Chapter 4. Preparing regions for demographic and environmental transformations

This chapter focuses on global demographic and environmental megatrends. It first looks at the social and economic effects of natural population decline and ageing. It then discusses the regional effects of three different kinds of population flows: 1) the movement of people from rural areas to cities; 2) the regional and local impacts of international migration in OECD countries; 3) global tourism, which is an increasingly important factor for many regional economies. The chapter then analyses the implications of environmental megatrends by focusing on climate change. The chapter concludes with a discussion of the future of natural resources, by focusing on the sustainability of natural resource extraction and implications for regional policy and by analysing the design of new approaches to strengthen the circular economy at the local level as a tool to reduce the need for new resources.


The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

This chapter discusses global demographic and environmental megatrends. These megatrends have broad implications for regional policy that go beyond economic concerns. Social policy, environmental policy and education policy, among others, will all be affected by the demographic and environmental transformations discussed in this chapter. Yet, this does not imply that economic consequences of demographic and environmental megatrends are less important. By transforming the economic framework conditions in all regions, they will have profound effects on regional economies. For example, declining working-age populations are already creating shortages of workers in some OECD regions. In the future, such shortages could increase unless they are counter-balanced by other factors, such as increasing automation.

This chapter examines three factors that drive demographic change in regions: ageing, internal mobility and international migration. It analyses the consequences of longer life expectancies and low birth rates and shows how these factors differ across regions. Subsequently, the chapter focuses on population flows, starting with internal mobility. Within countries, people tend to move from rural to urban regions, thereby causing population decline in many rural areas, while causing population growth in urban areas. In fact, large cities are frequently growing even in countries that have shrinking populations in aggregate. As most people move to a large city when they are young, internal mobility also contributes to the growing ageing gap between rural and urban regions.

Moving beyond internal mobility, this chapter discusses the regional and local impacts of international migration. This second type of population flow is a global phenomenon with strong local implications. Migration can increase economic vibrancy and diversity. as migrants tend to be younger than native populations, international migration can also compensate natural decline in local working-age population. Yet, migration can also create challenges related to service delivery and the labour market integration of immigrants. Largely, these challenges are borne by local governments that provide services such as language classes.

Subsequently, the chapter discusses the consequences of tourism for regional development. While tourism is not a demographic trend itself, it is closely linked to demographic developments. Its importance is likely to increase in the future due to the rapid growth of urban middle classes in emerging economies. Furthermore, tourism contributes to the mobility of workers across countries by increasing the openness towards other cultures. To some degree, tourism and international migration are also conceptually linked, as both phenomena are cross-border population movements due to an increasingly globalised world.

After discussing demographic megatrends, the chapter focuses on environmental megatrends, the third group of megatrends presented in this report. In this context, a particular emphasis is placed on climate change. In contrast to all other megatrends discussed in this report, climate change is a threat that offers no upsides for most regions. Thus, policy responses have to focus on mitigation measures to limit the increase in global temperatures, and on adaptation measures to reduce its negative impacts. One of the main implications of climate change is the need for ever-stricter standards for greenhouse gas (GHG) emissions. Only firms that manage to adapt to these new requirements will be successful in the long term.

Yet, environmental megatrends go beyond climate change. In particular, resource availability is an environmental factor that will be of increasing importance for regional economies in the coming decades. The chapter addresses natural resource from two angles. First, it focuses on the sustainability of resource extraction and its implications for regional policy. While resource extraction is an economic opportunity especially for rural regions, its environmental impact is a growing concern. Second, the chapter discusses strategies to reduce future resource needs in order to become more sustainable. In this context, the chapter presents new approaches to the circular economy that yield not only environmental benefits, but also economically beneficial efficiency gains.

Population decline and ageing across regions

Demographic change is less prevalent in the public debate than many other global megatrends. Nevertheless, the effects of population decline and ageing on cities and rural areas will be significant. While growing life expectancies are one of the greatest human achievements, the transition to an ageing society also creates challenges. In particular, demographic change will strain social security systems, as a shrinking workforce will have to cover benefits for an increasing number of retirees. Moreover, healthcare and other public services will have to be adapted while tax revenues are declining due to a shrinking working population.

The impacts of population decline on regions and cities

The large decline in fertility rates between the 1960s and 1980s is starting to be felt as baby boomers and the following generations are reaching retirement age. In many regions, population decline is already a reality: 29 out of 36 OECD member countries had regions with shrinking populations. Across the OECD, 691 of 6 460 Territorial Level 3 regions (i.e. 11%) lost population between 2014 and 2017 (Figure 4.1). In ten countries, more than one in five regions declined. These include southern European countries (Greece, Italy, Portugal, Spain), eastern European countries (Estonia, Hungary, Latvia, Lithuania and Poland) and Japan. These countries generally have fertility rates well below the replacement rate, which leads to ageing societies.

Regions will have to address the challenges associated with overall population decline. Projections until 2050 show that the population in nearly all regions is expected to shrink (Figure 4.1). For countries with available data, between 2014 and 2050, 56.8% of 1 363 OECD TL3 regions are projected to lose population. A shrinking labour force and loss of tax base will pose challenges to efficient service delivery, as fewer places will have the necessary critical mass to sustain health, public transport and other types of public services. A smaller local market and decrease in consumption will create fewer employment opportunities. Planning is likely to become more difficult as properties will become vacant or abandoned and public services will have to be closed down.

The impacts of ageing on regions and cities

Ageing is a second major factor in addition to decreasing birth rates that drives demographic change. Longevity has been continuously increasing in most OECD countries as healthcare technologies and availability have improved. The share of elderly people (i.e. 65 years old or older) is projected to increase in almost all regions over the coming decades. By 2050, nearly 30% of the population in European regions outside of metropolitan areas is expected to be 65 years old or older (Figure 4.2). The pressure is slightly lower in regions that are close to large metropolitan areas (28%). Regions that are part of cities with at least 250 000 inhabitants are expected to face a similar age profile (i.e. 27.5% of elderly people). Only regions that are part of large metropolitan areas, i.e. those with at least 1.5 million inhabitants, remain close to one-fourth (25%) of their population being 65 or older.

Figure 4.1. Population decline is affecting many regions and more in the next 30 years
Percentage of TL3 regions where population declined 2014-17 and projections of the percentage of declining TL3 regions, 2014-50

Note: Population projections are for the main scenario developed by Eurostat in its “Europop2013” model for which regional projections were developed to complement the national-level projections.

Sources: OECD (2018), OECD Regional Statistics (database), and Eurostat “Europop2013” demographic projections.


