15. Policy recommendations for building climate and economic resilience in a changing world

This chapter brings together policy recommendations stemming from the full range of work carried out for the Net Zero+ project. It is structured around the key themes explored in this report, highlighting priority policy areas and related actions for governments in driving transformative and effective climate policy in a changing world.

In light of increasing evidence that thresholds for climate system tipping points may be crossed earlier and at lower warming thresholds than previously thought, governments should:

  • Take all possible measures to limit global warming to 1.5°C with limited or no overshoot. This includes:

    • Strengthening Nationally Determined Contributions (NDCs) before 2025 and ensuring that well designed policies are implemented urgently, with frequent review and evaluation.

    • Prioritising accelerated emissions reductions now rather than balancing out continuing emissions with negative emissions later, and not over-relying on CO2 removal technologies.

  • Prepare for the possibility of climate system tipping points being triggered even if 1.5°C is achieved. This includes:

    • Considering “transformational adaptation” strategies, including potentially drastic actions such as the relocation of at-risk communities and industries should tipping point thresholds be crossed (e.g. coastal communities at risk of sea-level rise).

    • Enhancing monitoring and early warning systems of climate system tipping points as well as modelling of their likely impacts. This includes advancing Earth-system monitoring technologies and supporting further research, innovation and international collaboration.

Recognising the likelihood of future global socio-economic shocks or disruptions such as those caused by the COVID-19 pandemic and Russia’s war on Ukraine, governments should:

  • Continue to prioritise climate policy making in the face of unpredictable and overlapping global shocks, focussing not only on accelerating the transition to net-zero emissions but making the transition itself resilient to future shocks.

    • Ensure that any recovery spending in response to future shocks is fully aligned with the net-zero transition, avoiding support to fossil fuels and emissions-intensive activities.

    • Extend recovery spending to climate technology diffusion and innovation, and implement complementary science, technology and information (STI) policies.

    • Responding to high costs of living and energy prices, support to households should be via income support rather than price support where possible, and targeted to those most vulnerable. Governments should avoid blanket measures that may disincentivise households from reducing emissions, thereby undermining climate objectives.

Climate and economic resilience necessitates a systemic approach to mitigating climate change and adapting to climate impacts while simultaneously grappling with other, sometimes overlapping, socio-economic crises. To this end, governments should:

  • Ensure that sufficient resources and functional redundancies are maintained in order to adequately intervene in case of crises. For example, as climate change increases extreme weather events, governments should retain the necessary resources to provide emergency assistance to affected communities and rebuild critical infrastructure.

  • Look beyond short-term efficiency in order to better absorb future shocks and limit the need for emergency intervention. For example, a more diversified energy system in Europe may have been better able to absorb the shock of a halt in Russian gas imports brought on by the war in Ukraine. This would have minimised the need for emergency support to households and businesses.

  • Ensure that measures to bolster resilience to climate impacts do not trade off, but enhance, other socially desirable objectives such as funding basic social services and reducing inequalities.

  • Focus policy making on rethinking overall systems, rather than individual components or outcomes, to bring them in line with climate goals (for example, considering overall needs for sustainable mobility rather than a sole focus on replacing thermal vehicles with electric ones).

Given the possibility of future disruptions to the net-zero transition, governments should:

  • Carry out stress testing of net-zero strategies using a strategic foresight approach. This includes:

    • Identifying a diverse range of possible disruptions to net-zero strategies that could occur across the economy.

    • Assessing and exploring the interlinkages between disruptions and their interactions with local/national/regional contexts to develop plausible future scenarios that can inform policy design.

    • Developing anticipatory strategies to respond to multiple potential challenges and ensure resilience of the net-zero transition should they occur.

Well-aligned climate policy basics covering mitigation and adaptation should be paramount irrespective of the particularities of overlapping global crises and their implications for climate policy making. Governments should:

  • Establish long-term climate policy frameworks setting overarching policy objectives such as emissions reductions trajectories and interim targets, and regularly monitor and assess them.

