to their higher and tal, rendering the adoption of climate mitigation pol- better-trained stock of human capital, the greater po- icies and cutting-edge green technologies even more tential for generating local knowledge spillovers, challenging. For example, the emigration of workers strong connections with global knowledge and scien- from the Slovak Republic to other EU countries (by tific networks, significant lobbying potential, and bet- contrast, internal migration has been small) has con- ter infrastructure and institutions (Barbieri et al. tributed to shortages of both high-skilled and 2021b; European Commission and UN Habitat 2016). Three additional factors can increase a region’s vulnerability to the negative externalities prompted by the European Green Deal: (i) technological relatedness; (ii) regional innovative potential; and (iii) local governance quality 98 5.  Addressing the Unintended Consequences All in all, the green transition and the European Thus, the green transition will involve a high risk of Green Deal are set to reshape the geography of further territorial polarization. jobs and wealth across EU regions. The winners The quality of regional innovation systems is a likely will consist of already prosperous urban re- key driver of the green and ecological transition. In gions, which will experience significant increases in particular, green technologies can be more complex, capital investments and inflows of skilled workers radical, pervasive, and impactful than most non- from other regions. The losers will consist of the al- green technologies. They, therefore, require a wider ready weaker regional economies and develop- range of competences that are often far from tradi- ment-trapped societies, which will suffer from out- tional know-how (De Marchi 2012; Barbieri et al. flows of capital and talent. 2020). Similarly, green jobs normally involve a greater intensity of non-routine skills, due to the constant reconfiguration of green occupations (Con- Other factors determining regional soli et al. 2016). Green technologies are also frequently winners and losers located on the technological frontier, which means Three additional factors can increase a region’s vul‑ that there is no established best practice and trajec- nerability to the negative externalities prompted by tory for their development and implementation. the European Green Deal: (i) technological related- Thus, the ex-ante innovative potential of Euro‑ ness; (ii) regional innovative potential; and (iii) local pean regions, which is highly correlated to the governance quality. country and region’s level of development (Euro‑ The degree of cognitive proximity between a pean Commission, 2022b), will be critical for a suc‑ new technology in the region and its pre-existing cessful green transition. Data from the Regional knowledge domains, referred to as technological Innovation Scoreboard shows the large geographical relatedness, is expected to make or break attempts differences in innovation across Europe (Figure 5.4). by regions to specialize in green technologies and In most cases, the low- or high-innovative potential renewables (Boschma 2017; Hidalgo et al. 2018). Re- of a region is compounded by a similarly low or high latedness is an example of path dependence, where score in the green technological fitness index. a region’s specialization pattern is influenced by its The effectiveness of environmental policies past economic and social performance and sectoral aimed at transitioning towards low-carbon econo‑ diversification. Past analyses of European regions mies also is likely to be conditioned by the ex-ante show that a high endowment of regional, green-re- quality of local governance. Excessive bureaucracy, lated knowledge is a key driver of green technologi- red tape, overregulation, corruption, and lack of cal development (Santoalha and Boschma 2020). transparency and independence of the judicial sys- An index of green technology fitness shows that tem may hamper the adoption of resource-efficient EU regions’ potential to introduce green technolo‑ and environmentally friendly technologies (Rodrí- gies varies enormously (Barbieri et al. 2021b). Re- guez-Pose 2013). In contrast, effective institutions gions with advanced capabilities in the development improve the provision of public goods, address mar- of green technologies are mainly located in central ket failures, reduce transaction costs, and facilitate and western Europe, while regions in Greece, Bul- the functioning of the labor market—all aspects cru- garia, Romania, and, outside the EU, Turkey, seem cial for the adoption of new technologies (North particularly ill-placed to diversify towards a greener 1990; Storper 2005). economy. There is a strong correlation between re- An index of the quality of governance varies gional green technologies and non-green technolog- greatly across Europe and within some countries. ical capabilities, pointing to a robust complementar- Low governance quality at the local level can dis- ity and relatedness between green technologies and courage the entry of green industries (Gwartney et adjacent technological realms (Barbieri et al. 2021b). al. 2006) and limit the government’s ability to The green transition will involve a high risk of further territorial polarization 99  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 5.4:  Regional Innovation Scoreboard, 2021 Source: Authors’ elaboration from European Commission—Regional Innovation Scoreboard (2021). The Regional Innovation Scoreboard shows large geographical differences in innovation across the EU identify pathways towards regional diversification investment and skilled labor in leading regions, in the green economy. In the past the ability of local beyond the agglomeration and brain drain effects and regional authorities to lead bottom-up policy discussed above. Paradoxically, poorer regions tend interventions has often determined the fortunes of to be in greater need of green technologies than the development strategies (Rodríguez-Pose 2020), and cities where the bulk of green investments are lo- more peripherical regions may experience a series of cated (see above). Without policy interventions, lag- institutional backlogs during the implementation of ging regions may suffer both the adverse conse- environmental policies (Figure 5.5). quences of technological lock-in and environmental All in all, wide differences in the technological degradation, placing them at the highest risk possi- relatedness of the local industrial capabilities, the ble for the erosion of economic, social and environ- innovation potential, and the quality of gover‑ mental standards and further divergence from the nance will increase the concentration of green richer clubs of regions. 100 5.  Addressing the Unintended Consequences Figure 5.5:  European Quality of Government Index, 2021 Source: The Quality of Government Institute, University of Gothenburg. Low governance quality at the local level can discourage the entry of green industries The green transition and the economic integration and globalization has been on geography of discontent the rise, particularly in regions experiencing years of decline, lack of opportunities, and perceived neglect The potential for the European Green Deal to exacer‑ (Rodríguez-Pose 2018). bate the trend of rising regional polarization may The rise of populism and support to anti-estab‑ erode support in lagging-behind and development- lishment parties—the very parties that often cham‑ trapped regions for addressing climate change. Gen- pion anti-green policies—may prevent an EU-wide eral discontent across European regions has been on implementation of the EGD and the full achieve‑ the rise in recent years, particularly in places that have struggled to benefit from the socio-economic ment of emissions targets. There is already evidence gains of the digital transition and have suffered from that the implementation of measures to save the negative externalities related to globalization and planet is generating a backlash in vulnerable re- processes of outsourcing and offshoring. Opposition gions. For example, the revolt of the gilets jaunes (yel- to basic EU principles, such as free mobility of capi- low vests) has, in part, been triggered by the drive by tal and labor, migration within EU borders, or the French state to combat climate change. 101  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Wide differences in the technological relatedness of local industrial capabilities, the innovation potential, and the quality of governance will increase the concentration of green investment and skilled labor in leading regions The relevance of place-sensitive policies into account when putting in place environmental policies. Regions with an abundance of sun and Place-sensitive approaches to the implementation wind, for instance, may find themselves in an ideal of the EGD represents the best approach to limit its spot to develop new green products, services, and potential negative impacts in lagging-behind and growth models (McCann and Soete 2022). development-trapped regions, while simultane- Whereas the set of tools at policymakers’ disposal ously leveraging each region’s socio-economic po- to drive the green agenda is well-known—ranging tential for a contribution towards environmental from environmental regulation to investments in targets (Iammarino et al. 2019; Box 5.2). Aspects such green technologies and carbon taxation—the exact as cultural and social diversity, urban and rural ge- mix of incentives and regulations needs to be tai‑ ography, access to water and distance to the core lored to the local context (World Bank 2012). A centers of economic activity will all need to be taken framework of continuous policy learning will be Box 5.2:  Place-Sensitive Strategies: Combining Efficiency and Equity in the EGD’s Implementation Equity-seeking approaches and the resulting place-based strategies in the EU have sought to leverage each territory’s economic and social potential by encouraging the emergence of grassroot, bottom-up policy frame- works and initiatives. Place-based approaches, nevertheless, have been by no means immune to criticism. The low institutional capacity of many lagging- and falling-behind regions often determined the failure of this type of strategies. In the context of the EGD, adopting top-down, spatially-blind approaches—effectively channeling resources to the already more prosperous regions—or embracing purely bottom-up, place-based initiatives—hence let- ting regions draft climate mitigation policies with no or little top-level directionality—may encounter the type of bottlenecks experienced in previous EU-wide policy interventions such as cohesion policies and Horizon 2020. The idea of place-sensitive distributed development policies can be a valid framework to elaborate initia- tives for policy interventions around the EGD that combine efficiency and equity principles. Place-sensitive strategies entail (i) differentiation across regional development clubs, that is groups of regions which share similarities in terms of, for instance, economic structure, development trajectory, and growth constraints; (ii) coordination between different governance levels which allows to combine the localized knowledge of regions with the more holistic understanding of EU-wide objectives retained at the level of the central government; and (iii) integration between different development levers given the multi-dimensionality of the green transition affecting economic, scientific, social, and institutional models. Such an approach can be crucial to ensure that the green transition does not remain the privilege of a few, but that translates in an EU-wide opportunity for economic dynamism and enhanced regional comparative advantage. Sources: Crescenzi and Rodríguez-Pose (2011), Pike et al. (2017), Rodríguez-Pose & Wilkie (2017), and Iammarino et al. (2019). 102 5.  Addressing the Unintended Consequences essential to promptly identify bottlenecks as they The implementation of the EGD through emerge and address potential negative regional im- place-sensitive strategies will need to incorporate pacts (McCann and Soete 2021). Such a framework coordination mechanisms and institutional capac‑ will also aid in the formulation of evidence-based ity building elements. In particular, a multi-gover- policy interventions informed by best practice and nance layered system, similar to that already imple- aimed at tackling some of the negative territorial im- mented through the EU Smart Specialisation pacts discussed above, such as human capital flight strategy, will require assigning the roles of different from lagging-behind regions or green transitions in stakeholders and delineating responsibilities at Eu- carbon-intensive economies (Box 5.3). ropean, national, and regional levels. Box 5.3:  Regional Peer-Learning: Addressing EGD’s Trade-offs through Policy Learning The implementation of the European Green Deal will entail a certain degree of novelty in its approach, given its multi-dimensionality and context-dependency. As such, regions will encounter setbacks in their efforts to develop successful environmental policies. In this context, learning from regional peers will be crucial to iden- tify best practice. As discussed, skilled migration and human capital flight is not a new phenomenon in EU lagging- and fall- ing-behind regions. As part of the 2014-2020 Cohesion Policy programme, regions across the EU have devel- oped several policy interventions aimed at slowing down the loss of human capital and potentially reversing the regional brain drain trend into a brain gain one. For instance, following the 2008 financial crisis the small region of Umbria, in central Italy, suffered a major flight of skilled young workers, with over 30 percent of grad- uated students during the 2007-2011 period moving abroad for study and/or work reasons. The Brain Back initiative in Umbria, recognized as a regional best practice for fighting brain drain, managed to create a first- of-kind database of regional citizens who reside abroad, in addition to the creation of start-ups and research scholarships awarded to returning Umbrian citizens. Similarly, the Talent House of San Sebastian, in northern Spain, has been praised for contributing to attract 1,325 returning researchers and raising the municipality’s local R&D investment to 2.67 percent of GDP. The diaspora strategy addressed the underlying need for accom- modation services by offering accommodation to returning skilled individuals as part of their regional strategy. Loss of economic power and dynamism in coal-producing and carbon-intensive regions will also require ad-hoc policy interventions. Some of these policies have been particularly successful in transitioning regional economies away from polluting industries towards low-carbon activities. For instance, Essen in the larger Rhine-Ruhr metropolitan region in Germany has successfully turned into a green champion by creating over 13,000 jobs in the innovative green sector, expanding green urban areas—95 percent of the population now living within three hundred meters of green areas—and hosting around 400 km of bicycle lanes. Thanks to its achievement towards a low-carbon society, in 2017 the European Commission named Essen the European Green Capital, an annual award for a city at the forefront of environmentally friendly urban living. Coal mining in Essen is now history: the Zollverein Coal Mine Industrial Complex, once one of the largest mining hotspots in Europe, is now a UNESCO World Heritage Site and home to over 6,000 exhibits illustrating what used to be one of the largest industrial regions of the world. Part of the success of these policies can also be attributed to their place-sensitive approach which adapts to the strengths and weaknesses of each territory. In Umbria, for instance, a major bottleneck for the design of diaspora strategies consisted in the lack of data on emigration flows. The regional approach built on the creation of a survey-based, tailor-made qualitative and quantitative analysis of the region’s citizens who emi- grated. In Essen, the presence of a vast industrial site has been leveraged as a springboard for the tourism industry and urban regeneration. This evidence points to the potential of policy peer-learning in the transition phase of the European Green Deal. As regions face asymmetric regional impacts, learning from regional peers and adapting successful strat- egies to the local context, with its opportunities and challenges, is set to be a key driver of a successful, just and inclusive green transition. Sources: Brain Back Umbria, 2011; Cavallini et al. 2018; Fomento San Sebastian, 2018; EIB, 2020; ESPON, 2020b. 103  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE The potential for the EGD to exacerbate regional polarization may erode support in lagging-behind and development-trapped regions for addressing climate change Finally, key to an inclusive green transition is the strengthening of investment in institutional Individual Impacts—Skills capacity in target regions. An improved regional Transition Pathways institutional capacity will allow results-oriented pol- Just as the poorest regions are likely to experience icy design, understanding endogenous strengths the most adverse impacts from the European Green and weaknesses through evidence and exogenous Deal, lower-skilled workers are likely to experience global transitions and trends, and their effects on lo- a decline in earnings relative to those of high-skilled cal economies. In practice, this may imply expert task workers. Assessing or estimating household or indi- forces to access knowledge on green technologies vidual-level impacts as a result of the green transi- and transitions; the strengthening of regional inno- tion are beyond the scope. However, those estima- vation agencies to coordinate the diversity of green tions are a crucial task that deserves attention and specialization strategies; horizontal coordination further research. Instead, in this section the report structures for peer-learning and diffusion of knowl- aims at shedding light on the extent of skills mis- edge around successful green policies; and enhanced matches between brown and green jobs. In addition, monitoring and evaluation mechanisms to track the using econometric analysis, the analysis in this sec- progress on the EGD targets and detect negative ex- tion estimates the return to skills is higher in green ternalities (McCann and Soete 2022). The strength- jobs than in brown jobs. Ultimately, the section pro- ening of local institutional capacity will especially vides examples of transition pathways whereby apply to lagging and less prosperous regions, both workers in less-in-demand jobs can move to more- for their exposure to the drawbacks of the green tran- in-demand jobs with the minimum required cost in sitions and their existing gaps in institutional quality terms of training (see Annex H for the methodology (McCann and Ortega-Argilés 2016). employed for green jobs).54 Place-sensitive approaches to EGD implementation represent the best approach to limit its potential negative regional impacts in lagging-behind and development-trapped regions 104 5.  Addressing the Unintended Consequences Skills mismatches between green and skills from the WLE indices. For all of the skill catego- brown jobs ries, the differences between the distribution of skills are significant, according to a standard t-test. In Green jobs tend to be more intensive in skills than most cases we see a right-skewed distribution (indi- brown jobs are. Figure 5.6 provides a visual represen- cating a preponderance of higher skill levels) in the tation of the distribution of three kinds of skills (nu- case of green jobs and a clearer resemblance to a nor- meracy, literacy and problem solving from the PIAAC mal distribution in the case of brown jobs. In other survey) required for brown versus green jobs for the words, green jobs tend to require higher proficiency example of Poland.55 Figure 5.7 does the same for levels of all types of skills than brown jobs do. This is Policymakers’ tools to drive the green agenda are well-known—ranging from environmental regulation to investments in green technologies and carbon taxation— the exact mix of incentives and regulations needs to be tailored to the local context Figure 5.6:  Density Plots Green vs. Brown Jobs For major adult skills covered in the PIAAC survey Source: Authors based on PIAAC data. 105  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 5.7:  Density Plots Green vs. Brown Jobs in EU For WLE indices related to skills covered in the PIAAC survey Source: Authors based on PIAAC data. Green jobs tend to require higher proficiency levels of all types of skills than brown jobs do particularly true in the case of skills defined by such than 20 percent in brown jobs (Figure 5.9). Also, indices as “Index of use of ICT skills at home” and “In- nearly 60 percent of adults in brown jobs never do dex of use of numeracy skills at work” (Figure 5.7). such tasks at work, compared to around one third in These differences are larger among low-skilled green jobs. Similar differences are found for other workers. The lowest skilled workers in green jobs in questions measuring skills usage at work or at home. terms of numeracy are 20 points above those in People in green jobs also differ in terms of for‑ brown jobs (0.40 of standard deviation), while mal qualifications. On average, they have 13.4 years among the most skilled workers the gap is 15 points of schooling compared to 11.8 for people in brown (Figure 5.8). In problem solving using computers, jobs. In both groups most workers have around 13 the gap is 15 points for the low-skilled and decreases years of schooling. However, in green jobs many to 10 points for the high-skilled. Overall, people in more workers have higher qualifications, while in green jobs tend to have higher skills, and the low- brown jobs more workers have relatively little est-skilled workers in green jobs have much higher schooling (Figure 5.10). Both groups are similar in skills than the lowest-skilled workers in brown jobs. terms of age, but in green jobs there are more women. Workers in green jobs use skills more often at The skills gap between green and brown jobs work and at home. For example, around one third of are mostly related to years of schooling and partly workers in green jobs use or calculate fractions or related to the usage of skills. Half of the average percentages every day at work, compared to less difference in numeracy skills between green and 106 5.  