Figure 4.2. Projection of the percentage of elderly (65+) population in European TL3 regions

Notes: Population projections based on Eurostat’s “Europop 2013 scenario”. Administrative boundaries correspond to the NUTS 2010 classification.

Source: Calculations based on Eurostat statistics on regional population projections.


Demographic trends in large cities tend to follow different patterns than in other places. Capital cities, which are usually among the largest cities of a country, tend to have some of the lowest shares of population over 65 and some of the lowest increases in that share over the next decade (EC, 2017[151]).1

Ageing is affecting most severely rural regions (Figure 4.3). The shift towards an older society strains economic development of regions and countries. The first immediate consequence of ageing is an increase in the dependency ratio, i.e., the ratio of retired people to those involved in productive activities, thus implying a reduction in the growth rate of GDP per capita. Yet, the need for additional productivity growth to compensate for this negative impact of ageing is moderate. The 20 TL3 regions where per capita GDP is most adversely affected by demographic shifts lost about 0.7 to 0.8 percentage points per year in per capita GDP growth over the 2006-14 period. An increase in productivity growth by the same margin, i.e. 0.7 to 0.8 percentage points, could have compensated and ensured that living standards remained constant. But even this modest annual increase can be difficult to achieve. In half of the 20 TL3 regions, the actual annual average labour productivity growth was below the required rate to compensate for the impact of ageing. Three out of the ten regions managed to avoid declining per capita GDP by raising employment rates, but in seven per capita GDP declined (Daniele, Honiden and Lembcke, forthcoming[152]).

Figure 4.3. Dependency ratio, elderly (% 65+) over population aged 15-64, OECD countries
Small (TL3) regions

Source: OECD (2018), OECD Regional Statistics (database),


Economic models predict that workers in ageing societies will save more as transfers from the next generations will not be able to sustain their pensions. This increase in savings is predicted to translate into an increased availability of capital, which should be invested in places where the returns are highest. This, in turn, implies capital flows from faster to slower ageing economies (Börsch-Supan, 2008[153]). However, in contrast to economic models, capital flows are actually moving in the opposite direction from slowly ageing to fast ageing countries (Acemoglu and Restrepo, 2017[154]).

One reason is that technological change creates opportunities for capital investments that raise productivity more in developed and rapidly ageing countries than in those with slower demographic change. There is evidence that the adoption of robots in industrial production is more prevalent in countries that are ageing faster. The same pattern can be found at the local level in US commuting zones (Acemoglu and Restrepo, 2018[155]). In those areas, the increased use of capital compensates for the decline in labour by raising productivity.

All regions will have to address the challenge of an ageing society (see Figure 4.2). A shrinking labour force relative to population will increase the burden of pensions and age-related services. Demand for “non-silver” (i.e. non-senior) goods and services will decline, and entrepreneurship and innovation are likely to contract as well. As such, the need to sustainably plan the available fiscal space and prepare public infrastructure and services are key challenges. It is important to note, however, that neither the potential negative economic and social impacts of ageing are inevitable, nor are the potential benefits of directed technological change and productivity growth mentioned above guaranteed. For example, in several countries, growth prospects will depend on the private savings rate and labour force participation of older workers. Both depend on policy choices that need to correspond to circumstances. In fact, labour market regulations and pensions systems that encourage early exits from the labour market are more harmful to growth the faster the ageing process (Oliveira Martins et al., 2005[156]). Addressing such incentives can often require significant intervention in core policy areas, such as labour market regulations (OECD, 2016[157]).

Global urbanisation

Domestic population flows are an important factor behind the uneven demographic development of regions. As discussed, the lower old-age dependency ratio in cities is primarily due to the domestic migration of young people into cities. However, rural-urban migration does not just affect the age profiles of cities and rural areas; the growth of cities is a global megatrend in itself that affects countries both inside and outside of the OECD.

As rapid population growth in many countries continues, understanding the process of urbanisation is essential to the design of policies to make “cities and human settlements inclusive, safe, resilient, and sustainable” in support of Sustainable Development Goal 11. Innovative policies and solutions are required to address the needs of urban populations, including housing, energy, environmental quality, healthcare and transportation. Further, smart investments in infrastructure and education are essential to promote inclusive growth, access to employment, and a safe and healthy environment.

This section previews the forthcoming analyses of a new, representative data set of all cities globally that will allow an unprecedented description of the dynamics of global urbanisation.2 It shows that recent decades have seen a strong increase in the number of people living in megacities with more than 10 million inhabitants. However, driven by overall global population growth, also the number of smaller cities with between 100 000 and 1 million inhabitants grew rapidly. Yet, the section highlights that, despite an overall trend towards urbanisation, a significant number of cities have shrinking population due to emigration and low fertility rates.

Table 4.1 shows that 40% of the world’s population lived in cities with more than 100 000 inhabitants in 2015. The vast majority of these cities (97%) have fewer than 1 million people. However, cities with more than 1 million inhabitants have a larger population share. Close to 1.62 billion people live in cities with more than 1 million inhabitants. Among them, a third (530 million people) live in cities with more than 10 million inhabitants. In contrast, only 1.33 billion people live in cities with 100 000 to 1 million inhabitants. Nevertheless, this impressive number shows the importance of mid-sized cities.

Table 4.1. Population and built-up statistics by city size






Average built up

% world



Average built up

% world

>10 million









5-10 million









1-5 million









500k-1 million






























World population



Note: Built-up per capita is reported in square metres per inhabitant. Population is reported in millions.

Source: Calculations based on the Global Human Settlement Layer (Pesaresi and Freire, 2016[158]).

Drivers of growth: Megacities and urbanisation in the hinterlands

As the world population grows at a rapid pace, the world’s largest cities grew fastest as a share of the urban population. In 1990, only 18 of the world’s cities had a population of over 10 million inhabitants. The number of these cities, often referred to as “megacities”, increased to 28 by 2015. Over the same time, population living in megacities more than doubled, from 274 million to 530 million, a rise from 5% to 7% of the world population. Of the cities that grew into megacities between 1990 and 2015, the majority are located in Asia (7) with the exceptions of Teheran, Lagos and Istanbul.

East Asia has the highest share of its population living in cities with over 10 million inhabitants – nearly 11% – followed by South Asia and North America, and Latin America. Sub-Saharan Africa and Europe and Central Asia are the regions with the lowest concentration of population in megacities, 1.2% and 3.1% respectively. Yet, population growth in the two largest African cities, Lagos and Johannesburg, has been rapid and population has doubled since 1990. In contrast, population growth in megacities in Europe (Istanbul, Moscow and Paris) has been substantially slower.