    • Set up mechanisms to track progress on implementation of policies to meet these ambitions and use the information to compare and evaluate potential alternative policy options to optimise the policy mix for each context. Such assessments can draw on the work of the OECD’s Inclusive Forum on Carbon Mitigation Approaches (IFCMA).

Recognising that no single policy instrument can sufficiently address climate-related challenges, governments should:

  • Consider the full range of policy tools, including price-based and non-priced-based instruments, and employ a mix of measures appropriately tailored to regional, national and local contexts. Governments could use the following criteria to assess the appropriateness of different policy instruments within the context they are to be applied:

    • mitigation potential/cost effectiveness;

    • administrative cost;

    • innovation co-benefits;

    • predictability and ability to deal with uncertainty;

    • trade compatibility (non-restrictiveness/non-discriminatory);

    • distributional outcomes;

    • public acceptability.

  • Establish complementary policies to provide enabling conditions for effective climate policy implementation. This includes, for example, education policies to ensure that civil society remains informed and engaged or a regulatory environment that enables, or at least does not obstruct, climate policy implementation.

Recognising the multidisciplinary nature of climate policy, the urgency for action and importance of public trust and consensus for durable policies, governments should:

  • Take a genuinely whole-of-government approach to policy making, recognising the important role of “centres of government” in driving a co-ordinated approach.

  • Reinforce integrity standards for policy making, including through strengthened public consultation processes across all institutions responsible for designing and implementing climate policy.

  • Harness innovative public governance tools to drive effective and efficient public governance processes and practices, including:

    • Adopting green budgeting, assuring that expenditures align with objectives to accelerate a resilient net-zero transition and resilience to climate impacts, as well as other environmental objectives.

    • Set an example for other countries by transforming public buildings and transport fleets, using green public procurement, strengthening responsible supply chain requirements, and encouraging suppliers to implement robust responsible business conduct (RBC).

    • Integrate strategic foresight into climate policy-making processes and take behavioural insights into account.

    • Reinforce the capacity of the justice system to resolve environmental claims and enforce environmental commitments, including through dispute resolution mechanisms.

  • Involve subnational governments in the design of national climate policies and facilitating knowledge sharing and information exchange.

To support resilient and more effective climate change policy across other policy domains, governments should:

  • Advance research and data collection. Increase information sharing across countries and institutions, and the transparent dissemination of results to policy makers and the public in order to continuously assess climate policy progress and the suitability of climate policy plans to changing circumstances.

  • In addition to stress testing overarching climate policy strategies through strategic foresight, governments should stress test key systems, in particular identifying how bottlenecks across sectors might slow the net-zero transition.

  • Governments should anticipate and address potential bottlenecks, for example, by creating the conditions for a stable and scaled-up supply of electricity (e.g. by facilitating permitting procedures and investing in transmission and distribution) and addressing potential dependencies in the supply of critical minerals by diversifying supply chains and/or creating appropriate incentives for local manufacturing where conditions to do so exist.

Given the potentially large public finance implications of the net-zero transition, in particular the revenue potential of carbon pricing being diminished by indirect effects on other sources of public revenue such as e.g. fossil fuel taxes, governments should:

  • Employ careful fiscal planning to ensure a resilient net-zero transition. This implies considering both direct and indirect effects of policy instruments on emissions. For instance, while policies can directly alter tax rates, they also lead to changes in tax bases. Most indirect effects put a downward pressure on public revenues.

  • Thoroughly analyse the implications of national policy mixes for public finance, keeping in mind that non-price-based policies generally imply increased government expenditure and that national economic structure plays a key role in determining fiscal outcomes.

  • Plan for the gradual introduction of alternative tax instruments such as distance-based fuel charges to address the risk of tax base erosion. Base erosion is a considerable risk for countries’ fiscal balances, particularly with regard to excise duties on fossil fuels in the transport sector, which will decrease as the transition to net-zero accelerates.

Given the clear need for accelerated, cost-effective technological innovation to achieve net-zero emissions, governments should:

  • Adopt a mission-oriented, outcome-based approach to innovation and technology deployment to deliver on the scale of technological changes needed, driving the whole innovation ecosystem from research, development and demonstration (RD&D) to full commercialisation.