Addressing the Unintended Consequences Figure 5.8:  Skills Advantage—Green vs. Brown Jobs across the Distribution 25 20 Skills advantage (%) 15 10 5 0 p10 p25 mean p75 p90 numeracy literacy problem solving Source: Authors based on PIAAC data. Note: Results represent average results across EU countries that participated in PIAAC. Workers in green and brown jobs are similar in terms of age, but more women work in green jobs Figure 5.9:  Example of a Question Measuring Numeracy Skills Usage at Work 70 60 calculate fractions or percentage (%) 50 How often at work use or 40 30 20 10 0 Never Less than once a month Less than once a week At least once a week Every day brown green Source: Authors based on PIAAC data. Note: Results represent average results across EU countries that participated in PIAAC. 107  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 5.10:  Example of a Question Measuring Numeracy Skills Usage at Work .25 .2 .15 Density .1 .05 0 5 10 15 20 25 Years of schooling brown jobs green jobs Source: Authors based on PIAAC data. Note: Results represent average results across EU countries that participated in PIAAC. The skills gap between green and brown jobs are mostly related to years of schooling and partly related to the usage of skills brown jobs is explained by different levels of school- for skills, an indicator of the greenness of jobs, and ing in the compared groups, and one third is ex- an interaction term between skills and the greenness plained by differences in the usage of skills at home of jobs, shows that skills are positively related to or at work. In other words, people in green jobs have wages (Table 5.1).56 This association seems to be higher numeracy because they are better educated, stronger in green professions. Using a dummy vari- but also because they use these skills more often. The able showing whether a job is brown or green, the gap between the low-skilled workers in green and estimates suggest that returns to skills are 5 percent brown jobs is almost fully explained by years of higher in green jobs. Using a continuous measure of schooling and skills usage at work or at home. For the greenness of jobs, one standard deviation im- the top-skilled workers, years of schooling explain provement in skills is related to an increase in wages most of the gap, while usage of skills is less related. of 2 percent. A more disaggregated approach to measuring the relationship between skills and wages in green Returns to skills in green and brown jobs and brown jobs generates slightly different re‑ Green and brown jobs also differ in terms of re‑ sults. The approach is to separately estimate the ef- turns to skills. PIAAC data provide information fects on wages of foundational skills (numeracy, lit- about hourly salaries and occupations of adult eracy and problem solving), their usage at home or workers, in addition to different measures of skills at work, and soft skills. As in the analysis above, and skills usage, for the example of Poland. Estimat- higher skills are strongly associated with better sala- ing the relationship between earnings and an index ries. However, while the relationship between skills 108 5.  Addressing the Unintended Consequences Table 5.1:  Log Hourly Wages in Green and Brown Jobs Explained by Skills, Age, Gender, and Sector Log of hourly wage Green vs. brown jobs Continuous indicator (including bonuses) (dummy indicator) of green core Skills 0.23*** 0.26*** (0.01) (0.00) Green -0.02 0.01 (0.03) (0.01) Skills*green 0.05*** 0.02*** (0.01) (0.00) Source: Authors’ based on PIAAC micro data. Note: Standard errors in parentheses. * p<0.05; ** p<0.01; *** p<0.001. and green jobs is stronger than between skills and Identifying the transition paths with the small‑ brown jobs, statistical tests did not confirm that the est differences between the skills required for difference is significant at the 0.05 level. Only the as- brown versus green jobs would help workers and sociation between years of schooling and wages is firms make efficient decisions on career paths. The significantly stronger in green jobs when compared skills mismatches and shortages preliminarily to brown jobs. In all regressions, the results suggest shown in this analysis might pose a major obstacle in that returns to skills for women and in the private green transitions. Reducing the investment in time sector are higher in green jobs. and money in the training required to move from a brown job to a green job would ease this transition. This is where our methodology is especially useful. Transition pathways Using similarity indices (tasks level) along with the The green transition is likely to have a major impact PIAAC data (skills level) we can identify occupa- on the demand for skills. The skills required and tions where the transition from brown to green is the tasks involved in existing occupations will change most feasible, that is, upskilling or requalification and shifts in relative demand for particular occupa- should be easiest (Box 5.4).  tions will require job transitions and may change Three examples of efficient transitions pathways workers’ career paths (Bowen et al. 2018: 10). Devot- are shown for Poland. The jobs chosen are roughly ing more resources to training should help some compatible in terms of skills and tasks. Essentially, workers make the transition from lower-paying brown this methodology can identify occupations that can jobs to higher-paying green jobs. Such efforts could be treated as talent pools for green economy devel- help to moderate the deterioration of income distri- opment. The greenness of a job is indicated using a bution implied by increasing demand for green jobs color scale. These examples identify a few possible that are more intensive in skills compared to brown transitions from a brown job (green index = 0) to a jobs (see also the modelling exercise in chapter 2). highly green one. For each transition example we Identifying the transition paths with the smallest differences between the skills required for brown versus green jobs would help workers and firms make efficient decisions on career paths 109  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Box 5.4:  Identifying Transition Pathways A crucial tool in the transitioning into the green economy proposed in the literature is the identification of linked jobs requiring similar workers characteristics and, consequently, a minimal additional preparation to transfer (Consoli et al. 2016). The literature offers various types of complementary dimensions such as job tasks, formal education requirements, work experience or routine indices to measure the distance between brown and green occupations (ibidem). We add to this literature by (i) experimenting with an original NLP model for revealing job similarities based on tasks’ descriptions and (ii) using PIAAC scores and wages as proxies for dis- tances between occupations. The identification of similarity scores is powered by natural language processing and network analysis. We retrieved jobs and tasks’ descriptions from the official Polish Labour Office and Labor Offices Job Postings site using Selenium web scraper. Our dataset consists of 2.7 thousand unique entries (elementary occupations at the 6-digit level). We used a semantic indexing model—latent semantic indexing (LSI)—which is an indexing and retrieval method that uses a mathematical technique called singular value decomposition (SVD) to identify patterns in the relationships between the terms and concepts contained in an unstructured collection of text. LSI is based on the principle that words that are used in the same contexts tend to have similar meanings. A key feature of LSI is its ability to extract the conceptual content of a body of texts by establishing associations between those terms that occur in similar contexts. LSI is often used to perform automated document cate- gorization. In fact, several experiments have demonstrated that there is correlation between the way LSI and humans process and categorize text. We applied an LSI model with 100 topics (the number was established by trial and error). We can describe each document (job) in our corpus as a mixture of topics. Using standard distance metrics we can calculate similarity of all vs all pairs of documents—in other words similarity of vectors containing information about topics mixtures. We use cosine distance to create a 2.7k/2.7k (rows/columns) similarity scores matrix for all occupations. provide data on mean proficiency in key informa- engineer—possess on average higher or similar tion-processing skills (literacy, numeracy and prob- skills than workers occupying similar jobs and at the lem solving) of workers occupying related positions same time are paid less (Figure 5.13). This mismatch along with the mean wage. would make it very difficult to meet the growing de- Skills and wages analysis yields important in‑ mand for environmental engineers by retraining sights for the green employment policy in Poland. workers from similar occupations. It could be Example 1 shows that renewable energy engineers achieved by applying a policy mix aimed at human in Poland tend to possess lower skills than workers resources development and wage subsidizing (e.g., in similar occupations (see skills indices along the by recycling carbon tax income; Figure 5.11 Green bottom of Figure 5.11). This insight differs from the job transition example 1). results of Consoli et al. (2016), who found that engi- Some brown-to-green job transitions can lead to neers have the smallest skill distance across jobs. wage decreases. ‘Geophysical engineers—mining Higher skills are related in this case to higher wages. geophysics’ (ISCO-08 code: 214608) present a rela- Thus, for engineers to retrain and start a career in the tively higher proficiency in problem-solving. Ac- renewable energy sector might require active labor cording to the similarity score, a geophysical engi- market measures, such as subsidies, to hire support- neer working in mining will find it easier to transition ing enterprises and institutions seeking to retrain to a geotechnical engineer (Figure 5.14). However, renewable energy engineers. In the second exam- all proposed transitions are associated with a de- ple—environmental inspector—the skill and wage crease in the median salary (based on LFS 2020). gaps are less prominent (Figure 5.12). We see a po- Still, transitioning to a geotechnical engineer ensures tential for transition from several occupations, e.g., the lowest wage decrease. crisis management officer or forestry engineer. Some other brown-to-green transitions may re‑ However, as both would require upskilling, they call quire substantial more upskilling and potentially on targeted supply-side measures, e.g., vocational wage subsidies. The transition pathways for ‘oil training. The last example shows a situation where and gas processing controller’ (ISCO08 code 313401) workers in the greener occupation—environmental show that the most similar occupations involve a 110 5.  Addressing the Unintended Consequences Figure 5.11:  Green Job Transitions for Renewable Energy Engineers Note: Color represents green core index (0.1: e.g. Mechatronics technician, 1: e.g. Renewable energy engineer), values on edges reflect similarity scores, numbers in bubbles refer to major occupation groups. Note: Lit. - Literacy, Num. - Numeracy, Prob. - Problem solving PIAAC scores. Numbers and shadow boxes refer to the mean of three scores. ALMP and adult training policies should use existing data and evaluation tools to provide more effective career guidance and tailor skill upgrading offers for individuals 111  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 5.12:  Green Job Transitions for Environmental Inspectors Note: Color represents green core index (0.1: e.g. Crisis management officer, 1: e.g. Wildlife or environmental conservation warden), values on edges reflect similarity scores, numbers in bubbles refer to major occupation groups. Note: Lit. - Literacy, Num. - Numeracy, Prob. - Problem solving PIAAC scores. Numbers and shadow boxes refer to the mean of three scores. substantial skills gap that would require upskilling returns. Those who lack foundational skills will (Figure 5.15). But the upskilling may not translate have difficulties moving from brown to green jobs into higher wages. While oil and gas processing con- and often will have to accept lower wages. Policies trollers’ alternative occupations demand higher need to support acquisition and constant upgrading skills, they offer relatively lower wages. This mis- of skills but also provide guidance in job matching. match would make meeting the growing demand Actions are required in two areas. One is to for green occupations difficult to achieve by retrain- strengthen teaching and upgrading of foundational ing workers alone. Instead, human resources devel- skills. Second is to provide data-driven career guid- opment would probably need temporal wage subsi- ance and targeted upskilling to facilitate transition dies (e.g., by recycling carbon tax income). between brown and green jobs. Clear policy recommendations can be derived First, education and training systems should from this model to ease the transition. Successful more effectively equip students and adults with and just transition to a greener economy will require foundational skills. Garrote Sanchez and Makovec substantial upskilling of the current labor force. (forthcoming) show that education acts as an en- Workers with strong foundational skills have more abler of green jobs by reducing the need for retrain- green job opportunities and can expect higher ing for the green economy (for both, the intensive 112 5.  Addressing the Unintended Consequences Figure 5.13:  Green Job Transitions for Environmental Engineers Note: Color represents green core index (0: e.g. Toxic waste treatment plant operator, 1: e.g. Environmental protection technician), values on edges reflect similarity scores, numbers in bubbles refer to major occupation groups. Note: Lit. - Literacy, Num. - Numeracy, Prob. - Problem solving PIAAC scores. Numbers and shadow boxes refer to the mean of three scores. and extensive margins).57 According to PISA data a transition opportunities for graduates whose specific substantial number of students in EU countries do skill set is not matching future demand in the green not master basic competency levels in reading, economy. School systems focus on high-quality gen- mathematics and science. According to the PIAAC eral training that allows graduates to flexibly update survey a significant proportion of adults lack suffi- their skills in the future and adapt to an ever-chang- cient numeracy, literacy, and computer skills, to par- ing economy and labor demand. Education systems ticipate in the green economy or to benefit from tech- should also improve their career guidance and coun- nological change. Schools need to improve the selling services to prevent discouragement and provision of foundational skills to limit future labor wrong career choices. Students in secondary schools market inequalities caused by the green transition. should be offered opportunities to experience differ- This includes vocational training (VET) as higher re- ent jobs and explore possible educational and pro- turns to skills in green jobs are observed also among fessional options. PISA data show that in most Euro- workers with VET degrees. Focusing on narrowly de- pean countries a majority of 15-year-olds do not fined technical training in VET systems might limit have such opportunities (OECD 2021). 113  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Figure 5.14:  Brown-to-Green Jobs Transitions for Geophysical Engineer– Mining Geophysics Note: Color represents green core index (scale 0–1, e.g. Hydrometeorologist: 0.75, Geophysical engineer: 0), edges values reflect the similarity index, numbers in bubbles refer to major occupational groups. Note: Lit. - Literacy, Num. - Numeracy, Prob. - Problem-solving PIAAC scores. Numbers and shade boxes refer to the mean of three scores. Median wages are reported in square brackets. Second, ALMP and adult training policies should promising transition pathways in the labor market. use existing data and evaluation tools to provide The results in this chapter can serve as proof-of-con- more effective career guidance and tailor skill up‑ cept and are based on the web-scraped information grading offers for individuals. In order to foster of tasks descriptions in different jobs in Poland, but green jobs, it is necessary to increase workers’ capac- replicating similar analyses in other countries and ities and connect them to jobs (Bulmer et al. 2021). regions is possible (adjusting for the variety of data). Similarly, this chapter argues that those capacities Such analyses can provide individually tailored and those connections require a pathway with some guidance for workers in brown jobs, matching their degree of granularity. The examples provided above skills to green professions and pointing out gaps depict task-based quantitative analysis for different that must be addressed with ALMP policies or more professions to identify the non-intuitive, yet formal training. Providing training of foundational 114 5.  Addressing the Unintended Consequences Figure 5.15:  Brown-to-Green Jobs Transitions for Oil and Gas Processing Controller Note: Color represents the green core index (scale 0–1, e.g., Chemical reactor controller: 1, Oil and gas processing controller: 0), edges values reflect the similarity index, and numbers in bubbles refer to major occupational groups. Note: Lit. - Literacy, Num. - Numeracy, Prob. - Problem solving PIAAC scores. Numbers and shade boxes refer to the mean of three scores. Median wages are reported in square brackets. skills for adults is a major challenge, with less than 2 challenges. These assessments together with skill percent of low-educated adults participating in any matching exercises that point to the most similar type of formal learning in the EU (Eurostat, indicator green jobs in terms of tasks and skill requirements, TRNG_AES_102; 2016 data). Courses for adults can benefit in increasing the effectiveness of ALMPs. Several European countries established centers that need to be highly flexible and focus on skill gaps recognize prior learning of adults to support them in (rather than providing full courses similar to those further skills upgrading and formal recognition of offered for children and youth). To make this process their qualifications, but still, these are relatively effective, it is necessary to develop tools that can small-scale efforts. The green transition requires quickly assess levels of foundational skills in adults large-scale solutions that offer skill evaluation tools, and develop training schemes that fill the most im- job matching guidance, and targeted training to portant skill gaps for groups of adults with similar close gaps and facilitate job transition. 115  6 ENABLING A HUMAN-CENTERED GREEN TRANSITION 6.  