While the growth of megacities drives popular views of the process of urbanisation in Africa and Asia, an important source of urbanisation is the dramatic increase in smaller urban centres. In Africa, cities with between 100 000 and 1 million inhabitants account for 191 million people. In contrast, African cities with more than 10 million are home to just 11 million people, and cities with between 5 million and 10 million inhabitants have a total of 30 million inhabitants. Similarly, there are 345 million inhabitants in South Asian cities with 100 000 to 1 million inhabitants, while cities with more than 10 million inhabitants are home to 255 million people. Furthermore, the number of new cities of intermediate size is growing rapidly. Between 1990 and 2015, the number of new cities of at least 100 000 inhabitants increased by 1 644. Of these, 70% are located in Africa and Asia.

Figure 4.4. Population growth of ten largest cities in the world

Source: Calculations based on the Global Human Settlement Layer (Pesaresi and Freire, 2016[158]).


Figure 4.5. Distribution of urban population by city size, region, 2015

Notes: The figure shows the distribution of population in each region by city size. Sub-Saharan Africa includes Central Asia.

Source: Calculations based on the Global Human Settlement Layer (Pesaresi and Freire, 2016[158]).


Despite overall growth of cities, population declined in 1 159 cities with more than 100 000 inhabitants worldwide, or 25% of all cities with a population over 100 000. Most declining cities were relatively small. Among cities with 100 000-500 000 inhabitants, 996 cities (27%) experienced population decline while only 45 cities (14%) with over 1 million people did.

Urban density depends more on the region than on city size

Population density is a key characteristic of cities that influences many policy-relevant outcomes, such as the intensity of agglomeration economies and the costs of public transport provision. Figure 4.6 shows that on a global scale, population density levels across cities vary strongly by continent. North American cities are by far the least dense while cities in South Asia have the highest densities. Dhaka, a very dense city in Bangladesh, is more than ten times denser than Chicago, for example. In smaller cities, the difference is even more striking. For example, the average South Asian city with around 100 000 inhabitants is 25 times denser than the average city of the same size in North America.

Figure 4.6. Total built-up area per capita of the 15 largest cities by region

Notes: The figure provides a scatterplot of the 15 most populated cities by region. Built-up per capita is reported in square metres per inhabitant.

Source: Calculations based on the Global Human Settlement Layer (Pesaresi and Freire, 2016[158]).


The rapid population growth in cities over the previous decades has not been fully matched by growth in built-up areas, leading to densification in all but the smallest cities. This densification occurred across all regions and city sizes but was especially strong in megacities that experienced large population inflows that were often not matched by spatial expansion. Yet, sprawl has not necessarily become a less important issue. Many countries that experienced densification in city centres also experienced sprawl in their surrounding areas.

Migration: A global phenomenon that requires local action

Migration is another global demographic trend whose implications are predominantly felt at the regional and local levels. It interacts in many ways with the already discussed trends of population decline and ageing. For example, migration of working-age population from Eastern to Western Europe contributed to the population decline in some Eastern European countries during the previous decades, while it contributed to population growth in Western European destination countries. Given that migrants also tend to be younger than the native population, international migration also has a significant effect on age profiles.

Since the 1980s, net migration flows have increased across regions of the world. Countries in Europe, North America and Oceania combined received on average a net inflow of 3.1 million migrants per year between 2000 and 2010 (UNDESA, 2017[159]). Between 2010 and 2015, net migration decreased and the same countries received an average net inflow of 2.1 million migrants per year (UNDESA, 2017[159]). In 2015, migration figures temporarily peaked as a consequence of the Syrian refugee crisis. During this time, approximately 2.4 million non-EU citizens moved to the EU (Eurostat, 2017[160]), which corresponds to somewhat less than 0.5% of the EU’s total population.

There are multiple factors driving migration. In some cases, countries and regions actively try to attract migrants to meet labour shortages from ageing and enhance economic growth. Many OECD countries, for example, have programmes to encourage immigration by high-skilled foreigners. In other cases, migration is the response to global crises and accepting refugees from war or genocide is a humanitarian imperative. Yet, even in these cases, migration can create opportunities for host regions in terms of economic growth and cultural diversity if the integration of migrants is successful. Compared to the overall population, the share of young and working-age population among migrants is disproportionally high, which is beneficial in ageing societies. Furthermore, many migrants are highly motivated to work hard to seek a better life, which is documented by the often long and perilous journeys many refugees make to reach OECD countries.

Migration: A global phenomenon with local implications

While migration has global roots, many of its consequences emerge at the regional and local level. Migrants tend to be geographically concentrated in specific regions. As Figure 4.9 shows, the regional share varies strongly within countries and some regions have much higher shares of migrants than others. Migrants are particularly drawn to cities: approximately two-thirds of migrants live in metropolitan regions (OECD, 2018[161]). This geographic concentration of migrants has been increasing over time. Between 2005 and 2015, areas with larger existing migrant communities also experienced the greatest increases in the population share of migrants (Diaz Ramirez et al., 2018[162]).

Figure 4.7. Population share of migrants across OECD regions
Large regions (TL2), 2015

Source: OECD (2018[161]), Working Together for Local Integration of Migrants and Refugees,

The challenges and opportunities of migration are different across regions within a country. Neither the characteristics of host regions nor the characteristics of migrant communities – such as their education, age or skills – are uniform across space. For example, highly skilled migrants are more likely to settle in regions with a more highly skilled native-born population. Within the population of migrants itself, there are also clear disparities in the geographic distribution and outcomes between recent and settled migrants (OECD, 2018[161]). A territorial approach is required to anticipate the impact of future migration and to design policies that take into account both the characteristics of new arrivals and of the territory receiving them.

Important differences in migrants’ well-being and labour market outcomes across regions

The well-being of migrants often differs substantially across regions of the same country. Subnational differences in housing conditions, income levels, employment rates or over-qualification rates all highlight the importance of regional factors in ensuring that gaps between native born and migrants are addressed (OECD, 2018[161]). The gap in housing conditions between migrants and natives, for example, varies across regions and the share of migrant households living in overcrowded dwellings is greater in urban than in non-urban areas.

Access to employment opportunities for migrants constitutes a challenge for many OECD regions. In 2014-15, 11% of the migrant population was unemployed in OECD countries, i.e. 2 percentage points more than native-born populations (OECD, 2018[163]), but the situation differed widely across regions. In regions in Northern and Central Europe, in particular, migrants were more likely to be unemployed than native born. Migrants, moreover, are more likely than natives to work in positions that fall below their level of education (Figure 4.10).

