What are the socio-economic impacts of an energy transition?

August 23, 2021

Newly installed solar panels in the Turkmenistan desert power water stations that allow livestock to graze and livelihoods to return. Photo: UNDP Turkmenistan / Sergey Mirzoyev

As the world tackles the unprecedented socio-economic crisis that arose from the COVID-19 pandemic, the mantra has been to “recover greener” or “build back better”. Many have called that post-pandemic restoration plans should be in line with international agreements like the Sustainable Development Goals (SDGs) and Paris Agreement, and the recent climate change crisis report makes this more urgent than ever.

One vital response is transitioning the current fossil fuel-intensive energy system towards one that is cleaner, through renewable energy, increased energy efficiency and conservation. As this transformation will bring deep structural changes to societies and economies, we cannot overlook the socio-economic aspects of the energy transition.

While there are significant initial costs associated with the transition, they would lead to savings in the long term. The report by the International Renewable Energy Agency (IRENA), shows that this energy transition – one aligned with the ambition to limit the increase of average global temperature to 1.5°C above pre-industrial levels - has positive impacts on economic growth, job creation and human welfare.

Energy transition's impact on global GDP

Energy transition requires enormous investments in renewable measures to achieve energy efficiency, conservation and accessibility. This investment leads to additional demand and output across economic sectors, such as construction and manufacturing, thereby having a positive effect on global Gross Domestic Product (GDP). Due to this additional output, the energy transition would yield a higher global GDP compared to the less ambitious reference scenario, where the additional financial flows will be smaller (figure 1).

Figure 1. GDP difference of the 1.5oC Scenario from Planned Energy Scenario (PES) which is based on existing energy policies and targets

Jobs in the energy transition

The transition towards clean energy requires equipment, technologies and various services, thereby offering significant employment opportunities across the globe. This increased transition-related job demand is predicted to lead to, on average, 1 percent higher employment throughout the transition (until 2050). The additional jobs peak around 2030 at 51 million (26 million in the energy sector alone). 

It is important to realise that job creation goes beyond the energy sector. Experts in legal matters, taxation, logistics and safety and environment, as well as skilled labourers such as truck and crane drivers, are among those that will also play an important part of the transition.

The most notable sectoral change is the shift away from mining and manufactured fuels (figure 2) towards sectors like services (consulting, planning and legal services), manufacturing (of equipment and technologies) and agriculture (including forestry, which provides biomass and biofuel inputs).

Figure 2. Employment difference by sector between the baseline and 1.5°C Scenario, thousand jobs

Human welfare

The energy transition will contribute to positive impacts on the wider human welfare through the improvement of human health and access to energy.

Air pollution is estimated to be the 4th leading risk factor for early death globally. Phasing out fossil fuels - one of the main reasons behind ambient pollution - would improve air quality and therefore have a significant impact on human health. 2019 saw 6.7 million deaths due to air pollution - a number which could be greatly reduced by shifting to a cleaner energy.

Decentralised renewable energy solutions (the use of energy which is generated more locally and independently, e.g. solar and wind energy) will make energy more accessible, impacting the 755 million people living without access to energy (2019 figures). Look at this recent example from UNDP Armenia, where communities with a high influx of displaced people were provided with solar heaters and photovoltaic stations. These long-term sustainable energy solutions improve the households' access to energy, limit the economic impact for host communities and even provide opportunities for future energy independence.

And in this region?

Based on these global socio-economic predictions, we can make some estimations about how the energy transition will affect the Eastern Europe, Caucasus and Central Asia region.

The countries in this region are characterized by limited economic diversification, dominated by the mining industry (including the extraction of coal and other natural resources) and heavily rely on climate sensitive sectors such as the agriculture sector. Diversifying the economy by integrating renewable energy and new technologies could help support innovation, and increased demand from environment-related expenditures would likely have a positive effect on the creation of green jobs. The increased output would ultimately have a positive impact on the region's GDP. 

Countries are challenged by a steady increase of fossil fuel demands and rising carbon dioxide emissions, which contribute to their deteriorating air quality. Air pollution is a rising concern which has been analysed in our recent report: Tackling air pollution in Europe and Central Asia for improved health and a greener future. Most capital cities here have higher concentrations of atmospheric ultrafine particles than what is recommended by the World Health Organisation. Replacing fossil fuels with renewable energy would result in significantly cleaner air and improved human health, thereby increasing human welfare in the region.

In addition to limiting global climate warming at 1.5 degrees, the transition to clean energy would bring benefits across a wide sphere, while also aligning with the needs of a green post-COVID recovery. This is why we’re working on energy solutions and support governments in integrating renewable energy into their sustainable development strategies.

This is part of a series of articles on air pollution in Europe and Central Asia. Around the region, UNDP is working to tackle the problem of air pollution, from getting a sense of its breadth to finding the causes behind it to informing policy and encouraging greener development - so that everyone can breath cleaner air.