Enabling a Human-Centered Green Transition T his report attempts to make the case that policies at other levels of government to be aligned there is no green transition without the and ready to support both, climate action, and the right human development policies to en‑ human development policies that must accompany able it. It also suggests that human devel- them. Both, national and subnational policies are opment is a core element of adapting society to a therefore crucial for a sustained green transition, new and more sustainable economy. And just as im- and for a just one as well. It is possible that the level portant, the potential unintended consequences of of institutional and policy preparedness across EU the green transition can be best addressed through countries is heterogeneous. And its heterogeneity human development. However, a green transition is might increase when the three HD policy roles (i.e., not effective, efficient, sustainable or attainable with- enabling, adapting and mitigating) are related to the out addressing the binding constraints. First, for the three sectors in HD (i.e., education, health, and so- green transition to be effective, a multi-level policy cial protection). and institutional framework to align supra-national, An initial assessment of policy preparedness at national and subnational policy making is required. the HD sector level shows that preparedness is het‑ Second, an efficient green transition needs sufficient erogeneous across countries. Using visual heat maps and diversified sources of financing to avoid crowd- (evidence tables that show sector-specific policy cov- ing out investment. Third, to make it sustainable, the erage for each country in a matrix, see methodology green transition should be mindful of the unin- in Annex G) show that more policy preparedness tended consequences and address potential discon- needs to be done in health (Figure 6.1). Similarly, the tent in lagging regions that may pose political chal- country—among those that the report considers as lenges for the overall sustainability of the EGD. Finally, case studies—Poland stands out for its relatively for the green transition to be ultimately attainable, weaker preparedness, whereas Croatia seems to be an unavoidable behavioral change in consumption doing the most progress across HD sectors in the last preferences and investment decisions is needed to 10 years.59 avoid reversals into old and suboptimal equilibria. The EGD requires national and subnational partners to address misaligned policy objectives, and fragmented HD policies that could prevent Making it Effective: successful outcomes. National and subnational pol- Policy preparedness icy preparedness is crucial for a successful green The EGD is a formidable framework to trigger the transition and to address any unintended conse- green transition. This report argues that human de- quences. There is ample evidence that OECD coun- velopment policies related to climate change can tries suffer from fragmented policy frameworks on play the role of enabling the green transition, adapt- HD sectors to prepare societies for climate action. ing individuals to a green economy and mitigating For instance, for a subset of 14 OECD countries, the unintended consequences of such transition. The Panic and Ford (2013) found a number of limitations EGD represents a powerful effort to provide the reg- to health policy documents. Among the shortcom- ulation and incentives to nudge the European soci- ings in the health sector policy making, the authors ety towards a circular and more sustainable econ- found negligible consideration of the needs of vul- omy. Consequently, the EU has enacted a set of nerable population groups, limited emphasis on lo- policies that contribute to the achievement of the cal risks, and inadequate attention to implementa- three core objectives along the 8 policy actions.58 tion logistics, such as available funding and timelines But the EGD alone won’t be sufficient for a sus‑ for evaluation. While they found a similar heteroge- tained and just transition, and national and subna‑ neity as Table 6.1 in this report, they also found a tional policies must be aligned and in place. While bias towards mainstreaming a sectoral (health-re- top-down approaches for the green transition are lated), rather than a multidisciplinary, approach to necessary, its successful implementation requires integrate HD. There is no green transition without the right human development policies to enable it 117  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE Table 6.1:  Heat-Map Policy Analysis for the Slovak Republic, Croatia, and Poland Policy Heat-Map Education Health SPJ Slovak Republic 5 6 5 Croatia 10 6 11 Poland 1 1 3 Source: Own analysis based on data and methodology detailed in Annex G. Making it Efficient: Financing the objectives of the EGD if the funds are managed and green and human transitions spent appropriately. Mechanisms to redirect public funding, taxing, The Next Generation EU Recovery Plan is intended and consumption towards GE projects can mobi‑ to integrate the green transition with the coronavi‑ lize private sector capital towards the green transi‑ rus pandemic regional recovery. To support the ob- tion. The private sector, with the support of the pub- jectives of the EGD, the European Commission plans lic sector, will play a key role in filling the holes in to direct at least EUR 1 trillion (which represents the financing needs for the green transition. Even around 7.2 percent of the EU’s 2020 GDP) over the with record amounts of funds allocated towards the next 10 years towards these efforts (EC 2020). On an green transition, there is an estimated gap of EUR 2.5 annual basis, additional investments of approxi- trillion, expected to be filled by private sector fund- mately EUR 260 billion, about 1.5 percent of 2018 ing through environmental, social and governance GDP, are expected to be needed (EC 2019c). The Next (ESG) related projects (Brühl 2021). One area of op- Generation EU (NGEU) plan, which will allocate portunity to spur green finance via the private sector is to strengthen the knowledge of government regu- €806.9 billion as of August of 2021 towards the re- latory bodies to facilitate green project implementa- covery from the COVID-19 pandemic, plans to in- tion. In addition, local financial actors can become corporate a strategy to not only increase the EU’s well informed on the opportunities of climate-resil- GDP, but also make the region more resilient to fu- ient sectors to work with a clearer view of risks and ture shocks, especially through the EGD and the dig- potential gains involved with such projects (World ital revolution (Deloitte 2021). For approval of the Bank 2022d). Furthermore, the European Emission disbursement of funds, each EU member state was Trading System (ETS) is used as a market-based in- required to develop a National Resilience and Re- strument to influence the reduction of GHG emis- covery Plan (NRRP) which had to designate at least sions, while environmental taxation and carbon 37 percent of the outlined investment towards the taxes can be used to complement the ETS by allow- green transition (Bisciari et al. 2021). Furthermore, ing pollutants in sectors not included or not promi- 30 percent of the NGEU funds will be allocated as nent in the ETS to absorb the costs of potentially green bonds (Bisciari et al. 2021). The mechanisms environmentally harmful activity. An example is incorporated into the Multiannual Financial Frame- transportation, which is estimated to account for work (MFF) for 2021–2027 and financing frame- over 20 percent of the EU’s GHG emissions (Euro- works like the NGEU present an opportunity to re- pean Commission Directorate-General for Taxation vitalize the EU’s economy and work towards the and Customs Union 2021). Human development is a core element of adapting society to a new and more sustainable economy 118 6.  Enabling a Human-Centered Green Transition A green transition is not effective, efficient, sustainable or attainable without addressing the binding constraints The green economy transition will have impacts Making it Sustainable: on certain regions and sectors that currently rely Addressing discontent heavily on carbon- and fossil fuel-related indus‑ tries (see chapter 5). Intentional adjustments to The EGD’s regional impacts are set to reshape the make the transition viable and congruent with eco- geography of jobs and regional specialization pat‑ nomic and social needs in those localities will be es- terns and, with it, the future concentration of wealth sential. The Just Transition Fund was designed to across European regions. The industrial and eco- assist carbon-intensive regions in the green transi- nomic reconfiguration will have a significant impact tion by making available approximately EUR 30 bil- on societal issues, especially in the context of rising lion in addition to the EUR 19.2 billion from direct territorial polarization, which has characterized Eu- EU contributions (Emiliano et al. 2022, 1). In addi- rope in the last decade or so. Were the green transition tion, the Modernisation Fund presents an opportu- to accelerate an already existing trend of increasing nity to fund energy-efficiency projects in lower-in- spatial divides, citizens in lagging-behind and devel- come countries of the EU via an auctioning of up to opment-trapped regions may become increasingly 2 percent of the EU Emission Trading Systems allow- reluctant to support the very environmental policies ances for 2021–2030 (Catuti and Elkerbout 2019). necessary for reducing greenhouse gas emissions With a regional connotation, approximately EUR and keep climate change at bay. Whereas an EU- 17.5 billion in terms of 2018 constant prices will go wide narrative is essential to create a common goal towards regions for which the green transition en- and support from the widest range of societal stake- tails the most adjustment and impact (Bisciari et al. holders, the asymmetric impacts of the EGD, espe- 2021). The Just Transition Mechanism will mobilize cially during the transition period, will need to be up to EUR 150 billion via the Just Transition Fund, addressed if the risk of having strong opposition to InvestEU, and the European Investment Bank (EIB) the implementation of environmental policies is to by supporting regions and people most affected by be avoided. Strong discontent is blowing wind into the green transition through reskilling of workers, the sails of political options that are either climate enterprise development, and circular economy proj- change deniers or opposed to the adoption of poli- ects (Más Rodriguez 2021). In addition, the EIB will cies to combat climate change. General discontent leverage EUR 10 billion in loans from the public sec- across European regions has been on the rise in re- tor loan facility for public investment on projects to cent years. It has affected the whole continent, but assist the enabling of a just transition such as reno- especially places that have struggled to benefit from vation of buildings, and energy and transport infra- the socio-economic gains of the digital transition structure (Más Rodriguez 2021). and have suffered from negative externalities For the green transition to be effective, a multi-level policy and institutional framework to align supra-national, national and subnational policy making is required 119  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE The EGD alone won’t be sufficient for a sustained and just transition, and national and subnational policies must be aligned and in place related to globalization and processes of outsourcing With a green transition set to create regional and offshoring. A growing ‘geography of discontent’ winners and losers, similarly to previous structural has been emerging in different countries and across changes stemming from digital innovation and European regions (Dijkstra et al. 2020; McCann European integration, there is no reason to be‑ 2019). Many citizens—and especially those in eco- lieve that the EGD will be immune from such pop‑ nomically more vulnerable regions—feel increas- ular opposition in losing territories. The rise of ingly disenfranchised and disconnected with high- populism and support to anti-establishment par- level governance and policy-making narratives. ties—the very parties which often champion an- This discontent is at the root of past failed attempts ti-green policies—may prevent an EU-wide imple- to implement top-down policy initiatives. (The mentation of the EGD and the full achievement of Economist, 2019). At times, discontent has been emissions targets. driven by policy initiatives aimed at leveraging effi- ciency and maximization of returns, hence concen- Making it Attainable: Behavioral change trating investment in core prosperous regions. The existing territorial polarization is exacer‑ In a context in which policies focus on decoupling bated by the interplay between inadequate endog‑ the economy from material consumption and in‑ enous endowments and exogenous global trends. crease efficiency, firms are faced with a choice to Opposition to basic EU principles, such as free mo- continue in the market by introducing capital in bility of capital and labor, migration within EU bor- the form of new technologies. Overall, this process ders, or economic integration and globalization has of capital deepening leads to an increase in the de- been on the rise across the EU regions. Citizens, mand for higher skills that are compatible with the mostly in economically and graphically declining use of new technologies. Workers are therefore con- regions, have resorted to the ballot box—and in cer- fronted with the choice of reskilling for new and tain cases, revolts—to undermine the very factors on greener activities or find other economically active which recent economic growth and prosperity has occupations—among which inactivity. The short to been based (Horner et al. 2018; Rodríguez-Pose medium-run equilibrium will exhibit changing rela- 2018). This has been referred to as the ‘revenge of the tive prices for both the goods and services market, places that don’t matter’, as the roots of this antago- and the labor market. In the case of the former, the nism are found in regions experiencing years of de- EGD acts as a carbon tax to brown industry and as a cline, lack of opportunities, and perceived neglect subsidy to the green economy, thereby changing rel- (Rodríguez-Pose 2018). ative prices in the economy. In the latter, the demand An efficient green transition needs sufficient and diversified sources of financing to avoid crowding out investment 120 6.  Enabling a Human-Centered Green Transition To make it sustainable, the green transition should be mindful of the unintended consequences and address potential discontent in lagging regions that may pose political challenges for the EGD’s overall sustainability for higher skills will also change relative factor Germany and other countries). However, these ac- prices between capital and unskilled labor, as well as tions could undermine the need for longer-term al- capital to skilled labor. ternative energy solutions. There will likely be winners and losers in the In the long run however, while most policies transition. These adjustments lead to an equilibrium would have already assisted with the adjustment, in which some firms and some workers in some of two countervailing forces may determine the equi‑ the regions lose vis-à-vis others that can produce for, libria. On the one hand, as demand for carbon-based work in, and host, respectively, greener activities. production falls, their relative prices will follow Policies aiming at providing support to firms’ tech- through. Since carbon-based products could at some nological adaptation, workers’ reskilling while pro- point become sufficiently cheap that they become viding social safety nets to affected households and once again attractive, the equilibrium in production support an upgrading of education and health sys- may shift at least partially, back to carbon. Intui- tems will be the measures that will help with the tively, a further equilibrium in which demand for human transition to a greener economy. carbon-based products increases their prices, de- In the short run, energy challenges stemming mand for greener products may swing back. This from the war in Ukraine exemplify the vulnerabil‑ interplay between the two types of production will ity of some of the EGD’s core objectives. Russia’s continue given the relative prices and hints at the invasion of Ukraine triggered a series of sanctions possibility of unstable equilibria. by the USA and the EU. Russia’s reaction was to de- Behavioral change is indispensable for a sus‑ mand payments for gas exports in rubles. Supply tained green transition. However, on the other was then cut to Europe as individual countries de- hand, a change in consumers’ behaviors and prefer- clined to make payments in rubles. With a signifi- ences, may prevent a long-run escalation of unstable cant dependence on Russian gas, European coun- equilibria. In as much as consumers’ choices change tries have tried to diversify by importing liquified in favor of cleaner products, the EGD may have pro- natural gas (LNG) from the USA and Asia.60 How- duced long-lasting changes in: (i) consumption pref- ever, the lack of infrastructure to transport and store erences, (ii) firms’ choices in the mix of factors of LNG in a number of European countries has trig- production, (iii) workers’ choices for human capital gered the need for quick solutions (e.g., offshore investment, and (iv) overall societal choice of health ships converting LNG back into gas as in the case of outcomes. 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Unlocking Green Finance in Turkey, sitions, Washington, DC: World Bank Group. Washington, DC: World Bank. World Bank. 2021b. “Social Protection and Labor: A Key Wu, H., D. Peng and L. Wang. 2021. “Model for sustain- Enabler for Climate Change Adaptation and Mitigation able development based on system dynamics and en- (DRAFT).” World Bank, Washington, DC. ergy–economy–environment coordination: A case study of Beijing, China.” Energy Science & Engineering 9: 828–842. 129  MAKING THE EUROPEAN GREEN DEAL WORK FOR PEOPLE 11 More instability in investment was found in the Slovak Endnotes Republic (see Annex E). 12 This is particularly the case for the moderate-high scenar- 1 These case studies were selected on important aspects of io in which the EGD puts in place more astringent policies. the EGD, and in countries where the World Bank has 13 That is, demand trends in the long run, for both types of active engagements. workers, could move in opposite direction. Note that the 2 The source for the poverty data: https://documents1. result is a movement towards convergence, not that the worldbank.org/curated/en/706751601388457990/ former is achieved. Therefore, the wage gap will ex- pdf/Revised-Estimates-of-the-Impact-of-Climate- pand. Under one scenario, the moderate-high, there is Change-on-Extreme-Poverty-by-2030.pdf. the possibility that in the long run, the wage gap rises For job losses: https://www.ilo.org/global/about- and then contracts without closing. the-ilo/newsroom/news/WCMS_711917/lang--en/ 14 The higher scenario (SC2) accounts for EGD policies (as index.htm#:~:text=Projections%20based%20on%20 in SC1), and potential country/regional level policies a%20global,losses%20of%20US%242%2C400%20billion. that could increase the astringency of the vector of poli- For health: https://www.who.int/news-room/fact- cies shocking the economy. sheets/detail/climate-change-and-health. 15 Beyond HD, other productive-sector policies may be re- 3 Improving education levels are also related to an im- quired. For instance, entrepreneurial and financial-market provement in citizen’s environmental attitudes and be- policies that allow firms to fail and exit the market so that haviors through cognitive and non-cognitive factors, entrepreneurs can reenter the market with new ideas. though establishing causality requires further research 16 E-wallets are complete electronic solutions, allowing (Ambasz et al. forthcoming). beneficiaries to send and receive money, as well as carry 4 Program for the International Assessment of Adult out financial transactions. E-payments only deliver the Competencies (PIAAC). cash virtually to an account and are usually cashed out 5 Estimating the impact of skills on earnings, where skills by the beneficiary, thus not necessarily reducing travel are divided between foundational skills, their usage at for the beneficiary. home or work, and soft skills, also finds a somewhat 17 The substantiality requirement, however, would need to stronger relationship between skills and earnings in be met to qualify for CCBs. green than in brown jobs. However, the difference is not 18 Györi, M., Diekmann, K., and Kühne, E. 2021. The Impor- significant at the 0.05 level, with the exception of the re- tance of Social Protection for Climate Change Mitigation in lationship between years of schooling and earnings. LMICS: Success Stories and Opportunities for the Future. 6 Research shows that investments in improving quality GIZ.. There is, however, no experience to date on initia- of education can have long lasting benefits in mitigating tives improving environmental behaviors through inequalities arising out of environmental policies. Hav- SBCC campaigns and nudges. ing higher quality education increases the elasticity of 19 Reuters, 2020. skill supply and, as a result, mitigates a carbon tax’s eco- 20 World Bank. 2021. “Latin America and the Caribbean nomic costs including output loss and wage inequity Climate Change Action Plan: Technical Background Re- and enhances its effect on emissions reduction (Macdon- port.” World Bank, Washington, D.C. ald and Patrinos 2021). 21 Costella, Cecilia, Anna McCord, Maarten van Aalst, Re- 7 Chapter 6 concludes by not only recapitulating the ef- becca Holmes, Jonathan Ammoun, and Valentina Barca. fects and the policies to enable, adapt and mitigate, but 2021. “Social Protection and Climate Change: Scaling Up also by highlighting the binding constraints: behavioral Ambition.” Social Protection Approaches to COVID-19 change and financing. Expert Advice Service (SPACE), DAI Global UK, United 8 SDMs are useful to visualize and understand feedback Kingdom. dynamics. However, they do not allow the representa- 22 LAC SPJ Task Team Toolkit, World Bank, 2022. tion and interaction of discrete agents, limiting the un- 23 Cunningham, Wendy and Achim Schmillen. 2021. “The derstanding of micro behaviors (they ignore the rela- Coal Transition: Mitigating Social and Labor Impacts.” tionships that may emerge between the macro and Social Protection and Jobs Discussion Paper No. 2105, micro behaviors of the system).  