Executive summary

Regional and local governments play a central role in managing the environmental and energy transition, which involves systemic transformations of unprecedented depth and breadth. Regions and cities often have jurisdiction over crucial sectors for climate action, including buildings, part of transportation, and other local infrastructure. They can also boost the circular economy, such as in waste management, and more generally are responsible for 55% of the public spending in sectors directly associated with climate change. Regional planning and regulation, for example on transport, can guide private investment in a way that is consistent with the transition. Last but not least, regions and cities are in close contact with citizens and local businesses, so are prime vectors for ensuring popular support of the required policy choices.

Achieving the sustainability of human interactions with the natural environment is possibly the greatest challenge confronting regions and cities in the 21st century. Strong and rapid mitigation action is needed to meet the Paris agreement targets and avoid major risks to the foundations of human well-being. Despite success in halting and reversing the degradation of some ecosystems, environmental pressures are growing fast. Material extraction and processing contributes to 71% of GHG emissions (including fossil fuel use for energy supply, agriculture and industry) and accounts for substantial water, soil and air pollution. With current policies, the world’s consumption of raw materials is set to nearly double by 2060 with corresponding intensifications in environmental pressures. While regional, urban and rural policy makers have taken some steps towards a climate-neutral and circular economy, the scale and speed of both action and investment are insufficient. Reaching net-zero emission and circularity objectives will require supplementary annual investment of around 1% to 1.5% of GDP annually. In addition, a large reorientation of investment flows away from fossil fuel is needed, beginning with the economic stimulus packages set up in connection with the COVID-19 pandemic.

Many of the well-being gains of the environment and energy transition, such as less air pollution, less traffic congestion, less water and soil pollution, access to green spaces and better health accrue locally. They motivate many regions and cities to take action and can largely offset the costs. Increasing green infrastructure generally offers multiple health and well-being benefits. Energy-efficient buildings, for example, not only mitigate GHG emissions and foster the circular economy, they also generate local employment, health and productivity benefits. Active mobility, such as walking and cycling, can contribute to achieving sustainable transport, building healthier and more sustainable communities and reducing traffic and pollution while freeing urban space.

Investment in assets that will become unproductive in the course of the environmental and energy transition, for example in fossil fuels, needs to be stopped. Delay only leads to both higher emissions and costs. Addressing these challenges requires overcoming barriers such as misaligned incentives, capacity gaps and political economy factors including employment in the fossil fuel industry, short time horizons and incumbent market interests. It also requires an inclusive approach to decision-making, protecting vulnerable households from income and employment risks as well as helping workers and firms adjust. In this context, coal mining and other carbon-intensive regions need support to achieve a just transition. The resilience of vulnerable households is also central for adapting to the local consequences of inevitable climate change. Regions and cities are needed to develop effective solutions in the context of national, international and supranational governance together with the citizens and businesses.

Between 2015 and 2050, city populations are projected to increase from 3.5 to 5 billion. This creates pressures but also opportunities for more efficient resource use. City governments need to support the environmental and energy transition with urban planning, building and transport policies, and by providing financial, technical, and administrative support. A successful transition in rural areas requires overcoming challenges related to rural risk management, governance, and ensuring a just transition. Rural policy makers have a range of tools to manage the transition, notably with regard to the energy sector, rural mobility, sustainable land management and the bioeconomy. More generally, preparing rural regions for environmental and energy transition requires better linking transition objectives with rural development. Finally, regional and urban policy also plays an important role in enabling the transition to a circular economy. New circular business models, shared use, waste prevention, recycling, and similar measures can create savings and local jobs.

The environmental and energy transition needs to be integrated into all regional and urban policies. This requires effective co-ordination of cities and regions with national governments, strong investment decisions and deployment of novel technologies and practices. Unlocking the potential of the climate-neutral and circular economy in regions and cities also implies putting the necessary conditions in place to create incentives (legal, financial), stimulate innovation (technical, social, institutional) and generate information (data, knowledge, capacities). Urban, regional, and rural policy makers need to develop new skills and policymaking practices, embracing foresight, experimentation, evaluation and stakeholder interaction.

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