Figure 4.8. Over-qualification rates of the foreign-born, relative to the native-born across OECD regions
Large (TL2) regions, 2014-15; difference between foreign-born and native-born outcomes

Note: Over-qualification refers to working in a low- or medium-skill position despite a high level (tertiary) of education. Larger values indicate a larger tendency of migrants to be over-qualified.

Source: OECD (2018), OECD Regional Statistics (database),


A number of obstacles that migrants face to enter the workforce explain such gaps in labour market outcomes; for example language barriers, discrimination, work permits, visa issues, etc. In addition, the process for validating their educational and professional qualifications is slow and in many cases, migrants from non-OECD countries are required to obtain or complement their education to match national standards. Slow registration and documentation processes can thus substantially slow down migrants’ ability to enter the workforce.

Policies to integrate migrants at the regional and local level

In recent years, recognition of the role of cities and regions in contributing to the integration of migrants, and in particular of refugees, has grown. Many cities and regions within the EU responded to the 2015 refugee crisis by scaling up service delivery to meet the needs of arriving migrants. The role of local governments is also reflected in the milestone international agreements for global migration governance, namely the Global Compact for Migration and the Global Compact for Refugees, which 170 countries endorsed at the end of 2018. Their implementation and that of related inter-governmental agreements greatly depends on local level capacities. The OECD has produced a “Checklist for public action to integrate migrants at the local level” based on the experiences collected across 72 EU cities. The 53 tools and 80 practices compiled in this OECD report (OECD, 2018[161]) set a pathway for taking migration into account when planning, implementing and evaluating related local policies.

While migration policy largely remains a national competence, integration policies are often the result of a combination of central/federal and local schemes. Given that integration policies concern several policy fields with shared responsibility across different levels of governments, strong multi-level co-ordination mechanisms need to be in place to avoid the overlap of initiatives and to benefit from complementary action. A good example of multi-level co-ordination is the institutionalised conference of ministers for integration of the German Länder (Integrationsministerkonferenz), which fosters a dialogue between the national government and the Länder, encourages experience-sharing, and develops integration indicators that are comparable across Länder.

A local integration strategy and horizontal co-ordination: Key tools for ensuring coherent settling in

Successful integration depends on “integrating” policies that have an impact on the migrant population and other inhabitants living in a specific place: education, housing, labour integration, welfare, health, etc. Thus, horizontal co-ordination is essential to mainstream integration standards across all relevant municipal policy fields and involve non-public actors to ensure that no one is left behind. For instance, the city of Vienna adopted a strong model for incorporating integration across departments within the administration: through contracts, the integration unit within the public administration monitors each department’s achievements towards the city’s integration strategy.

Integration strategies are increasingly characterised by a balance of measures aiming at ensuring equal access to general public services and specific measures directly targeting migrant populations. For example, many cities set aside dedicated resources for strengthening the skills of social and health workers in dealing with clients with different cultural and ethnic backgrounds. Examples of targeted local support also exist across other dimensions of integration: e.g. language classes, emergency accommodation, legal assistance, top-up welfare allowances, etc. For instance, the city of Paris has invested in several mechanisms to facilitate the process of applying for residence permits, including free legal consultation services and translation of administrative documents. Other cities such as Berlin, Glasgow and Amsterdam have trained local “guides” to accompany newcomers after their arrival. These provide help with administrative procedures as well as in identifying labour market or educational paths.

Explicit local objectives for integration and appropriate tools to monitor progress towards them can help to prevent attempts to use migration as a political tool to stoke tension. Cities play a major role in shaping the public discourse, providing objective data and informing about the possible positive impacts of migration through a wide range of communication tools (i.e. public meetings, campaigns, billboards, information points across the city, etc.). Some cities, such as Berlin, have built their public image campaigns around diversity while others, like Barcelona, have made all citizens responsible for increasing tolerance and inclusion by training volunteers as “anti-rumour agents”. Such initiatives increase cities’ capacities to change the narrative: i.e. seeing migrants as an asset rather than a liability.

Non-governmental organisations (NGOs) are important service providers that complement cities’ actions towards the most vulnerable groups in society (OECD, forthcoming[164]). During the 2015 migration crisis, many NGOs provided basic services for a rapidly increasing migrant population in need. Many cities have sought reinforced collaboration with non-public actors to implement initiatives that foster integration and social cohesion. This translated into collaboration mechanisms that organise objectives, budget and activities, such as the Athens Coordination Centre for Migrant and Refugee Issues. Such mechanisms are important to ensure that government-led initiatives and NGO-led initiatives are aligned with each other and do not overlap or leave gaps in their efforts.

Enabling migrants’ participation into the labour market is among governments’ most important objectives. However, local governments often have only limited authority in these areas, since labour permits and the validation of professional and educational qualifications are competences belonging to higher levels of government. Nevertheless, local governments can implement a wide range of initiatives to facilitate migrant access to the labour market. In particular, municipalities often invest in facilitating the transition from education to initial work experience of students with migrant backgrounds through vocational education training. This is undertaken in partnership with employers who engage to integrate migrant pupils through trainings and apprenticeships (e.g. in Berlin), and sometimes beyond the city boundaries through national public employment services or chambers of commerce (e.g. in Vienna). Furthermore, local governments can raise awareness among businesses concerning the opportunities of working with migrants. An example is the city of Berlin, which targeted employers through a billboard campaign stating “Refugee is not a job”. Some professional associations established in collaboration with local authorities enacted pathways into employment for qualified doctors or engineers arriving as refugees (e.g. Glasgow in the United Kingdom and Gothenburg in Sweden). Other cities also undertake a skills assessment for newly arrived migrants to better match them with available jobs.

The future of demographic changes

Demographic change is gaining pace in most countries. Projections until 2050 show that the population in nearly all regions is expected to shrink and that nearly 30% of the population living outside metropolitan areas is expected to be 65 or older (Figure 4.1). This section first previews the results of a high-resolution population projection exercise for selected OECD countries. Next, it provides suggestions and examples for turning demographic challenges into opportunities.

Looking ahead – high resolution population projections for 2030

Demographic changes at the national level can be forecast with a high degree of confidence. Birth rates and mortality rates change only slowly and those born today will be alive for many decades. Thus, long-term demographic projections at the national level are more accurate than many other long-term forecasts. However, for many policies, it is the demographic composition at the local level that matters more than national aggregates. Decisions such as where to build schools and what infrastructure to provide depend on the demographic composition of a neighbourhood.