World Bank, Washington, D.C. 9 Figures 2.1 through 2.4 are examples that represent just 24 World Bank. 2021. Social Protection and Labor: A Key parts of the overall SDM that are too large to show in a Enabler for Climate Change Adaptation and Mitigation single screen. See full details of the SDM in Annex B. (DRAFT). World Bank, Washington, DC. 10 Scenarios were built taking into account the current 25 IDB. 2020. Jobs in a Net-Zero Emissions Future in Latin state of the EGD and each one of the countries regarding America and the Caribbean. IDB and ILO, Washington, environmental taxes (https://ec.europa.eu/eurostat/ D.C. and Geneva. statistics-explained/index.php?title=Environmental_ 26 The Slovak Republic’s case study. tax_statistics), their recycling capacity (https://www. 27 Eurostat, indicator TRNG_AES_102. eea.europa.eu/ims/waste-recycling-in-europe) and the 28 https://www.oecd.org/els/emp/skills-and-work/ corresponding degradation of natural environment and adult-learning/Prior_learning.pdf ecosystems (https://unstats.un.org/sdgs/report/2019/ 29 See https://education.ec.europa.eu/sites/default/ goal-15/). It’s important to note that costs imposed to files/document-library-docs/pisa-2018-eu_1.pdf. firms resulting from supra-national, national, regional 30 the Slovak Republic case study. and local taxes and regulations, depend on where each 31 Crato, 2021 https://link.springer.com/book/10.1007/ firm is located. The two scenarios presented in this 978-3-030-59031-4 chapter offer a range of impacts that the EGD is likely to 32 The share of working age adults participating in learn- represent for the EU at large and each of the three ing in 2016 varied from only 7 percent in Romania to 64 countries selected for case studies. percent in the Netherlands. 15 of the 27 EU countries 130 Endnotes were below the EU target of 47 percent of working age Ireland, the Czech Republic, Luxemburg, Malta and Fin- adults participating in learning by 2025. land) nor was the value for employment in France. 33 The Slovak Republic’s case study. 50 As per the calculation method specified in Directive 34 OECD Skills Outlook 2021 Learning for Life: Learning 2012/19/EU of the European Parliament and of the for Life, Figure 3.16 Council of 4 July 2012 on waste electrical and electronic 35 International Labor Organisation. 2017. Green Initiative equipment (EEE). The ratio is calculated as the share of Policy Brief: Active Labor Market Policies. collected waste of the average weight of EEE put on the 36 Ed Markey Press Release. 2021. Senator Markey and market in the three preceding years Representative Ocasio-Cortez introduce Civilian Climate 51 European Court of Audits (2019) Corps For Jobs and Justice to rebuild America. https://www. 52 Production and consumption, waste management, sec- markey.senate.gov/news/press-releases/senator- ondary raw materials markey-and-rep-ocasio-cortez-introduce-civilian- 53 EEA (2019). climate-corps-for-jobs-and-justice-to-rebuild-america. 54 Skill differences between green and brown jobs are ana- Accessed: 10/27/2021 lyzed for the EU countries with PIAAC data available. 37 https://ec.europa.eu/eurostat/web/products-eu- Examples of job transition patterns are provided for Po- rostat-news/-/ddn-20220330-1 . land only using the unique dataset developed through 38 See Albania Environmental Services Project (P172543), web-scrapping of tasks required in job offers in this World Bank, Virtual Mission Aide Memoire, May 2021. country. 39 The source is Cedefop (2018c) from the Slovak Republic’s 55 These are kernel density estimation plots. We used El- case study. liott et al. (2021) to identify green jobs as those in occu- 40 OECD. 2020. COVID-19 response measures and their poten- pations with a greenness index greater than the average tial implication for greening the economies of Eastern Europe, greenness index. We use the skills profiles from the the Caucasus and Central Asia. GREEN Action Task Force, PIAAC data for the whole EU. As the occupation tasks Environment Directorate, OECD, Paris. descriptions are similar across Europe, similar figures 41 Note that unlike the other two countries, there is only one could be produced for other European countries. relevant policy document available in English for Poland. 56 The skills index combines information about years of 42 Suncˇana Slijepcˇevic ́ and Željka Kordej-De Villa. Public education and measures of foundational skills (numera- Attitudes toward Renewable Energy in Croatia. The Insti- cy and literacy), usage of skills at home and at work, and tute of Economics. soft skills (influencing, planning). Controls for age, eco- 43 See “Slovakia’s recovery and resilience plan” at https:// nomic sector and gender are included in the equation ec.europa.eu/info/business-economy-euro/recovery- (see Annex for details). coronavirus/recovery-and-resilience-facility/slovakias- 57 Extensive margin refers to the incidence of retraining recovery-and-resilience-plan_en needs, while the intensive margin refers to the depth of 44 Elkind, Jonathan and Damian Bednarz. Warsaw, Brussels, retraining needs. and Europe’s Green Deal: Challenges and Opportunities in 58 The three core objectives are: (i) reducing carbon emis- 2020. July 30, 2020 Colombia, Center on Energy Policy. sions, (ii) decoupling the economy from natural resource https://www.energypolicy.columbia.edu/research/ consumption, and (iii) leave no one and no region be- commentary/warsaw-brussels-and-europe-s-green- hind. The eight policy actions reported in the European deal-challenges-and-opportunities-2020 Commission (2022) are: (i) climate action, (ii) a clean en- 45 See UN Populaiton data and Global Material Flow data- ergy transition, (iii) a healthy food system for people base - https://www.resourcepanel.org/global-materi- and planet, (iv) an industrial strategy for a competitive, al-flows-database green, digital Europe, (v) protecting the environment 46 UNEP, 2019 and oceans, (vi) providing efficient, safe and environ- 47 Electronics and ICT, Batteries and Vehicles, Packaging, mentally friendly transport, (vii) investing in a green Plastics, Textiles, Construction and buildings, Food wa- future, and (viii) research and innovation driving trans- ter nutrient formative change. 48 (EEA, 2016). 59 The weakness of the heat map is that only one relevant 49 Latest available data on Eurostat. Values for both indica- policy was available in English for Poland. tors were not available for six member states (Estonia, 60 See The Economist (2022), “How Europe plans to cope as Russia cuts off the gas”, 1 June 2022. ANNEXES MAKING THE GREEN DEAL WORK FOR PEOPLE services, the technological progress required to meet Annex A. The Human the challenge would also require an emphasis on re- Transitions General Equilibrium search workers (r), so that the total skilled workers’ Model (HTGEM) wage bill will comprise research (r) and non-re- search (nr) workers: (4) The carbon-economy equilibrium It follows that labor is made of unskilled and Our analytical approach follows a general equilib- skilled (including research) workers subject to rium model in which society faces the choice of ei- skill-specific shares reflected in ω (1 for skilled and 2 ther consume goods and services, invest in produc- for unskilled), and the elasticity of substitution be- tive capital or address climate change.1 Following tween types of workers (): Nordhaus (1992), the choice is represented by an aggregate utility function based on consumption so (5) that: To allow for labor mobility across countries as it (1) is the case in the EU, foreign workers (f) are assumed to be able substitutes for local workers (l) with an where U is the utility derived from consumption, c(t) elasticity of substitution among them (ρ2): represents consumption at time t, N is population at time t, and τ is the social preference rate. Thus, the (6) equation depicts the time-discounted value of the sum of utility functions. The maximization is then subject to two restrictions in terms of economic (7) growth and in terms of emissions. The set of economic constraints, in particular to where ω continues to be the share of worker type (3 the decreasing returns to capital model in Ramsey for skilled local, 4 for skilled foreign, 4 for unskilled (1928). Thus, the maximized utility equation (1), is local, and 5 for unskilled foreign), and elasticity of based on the utility definition: substitution between types of workers () according to 2 local to foreign among skilled workers, and 3 for (2) local substitution for foreigners among unskilled workers. where α is the rate of inequality aversion ranging Assuming there are no consumption externalities from 0 to 1, so that the larger α becomes, the more of choosing one location over another, workers will aversion to inequality a given society displays and a move to locations chiefly based on relative factor preference for more egalitarian systems. prices, specifically relative wages. However, loca- tions with higher wages will attract further workers, until the receiving and sending locations’ wage gap Labor, skills, and technology for narrows. The narrowing of the wage gap will be the carbon-neutrality result of rising wages in locations losing labor, and Consumers then obtain personal or household in- declining wages in the region that receives the in- comes according to their marginal productivity ex- flow of workers. The same phenomenon will occur pressed in wages. The greater the skill the greater by segment of the labor market (i.e. unskilled and their contribution to productivity and reflected in skilled) subject to the elasticity of substitution (ρ). higher wages. The economy wide income derived Each location’s resulting labor share (λ) of unskilled from labor is obtained by the sum of all workers’ re- workers will therefore be: munerations according to their individual skill: (8) (3) where W stands for wages, L for number of workers and correspondingly for skilled workers: (labor) and u and s refer to unskilled and skilled workers correspondingly. While the EGD’s human (9) transitions will require skilled workers for the pro- duction of capital and consumption goods and where location i is different from location j. 134 ANNEXES For simplicity, the production process could oc- and the associated cost of acquiring capital will de- cur under a constant-returns-to-scale Cobb-Douglas cline with past accumulations expressed in the in- production function in which total factor productiv- tensity of capital: ̃) ity is represented by A, capital (K), effective labor (L and natural resources (E): (15) (10) With this market structure favoring innovation in subject to β + γ ≤ 1 firms exerting market power, innovation (V) in a steady-state growth path would become: Aggregate demand will therefore be the results of all factors of production at their marginal product (as- (16) suming payments to the factors of production reflect their true contribution to productivity as in the Ar- where is the maximum A which in turn indicates row-Debreu model), so that the linear equation for productivity gains stemming from the leader’s tech- (10) is:2 nology (or the leading-edge technology); represents (11) as before, firms’ profits and k continues to be capital intensity at steady-state level. Similarly, r is the dis- (12) count rate applied to future consumption and φ is where r refers to the payments to capital, and p is the innovation probability flow and ϑ represents the prices under the carbon (c) economy. level of research. However, the EGD implies an investment of physical and human capital to face policy shocks re- The carbon-neutral economy lated to the objectives in the new green economy. The demand therefore for innovation will be signifi- An EGD framework requires to account for the cou- cant. Technological progress will then accelerate. As pled relationship between production—and its a consequence, some firms may be able to acquire or growth—and carbon emissions, as well as natural develop newer technologies; however, some others resource consumption. The framework assumes that would likely not. Therefore, assuming constant re- a short-term fixed rate, but long-run variable ratio, turns to scale as in equation 10, at least in some of the of carbon is an externality of production. Similarly, sectors would not be realistic. Instead, technology the model also incorporates a rate with similar inter- and innovation will determine market structure for temporal properties for production and natural re- firms. Innovation in this Schumpeterian view leads source consumption. The depletion of natural re- to a creative destruction (Schumpeter, 1934), which sources is then given by: is only possible if some protection is provided to (17) new ideas in the form of patents and copy rights. where D is the net depletion of natural resources, n The likely unintended consequence is, some degree ranges from 0 to 1 and represents the ratio of natural market concentration. Monopolist and oligopolistic resources consumption to gross production (Q). D is competition would then require firms’ profit-maxi- net of any offsetting elements provided by reforesta- mizing supply to be: tion or any action that leads to replenishment (R) of (13) natural resources (E). Greenhouse gas (GHG) emissions are an exter- where represents the cost of renting or acquiring nality of production and thereby a ratio that changes capital, and is the share of revenues that accrue to over time with efficiency (ε), and a ratio to produc- workers. Following Aghion and Howitt (1999), A be- tion represented by σ: comes the average productivity parameter and (1−θ) (18) represents profits. It is therefore implied that the It follows that overall impact (I) of production will be: sum of intermediate outputs equals the intensity in the use of capital (i.e. capital-labor ratio) so that: (19) Following Hallegate et. al. (2012), a vector of pol- (14) icies that aim at controlling or reducing can be con- sidered under the vector P(e), which may have the 135  MAKING THE GREEN DEAL WORK FOR PEOPLE effect of inducing efficiency (such as those related to technologies that will trigger a change in labor de- the European Green Deal): mand patterns; and (iii) relative wages will increase (20) in favor of skilled workers. where ψ measures production efficiency. P(e) will be assumed to lead to a reduction in GHG through the The short-run equilibrium ratio μ. Thus P(e) in equation 20 will transform equa- Assuming firms have no particular market power so tion 18 so that: that n firms operate in i location, labor market equi- (21) librium condition would imply that labor demand (Ld) and supply (Lt as in equation 5) are effectively In order to better understand how environmen- matched: tal-upgrading policies may entail costs to different economic agents, but at the same time lead to effi- (26) ciencies and positive externalities, economy-wide Firms will then invest in capital according to the effects need to be modeled from the basic produc- market structure, in those markets in which technol- tion equation using the output approach: ogies are widely available (e.g. solar panels), the in- (22) dustries market structure can be assumed to reach a monopolistic competition equilibrium and thus, face where aggregate demand is represented by Y, P are prices that include an elasticity of substitution prices and Q production for i industry in t time. among varieties of the same product so that: Prices in equation 22 are t=0 where carbon industries are still largely unaffected by ay elements in P(e). (27) Since Y can also be accounted for using the expendi- ture approach: where are prices in location i under the new condi- tions imposed by carbon neutrality (n). These prices (23) are explained as individual prices in location i and All output in the economy (equation 22) is equal to subject to the elasticity of substitution for other vari- all expenditures (equation 23) and to the sum of all eties (ε > 1). In contrast, for industries in which tech- payments to the factors of production (the simpli- nologies are the result of innovation, market struc- fied form of equation 12), so that: ture can be assumed to take the form of an oligopoly that will appear at the speed dictated by V in equa- (24)  tion 16 and with an associated cost of as in equation 15. Finally, we recall that profit maximization is The EGD entails regulations that increasingly put pressure on economic agents to change behaviors and production methods. These regulations under P(e) may have two main effects. On the one hand, as in equation 13, with an elasticity of substitution of 0. these policies may foster innovation and technology For consumers, welfare implications of the new adoption in firms that leads to efficiency. On the carbon-neutral economy start considering that they other hand, they also represent an additional cost for seek the maximization of their utility function firms to operate. The former is already considered under equation 20. The latter would alter relative prices in the economy resulting in: expressed in equation 1. However, relative prices and wages will imply: (25) (28) Payments to the factors of production will change accordingly, by changing r and w in equation 24, in- creasing k in equation 14 and changing relative where the inequality aversion term continues to de- wages in λ (skilled and unskilled in equation 9). termine utility as in equation 1. However, equation Changes in consumption will follow so that: (i) car- 28 includes changes in income due to carbon- bon-neutral production ( Qn ) at carbon-neutral to-carbon-neutral relative prices (P*), and relative prices (Pn) would be favored following EGD poli- wages triggered by P(e) restrictions stemming from cies; (ii) investment moves towards carbon-neutral the EGD. 136 ANNEXES The long-run equilibrium foreign labor to substitute each other), labor demand will also be subject to relative wages, relative labor In the long-run, firms have the capacity to evaluate forces and the elasticity of substitution as per equa- their choice regarding the mix of factors of produc- tion 9. As a result, labor demand will be explained tion. Given the transition to a carbon-neutral econ- by long-run adjustments related to workers’ migra- omy, technological requirements most likely will tion choices based on relative wages and the elastic- lead to both, an increase in the capital-labor ratio ity of substitution in other locations in Europe: and to a shift in skills in the latter. Equation 26 would therefore transform to: (30) (29) In the long-run, k will continue to change, and firms will face market structure determined by tech- Equation 29 proposes that total labor demand is nological progress and innovation. Welfare implica- the sum of individual firms in location i propor- tions in the long run are similar to equation 28. How- tional to their individual capital-labor ratio (k as in ever, the long-run utility function adds a term that equation 14). Thus, the EGD’s requirement to in- reflect positive externalities from the new car- crease efficiency will over time, likely raise individ- bon-neutral economy in terms of the cleaner air and ual firms’ capital-labor ratio (k) and alter the de- environmental amenities (Z(t)) that can be enjoyed mand for labor. However, since labor is in this including a health improvement term (H(t)). model, not homogeneous, but instead allows for (31) differences in skills (research, skilled and unskilled), as well as for labor mobility (by allowing local and 137  MAKING THE GREEN DEAL WORK FOR PEOPLE consumer derives from it. For illustration purposes, Annex B. The HTGEM in a consider the use of energy. While energy can be pro- System Dynamics Model (SDM) duced by thermoelectrical plants, hydropower perspective plants, solar farms, or nuclear plants, once the en- ergy enters the grid it becomes undistinguishable for The purpose of the current section is to describe the the consumer’s eye. Unfortunately, due to this com- dynamic equations used to create the economic modity attribute of the good, the consumer is not model that will represent some of the key aspects of able to differentiate and assign different prices to the the EGD. As in other economic models, the order in final good. Nevertheless, it is possible to take active which the equations are organized go from the pro- decisions of the source of the good that the consumer ducer side to the consumer side. Similar to classic wants to buy (e.g. divest from thermoelectrical macroeconomic models (Swan, 1956; Ramsey, 1928), plants), or the society (in this case represented by the the overall structure relies in methodological indi- will of the representative consumer) can tax inputs vidualism in which there is a single representative that have major effects in the non-green production consumer and two representative firms (one repre- forms. This topic will be detailed later. For the mo- senting the green economy and another one repre- ment, the main point is the existence of a single final senting the brown economy). Each of these agents good (with a single price) that can be produced ei- takes as given some information seen in the previous ther using green technology (identified with the sub- period and some information seen in the current pe- index g) or brown technology (identify with the sub- riod (the information depends on the agent, and it index b). For simplification purposes, the final good will be defined case by case) and takes economic de- is produced under a classical Cobb-Douglass pro- cisions conditional on that information. Finally, duction function with constant returns to scale. Also, while the agents are unable to foresee the long run as mentioned before, the Cobb-Douglass relies in future, for decisions that will affect them for several four production factors (unskilled labor (UL), skilled periods, they will assume that the state of the world labor (SL), natural capital (N), and physical capital will not change (assumption justified in the high un- (K)) and the corresponding total factor productivity certainty levels faced by the individuals). Finally, for (A). Each of these variables has an assigned subin- jargon purposes, the equations that define the ac- dex depending on the production type (green or tions of an agent given their current and past infor- brown) and a corresponding production coefficient. mation are going to be called reaction functions. This Finally, and given that the model focuses on the real name is preferred as it highlights the fact that a deci- economic effects of the EGD (removing the mone- sion doesn’t imply full rationality or knowledge tary related effects), the price of the final good will about the past, present, and future conditions of the be 1, and it will be used as the numerator for any economy, but a scenario where the agent recognizes other price in the model. Having defined these prim- the information limitations and chooses its actions itives, the objective of the green firm is: given the best of its own knowledge. The final good The model description starts with the final good. where uw is the salary of unskilled labor, sw is the This final good can be considered a single product or salary of skilled labor, nr is the return on natural cap- a basket of products that are the source of utility of ital, and r is the return on capital. Correspondingly, the consumers. Therefore, consumer utility is de- the objective of the brown firm is: rived from using it. However, to capture the essence of the green economy, this final good, identified with the symbol Y, can be produce under brown stan- dards (linked to low-tech production mechanisms Notice two elements. First, the price of the factors that strongly rely on natural resources), or under has no index associated with the production type, green standards (linked to high-tech production meaning that because markets are competitive, the mechanisms that replace natural resources by high price of, for example, skilled workers is the same, skilled labor). The final good is indistinguishable independent of the company that hires them. The from the point of view of the utility that the second element to highlight is that the production coefficients are indexed in the production type, and 138 ANNEXES consistent with the difference between green and time subindex t is used to make explicit the intertem- brown production, the following rules apply: poral relation of the process. uαg < uαb, sαb < sαg, nkg < nkb, and kg = kb (the last equality was done to simplify calculations Labor market focus on the main elements of the production The labor market in this model is strategically de- transition). signed to capture three elements that linked the Due to the objective functions, the demanded EGD with the labor market transitions. The first ele- quantities for each factor of production (i.e. the reac- ment is that, within an open economy, there is a con- tion functions) are (for i ∈ {b,g}): stant pressure for the local labor force to migrate outside the country. Of course, there are also other Demand of unskilled labor: pressures that make workers resist migration (Ran- som, 2019; Ikhenaode & Parello, 2020; Ridder & van den Berg, 2003) highlighting the importance of a Demand of skilled labor: wage gap for workers to decide when to take the decision to leave the country. The second element is the need for upgrading their skills. Education takes time and is costly. Nevertheless, skilled workers Demand of natural capital:3 have better remunerations. Therefore, individuals have a second wage gap to consider in order to change from one labor market to another. The final Demand of capital: element is that all these processes take time and are not certain. Thus, the individuals have lags in their reactions to changes in market conditions. In each of these equations, the subindex (t−1) In that context, highlights that in order to calculate the production for period t, firms rely on the price information ob- where IM represents the immigrant population (in served in the previous period, and use it to calculate this case, unskilled labor, as the subindex suggests), their current demand of inputs. It’s worth noting EM represents the corresponding emigrant popula- that from this point onwards, the subindex t will be tion, and UP the population that decides to upgrade exclusively dedicated to time dynamics. their skills (that is why this one has no skill related Finally, for F  ∈  {UL, SL, NK, K}, let SF denote the index, as its only from the unskilled to the skilled supply of factor F in the economy, then, if sector). Each of these variables has two key ele- SF  ≥  DFb  +  DF , then the effective resources allocated g ments; a wage gap and a time lag. To begin with, to each firm will be its demand (i.e. E Fb  =  D Fb, consider the upgrading population. For the sake of EFg = EFg). However, if there are less available factors the example, consider that a single individual will than those demanded (i.e. SF < DFb + DFg), the amount have probability p of upgrading in a given period t. of inputs are prorated according to the demands of Assuming that the probability is independent be- each firm. Therefore, tween time periods, the expected time for an indi- vidual to upgrade will be 1/p. This equivalence al- Implicitly, the need of a production factor is cal- lows the model to have two perspectives, either it culated as max {0, DFg+ DFb− SF}, while the excess of can reflect a market where the probability of upgrad- a factor is calculated as max{0, SF − DF − DF )}. ing is linked to a probability p, or it reflects a deter- g b ministic market where transitions take a duration of 1/p. Based on the previous logic, Capital markets The capital market follows the guidelines of the tra- ditional Solow-Swan model, in which: where ψUP determines the minimum ratio that work- ers are willing to accept in order to start their up- where I is the investment of the representative indi- grading process. This value reflects education costs vidual, δ is the depreciation rate of capital, and the as well as inertial costs related to social preferences, 139  MAKING THE GREEN DEAL WORK FOR PEOPLE and peer pressure effects. ηUP determines the ex- not work as much as in the beginning, but it will still pected duration of the training process (or, as no- be working. Thus, the computer is never removed ticed from the previous discussion, the inverse of the from the stock of capital, the stock is just adjusted by probability of succeeding in the transition between its depreciation. In contrast, when natural resources two consecutive periods). Using a similar logic, are used, they are inputted in the good. This means that, if a tree is used to produce a chair, the tree will become part of the good and it will be removed from the available stock. The second key difference be- tween natural and physical capital is that the first one is limited, while the second one is virtually illim- where the subindex Int and Nat have been added to ited (as long as you have inputs you can produce specify the origins of the prices and labor forces. As computers, but independent of the agent will, then the focus of the model is the local economy rather number of trees is limited to the available soil and than the international economy, the international water, which are factors external to the economic context is considered to be large enough to be af- production). Finally, if physical capital is left alone, fected by the shocks of a specific country. Therefore, it will remain the same (or depreciate). But, if natural the international salaries are taken as fixed quanti- capital is left alone, it will recover and expand. Based ties. This construction also makes it easy to redefine on the previous discussion, the dynamic equation the model for a close economy. Notice that when the for the natural capital is international salaries are defined as 0, both immigra- tion and emigration are fixed at a value of 0. As expected, the formula for the skilled labor and market is In this case ρ represents the nature recovery rate, noticing that the main change is the unidirectional CN is the consumption of goods that is subject to par- movement of the upgrading of skills. ticipate in the circular economy, and χcircular is the A final note to this section is the population share of this consumption that can be successfully growth. The previous formulas can be expanded to recovered and placed into the system. τC corre- include population growth. For this purpose, con- sponds to the resources that have been collected via sider that the population growth rate is v, then, the taxes that can be used to invest in nature, and similar previous equations can be modified as to the logic used in the labor market, ηNK is the time it takes for these elements to be reincorporated in the natural capital stock. ψNK denotes the maximum available natural capital in the economy. Finally, μ, the nature degradation rate, shows that there are However, in the practice, the qualitative results re- some artificial limits to nature degradation. For ex- mained unchanged, and therefore, in pro of a parsi- ample, there are policies in the different countries monious model, this expansion was not considered. that do not allow to use more than x% of the current stock of water in the country reservoirs, or that can- Natural capital market not have a deforestation higher than x% of the avail- able trees. Notice that the current modelling strategy While often modelled as a parallel to physical capi- allows the incorporation of the main elements of tal, this report considers that there are several con- natural capital previously discussed and at the same ceptual differences between natural and physical times opens the door to develop scenarios to link the capital that can’t be ignored as they will neglect the model with EGD policies. In particular, this formu- sustainability problem embedded in natural re- lation allows the models to evaluate the strengthen- source exploitation. To illustrate this point, consider ing of circular economy, the imposition of green the following illustrations. A computer is a tradi- taxes, and the effects that these policies have over tional example of physical capital. The fact that the the capacity to use nature resources in a sustainable computer is used to produce one good doesn’t affect way. To illustrate this point, consider an economy it to produce another good. For sure there will be without circular economy or green taxes and where some depreciation as with its use the computer will nature is the limiting factor (i.e. effective demand is 140 ANNEXES at least the natural capital supply). In that context, In this context, χrecyclable is the share of consump- the system is sustainable only if ρ > μ, meaning that tion that can be recycled, s is the saving rate and is if the nature degradation rate is higher than the na- calculated using the golden rule logic of the Solow- ture recovery rate, the resource will eventually de- Swann model, where the rate is the weighted rate plete condemning the full economy. However, as it that would be optimal in for the workers in each of will be detailed in the following section, green taxes, the industries. Notice that the division of the nature and circular economy allows the economy to go be- capital rate happens because the amount of natural yond the limits imposed by the nature recovery rate. capital recovered is real, and not monetary. Finally, the last element of the individual is the definition of the budget share. As mentioned in the Green taxes beginning, the households can’t do price differentia- The previous section mentions tax collection for na- tion in the final good, however they can decide how ture resources. As expected, the most intuitive place much money to allocate to each industry (element to collect this tax is from the use of natural resources. that mirrors current movements such as the efforts In order to do so, it is important to modify the de- to divest in fossil fuels). Therefore, the households mand of natural capital presented in previous sec- use their full budget Σ and use the ideal proportion tions. Therefore, to include the possibility to impose of money that they have in mind to invest in the taxes, the demand of natural capital is modified to green firm, π, and distribute all the money flow accordingly: Thus, when the firms buy natural resources, they have to pay a tax based on the monetary value they are paying for these resources. In this case, is the Price evolution corresponding tax rate. Correspondingly, As in any market, price is the instrument that tunes the demand and supply in order for the markets to efficiently allocate resources. However, as detailed meaning that the money collected from the green tax in the introduction, in this context is very difficult to is proportional to the value paid by the industry in estimate, a priori, what is this closing solution. Thus, nature resources. following the most basic intuitions of the markets described by Marshall (1919), the price will also fol- Individual consumer low a dynamic adjustment in which an excess of de- mand will push to higher prices while an excess of As in other neoclassical growth models, the repre- supply will push to lower prices. In practical terms: sentative individual owns the factors of production, thus, its income (Σ) is the sum of the payments done r adjustment: by the companies for their resources: nr adjustment: Individuals distribute their income in savings sw adjustment: (that will become investments and consumption). In this case consumption is divided into consumption that can be recycled and consumption that can’t be uw adjustment: recycled. Although the formulas seem to follow the same structure, there are significant differences among them. The case of the price of capital (r), is quite straight forward as it suggest a price adjustment propor- tional to the difference in the demand and supply. The case of natural capital is subtly different, in this case the available natural capital is not SNK, but NK. 141  MAKING THE GREEN DEAL WORK FOR PEOPLE Finally, the salary adjustments follow an additional policy and behavioral changes. However, it is im- logic in which there is a delay in the adjustment that portant to notice that there are different types of has been explicitly modelled as ηsw and ηuw. This ad- changes. For example, if a change is in a tax rate, that justment is highly relevant due to the inertia that effect can take place instantaneously. However, if the salaries present due to their straight social implica- effect is in a variable linked to behavior or to the re- tions (Dixon, 1992; Bewley, 1999). In this way, capital search and development of new technologies, the and natural capital will have relatively fast adjust- change will take time. In particular, as it will be ob- ment processes, while salaries reflect some sticki- served in the next section, there are two changes that ness, as Keynesian approaches will say. Finally, clos- take time. The first is the preference to allocate re- ing the model, it is important to mention that the sources between the green and the brown firm (π). price of the final good has no evolution as it is al- The second is the improvement of the recovery rate ways considered the numerary, ergo, it is constant 1. for the expansion of the circular economy (χcircular). To With this last discussion, the model closes itself capture this slow process, the modelling strategy and it is possible to program it and calibrate its pa- takes the following form. Consider the policy pa- rameters to visualize the dynamics that these market rameter P that wants to achieve an ideal final state PF structures recreate. The final part of this section will but its initial condition is Pi. Then, in the model, the discuss a final modelling strategy not related with parameter will be initialized in Pi and will have the the model but with the modelling of policy scenarios following dynamic equation linked to it: that will be at the core of the next section. Fast changes and slow changes where ηP, as discussed in previous sections, modules As it is detailed in the next section, the model is a the speed of convergence. useful policy tool and allows the creation of hypo- The following tables show a list of variables and thetical scenarios to evaluate the implications of parameters of the model. Glossary of variables Variable Description Final good, where the quantity produced under green technologies is Yg, while the quantity produced under brown Y technologies is Yb. Budget assigned, where the quantity assigned to green technologies is Bg, while the quantity assigned to brown B technologies is Bb. Unskilled labor, where the quantity assigned to green technology production is ULg, while the quantity assigned to UL brown technology production is ULb. Skilled labor, where the quantity assigned to green technology production is SLg, while the quantity assigned to brown SL technology production is SLb. Natural capital, where the quantity assigned to green technology production is NKg, while the quantity assigned to NK brown technology production is NKb. Capital, where the quantity assigned to green technology production is Kg, while the quantity assigned to brown K technology production is Kb. uw Salary of unskilled workers. sw Salary of skilled workers. nr Return to natural capital. r Return to capital. Used to denote the demand of a given production factor. The factor associated is a subindex of the variable. For D example, DK stands for the demand of capital of the green firm. g Used to denote the effective demand (i.e. the quantity that is actually used for production) of a given production E factor. The factor associated is a subindex of the variable. For example, EK stands for the effective demand of capital g of the green firm. (Continued next page) 142 ANNEXES Glossary of variables Variable Description Used to denote the supply of a given production factor. The factor associated is a subindex of the variable. For S example, SK stands for the supply of capital. I Investment. IM Immigrant population EM Emigrant population UP Population that upgrades its skills. C Consumption CN Consumption that can be part of the circular economy. ∑ Individual income. Glossary of parameters Parameter Description Unskilled workers production coefficient, the coefficient for green production is denoted by uαg while the uα coefficient assigned to brown production is denoted by uαb. Skilled workers production coefficient, the coefficient for green production is denoted by sαg while the sα coefficient assigned to brown production is denoted by sαg. Capital production coefficient, for green production it is denoted by βg while for brown production it is denoted β by βb. Natural capital production coefficient, for green production it is denoted by γg while for brown production it is γ denoted by γb. δ Depreciation rate. ρ Nature recovery rate. ψUP Ratio workers are willing to accept in order to start their upgrading process. ηUP Expected duration of the training process. χcircular Share of consumption that can be successfully recovered and placed into the system. ηNK Time it takes to resources collected by taxes to be reincorporated in the natural capital stock. ψNK Maximum available natural capital in the economy. μ Nature degradation rate. χrecyclable Share of consumption that can be recycled. π Consumption preference p Probability of upgrading. ηIM Expected duration of unskilled workers migration process. UL ψIM Ratio unskilled workers are willing to accept to migrate. UL ψEM Ratio skilled workers are willing to accept to emigrate. UL ηEM Expected duration of skilled workers emigration process. UL τ Green tax 143  MAKING THE GREEN DEAL WORK FOR PEOPLE tral Bank (2005) in its reports regarding fiscal de- Annex C. Calibration Strategy valuation in the European Area. for the SDM • The capital (β) and the natural capital (ϒ) produc- The model is intended to show general market dy- tion coefficients were calculated by using the namics after policies of the European Green Deal. ‘crude’ multifactor productivity indicator of the Unfortunately, from a modelling perspective, some European Commission (2021). The dataset in- concepts are being abstracted in order to capture the cluded information for the four case studies re- dynamics, but this abstraction makes it difficult to garding labor (skilled and unskilled) and capital quantify and calibrate. Let’s take for example the shares which allowed the calculation of β, ϒ, and natural rate of recovery of resources (ρ). If the natu- an approximation of uα and sα over which exper- ral capital is forestry, the recovery of vegetation fully iments were carried out in order to set their val- depends on the type of soil, the type of plants, and ues. Calculations were carried out by taking the the type of impact. For example, it is not the same to average of capital shares for a 20-year period giv- lose a full strip of dry forest than some scattered en by the available data, afterwards this value patches (of equal area) of rainforest. The first case was multiplied by 0.5 in order to equally divided will induce a desertification process making it ex- between shares of natural capital and capital. tremely difficult to recover, while the second will These values correspond to the β, ϒ, and the uα take few years to recover. Moreover, nature is not and sα approximations for brown production, only forest, what about the water resources? What they were later