  • Prioritise technology development and diffusion as part of science, technology and innovation (STI) policies.

  • Focus additional policy measures on RD&D with support that is targeted rather than horizontal, for example focusing on breakthrough technologies that are integral to the transition but have low market readiness.

  • Reach beyond traditional STI policies to include complementary pricing and regulation; set technology standards (e.g. on electric vehicle charging infrastructure compatibility); and implement related education and skills development policies.

  • Work to reduce barriers to external funding for innovation, for example through favourable tax schemes, low-interest loans, and government venture capital.

Recognising that widespread public acceptance of policies is essential to a resilient transition, governments should:

  • Provide clear, accurate and easily accessible information to the public about how policies will be implemented and their distributional impacts (i.e. not only about why they are needed).

  • Support timely and effective data and information sharing. Take all measures to address disinformation about climate change and other environmental pressures.

  • Combat dis- and misinformation by agreeing on common data standards to monitor climate change. Provide unrestricted access to climate change data for analysis and re-use, identifying the provenance of both trusted and untrusted data sources.

Governments should carefully assess the distributional outcomes of climate policies before they are implemented and ensure that any revenues generated from climate policies are redistributed to minimise adverse outcomes. Such assessments should:

  • Include direct and indirect impacts of climate policies and account for behavioural responses.

  • Carefully consider multiple options for revenue recycling and tailor these to national/local contexts, taking into consideration the distributional implications of different revenue recycling mechanisms and their role in bolstering or deterring public support of climate policies. For example, governments could consider targeted capital subsidies based on household vulnerability or region.

  • Clearly communicate the uses of revenue generated as well as funding sources for policies.

  • Address all labour market implications of the net-zero transition

Recognising that the net-zero transition will entail employment shifts across and within sectors and require new skills profiles, governments should:

  • Ensure labour market flexibility and mobility while also promoting job quality and protecting workers from unfair hiring and firing. Labour market flexibility can be increased in a publicly acceptable manner if generous benefits are coupled with non-restrictive dismissal regulation.

  • Pursue active labour market policies such as offering compensation to laid-off workers in emissions-intensive industries. Design such policies in close collaboration with social partners in order to identify worker needs and preferences. Collective bargaining can play a role in enhancing innovation and reallocating displaced workers.

  • Prioritise up- or re-skilling workers, offering targeted rather than horizontal support. Include skills needs within long-term planning and reform of curricula in initial education.

  • Enhance research, monitoring and modelling of skills needs to address the lack of data on and understanding of key skills bottlenecks.

Recognising that tracking and assessing the climate alignment of finance flows is critical to measuring and driving progress on climate objectives and the resilience of the net-zero transition, governments should:

  • Prioritise further research, improved data collection, and strengthened co-ordination among ongoing initiatives to improve accuracy and consistency across the methodologies used to assess the climate alignment of finance.

  • Consider the development of a range of complementary metrics to provide a more nuanced and comprehensive view of the contribution of finance to reaching climate policy goals.

Recognising the role of market practices in accelerating the mobilisation and reallocation of capital towards net-zero-aligned investments, governments should:

  • Foster global collaboration, interoperability and comparability across environmental, social, and governance (ESG) investing approaches; strengthen the availability and use of reliable and comparable metrics and data to assess physical and transition climate risks and opportunities; and harness ESG approaches to focus more on the alignment of real economy investments with climate objectives rather than rewarding disclosure practices.

  • Design and implement measures to enhance the accountability and comparability of financial sector net-zero commitments to better track progress.

Recognising the challenges that current rising costs of capital create for the net-zero transition and that current investment conditions may threaten the economic viability of low-carbon projects, governments should:

  • Maintain ambition and stringency of core climate policies to send a strong signal to investors and financial institutions about the future role of low-carbon assets.

  • Continue fiscal support for low-carbon investments where possible and approach phase-outs of clean technology subsidies with caution.