Unfortunately, demographic projections at the local level are more difficult to obtain with accuracy than national-level projections because they have to factor in regional and local population movement within countries. Such population movements include age-dependent patterns not only across regions, but also within regions, which are difficult to capture. For example, young people from rural parts of a region can move to attend university in the region, move again once they find their first job and might move back to less dense parts of the region when they start a family. Once retired, people tend to move less within the region.

Population projections with a high spatial resolution for France, Italy, the Netherlands, the Slovak Republic and Slovenia (Box 4.1) show stark disparities in the expected demographic and population changes across and within regions and cities. Rural areas tend to be more strongly affected by population decline than cities, but many small and medium-sized cities will also have to prepare for decline. More than one in five functional urban areas is expected to lose population by 2030 and many more will see concentration of population within their urban centres at the expense of decline in the commuting zones. Some of these projections might be attenuated by technological progress, especially through automation of transport (see Chapter 3).

European TL3 regions with a per capita GDP level that is 25% below the (unweighted) average within the country are projected to have a share of elderly residents that is 1.8 percentage points above the (unweighted) average within the country in 2050, whereas those with a per capita GDP of 25% above the (unweighted) are projected to have a share of elderly residents that is 2 percentage points below the (unweighted) average. In other words, the regions 25% below country average GDP are projected to have an approximately 4 percentage points higher share of elderly residents than those 25% above the country average.

Box 4.1. Europe in 2030: High resolution ageing projections

Working with the European Commission’s Joint Research Centre (JRC), the OECD has adapted the regional population projections of the main scenario of Eurostat’s “Europop2013” model (Eurostat, 2015[165]). Europop2013 projects the current developments for fertility, mortality and net migration to 2080 at the national level and includes a component that projects demographic change at the regional level until 2050. These projections are combined with the JRC’s large-scale land-use model “LUISA”. LUISA considers the distribution of population and land use at the high-resolution (grid cell) level across Europe and allows to assess how aggregate trends or different policy scenarios affect the distribution of people and economic activity across Europe (Batista e Silva et al., 2018[166]).

The high-resolution projections break the regional development down to the 100m x 100m grid cell level. To this end, the existing population distribution at the finest available level is distributed across grid cells. The process combines data on actual land coverage; population distribution; and a model that accounts for competing potential land uses, population movement and settlement patterns. The model distributes the population projections from Europop2013 within TL3/NUTS3 regions, which allows to assess not only aggregate population changes, but also to project where within a region these changes are most likely to occur.

The number of people moving in a region depends on projected annual mortality, estimated annual intraregional mobility per age class and the population composition of the region. Total pooled population is subsequently allocated at the grid cell level using functions describing local attractiveness for residence, modelled urban expansion and assumptions on the local housing stock. The newly allocated population is then further broken down into broad age classes, assuming that empty housing previously inhabited by a specific age group is slightly more attractive for that age group than for other age groups, while new housing stock is assumed to follow regional demand per age group. Housing stock may be empty as a consequence of resident mobility or as a consequence of mortality. The probability of movements and mortality are assumed to be constant for all members of an age class, regardless of their location. Finally, an iterative fitting procedure ensures that the population breakdown is consistent with modelled total population at the grid cell level and total regional population projections per age group.

About one in three functional urban areas are likely to stagnate or even slightly decline in terms of overall population. In many functional urban areas, growth is unlikely to be universal within their boundaries. For example, Figure 4.9 shows that for urban areas located in the centre and the north-east of France, the concentration of population within the urban centre is expected to increase, while population in the commuting zone is expected to decline. Most of this concentration is accompanied by more rapid ageing within the urban centre than in the rest of the country.

The complexity of projected changes becomes apparent at high resolutions. Detailed projections for all of France show strong disparities in the development between rural and urban areas, as well as within those two groups (Figure 4.4). Cities, at first glance, seem to fare better than rural areas, with most places expected to decline in population being located outside urban centres and their commuting zones. However, rural areas along the coastlines of the Atlantic and the Mediterranean Sea, as well as rural areas in the French Alps, are expected to grow in terms of population and at the same time experience slower ageing than the country as a whole.

Figure 4.9. Projected demographic change and ageing in France, 2014-30

Note: Population projections based on the main scenario of Eurostat’s “Europop2013” projections.

Source: (Jacobs-Crisioni et al., forthcoming[167]). For the maps Esri, © OpenStreetMap contributors, and the GIS User Community.

Medium-sized cities, similar to coasts and the French Alps, are for the most part also expected to grow. At the same time, the centres and large parts of the commuting zones are expected to age faster than the rest of the country. This pattern could create challenges for local municipalities in raising funds and providing adequate services. On the other hand, the geographical concentration of growth in the elderly population simplifies the challenge of efficiently providing health and care services, as well as adequate access to public infrastructures and housing.

The projected development for Paris and Lyon, the two largest cities in France, is notably different than that of other cities. The percentage of residents who are 65 years or older is growing much more slowly than in the rest of the country and is projected to be among the lowest in 2030. The urban centres of the two cities are also expected to age more slowly than the commuting zone, whereas urban centres of other French cities face above-average ageing, at least in some parts. The projected resilience to population decline is evident in the largest metro areas of other countries as well. For example, the urban centres of Rome and Milan in Italy or those of the Randstad area in the Netherlands are expected to continue to grow and age more slowly than other parts of the country.

In Eastern Europe, the demographic divergence between the largest cities and smaller ones is even more pronounced. In the Slovak Republic, the population of the capital city Bratislava is expected to continue growing within the urban centre and most parts of the commuting zone (Figure 4.5). The demographic shift is also more subdued, as opposed to the surrounding rural areas where rapid ageing is more prevalent. Other than Bratislava, only Košice, the second largest city in the east of the Slovak Republic, and the smaller city of Prešov are projected to grow. Smaller cities between the major urban areas are projected to decline and age rapidly, in particular within their urban centres. For Košice, the trend towards population concentration within the urban centre is extremely strong. The commuting zone and some parts of the urban centre are expected to lose population, but the projected overall growth of the city is still the highest among all Slovak cities.

Figure 4.10. Projected demographic change and ageing in the Slovak Republic, 2014-30

Note: Population projections based on the main scenario of Eurostat’s “Europop2013” projections.

Source: (Jacobs-Crisioni et al., forthcoming[167]). For the maps Esri, © OpenStreetMap contributors, and the GIS User Community.