adjusted for green production in about animal resources? And how to aggregate these which ϒ decreases as the use of natural resources values into a single modelling element? These tech- decreases as well. nical difficulties are the ones that make the model descriptive rather than prescriptive, meaning that The second group is about the values chosen un- the model is suited to describe the dynamics of the der equilibrium conditions. To understand better economy and the qualitative effects of its policies, this point is important to recall two important ele- however it is not recommended to develop conclu- ments. Due to aggregation issues mentioned at the sions of specific magnitudes of change. Indeed, in beginning of the section, there are variables that are these highly complex topics of sustainable develop- not feasible to calculate from reality. For example, ment, geographical specificity is fundamental, and what is green production? As a concept is clear, but prescription is only suitable for areas that are small how to define in a non-controversial and practical and homogeneous. way what is the value of each type of production in Having done these clarifications, the rest of these the economy of a country. The second element to re- section divides calibration values of the model into call is that dimensions in the model are relative. For three groups. The first group mentions all the values example, the use of 5 units of natural resources is not that were calculated from available macroeconomic meaning literally 5 liters of water, or 5 logs, or 5 pelts data. The second group mention those values that of tigers. For that reason, there are some values that were estimated as a result of equilibrium conditions. are not even reasonable to force to match the data. Finally, the third group mention those values that Instead, the modelling decision was to select these were inputted using expert criteria. For this last values (all are related to initial conditions of vari- group it is important to note that several experi- ables, as the following list will show), to be those in ments were done testing different values and once which the system stabilizes. In that way, the stability outstandingly odd values were rejected, it was of the system can be used as a reference point. For worth noting that the results were robust to example, let’s say that in equilibrium (once the vari- variations. able stop changing along time), the value of produc- The first group corresponds to variables and pa- tion is 5. However, after a policy change is done, the rameters for which values were chosen or calculated new equilibrium value is 10. Then, independent of from the available data. In some cases, the available what is the unit of production, it is possible to de- data was used to set fix values for the variables and clare that the policy allow production to duplicate. in others it was used to set initial that were modified The values calibrated in this way were: through the simulations. • Skilled Labor (SL) • Depreciation rate. Depreciation was set in 0.025 • Unskilled Labor (UL) as this value was presented by the European Cen- • Skilled labor wages (swt−1) 144 ANNEXES • Unskilled labor wages (uwt−1) • Expected duration of unskilled workers migra- • Return to capital (rt−1) tion process (ηIM ) UL • Return to natural capital (nrt−1) • Expected duration of skilled workers emigration • Natural capital (NK) process (ηEM ) UL • Capital (K) • Expected duration of the training process (ηUP) • Green production (Yg) • Time it takes to resources collected by taxes to be • Brown production (Yb) reincorporated in the natural capital stock (ηNK) • Individual income (Σ) • Skilled workers production coefficient (sαg) (sαb) • Unskilled workers production coefficient (uαg) (uαb) Finally, the third group involve those variables • Total factor productivity (A) such as the ones related with time delays for which • Green tax (τ) quantification is difficult but that after expert criteria • Consumption preference (π) and the evaluation of different experiments, reason- • Maximum degradation rate (μ) able values were chosen. These variables are: • Recovery rate (χcircular) 145  MAKING THE GREEN DEAL WORK FOR PEOPLE 1. Once the BAU has been defined, five parameters Annex D. Scenarios in the SDM have been strategically modified between scenar- The ideal contrast scenario is the equilibrium of a ios to displays the effects of the EGD. business as usual (BAU) world. In particular, the BAU 2. Green tax: As expected EGD needs to be finance for Europe and for each one of the countries considers with taxation policies that reduce nature resource green and brown production forms, the latter im- exploitation, thus changes in the tax rate are con- plies larger amounts of natural resources and more sidered among the scenarios (τ). unskilled labor when compared to the skilled one. 3. Recovery rate: To support circular economy, the Concurrently, in the BAU consumers do not have a EGD needs to promote technologies that incorpo- consumption preference over goods that have been rate the concepts of reusing and recycling of the produced by brown or green production forms. The goods that the economy produces. In terms of the BAU considers the absence of taxation over natural model, this implies increasing the recovery rate resource consumption as well as inexistent recycling (χcircular). capacities, this has a large impact over the available 4. Green preferences: the EGD comes hand in hand natural resources at a particular period of time, as with a change of preference from the consumers, well as over the rate in which they can be regener- in which more sustainable ways of production ated, as the absence of recycling capacities as well as are preferred. This element is directly modelled that of taxation, reduces the investment that can be with the parameter of consumption preference (π). made for regenerating natural resources. On the 5. Increment of nature frontier: By improving the other hand, natural resource depletion is produced sustainable use of nature, the economy might be by using these resources in the production of goods. allowed to use more natural resources without Labor is divided between skilled and unskilled falling into a depletion trap. To understand better workers, unskilled workers can become skilled after these dynamics, the maximum degradation rate upscaling their capacities, this implies an invest- can change between scenarios (μ). ment in education and a delay related to the time 6. Upgrading costs: Changes require plasticity from that takes the worker to complete its training pro- society in order to adapt. However sometimes cess. Migration inwards and outwards each one of there are limitations to it. In particular, changes the countries can also take place for both, skilled and such as skill upgrading cost and take time. How- unskilled workers as a result of the wages dynamics. ever, if there are policies that can help with the However, for the European case, international wages reduction of these times (ηUP), society can better for skilled and unskilled workers are set as 0. This is absorb the benefits of the EGD, and thus they are given by the fact that setting the boundary of the re- considered among the scenarios. gion as a whole, allows the mobility of the workers Naturally, only with these options, there is an between the countries within this boundary with endless spectrum of scenarios that can be analyzed. them still being considered as local labor implying Yet, after producing several of them, two scenarios; the absence of emigration as there is no motivation (SC1) and (SC2) have been selected as they capture in terms of wages to leave the region. International the essence drivers of the model. Variation in these wages for skilled and unskilled workers in the BAU scenarios had similar qualitative results providing for each one of the countries uses the resulting val- robustness to the claims presented in the final part of ues of the local skilled and unskilled wages of the this section. Having specified these elements, the European BAU case. chosen scenarios were as follows (see table below): Europe Croatia Poland Slovakia BAU SC1 SC2 BAU SC1 SC2 BAU SC1 SC2 BAU SC1 SC2 Green tax 0 0.03 0.06 0 0.04 0.08 0 0.025 0.05 0 0.02 0.04 Recovery rate 0 0.24 0.48 0 0.14 0.28 0 0.18 0.36 0 0.2 0.4 Consumption 0.5 0.7 0.9 0.5 0.7 0.9 0.5 0.7 0.9 0.5 0.7 0.9 preference Maximum 0.04 0.05 0.06 0.02 0.03 0.04 0.02 0.04 0.05 0.02 0.03 0.04 degradation rate Education cost 1.5 1.4 1.3 1.5 1.4 1.3 1.5 1.4 1.3 1.5 1.4 1.3 146 ANNEXES The variations over each one of the parameters consumption preference in 0.2 units for each one of will be described in what follows. the scenarios. This implies that in SC2 consumers In the BAU green taxes do not exist, for this rea- prefer goods produced by green means even more son SC1 and SC2 consider the emergence of taxes than in SC1 and BAU. The units used in the scenar- with incremental variations in its values, were SC1 ios, were chosen as they depict large changes in the constitutes an intermediate point between the BAU consumer preferences, smaller values would not be and the SC2. The values used to build the scenarios reflected in the behavior of the model when simu- are grounded on the environmental taxes in the Eu- lated under the different scenarios. ropean Union (EU) for 2020 provided by the statisti- The maximum degradation rate, allow us to de- cal office of the European Union (Eurostat). The re- termine the level in which natural resources can be covery rate is intervened by producing variations in consumed without a total depletion. The values the recycling capacity. When the recycling capacity used to build the scenarios are grounded on the of the country increases, so does its recovery rate. United Nations report over life and land (n.d.). It is For this reason, the BAU considers the recycling ca- important to note that for this parameter, degrada- pacity as 0 and proceeds to build both scenarios tion rate in BAU starts at an approximate value for grounded on the available data of the European En- yearly nature degradation for each one of the coun- vironment Agency (2021) regarding waste recycling tries and for the region as a whole with an increase in Europe. These cases follow the same logic as the between 1 and 2 percent. green tax in which SC2 uses the maximum recycling Finally, the intervention of upskilling is related to capacity and SC1 takes the intermediate point be- education costs, in order to set a value for this pa- tween the BAU and SC2. rameter, educational differences between skilled In the BAU, there is no preference between goods and unskilled workers were considered allowing us produced by green or brown means, for this reason to choose a value of 1.5 which means that upskilling the parameter consumption preference takes a value imply a large investment of money in training. of 0.5. However, in SC1 and SC2 consumers prefer goods produced by green means, increasing the 147  MAKING THE GREEN DEAL WORK FOR PEOPLE Annex E. SDM Additional Results Croatia Figure A.E.1:  Simulation Results for Croatian Brown Production under the EGD System-dynamics simulations using Vensim, 2022–52 120 100 Percent of BAU 80 60 40 20 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.2:  Simulation Results for Croatian Green Production under the EGD System-dynamics simulations using Vensim, 2022–52 200 180 160 140 Percent of BAU 120 100 80 60 40 20 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.3:  Simulation for Capital in Croatia under the EGD System-dynamics simulations using Vensim, 2022-52 120 110 Prcent of of BAU 100 90 80 70 60 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. 148 ANNEXES Figure A.E.4:  Simulation for Capital-Labor Ratios in Croatia under the EGD System-dynamics simulations using Vensim, 2022–52 120 115 Percent of BAU 110 105 100 95 90 85 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.5:  Simulation for Unskilled Labor Supply and Demand in Croatia under the EGD System-dynamics simulations using Vensim, 2022–52 120 110 Percent of BAU 100 90 80 70 60 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario (D) Moderate-high scenario (D) Moderate scenario (S) Moderate-high scenario (S) Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.6:  Simulation for Skilled Labor Demand in Croatia under the EGD System-dynamics simulations using Vensim, 2022–52 130 125 120 Percent of BAU 115 110 105 100 95 90 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario (D) Moderate-high scenario (D) Moderate scenario (S) Moderate-high scenario (S) Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. 149  MAKING THE GREEN DEAL WORK FOR PEOPLE Figure A.E.7:  Simulation for Skilled-Unskilled Wage Gap in Croatia under the EGD System-dynamics simulations using Vensim, 2022–52 140 120 Percent of BAU 100 80 60 40 20 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Poland Figure A.E.8:  Simulation Results for Polish Brown Production under the EGD System-dynamics simulations using Vensim, 2022–52 120 100 Percent of BAU 80 60 40 20 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.9:  Simulation Results for Polish Green Production under the EGD System-dynamics simulations using Vensim, 2022–52 250 As percentage of BAU 200 150 100 50 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. 150 ANNEXES Figure A.E.10:  Simulation for Capital in Poland under the EGD System-dynamics simulations using Vensim, 2022–52 160 150 140 Percent of BAU 130 120 110 100 90 80 70 60 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.11:  Simulation for Capital-Labor Ratios in Poland under the EGD System-dynamics simulations using Vensim, 2022–52 130 120 Percent of BAU 110 100 90 80 70 60 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.12:  Simulation for Unskilled Labor Demand in Poland under the EGD System-dynamics simulations using Vensim, 2022–52 300 250 Percent of BAU 200 150 100 50 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario (D) Moderate-high scenario (D) Moderate scenario (S) Moderate-high scenario (S) Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. 151  MAKING THE GREEN DEAL WORK FOR PEOPLE Figure A.E.13:  Simulation for Skilled Labor Demand in Poland under the EGD System-dynamics simulations using Vensim, 2022–52 160 150 140 Percent of BAU 130 120 110 100 90 80 70 60 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Slovak Republic Figure A.E.14:  Simulation for Skilled-Unskilled Wage Gap in Poland under the EGD System-dynamics simulations using Vensim, 2022–52 130 120 Percent of BAU 110 100 90 80 70 60 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.15:  Simulation Results for Slovak Brown Production under the EGD System-dynamics simulations using Vensim, 2022–52 300 250 Percent of BAU 200 150 100 50 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario (D) Moderate-high scenario (D) Moderate scenario (S) Moderate-high scenario (S) Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. 152 ANNEXES Figure A.E.16:  Simulation Results for Slovak Green Production under the EGD System-dynamics simulations using Vensim, 2022–52 200 180 160 Percent of BAU 140 120 100 80 60 40 20 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.17:  Simulation for Capital in the Slovak Republic under the EGD System-dynamics simulations using Vensim, 2022–35 115 110 Percent of BAU 105 100 95 90 2022 2027 2032 2035 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.18:  Simulation for Capital-Labor Ratios in the Slovak Republic under the EGD System-dynamics simulations using Vensim, 2022–52 112 110 108 Percent of BAU 106 104 102 100 98 96 94 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. 153  MAKING THE GREEN DEAL WORK FOR PEOPLE Figure A.E.19:  Simulation for Unskilled Labor Demand in the Slovak Republic under the EGD System-dynamics simulations using Vensim, 2022–52 140 120 100 Percent of BAU 80 60 40 20 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario (D) Moderate-high scenario (D) Moderate scenario (S) Moderate-high scenario (S) Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.20:  Simulation for Skilled Labor Demand in the Slovak Republic under the EGD System-dynamics simulations using Vensim, 2022–35 130 125 120 Percent of BAU 115 110 105 100 95 90 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario (D) Moderate-high scenario (D) Moderate scenario (S) Moderate-high scenario (S) Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. Figure A.E.21:  Simulation for Skilled-Unskilled Wage Gap in the Slovak Republic under the EGD System-dynamics simulations using Vensim, 2022–52 120 100 Percent of BAU 80 60 40 20 0 2022 2027 2032 2037 2042 2047 2052 Business as usual (BAU) Moderate scenario Moderate-high scenario Source: Own calculations based on Eurostat (2022), European statistics accessed online at https://ec.europa.eu/eurostat/. Note: Moderate scenario refers to a nature tax of 3%, a recycling capacity of 24%, a maximum degradation capacity of 5%, an ideal con- sumption shares of green production forms of 70% and an education cost ratio of 1.4, and moderate-high scenario refers to a nature tax of 6%, a recycling capacity of 48%, a maximum degradation capacity of 6%, an ideal consumption share0073 of green production forms of 90% and an education cost ratio of 1.3. 154 ANNEXES Whereas all these topics are represented in Eu- Annex F. Methodology and Data rostat, only CE has its own section with detailed in- Used in Defining Clusters in dicators. For the other pillars, the headings are sug- Principal Components Analysis gestive (for example, for ClE the indicators are basically the same as those for the equivalent Sus- The purpose of this section is to develop a clustering tainable Development Goal), but there is a need to methodology that provides inputs for policy-makers include other sources within Eurostat to comple- to identify countries that have similar conditions re- ment the analysis. For this reason, a thorough review garding the EGD pillars. Frequently, with these was done of all the themes covered in Eurostat and types of statistical methodologies, the main chal- for each of the pillars, all the relevant indicators lenge faced by the policy-maker is the availability of were identified. This list can be found in Annex Ta- high-quality data. For the case of the European ble 3F.1. After the full list was identified, each indi- Union, however, this problem is solved. Eurostat, cator was assessed under four criteria: the statistical office of the European Union, has made a significant effort in the standardization of 1. If the indicator is in absolute or relative terms, the indicator and data collection in all the member coun- latter is preferred over the former. tries (European Union, 2022). Moreover, Eurostat 2. The indicator was disaggregated at the country has organized the different indicators by themes in a level. way that sets a standard for the different member 3. The missing registries was less than 10% countries on what are the variables that policy mak- 4. Data keeps a level of aggregation suitable for the ers should consider when they want to discuss a analysis. given topic. Therefore, the European Union has a On this last point it is worth mentioning that privileged position in a strong information system some indicators, in particular regarding agricultural with a consensus among its members on what areas topics can refer to very specific commodities, that to focus attention, and a standardized protocol on end up distracting the focus of the reader. For exam- how to collect the data. ple, knowing the crop area dedicated to pears might be too specific. Therefore, only the overall indicator Data selection (area dedicated for crops) was included, and the spe- cific ones on given commodities were removed. Having defined the data sources, the next step is the During the development of this analytical exer- concrete identification of the relevant indicators to cise, Eurostat develop a section exclusively on EGD assess the comparison between countries in the themes and divided in three categories: EGD. For this purpose, the initial frame emerges di- rectly from the EU communications on the EGD. In 1. Reducing our climate impact particular, the communication COM (2019) 640 final 2. Protecting our planet and health discusses eight policy pillars that lie at the core of the 3. Enabling a green and just transition EGD. These pillars are: There is a deontological difference between these 1. Increasing the EU’s climate ambition for 2030 and categories and the former pillars. These three cate- 2050 (CA) gories are aiming at ends and are identified to find 2. Supply clean, affordable, and secure energy (ClE) how are the countries doing in some indicators that 3. Mobilizing industry for a clean and circular econ- measure the success of the EGD. In contrast, the first omy (CE) eight pillars are focused on the initial conditions on 4. Building and renovating in an energy and re- the topics that the EGD cares about. As these two source efficient way (EB) approaches are highly complementary, both sets of 5. A zero pollution ambition for a toxic-free envi- topics are considered. For display purposes, these ronment (Pol) eleven groups of indicators will be named the eleven 6. Preserving and restoring ecosystems and biodi- themes (the theme of the circular economy is not in- versity (Biod) vestigated to avoid redundancies, since Chapter 4 of 7. From ‘Farm to Fork’: A fair, healthy, and environ- this report is on the circular economy). One final ca- mentally friendly food system (FP) veat: since Eurostat defined very specific indicators 8. Accelerating the shift to sustainable and smart for its approach to measure the EGD, these indicators mobility (Tr). are always used, except if there is no country level disaggregation or the missing values exceed 10%. 