  • Implement policies to reduce investor risk, for example by encouraging the incorporation of risk insurance or guarantees in finance for renewable energy projects; shoring up high-quality and predictable governance; and reducing permitting barriers to renewable energy projects.

  • Support the evolution of market products and measurement methodologies to allow investors to better align portfolios with climate objectives. Approaches should be carefully designed to avoid the risk of redirecting investment away from developing countries.

  • In addition to government policies, central banks can consider “green” monetary policies to shield low-carbon investments from challenging investment conditions. This could include the creation of lower rates of refinancing for low-carbon technologies or green quantitative easing (purchase of green bonds only) in order to keep interest rates low for climate-friendly sectors specifically.

In harnessing key finance flows to advance action towards a resilient net-zero transition, governments should:

  • Align existing foreign direct investment (FDI) flows with net-zero objectives.

  • Create enabling conditions and policies to attract additional FDI, using governance, regulation and targeted support measures to ensure that it contributes to a resilient net-zero transition; prioritise measurement and tracking of the impact of FDI on emissions reductions to help identify appropriate policy responses.

  • Align investment treaty policies with the Paris Agreement, recognising the potential for well-designed investment treaties to channel massive finance flows into activities aligned with a resilient net-zero transition.

Recognising that a resilient net-zero transition requires: (i) the credible implementation of net-zero commitments, and (ii) resilient supply chains, governments should:

  • Ensure that private sector-led net-zero transitions are implemented with integrity, in line with relevant responsible business conduct (RBC) recommendations as outlined in the OECD Guidelines for MNEs and related OECD due diligence guidance, including for small and medium-sized enterprises.

  • Embed safeguards, including through RBC, to strengthen responsible and sustainable sourcing and supply – especially of minerals and materials critical to low-carbon technology, often concentrated in areas with governance challenges.

Development co-operation providers should draw on policy support, capacity building and direct provision of financial resources to align development and climate objectives, and leverage the momentum afforded by development transitions.

Recognising that a resilient net-zero transition necessitates a globally co-ordinated response that takes differing developing country contexts into account, a ‘common approach’ can support developing countries’ energy transitions. It will be important for development co-operation providers to:

  • Support the integration of ambitious climate objectives into national and subnational development plans and sectoral policies, connected with Nationally Determined Contributions (NDCs) and Long-Term Strategies.

  • Support the integration of climate change in national development financing strategies in order to leverage broader resource flows for development aligned with climate mitigation and adaptation objectives.

  • Support the inclusion of climate objectives in national budgeting frameworks and tax systems.

  • Support the development of effective green financial systems across developing countries.

  • Recognise that a resilient global net-zero transition requires developing countries’ net-zero transitions to reflect and respond to energy sector development priorities (i.e. access to secure and affordable energy).

Recognising that even with ambitious emissions reductions pathways some climate impacts remain unavoidable, and that comprehensive assessments of climate risk, including disaggregated data on gender and vulnerable populations, are necessary to identify and align adaptation needs and build resilience to climate impacts, governments should:

  • Continue to mainstream adaptation throughout national policy processes, including budget processes and government investments; establish comprehensive adaptation planning to build resilience to climate impacts; carry out careful monitoring and review of implemented policies.

    • National climate risk and impact assessments (CRA) should form an important part of National Adaptation Strategies (NAS), Plans (NAP), or other.

  • Recognise that limits to adaptation reinforce the need for urgent emissions reductions, especially given the increased risk of crossing tipping point thresholds, and that delayed mitigation action will only further limit adaptation options.

  • Develop appropriate measurement tools, and make and regularly update assessments of hazards, exposure and vulnerability.

Recognising the reciprocities between adaptation and mitigation action – notably, that healthy ecosystems can effectively reduce exposure and vulnerability to climate impacts while constituting important carbon sinks – governments should:

  • Conduct careful analysis to exploit synergies and minimise trade-offs between interlinked mitigation and adaptation policy objectives, including biodiversity and other natural systems.

  • Enhance institutional and governance frameworks to involve all stakeholders in the process of identifying and managing these synergies and trade-offs.