Adapting to demographic change

Well-managed ageing can have upsides beyond the obvious advantage that people live longer lives. They include lower housing costs, lower environmental pressure and less congestion, which will create opportunities for space-intensive activities and flexibility in land use. Concerning population ageing, capital investments in OECD countries are already attenuating its negative economic and productivity effects (Acemoglu and Restrepo, 2017[168]). On the one hand, countries undergoing more rapid population ageing have adopted more industrial robots and automated technologies, which are capable of performing tasks previously undertaken by human labour. On the other hand, to adapt to an ageing workforce, a wide range of tools exist to alleviate the physical strain of work. For example, basic aids like hydraulic trolleys can help lift heavy materials.

Table 4.2. Possible implications of demographic change

Potential benefits and opportunities

Potential costs and challenges

Population decline

– Less congestion will create opportunities for space-intensive activities and flexibility in land use

– Lower environmental pressure

– Lower housing costs

– Shrinking labour force

– Smaller domestic market

– The loss of tax base will create challenges to efficient service delivery

– Building stock and infrastructure will need to be adjusted to meet lower population levels

Population ageing

– High life expectancy

– New demand for goods and services and new market opportunities (the “silver economy”)

– Shrinking labour force relative to the total population

– Rising burden of pensions and age-related services

– Less demand for “non-silver” goods and services

– Less entrepreneurship and innovation

Source: OECD (2016[157]), OECD Territorial Reviews: Japan 2016,

Nevertheless, this silver lining does not automatically mitigate the effects of demographic change in all regions. Facilitated loans, strategic investment schemes or tax incentives for innovative activity could financially support structurally disadvantaged regions to adapt to new technologies.

Even regions where technology facilitates the shift away from physically intensive work face their own challenges. Indeed, although new technologies alleviate the pressure of an ageing society for firms and regions, the aggregate gains are not necessarily helping elderly workers. Physically intensive work is dominated by repetitive (“routine”) tasks, but the alternative “knowledge-intensive” work often requires familiarity with modern information and communication technologies (ICT), which can be difficult to acquire for older workers who have little experience with it. New technologies may therefore even amplify age-related inequalities. The pace of digital technological progress is also likely to accelerate skills obsolescence, thereby further reducing the knowledge advantage of elderly workers (OECD, 2017[169]).

A successful adaptive strategy therefore requires an integration of training and skills development for elderly workers through scholarships, apprenticeships and lifelong learning programmes. For training and skills development to sustain the local economy, it can be important to tailor programmes to the specific needs of the place. Engaging with local employers and jointly planning the development of the local workforce can help align both supply and demand of skills and avoid training programmes in regions that result in an outflow of the newly upskilled workforce.

At the local level, governments also need to adjust infrastructure to ensure that public spaces, transport and buildings are accessible for people with limited mobility (EC, 2017[151]). Provision of care and health services is more efficient in dense urban settings, but at the same time the cost of housing in these areas is particularly high and contravenes the benefits of short distances. An important effort is therefore to ensure adequate access to facilities via affordable and accessible housing options.

It is important to recognise that rural communities with a larger share of senior residents and a smaller working-age population will face stronger labour market shortages and service provision costs (e.g. higher rates of healthcare consumption, particularly in the last years of life) (OECD, 2017[170]). To address the challenges in rural areas, the OECD’s Rural Policy 3.0 calls for integrated policy packages across economic and social domains that incorporate the effects of demographic trends in rural areas in the design of public services, the functioning of rural labour markets, and commuting and migration patterns (OECD, 2018[171]). Effective solutions need to consider mobile and digital service delivery solutions.

An example is the region of Västerbotten in northern Sweden, which is home to about 265 000 residents and has a very low population density for an OECD region. To facilitate service delivery, the government has embraced digital solutions including telemedicine to improve accessibility to healthcare for rural communities. Physical services are concentrated in a small number of places and telemedicine is utilised to deliver services to more remote communities and connect with different services and specialist medical staff. Since the mid-1990s, close to 40 different health applications and 230 videoconferencing facilities have been created across the county, which has resulted in increased efficiency, improved competencies among staff and reduced travel times (OECD, 2017[70]).

The policies discussed above are not sufficient to address ageing. National level policies, for example related to the reform of pension systems, are equally important. However, sub-national policies are indispensable elements of a comprehensive strategy to address ageing. Without a well-aligned mix of national and sub-national policies it is not possible to mitigate the effects of demographic change sufficiently.

Migration as an opportunity

Migration can offer opportunities to most OECD regions, but in particular to those with ageing and declining populations. For example, in predominantly rural regions, less than 44% of the population are of working age, with more than 19% of the population being 65 years or older. An inflow of mostly young, working-age migrants can mitigate this problem. Well-functioning national dispersal mechanisms of refugees and asylum seekers can revitalise local economies. For instance, asylum seeker and refugee dispersal mechanisms in countries such as the Netherlands and Sweden take into account local demography and labour shortages to match the characteristics of migrants with local labour market profiles. Given the above-mentioned movement of migrants into large urban areas, it is unlikely that all of them will stay permanently in their allocated regions, but those who will can generate important benefits to the region.

Some regions have anticipated the future shortages their labour markets will face and set up mechanisms to attract or train migrants with the appropriate skills. Gothenburg did for engineers, Amsterdam for software and digital experts, Stockholm for teachers, and Glasgow for medical doctors. The Atlantic region in Canada is testing a pilot approach which regionalises migrant selection mechanisms through a platform gathering job openings from local enterprises. Once selected by a business, migrants are supported in the process of obtaining a visa and settling in the region.

More analysis is needed to identify how migration can respond to specific local development needs. Further research could estimate how local variables interact with migrant arrivals (OECD, 2016[173]). This includes the complementarity of migrants’ and local workers’ skills, the potential effect on wage and inter-regional mobility, the impact of new arrivals on the housing market, the contribution of migrant workers on local public revenues, and their impact on local firms’ productivity. Better evidence on these outcomes would allow an adjustment of national migration policies to differing demographic and economic needs across territories.

Travelling for leisure – the growing importance of tourism for regional development

The previous section discussed domestic and international migration, i.e. long-term population movement that is often driven by economic motivations. This section focuses on tourism – the short-term movement of people for leisure. Even though the impact of tourism is mostly economic, it is closely linked to demographic developments. Ageing societies will demand different forms of tourism than younger societies. Growing urban middle-classes especially in China are already reshaping the tourism industry in many regions and will have even stronger impacts in the future. International migration has introduced foreign cultures and cuisines to many societies and has created interest in experiencing other countries during vacations. In some countries and regions, tourism is such a major factor that it even has a noticeable effect on the population composition. Iceland, for example, received almost seven overnight visitors for each resident in 2017, while in other countries, tourists can outnumber locals in popular locations during high season.