155  MAKING THE GREEN DEAL WORK FOR PEOPLE Data processing percentage of waste being recycled. Neverthe- less, once that indicator is included in a larger set The following data procedure was used for each of that also includes the use of secondary materials, the cluster analyses shown in the document. R&D for the use of materials, among others, the 1. A data set consisting of all relevant variables for whole set of indicators begin to provide a general each country, including the two most recent ob- idea of the theme that is to be captured. For this servations and the change between them, was reason, it is important to process the data to cap- considered. The reason why this approach was ture those common trends and remove the speci- preferred over selecting a specific year or average ficities of each single indicator. To do so, the full year is three-fold: i) These variables are rapidly data set was normalized (de-meaned, and divid- changing and long-term averages reduce the bias ed by its standard deviation), and a set of princi- by minimizing the value of the most recent val- pal components was calculated. Then these prin- ues. ii) Specific years might have many missing cipal components were organized according to values, but in general, the data was collected with their variance and the process selected them in a maximum of two years of difference between order, until 95% of the total variance of the theme countries; in this way more observations could be can be explained. recovered. iii) It is important both to consider the 4. The set of selected principal components is used level of a variable as well as its change to better to implement a hierarchical clustering using an understand where a country is and towards Euclidean distance and Ward’s methodology. which direction it is moving. Similar experiments While being aware of and experimenting with were done using other selection criteria but the other clustering procedures, the advantage of results presented minor changes, suggesting the Ward’s lies in its capacity to preserve the covari- robustness of this approach. ance information over each of the element aggre- 2. While the data is in general very complete, some gation stages. This approach produces clustering specific countries have missing values in a couple hierarchies that are appealing to policy makers, of variables. However, as all the variables in the as they can do multiple analyses depending on set are highly correlated (they all refer to the same the number of policy groups they want to have (a EGD theme), it is possible to develop a predictive decision that has logistical, political, and theoret- model to fit, as best as possible, those missing val- ical implications). ues based on the available data. In the interest of Whereas the procedure followed is fairly generic standardization and to avoid specific subjective for statistical profiling exercises, it is useful to high- biases, the data process to input these missing light several elements. Firstly, the process is intended values was chosen to be purely statistical. For to maximize the use of the available data to develop each theme, decision trees were built to predict the clustering. Secondly, it focuses on the latent vari- the value of each of its variables given the avail- ables embedded within the set of preselected indica- able information of the other variables within the tors rather than focusing on the particularities of set. The parameters of the decision tree were se- each of them. Thirdly, the selection of the clustering lected as the default ones used by the R program is an art more than an exact science, as different clus- “rpart”, as they have been generically approved tering procedures will focus attention on different by the statistical community as reasonable algo- aspects of the data structure. The selected method rithms for filling these data gaps. was used to match specific policy needs of rapid 3. No single indicator is meaningful for a theme, but identification of comparable countries and to have a the set of indicators embeds the essence of the reference on how similar these groups are. topic. For example, circular economy is not the 156 ANNEXES Table A.F.1:  Variables Identified and Used for the Statistical Profiling Increasing the EU’s climate ambition for 2030 and 2050 Eurostat Code Description Sub-indicators sdg_07_40 Share of renewable energy in gross All sectors final energy consumption by sector Electricity Heating and Cooling Transportation sdg_12_30 Average CO2 emissions per km   from new passenger cars  sdg_13_10 Greenhouse gas emissions by Excluding LULUCF and memo items, Index 1990 = 100 source sector Excluding LULUCF and memo items, Tonnes per capita Excluding memo items, Index 1990 = 100 Excluding memo items, Tonnes per capita sdg_13_20 Greenhouse gas emissions   intensity of energy consumption sdg_13_40 Climate related economic losses by Average losses over 30 years, Euro per capita type of event Average losses over 30 years, million Euro Climatological events, million Euro Hydrological events, million Euro Meteorological events, million Euro Total losses, million Euro sdg_13_60 Population covered by the Percentage of total population Covenant of Mayors for Climate & Energy signatories Supply clean, affordable, and secure energy Eurostat Code Description Sub-indicators sdg_07_10 Primary energy consumption Index 2005 = 100 Million ton of oil equivalent Ton of oil equivalent (TOE) per capita sdg_07_11 Final energy consumption Index, 2005 = 100 Million tons of oil equivalent (MTOE) Tonnes of oil equivalent (TOE) per capita sdg_07_20 Final energy consumption in   households per capita sdg_07_30 Energy productivity Euro per kilogram of oil equivalent (KGOE) Purchasing power standard (PPS) per kilogram of oil equivalent sdg_07_40 Share of renewable energy in gross All sectors final energy consumption by sector Electricity Heating and Cooling Transportation sdg_07_50 Energy import dependency by Solid fossil fuels products Natural gas Oil and petroleum products excluding biofuel portion Total sdg_07_60 Population unable to keep home Above 60% of equivalized income adequately warm by poverty status Below 60% of equivalized income Total sdg_13_20 Greenhouse gas emissions   intensity of energy consumption 157  MAKING THE GREEN DEAL WORK FOR PEOPLE Building and renovating in an energy and resource efficient Eurostat Code Description Sub-indicators sdg_01_60 Population living in a dwelling with Above 60% of equivalised income a leaking roof, damp walls, floors or Below 60% of equivalised income foundation or rot in window frames of floor Total by poverty status sdg_04_20 Tertiary educational attainment by sex Females Males Total sdg_06_20 Population connected to at least secondary   wastewater treatment sdg_09_10 Gross domestic expenditure on R&D by Business enterprise sector sector Government sector Higher education sector Private non-profit sector All sectors sdg_09_30 R&D personnel by sector Business enterprise sector Government sector Higher education sector Private non-profit sector Total sdg_09_40 Patent applications to the European Patent Number Office Per million inhabitants sdg_09_50 Share of buses and trains in total passenger Motor coaches, buses and trolley buses transport Trains Trains, motor coaches, buses and trolley buses - sum of available data sdg_09_60 Share of rail and inland waterways in total Inland waterways freight transport Railways Inland waterways, railways - sum of available data sdg_09_70 Air emission intensity from industry   sdg_11_10 Overcrowding rate by poverty status Above 60% of median equivalised income Below 60% of median equivalised income Total sdg_11_20 Population living in households considering Above 60% of median equivalised income that they suffer from noise, by poverty Below 60% of median equivalised income status Total sdg_11_31 Settlement area per capita   sdg_11_40 Road traffic deaths, by type of roads  Number Rate sdg_11_50 Exposure to air pollution by particulate Particulates < 10 μm matter Particulates < 2.5 μm sdg_11_60 Recycling rate of municipal waste   sdg_12_30 Average CO2 emissions per km from new   passenger cars sdg_16_20 Population reporting occurrence of crime, Above 60% of equivalised income violence or vandalism in their area by Below 60% of equivalised income poverty status Total sdg_17_60 High-speed internet coverage, by type of Low settled areas area Total 158 ANNEXES A zero pollution ambition for a toxic-free environment Eurostat Code Description Sub-indicators sdg_06_10 Population having neither a bath, nor a shower, nor Total indoor flushing toilet in their household by poverty status sdg_06_20 Population connected to at least secondary wastewater Percentage treatment sdg_06_30 Biochemical oxygen demand in rivers   sdg_06_40 Nitrate in groundwater   sdg_06_50 Phosphate in rivers   sdg_06_60 Water exploitation index, plus (WEI+)   sdg_11_50 Exposure to air pollution by particulate matter Particulates < 10 μm Particulates < 2.5 μm sdg_12_10 Consumption of chemicals by hazardousness - EU Hazardous to environment aggregate Hazardous Hazardous and non-hazardous - Total Hazardous to health sdg_12_30 Average CO2 emissions per km from new passenger   cars sdg_13_10 Greenhouse gas emissions by source sector Excluding LULUCF and memo items, Index 1990 = 100 Excluding LULUCF and memo items, Tonnes per capita Excluding memo items, Index 1990 = 100 Excluding memo items, Tonnes per capita sdg_13_20 Greenhouse gas emissions intensity of energy Index, 2000=100 consumption t2020_30 Greenhouse gas emissions, base year 1990   env_air_esd Greenhouse gas emissions in effort sharing decision Index, EU effort sharing decision base year=100 (ESD) sectors Million tonnes of CO2 equivalent t2020_rd210 Water productivity Euro per cubic metre Purchasing power standard (PPS) per cubic metre t2020_rd300 Greenhouse gas emissions per capita   t2020_rk300 Pollutant emissions from transport Non-methane volatile organic compounds Nitrogen oxides Particulates < 10 μm ten00002 Fresh water abstraction by source - million m³ Fresh groundwater, Million cubic metres Fresh surface and groundwater Fresh surface water ten00003 Fresh water abstraction by source per capita - m³ per Fresh groundwater capita Fresh surface and groundwater Fresh surface water ten00006 Water (fresh surface water) abstracted by sector of use Total Agriculture Production of electricity Manufacturing Industry Manufacturing industry - cooling Public water supply ten00020 Population connected to urban wastewater collecting Independent wastewater treatment - total and treatment systems, by treatment level Urban wastewater collecting system Urban and other wastewater treatment plans - total Percentage of population not connected to urban and other wastewater treatment Urban and other wastewater treatment plans - primary treatment Urban and other wastewater treatment plans - secondary treatment Urban and other wastewater treatment plans - tertiary treatment ten00030 Sewage sludge production and disposal from urban Sludge production - Total wastewater (in dry substance (d.s)) Sludge disposal - Agricultural use Sludge disposal - Compost and other applications Sludge disposal - Incineration Sludge disposal - Landfill Sludge disposal - Other Sludge disposal - Total 159  MAKING THE GREEN DEAL WORK FOR PEOPLE Preserving and restoring ecosystems and biodiversity Eurostat Code Description Sub-indicators sdg_06_30 Biochemical oxygen demand in rivers   sdg_06_50 Phosphate in rivers   sdg_14_10 Surface of marine sites designated under Natura 2000 Marine protected area (km2) Marine protected area (%) sdg_14_40 Bathing sites with excellent water quality by locality Inland water excellent sdg_14_60 Marine waters affected by eutrophication Square kilometre Percentage sdg_15_10 Share of forest area Forest FAO Forest and other wooded land FAO Other wooded land FAO sdg_15_20 Surface of terrestrial sites designated under Natura 2000 Terrestrial protected area (km2) Terrestrial protected area (%) sdg_15_41 Soil sealing index Index 2005 = 100 Square kilometre Percentage sdg_15_50 Estimated soil erosion by water - area affected by severe Square kilometre   erosion rate Percentage sdg_15_60 Common bird index by type of species - EU aggregate Index, 2000 = 100 (All Common Species) Index, 1991 = 100 sdg_15_61 Grassland butterfly index - EU aggregate Index, 2000 = 100 Index, 1991 = 100 From ‘Farm to Fork’: A fair, healthy, and environmentally friendly food system Eurostat Code Description Sub-indicators sdg_02_10 Obesity rate by body mass index (BMI) Pre-obese Overweight Obese sdg_02_20 Agricultural factor income per annual work unit Index, 2010=100 (AWU) Chain linked volumes (2010), euro per annual work unit (AWU) sdg_02_30 Government support to agricultural research   and development sdg_02_40 Area under organic farming   sdg_02_51 Harmonised risk indicator for pesticides (HRI1), Pesticides - harmonised risk indicators 1 (all by groups of active substances  active substances) sdg_02_60 Ammonia emissions from agriculture Kilograms per hectare Tonne sdg_06_40 Nitrate in groundwater   sdg_15_50  Estimated soil erosion by water - area affected Square kilometre by severe erosion rate Percentage sdg_15_60 Common bird index by type of species - EU Index, 2000 = 100 aggregate (All common species) Index, 1990 = 100 tag00001 Agricultural holdings by agricultural area Zero ha From 20 to 49.9 ha From 5 to 19.9 ha From 50 to 99.9 ha 100 ha or over Less than 5 ha Total (Continued) 160 ANNEXES From ‘Farm to Fork’: A fair, healthy, and environmentally friendly food system Eurostat Code Description Sub-indicators tag00007 Agricultural holdings by crops hold: seeds, seedings and other crops in arable land Hold: cereals Hold: pulses - total Hold: Root crops Hold: Industrial crops - total Hold: Fresh vegetables, melons, strawberries Hold: flowers and ornamental plants Hold: Fodder crops - total tag00014 Number of dairy cows   tag00016 Number of bovine animals   tag00017 Number of sheep   tag00018 Number of pigs   tag00020 Farm labour force pers: Family labour force pers: Labour force - members of sole holders’ family pers: Regular nonfamily labour force pers: Females: Regular labour force pers: Regular labour force tag00025 Utilised agricultural area by categories Arable land Permanent grassland Kitchen gardens Permanent crops Utilised agricultural area tag00027 Cereals for the production of grain (including Area (cultivation/harvested/production) seed) by area, production and humidity EU standard humidity (%) Harvested production in EU standard humidity (1000 t) tag00029 Agricultural holdings by age of holder Total From 35 to 44 years From 45 to 54 years From 55 to 64 years 65 years or over Less than 35 years tag00042 Production of meat: pigs   tag00043 Production of meat: poultry   tag00044 Production of meat: cattle   tag00045 Production of meat: sheep and goats   tag00047 Wheat and spelt by area, production and Area (cultivation/harvested/production) humidity EU standard humidity (%) Harvested production in EU standard humidity (1000 t) tag00049 Rye and winter cereal mixtures by area, Area (cultivation/harvested/production) production and humidity EU standard humidity (%) Harvested production in EU standard humidity (1000 t) tag00051 Barley by area, production and humidity Area (cultivation/harvested/production) EU standard humidity (%) Harvested production in EU standard humidity (1000 t) (Continued) 161  MAKING THE GREEN DEAL WORK FOR PEOPLE From ‘Farm to Fork’: A fair, healthy, and environmentally friendly food system Eurostat Code Description Sub-indicators tag00053 Oats and spring cereal mixtures by area, Area (cultivation/harvested/production) production and humidity EU standard humidity (%) Harvested production in EU standard humidity (1000 t) tag00093 Grain maize and corn-cob-mix by area, Area (cultivation/harvested/production) production and humidity EU standard humidity (%) Harvested production in EU standard humidity (1000 t) tag00094 Dry pulses and protein crops for the Area (cultivation/harvested/production) production of grain (including seed and EU standard humidity (%) mixtures of cereals and pulses) by area, Harvested production in EU standard humidity production and humidity (1000 t) tag00098 Organic crop area (fully converted area)   tag00100 Rape, turnip rape, sunflower seeds and soya Rape and turnip rape seeds Area (cultivation/ by area harvested/production) Sunflower seed Area (cultivation/harvested/ production) Soya Area (cultivation/harvested/production) tag00101 Green maize by area, production and humidity Area (cultivation/harvested/production) EU standard humidity (%) Harvested production in EU standard humidity (1000 t) tag00115 Fresh vegetables and strawberries by area Fresh vegetables (including melons) and strawberries tag00120 Permanent crops for human consumption by   area tag00123 Agricultural holdings by economic size of the From 100000 to 249999 euros farm From 15000 to 49000 From 250000 to 499999 From 4000 to 14000 euros From 50000 to 99999 euros 500000 euros or over Less than 4000 euros Total tag00124 Agricultural holdings with livestock hold: Number of holdings with livestock tai09 Livestock density index   162 ANNEXES Accelerating the shift to sustainable and smart mobility Eurostat Code Description Sub-indicators sdg_11_40 Road traffic deaths, by type of roads Total, Number Total, Rate t2020_rk310 Modal split of passenger transport Motor coaches, bus and trolley buses Passenger cars Train t2020_rk320 Modal split of freight transport Inland waters Railroads Roads Inland waters, railroads and roads - sum of available data tgs00075 Maritime transport of passengers by NUTS 2   regions tgs00076 Maritime transport of freight by NUTS 2 regions   tgs00077 Air transport of passengers by NUTS 2 regions   tgs00078 Air transport of freight by NUTS 2 regions   tgs00113 Rail network by NUTS 2 regions Kilometre Kilometres per thousand square kilometres tgs00114 Motorways network by NUTS 2 regions Kilometre Kilometres per thousand square kilometres ttr00001 Volume of passenger transport relative to GDP   ttr00002 Total length of motorways Motorways, Kilometre E-roads, Kilometre ttr00003 Total length of railway lines   ttr00005 Goods transport by road Million tonne-kilometre Thousand tonnes ttr00006 Goods transport by rail Million tonne-kilometre Thousand tonnes ttr00007 Goods transport by inland waterways Million tonne-kilometre Thousand tonnes ttr00009 Sea transport of goods Thousand tonnes ttr00011 Air transport of goods by country   ttr00012 Air transport of passengers by country   ttr00015 Rail transport of passengers   163  MAKING THE GREEN DEAL WORK FOR PEOPLE Reducing our climate impact Eurostat Code Description Sub-indicators cli_act_noec Share of zero emission vehicles in newly   registered passenger cars env_air_gge Greenhouse gas emissions by source sector Energy, Greenhouse gases in CO2 equivalent nrg_ind_esc Available energy, energy supply and final Final consumption - other sectors - households energy consumption per capita - energy use - space heating, KGOE per capita sdg_07_10 Primary energy consumption Million tonnes of oil equivalent sdg_07_40 Share of renewable energy in gross final energy All renewable energy sources, Percentage consumption by sector sdg_13_10 Greenhouse gas emissions by source sector Total (excluding memo items, including international aviation), Index, 1990=100 tran_hv_frmod Modal split of freight transport Railways, Percentage tran_hv_psmod Modal split of passenger transport Train, Percentage Protecting our planet and health Eurostat Code Description Sub-indicators env_bio4 Protected areas Terrestrial protected area, Square kilometre sdg_02_40 Area under organic farming Percentage of total utilised agricultural area sdg_02_51 Harmonised risk indicator for pesticides (HRI1), Index, 2011-2013 average =100 by groups of active substances sdg_06_40 Nitrate in groundwater Milligrams per litre sdg_11_50 Exposure to air pollution by particulate matter Particulates < 2.5µm sdg_12_50 Generation of waste excluding major mineral Hazardous and non-hazardous - Total, wastes by hazardousness Kilograms per capita sdg_15_10 Share of forest area Forest and other wooded land FAO, Percentage Enabling a green and just transition Eurostat Code Description Sub-indicators env_ac_ainah_r2 Air emissions accounts by NACE Rev. 2 activity Total - all NACE activities, greenhouse gases in CO2 equivalent tonnes env_ac_epneis National expenditure on environmental protection Total economy, Million euro by institutional sector env_ac_rme Material flow accounts in raw material equivalents - Raw material consumption, tonnes per modelling estimates capita sdg_07_60 Population unable to keep home adequately warm Total, Percentage by poverty status sdg_09_10 Gross domestic expenditure on R&D by sector All sectors, Percentage of gross domestic product (GDP) sdg_12_41 Circular material use rate Percentage sdg_17_50 Share of environmental taxes in total tax revenues   sdg_17_60 High-speed internet coverage, by type of area Low settled areas, Percentage of households 164 ANNEXES Table A.F.2: Tables for the Clustering Increasing the EU’s climate ambition for 2030 and 2050 Clusters 1 2 3 4 5 6 Change in share of renewable energy in gross final energy −2.5 −2.1 −0.6 1.7 −5.1 −3.0 consumption by sector (All sources) Change in greenhouse gas emissions intensity of