  • Identify opportunities for and implement nature-based solutions (NbS) to effectively foster adaptation-mitigation synergies.

  • Ensure that monitoring of ecosystem services and NbS employed to support them is commensurate with the complexity of, and interlinkages between, natural and other systems, allowing policies to be adapted to changing circumstances.

    • Fund pilot programmes and subsidise research in order to better assess the potential of NbS and their continued suitability in evolving contexts.

    • Enable technical assistance and knowledge sharing to help stakeholders better understand the role of NbS and co-ordinate actions.

  • Governments should scale up funding for the wide range of adaptation measures needed to respond to the climate change impacts. This includes funding for risk assessments and evaluating adaptation needs, planning processes and implementation of adaptation plans.

To encourage and leverage growing interest from the financial sector in aligning financial flows with adaptation needs, governments should:

  • Strengthen the enabling environment for investment in adaptation:

    • Mainstream physical climate risk into financial sector regulation and practice in order to enhance transparency about risk exposure and increase the incentive to invest in adaptation actions.

    • Provide public goods (such as climate data and tools) to support investments in adaptation.

    • Examine policy frameworks for climate-sensitive sectors to ensure that they are conducive to investment in adaptation (e.g. flood management).

  • Increase and align public expenditure on climate change, including through allocation of adequate funding for National Adaptation Plans and integration of climate adaptation in budgeting and procurement processes.

  • Develop and deploy a range of financial instruments to support the management of climate-related risks.

Given the unique double role that the insurance sector provides in improving climate resilience as both investor and provider, governments should:

  • Ensure that current regulatory and supervisory efforts strengthen the capacity of the insurance sector in monitoring climate risks and incentivising the development of longer-term climate risk assessments.

  • Examine policy and regulatory requirements that impede the provision of risk management and mitigation services provided by the insurance sector as well as the setting of risk-reflective premiums to determine whether the benefits of these restrictions outweigh the costs.

  • Consider providing more co-ordinated support together with the insurance sector in addressing resilient reinstatement (i.e. rebuilding damaged property to be more resilient to climate impacts).

Recognising that any intervention to support the achievement of a given policy objective may create synergies and trade-offs with others, governments should:

  • Employ a systems approach to ensure policy coherence in building resilience to climate impacts, recognising that specific approaches will depend on sector and local contexts.

  • Include all relevant stakeholders in the design and implementation of policies to build systemic resilience, ensuring that policies fit system-specific needs and are met with the necessary support of systems actors. For example:

    • System-wide resilience in the energy sector requires awareness and action throughout the energy supply chain including energy suppliers, transporters, consumers and civil society. Governments can support this by facilitating adaptation actions by energy suppliers and consumers and overcoming barriers such as high up-front costs with diffuse benefits. Governments should work to enhance knowledge and awareness about climate impacts and risks, and have the means to step in when energy systems are hit by natural disasters, funding reconstruction that is more resilient than before.

    • Building resilience in food systems requires governments to recognise the “triple challenge” of ensuring food security and nutrition for a growing population; supporting the livelihoods of those who work in the food supply chain; and doing so in an environmentally sustainable way. Governments should provide information, education and training to farmers on effective adaptation actions and avoiding maladaptive practices, encouraging actions that can be taken by farmers themselves. Policy approaches should take into account the interactions and trade-offs between different risks, private adaptation strategies (by farmers and others), and government measures. It is important that public policies do not accidentally encourage the adoption of riskier private strategies that undermine long-term resilience.

    • Building the resilience of cities requires the engagement of diverse population groups across the entire policy cycle in order to develop climate adaptation and resilience strategies at a metropolitan scale. This includes breaking sectoral silos within city systems and encouraging horizontal co-ordination. Adaptation plans and strategies should be developed jointly across national and local governments to take advantage of knowledge spillovers and synergies.

Note

← 1. This section diverts from the structure of the rest of the report, collating recommendations that span the adaptation-mitigation divide, demonstrating the need to address both priorities simultaneously.

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