Tourism is not a new phenomenon and plays a key role in global economic activity, job creation, and as a source of export revenue and domestic value added. Global tourism has grown significantly in recent decades, culminating in an estimated 1.3 billion visits in 2017 (UNWTO, 2018[174]). This figure is forecast to rise to 1.8 billion by 2030. Global expenditures on travel more than doubled between 2000 and 2017, rising from USD 495 billion to USD 1.3 trillion, thus accounting for 7% of global exports in goods and services (UNWTO, 2018[175]). In OECD countries, tourism accounts for, on average, 4.2% of GDP, 6.9% of employment and 21.7% of service exports. On average, domestic and inbound tourism account for 76% and 24% of internal tourism consumption respectively in OECD countries for which recent data are available.

Tourism has benefited from the rise of globalisation and technological advances that have led to cheaper airfares, and also make it easier for people to plan and book their own travel, and share their experiences with friends in real time. When considering its likely evolution over the coming decades, it is clear that tourism will be transformed by large-scale social, economic, political, environmental and technological changes. Once such “megatrends” have taken root, they will exercise a profound and lasting influence on human activities, processes and perceptions.

While it is impossible to predict exactly how these megatrends will shape tourism, it is almost certain that the structure of the visitor economy will evolve significantly between now and 2040 (OECD, 2018[176]). In particular, four factors will reshape tourism over the coming decades:

  1. 1. Evolving visitor demand. Income and education levels increase in emerging economies, the global population continues to age and new consumer groups emerge.

  2. 2. Enabling technologies. The digital economy, automation and artificial intelligence, blockchain, virtual/augmented reality, and peer-to-peer usage platforms continue to create new tourism marketplaces and business models.

  3. 3. Travel mobility. The mobility of tourists is affected by developments in travel facilitation policies and access to infrastructure, safety and security concerns, transport innovations, changes to transport and aviation regulations, and the broader geopolitical environment.

  4. 4. Sustainable tourism growth. The global economy continues to shift towards low-carbon and resource efficiency, and sustainable tourism growth is key to addressing the potentially damaging impacts associated with unchecked tourism growth on both the natural environment and host communities.

It is critical for industry and governments at the national and regional levels to explore and understand the multidimensional implications of these trends. This will help bring currently unforeseen and emerging issues onto the strategic policy agenda, develop potential scenarios and policy responses, and assist public and private actors to respond to opportunities and challenges as they arise. The subsequent sections provide a discussion of these four trends and outline policy responses.

Evolving visitor demand

Changing demographics will have a major impact on visitor demand in the coming years. In particular, trends such as the continued growth of the global middle class and ageing populations (see above) mean that the global population will generally be richer and older in the decades ahead.

These demographic factors appear to present significant growth opportunities for the tourism industry. As the population ages and more people enter the retirement phase of their lives, they are more likely to spend income and savings on leisure activities such as travel. Similarly, the overall growth of the middle class will mean that more people are likely to spend on luxuries such as tourism.

Additionally, the rise in prominence of emerging generations will also contribute to change the tourism market. Millennials (i.e. those who reached adulthood in the early 2000s) currently account for approximately 20% of international travel. By 2040, the oldest ones will be approaching retirement and their proportion of total tourism spending is expected to increase substantially. The impact of the latter Generation Z is also expected to be significant due to their sheer numbers – they are forecast to account for the largest share of the global population by as early as 2020.

Data indicate that emerging generations take more trips annually compared to other generations – four or more per year, on average. However, trips tend to be shorter in duration compared to other demographic groups and they are more likely to pick travel experiences that they consider to be “authentic” – preferring to head off the beaten track and “live like a local” (Future Foundation, 2016[177]).

Nevertheless, it is uncertain whether the growth of the global middle class will be sustained, or whether labour shortages as a result of an ageing population will impact the long-term outlook of the tourism sector. The extent to which emerging generations may reduce travel expenditures as a result of unstable work and insecure economic conditions is also unclear.

Despite these uncertainties, several general strategies can be pursued by policy makers to prepare the regional tourism industry for changing visitor demand:

  • Regional policy makers and industry should prepare for growing demand among elderly tourists by investing in infrastructure to support those with mobility challenges, physical disabilities and cognitive impairment.

  • Promote cross-cultural understanding and awareness in regions and cities in light of expected higher numbers of visitors from emerging markets, particularly from Asia.

  • Regions and cities should rethink how travel experiences are framed and marketed. Changing demographics are likely to dramatically shift the way in which people choose where and how to experience travel – particularly for young travellers and emerging tech-savvy generations.

  • Develop and promote authentic and personalised experiences that are likely to appeal to emerging generations and provide opportunities to develop unique tourism experiences in regional areas.

  • Policy makers at all levels of government should consider investment strategies within and across destinations expecting considerable growth in tourism demand to balance supply.

Enabling technologies

New technologies continue to reshape markets and sectors around the world, and the pace and scale of disruption is increasing. Many of the technologies discussed throughout this report also have important implications for the tourism industry. The digital economy, automation and artificial intelligence, blockchain and virtual/augmented reality have the ability to make travel experiences more affordable, efficient and accessible to many people.

There are several technologies that have major impacts on the tourism industry in particular. First, online platforms, which are used to advertise and book vacations on line, make it easier and simpler for tourists to plan their travel. Such platforms also provide additional information to travellers through their integrated review options, enhancing the quality of travel experiences. The sharing economy, in particular, has grown quickly in the past five years to capture a sizeable portion of the tourism economic activity. Home-swapping services like Airbnb for example, offer attractive arrangements for tourists: cheaper accommodation, access to practical residential amenities, the possibility to live like a local by interacting with neighbours or staying in “non-touristy” areas as well as the feeling of being in a home over a hotel, which some tourists prefer (Guttentag, 2015[178]). Transportation- and accommodation-sharing platforms could see global revenues jump from USD 15 billion in 2014 to USD 335 billion by 2025 (PwC, 2015[179]).

Second, rapid advances in automation through robotics, machine learning and artificial intelligence are poised to disrupt labour markets around the world in the next two decades. For instance, autonomous vehicles are already successfully being piloted on the roads in a number of countries (see Chapter 3). With broader application of this technology expected, implications for tourism will include faster, safer and more comfortable travel experiences.