energy 2.0 2.1 2.5 17.5 −0.2 −1.9 consumption Change in population covered by the Covenant of Mayors −0.1 −0.4 −1.5 −0.3 −2.7 0.2 for Climate & Energy signatories Share of renewable energy in gross final energy 16.2 21.9 35.9 31.7 78.6 74.4 consumption by sector (All sources) Population covered by the Covenant of Mayors for Climate & 25.6 59.4 44.9 42.7 8.6 25.5 Energy signatories (Percentage of total population) Average CO2 emissions per km from new passenger cars  123.3 123.1 114.0 130.1 114.3 59.9 Supply clean, affordable, and secure energy Clusters 1 2 3 4 5 6 Change in Energy import dependency by products (Total) 4.0 0.2 −3.8 0.0 4.0 55.8 Change in population unable to keep home adequately 0.1 1.7 −0.3 −0.8 0.3 0.4 warm by poverty status (Above 60% of equivalised income) Change in greenhouse gas emissions intensity of energy 1.7 2.7 7.1 1.9 −0.2 −1.9 consumption Primary energy consumption (Ton of oil equivalent (TOE) 2.9 2.4 4.2 5.1 17.2 4.8 per capita) Population unable to keep home adequately warm by 4.0 18.7 1.6 2.7 1.1 0.8 poverty status (Above 60% of equivalised income) Mobilizing industry for a clean and circular economy Clusters 1 2 3 4 5 6 Change in trade in recyclable raw materials 25,875 −20,220 −3,957 −3,472 52,256 213,962 (Imports extra-EU27 (from 2020)) Change in recycling rate of all waste excluding −0.2 −0.1 3.3 −0.5 2.6 −1.3 major mineral waste (Percentage) Generation of waste excluding major mineral 9.2 20.5 23.3 8.1 19.2 12.6 wastes per domestic material consumption Recycling of biowaste (Kilograms per capita) 163.7 96.0 21.5 45.6 131.0 61.0 Building and renovating in an energy and resource efficient way Clusters 1 2 3 4 5 6 Change in population living in a dwelling with a −0.1 0.7 −3.2 1.9 1.6 0.7 leaking roof, damp walls, floors or foundation or rot in window frames of floor by poverty status (Above 60% of equivalised income) Change in gross domestic expenditure on R&D by 0.0 0.0 0.0 0.0 −0.1 0.0 sector (Higher education sector) Change in road traffic deaths, by type of 0.4 0.0 0.0 0.5 3.4 0.5 roads (Total)(Rate) R&D personnel by sector (Total) 1.9 1.1 1.2 0.8 1.7 0.6 Exposure to air pollution by particulate matter 10.6 19.2 11.4 10.3 6.2 6.7 (Particulates < 2.5) 165  MAKING THE GREEN DEAL WORK FOR PEOPLE A zero pollution ambition for a toxic-free environment Clusters 1 2 3 4 5 6 Change in population connected to at least secondary −0.4 −1.9 −0.8 −0.1 0.5 −15.5 wastewater treatment (Percentage) Change in exposure to air pollution by particulate 1.7 1.4 2.5 0.8 0.3 −0.3 matter (Particulates < 2.5μm) Change in average CO2 emissions per km from new 14.3 6.9 6.7 13.8 34.1 7.7 passenger cars Greenhouse gas emissions intensity of energy 82.6 93.4 87.5 84.0 44.6 57.6 consumption (Index, 2000=100) Fresh water abstraction by source − million m³ (Fresh 3842 3060 2250 23661 5142 42.7 surface and groundwater) Population connected to urban wastewater collecting 89.6 72.0 64.9 85.3 96.9 98.9 and treatment systems, by treatment level (Urban wastewater collecting system) Population connected to urban wastewater collecting 8.0 11.6 37.1 20.8 8.7 15.5 and treatment systems, by treatment level (Urban and other wastement treatment plans − secondary treatment) Preserving and restoring ecosystems and biodiversity Clusters 1 2 3 4 5 6 Change in share of forest area (Forest and other −0.3 −0.2 −1.2 0.2 0.4 2.0 wooded land FAO) Change in estimated soil erosion by water − area 0.0 0.0 0.0 0.0 0.3 0.0 affected by severe erosion rate (Percentage) Bathing sites with excellent water quality by 72.7 83.8 21.2 86.0 91.3 68.8 locality (Inland water) (Percentage) Surface of terrestrial sites designated under Natura 24.9 13.0 30.1 13.5 13.3 9.0 2000 (Terrestrial protected area (%)) Estimated soil erosion by water − area affected by 9.9 0.9 4.3 0.3 12.6 4.1 severe erosion rate (Percentage) From ‘Farm to Fork’: A fair, healthy, and environmentally friendly food system Clusters 1 2 3 4 5 6 Change in obesity rate by body mass index (BMI) 0.6 −0.1 −0.1 0.0 0.0 2.4 (pre-obese) Change in number of bovine animals (Thousand heads) −2.9 299.6 60.1 119.8 −92.6 78.3 Change in farm labour force (pers: Family labour force) 9.2 13.5 171.5 412.3 78.6 187.7 (Thousand full-time equivalents (FTE)) Change in permanent crops for human consumption by −1.89 −1.77 −71.67 −32.24 16.47 −0.29 area (All crops) Accelerating the shift to sustainable and smart mobility Clusters 1 2 3 4 5 6 Change in modal split of passenger transport (Motor 0.5 0.1 −0.3 0.0 0.1 2.4 coaches, bus and trolley buses) Change in modal split of freight transport (Roads) −1.1 −0.5 0.6 0.2 −0.5 −3.6 Modal split of passenger transport (Passenger cars) 74.8 83.6 84.2 85.1 84.6 86.4 Modal split of freight transport (Inland waters, railroads 29.9 14.0 50.8 26.6 17.4 12.5 and roads - sum of available data) Air transport of passengers by country (Passenger) 6284014 8859613 2603989 73597370 91088327 2437390 166 ANNEXES Reducing our climate impact Clusters 1 2 3 4 5 6 Change in share of zero emission vehicles in newly −2.9 −1.3 0.7 −3.0 −2.2 −13.0 registered passenger cars (Percentage) Change in greenhouse gas emissions by source 1.6 2.5 −0.1 17.9 2.5 0.9 sector (Greenhouse gases in CO2 equivalent, Energy) (Thousand Tonnes) Change in available energy, energy supply and final 0.2 0.2 −0.3 0.1 0.8 0.4 energy consumption per capita (Final consumption − other sectors − households − energy use − space heating, KGOE per capita) Change in primary energy consumption (Million tonnes 2.6 1.4 0.3 41.8 0.9 0.6 of oil equivalent) Change in share of renewable energy in gross final −2.8 −2.5 −2.8 −1.9 0.7 −4.0 energy consumption by sector (All sources) Share of zero emission vehicles in newly registered 3.3 1.3 1.5 1.2 1.1 26.0 passenger cars (Percentage) Share of renewable energy in gross final energy 20.1 22.6 11.0 16.2 35.6 76.5 consumption by sector (Renewable energy sources, Percentage) Modal split of passenger transport (Train, Percentage) 9.3 2.7 3.8 8.2 4.2 5.1 Protecting our planet and health Clusters 1 2 3 4 5 6 Change in area under organic farming (Percentage of −0.4 −0.2 0.2 −1.0 −0.1 0.0 total utilised agricultural area) Change in harmonised risk indicator for pesticides 9.0 1.4 −4.3 16.4 −18.0 −2.1 (HRI1), by groups of active substances (Index, 2011−2013 average =100) Change in share of forest area (Forest and other 0.1 −0.5 −1.2 0.0 0.0 1.8 wooded land FAO, Percentage) Protected areas (Terrestrial protected area, Square 18.6 23.1 39.0 38.8 20.8 14.8 kilometre) Share of forest area (Forest and other wooded land 60.2 30.0 42.8 42.3 58.2 27.4 FAO, Percentage) Enabling a green and just transition Clusters 1 2 3 4 5 6 Change in air emissions accounts by NACE 2690978 6459602 4272963 67648486 18036115 20506602 Rev. 2 activity (Greenhouse gases in CO2 equivalent, Total - all NACE activities, Tonne) Change in gross domestic expenditure on −0.1 −0.3 −0.1 0.0 −0.1 −0.1 R&D by sector (All sectors, Percentage of gross domestic product (GDP)) National expenditure on environmental 2.1 3.2 1.3 2.1 2.0 1.3 protection by institutional sector (Total economy, Million euro) Share of environmental taxes in total tax 6.5 6.1 8.1 4.4 7.4 4.8 revenues 167  MAKING THE GREEN DEAL WORK FOR PEOPLE strengthened job skills training; digital transforma- Annex G. Heat Maps tion of schools; and strengthen R&D. Methodology and Results for Health policies focus on improved quality of and Country Policy Analysis access to health systems; renovation and improve- ments to energy efficiency of hospitals; and poverty reduction. Policies around social protection and jobs Croatia include: a Guaranteed Minimum Benefit and im- • Context: While Croatia has the strongest gover- provements to social protection benefits/welfare nance structures and stable economy in the Bal- systems; measures to prevent social exclusion (dein- kans, giving it capacity adapt to changes, high stitutionalization); and job skills training and train- unemployment, growing trade deficits, and un- ing in digital competencies. even regional development continue to be issues creating risk to economic stability.4 Response to Slovakia the EU GD in Croatia was generally positive5— the European Investment Bank found that 85 per- • Context: Slovakia is one of the fastest growing cent of Croatians believe climate change has neg- economies in the EU, with a carbon-intense in- ative impact (one of the highest percentages in dustry-based economy (automotive and steel) the EU) and Croatia’s need for energy indepen- forming 28 percent of the country’s GDP. The real dence (as it currently imports 56 percent of its GDP grew by 61 percent between 2005 and 2019.10 energy) make the EU GD politically beneficial. In March 2020, Slovakia elected a new center Funding to support the GD in Croatia is expected right government and passed the Slovak Climate to grow the economy by around 2 percent by 2026 Initiative.11 However, Slovakia faces socio-eco- and Croatia has plans for green jobs based on this nomic challenges due to poor educational out- growth. Impediments to the implementation of comes, especially for socially disadvantaged the GD in Croatia include hesitancy on the part of populations, health outcomes are weak and life business and complex and inefficient systems expectancy is one of the lowest in the EU.12 Lim- and bureaucracy.6 ited public and private relationships and research and development sector provides challenges to • Policy documents reviewed: The following doc- growth under the EU GD. uments on Slovak environmental policy were re- viewed for inclusion in analysis: The European • Policy documents reviewed: The following doc- Commission’s Commission Staff Working Docu- uments on Slovak environmental policy were re- ment: Analysis of the recovery and resilience plan of viewed for inclusion in analysis: The European Croatia, which was reviewed as a replacement for Commission’s Commission Staff Working Docu- direct analysis of Slovakia’s Recovery and Resil- ment: Analysis of the recovery and resilience plan ience Plan, as it was unavailable in English;7 the of Slovakia,13 which was reviewed as a replace- National Reform Programme, April 2020;8 and the ment for direct analysis of Slovakia’s Recovery National Development Strategy 2030.9 and Resilience Plan, as it was unavailable in En- glish;14 the Integrated National Energy and Climate • Analysis: The EC found that Croatia’s Recovery Plan for 2021 to 2030;15 Greener Slovakia: Strategy of and Resilience Plan addresses a significant subset the Environmental Policy of the Slovak Republic of the challenges and recommendations from the until 2030;16 and the Low-Carbon Development Strate- European Semester, including country-specific gy of the Slovak Republic until 2030 with a View to 2050 recommendations, specifically budgetary frame- (2019).17 A number of relevant policies were not work, active labor market policy measures, im- available in English, such as Slovakia’s Strategy on plementation of education reform, improvements Inclusive Approach to Education (2021). to health systems. Cross cutting digitization and social cohesion through labor market policies and • Analysis: Slovak environmental policy written skills development for vulnerable groups. prior to 2020 and reviewed for this paper, tends to mostly address improvements to education and With regards to education, Croatia aims to im- social protection and jobs. For example, Greener prove access and curricular development in early Slovakia: Strategy of the Environmental Policy the education and improved access to secondary educa- Slovak Republic until 2030, written in 2019, focuses tion for improved tertiary and labor market force; on improvements to education—with focus on 168 ANNEXES environmental education and training for sus- in the EU; 43 percent of coal mining jobs in the EU tainable development. It also focuses on develop- are in Poland (in a country that is 8.5 percent of ment of active cooperation and partnership be- the total population of the EU).21 tween public and private sectors to develop As a result of these political realities, Poland’s solutions to environmental problems. However, path in the EU GD has been contentious. In an effort Greener Slovakia does not deal directly with the to address difficulties related to these transitions health sector with regards to climate solutions. and to prevent backlash, particularly in Eastern Eu- The Integrated National Energy and Climate Plan for rope, a Just Transition Fund was added, to mobilize 2021 to 2030 (2019) includes public-private part- capital and ease the transition through bank lending, nerships, upgrades for hospitals; improvements private investment.22 However, a number of efforts to education and R&D in order to support elimi- on the part of Poland to make political decisions in- nation of unemployment, poverty, and social ex- dependently of the EU have put this funding in jeop- clusion. However, the Low–Carbon Development ardy—reluctance to phase out coal mining and polit- Strategy of the Slovak Republic until 2030 with a ical changes to the Polish courts system which assert View to 2050, does not address education or social that Polish law is paramount to EU law.23 The ten- protection and jobs directly, but does include pol- sions between Poland and the EU over rule of law icy on improvements to public buildings (includ- principles, as well as tensions about burden sharing, ing hospitals). climate energy market integration, and energy secu- Analysis of Slovakia’s Recovery and Resilience rity concerns have resulted in funding from the EU Plan (2020) found that it has a strong focus on inclu- to Poland being put on hold.24 sive education, improvements to the health system, • Policy documents reviewed: Analysis of Po- public governance and productivity-enhancing land’s policy documents regarding education, green and digital transitions. The EC notes that Slo- health, and social protection and justice was se- vakia lacks adequate investment in the green transi- verely limited due to the lack of availability of tion (most funding is going to Cohesion Policy and English versions. As a result of the conflicts be- public finance, with some for-environment protec- tween Poland and the EU, Poland’s Recovery and tion and resource efficiency). Main priorities are en- Resilience Plan has still not been approved by the ergy efficient solutions for households and renew- EC/EU and as a result, there has not yet been an able energy. The EC found that Slovakia’s plan EC analysis of the plan (as there is for Croatia and expects to contribute 43 percent of its total allocation Slovakia, in English and allowing for analysis). of 6.3 billion euro (exceeding the required 37 per- Analysis was done on Poland’s National Strategy cent), with focus on building renovations (including of Regional Development 2030 (NSRD). The Nation- hospitals), shift to digital economy, decarbonization al Strategy was adopted by the Council of Minis- of industry, greener transportation, landscape/wa- ters in September 2019. The NSRD is the funda- ter management, and education reforms.18 mental document for shaping regional policy in Poland until 2030. Poland • Analysis: The National Strategy includes some ed- • Context: Poland in particular, has been ‘climate ucational provisions for innovation (R&D) by es- cautious’, facing internal political challenges due tablishing cooperation between universities and to its heavily coal-dependent energy sectors. For government. Additionally, the Strategy empha- Poland to meet EU climate targets, will require sizes equipping students with the skills needed decisive action on the part of the government.19 by the labor market; adjustments to the education However, the Polish government has remained system to allow past graduates to upskill and re- politically committed to coal, even as the realities skill during adulthood to mitigate skills imbal- of the economics of the coal industry in Poland ances; and improving the awareness, flexibility are beginning to shift (employment in the coal and funding of adult learning to help boost par- mining industry has dropped significantly since ticipation. It also includes provisions for im- 1990) and there is growing public support for cli- provements to health care systems. With regards mate policies, particularly in light of low air qual- to social protection and jobs, the National Strate- ity (of the top 50 EU cities with worst air quality, gy’s focus is stronger—including provisions for 36 are in Poland),20 Poland continues to represent improvement of public services, and vocational a significant portion of coal mining employment education and life-long learning. 169  MAKING THE GREEN DEAL WORK FOR PEOPLE jobs by providing a methodology on translating Annex H. Green Jobs green indices from the 8-digit O*NET level to 4-digit Methodology ISCO level. Estimating “greenness” of jobs Estimating returns to skills in green Following Vona et al. (2019) and Elliott et al. (2021) versus brown jobs we apply the O*NET classification system (US De- We estimate earnings equation explaining log wages partment of Labour) to describe jobs’ “greenness”. by skills, age and age squared (capturing decline in Green jobs in this classification are defined accord- cognitive abilities but also a proxy of job experience), ing to the number of green tasks they require from sector (public/private), and gender. the workers. O*NET classification helps us to under- We use a single index of skills combining infor- stand the changes in occupation and skill require- mation about years of education and measures of ments happening when a country transitions to a foundational skills (numeracy and literacy), usage of greener economy (Elliott et al. 2021). We have used skills at home and at work, and soft skills (influenc- the data on the greenness of occupations on the ing, planning). The combined measure was esti- 4-digit levels available in the appendix of the Elliott mated using factor analysis model and after imput- et al. (2021) working paper. As in our analysis we use ing missing data for individual skills indices (key data on up to 6-digit level granularity, we have made measures of cognitive skills has no missing data). an assumption that each occupation on the 6-digit Skills index is standardized (z-score), so the results level is characterized by the same level of greenness can be interpreted as the percentage change in wages as its 4-digit “umbrella occupation”. related to one standard deviation change in skills. Greenness of each occupation (Green core index) Moreover, we interact skill measures with indica- is calculated using the following formula: tors of how “green” or “brown” is the job. In this case, we follow classification of occupations by Vona , et al. (2019) and Elliott et al. (2021). We use a contin- uous measure of job green core tasks and a dummy where wij is the importance score that is attached to variable indicating jobs that are mainly brown or each task within occupationi, and greenj is a dummy green. To see if green (or greener) jobs provide differ- that takes the value of 1 if task j is a green task. Elliott ent returns to skills we estimate the following equa- et al. (2021) differentiate three areas of greenness in tion. In addition, we control for fixed differences be- which they refer to the O*NET classification. They tween countries by including country fixed effects uj. contribute to the growing body of literature on green The results are presented in Table A.H.1. 170 ANNEXES Table A.H.1. Log Hourly Wages in Green and Brown Jobs Explained by Skills, Age, Gender, and Sector Log of hourly wage (including Green vs. brown jobs (dummy Continuous indicator of green bonuses) indicator) core Skills 0.23*** 0.26*** (0.01) (0.00) Green −0.02 0.01 (0.03) (0.01) Skills*green 0.05*** 0.02*** (0.01) (0.00) Age 0.03*** 0.02*** (0.00) (0.00) Age^2 −0.00*** −0.00*** (0.00) (0.00) Female −0.15*** −0.14*** (0.02) (0.01) Female*green 0.06* 0.02** (0.02) (0.01) Private −0.03 −0.04*** (0.02) (0.01) Private*green 0.05 0.02* (0.03) (0.01) Constant 2.15*** 2.20*** (0.06) (0.03) Country fixed effects Yes Yes Adj R2 0.82 0.84 N 11335 31960 Source: Own calculations using PIAAC micro data. Note: Standard errors in parentheses. * p<0.05; ** p<0.01; *** p<0.001. 171  MAKING THE GREEN DEAL WORK FOR PEOPLE Endnotes 11 https://bankwatch.org/blog/a-dozen-green-deal- steps-for-the-new-slovak-government. 1 The approach follows Nordhaus (1992) based on the au- 12 https://ec.europa.eu/info/business-economy-euro/ thor’s interpretation of the Dynamic Integrates Cli- recovery-coronavirus/recovery-and-resilience-facility/ mate-Change Economy (DICE), which is used by the US slovakias-recovery-and-resilience-plan_en. Environmental Protection Agency. 13 European Commission 2021b. 2 See Arrow and Debreu (1954). 14 https://www.mfsr.sk/files/archiv/1/Plan_obnovy_a_ 3 This equation will be modified in a coming section to odolnosti.pdf. include taxes, but for explanatory clarity that topic is not 15 Slovak Ministry of Education 2019. discussed at this point. 16 Government of Slovakia 2019. 4 h t t p s : / / e n e rg s u s t a i n s o c . b i o m e d c e n t r a l . c o m / 17 Government of the Slovak Republic 2020. articles/10.1186/s13705-021-00328-y 18 https://ec.europa.eu/commission/presscorner/ 5 Slijepčević and Kordej-De Villa 2021. detail/en/qanda_21_3055. 6 Kotarski 2022. 19 Tomaszewski 2020. 7 European Commission 2021a. 20 Elkind and Bednarz 2020. 8 Government of the Republic of Croatia 2020. 21 Elkind and Bednarz 2020. 9 Government of the Republic of Croatia 2022. 22 Elkind and Bednarz 2020. 10 EPRS 2021. 23 Elkind and Bednarz 2020. 24 Elkind and Bednarz 2020. 172