Third, many companies in the tourism sector are using big data and predictive analytics to increase their knowledge of consumer behaviour and customise personal travel experiences accordingly. Blockchain technology, for example, has the potential to revolutionise identity management and provide more secure and efficient travel experiences by serving as the underlying authentication layer for biometric-equipped mobile and wearable devices. Such devices would digitise the verification of identities, the purchase of travel products and services, and communication with airlines, thus allowing passengers to go from home to their final destination without standing in a single line or exposing personal financial information (Gjerding, 2017[180]) (Aitken, 2016[181]).

In short, digital technologies will help to connect people with more information, people and experiences, more quickly than ever before. Digital technologies will also make marketplaces and operations across a range of endeavours more efficient. These changes, therefore, are likely to be disruptive to a variety of sectors, including tourism, and in the short term they might dislocate many workers from their existing working patterns. Increasing fluency and the ability to take data-driven decisions in an environment with vast amounts of information will become increasingly important.

Policy makers can take several steps to support regional tourism industries in their adaptation to new technologies. Most of the measures should be aligned with policies that support small and medium-sized enterprises (SMEs) more broadly in their adaptation to technological change, taking into account the specificities of the sector (e.g. seasonality, access to finance, labour intensity).

  • Support innovation and digitisation in tourism by providing the necessary regulatory frameworks, fostering a start-up culture in cities and regions, and attracting tourism investment, for example through facilitated loans, tax incentives for innovative activity, or incubation and accelerator programmes.

  • Work with industry, universities and training institutes to ensure that the tourism workforce of the future is equipped with the right skills to work with new technologies. This can include supporting tourism SMEs with specific skills-training schemes.

  • Facilitate SME access to technical knowledge and specialised inputs – e.g. linkages with service and technology providers, including research centres and universities – to increase ICT adoption, learning and innovation.

  • Regional policy makers should support businesses in their efforts to attract and retain tech-savvy staff, e.g. via mentoring and business support networks and access to relevant training.

Travel mobility

Transport is an essential component of the tourism system and plays a vital role in moving tourists efficiently from their place of residence to their final destination and on to various touristic attractions. Air passenger traffic is expected to nearly double between now and 2035, from 3.8 billion to 7.2 billion passengers (IATA, 2016[182]). The International Transport Forum (ITF) has also forecast strong growth in global road and rail passenger travel to 2050, with growth estimates ranging from 120% to 230%. In 2018, global cruise passengers are expected to exceed 25 million before reaching 30 million in 2024 (CLIA, 2015[183]).

In the context of increasing travel flows, security and border measures play an important role both for travel mobility and customer experience. The International Air Transport Association reports that security wait times are among the top grievances of travellers, and these complaints are likely to worsen in the coming years (WEF, 2016[184]). Travel and tourism are also highly sensitive to the threat of terrorism, pandemics and other large-scale crises.

In order to build transport systems that meet the needs of tourists and the industry providing them, several overarching principles need to be considered:

  • Ensure that the medium- to long-term needs of the tourism industry are considered as part of the regional transport and infrastructure planning process.

  • Encourage tourism and transport policy makers and industry to work closer together to design transport services and infrastructure that respond to the needs of all travellers.

  • Governments should strategically invest in transportation infrastructure to support travel mobility (i.e. such as multimodal transit hubs), and collaborate with private transportation providers to improve efficiency and cost-effectiveness.

  • Encourage integrated ticketing/pricing and destination smart cards to provide a convenient travel experience in cities and improve accessibility to regional destinations and attractions.

Sustainable tourism growth

Tourism is widely recognised as a human activity that is dependent on natural resources, while at the same time contributing to the depletion of these same resources. As for many sectors, tourism is involved in the consumption of energy and generation of GHG emissions: it is estimated to contribute to around 5% of global GHG emissions (UNWTO, 2017[185]). In a business-as-usual scenario, the emissions of the international aviation sector are estimated to triple between 2015 and 2035 (CREST, 2016[186]).

Without mitigating policy measures, rapid and unplanned tourism growth can therefore have negative impacts – such as overcrowding, environmental degradation and unsustainable water consumption – with impacts on both the communities and the environment upon which it depends.

For tourism to become sustainable at a global level, policy makers should consider pricing mechanisms that reflect the true social cost of tourism activities at the local or site-specific level, achieve greater resource efficiency, and pursue collaboration at the international level to meet sustainability goals. Due to its close connections to numerous economic sectors, tourism can play a key role in driving the transition to a low-carbon and resource-efficient economy. When built upon broad stakeholder engagement and sustainable development principles, tourism can contribute to more inclusive growth through the provision of employment and economic development opportunities in both urban and rural areas, and promote social integration.

The following policy responses can encourage a shift towards sustainable tourism:

  • A more strategic and co-ordinated approach to support sustainable tourism growth will require closer integration of multiple policies and horizontal and vertical policy co-ordination.

  • Take steps to better manage tourism flows in destinations that are more susceptible to environmental and social degradation, and encourage tourism development in alternative areas to spread the benefits and minimise potential negative impacts.

  • Introduce measures to price the environmental externalities of tourism, such as carbon emissions. Include them in a long-term strategy for green growth that provides stable signals to market participants.

  • Better educate the general public and tourism businesses concerning the environmental and economic benefits associated with adopting and supporting sustainable business practices.

  • Mainstream investment and financing practices that support sustainable tourism to better support the transition to a green, low-emissions and climate-resilient tourism economy.

Global and local impacts of climate change

The second group of megatrends discussed in this chapter is related to the environment. While there are many environmental trends that are of global relevance, this chapter focuses on two issues that are particularly relevant for regional policy. First, it discusses climate change, the most pressing of all environmental concerns and a megatrend that will profoundly affect all regions, yet will be felt differently from region to region. Second, this chapter addresses resource availability and resource extraction, an environmental issue that has a particularly strong regional dimension given the place-based nature of resource extraction.

Climate change requires immediate and ambitious action. Approximately two-thirds of the permissible anthropogenic CO2 emissions to keep the increase in temperature below 2°C by 2100 have already been emitted. In most scenarios, without additional mitigation efforts, global warming is more likely than not to exceed 4°C above pre-industrial levels by 2100 (Figure 4.11) (IPCC, 2014[188]). The risks associated with such a temperature rise include substantial species extinction, global and regional food insecurity, consequential constraints on human and economic activities, and limited potential for adaptation (e.g. in certain low-lying Pacific nation-states where migration may be the only solution (Smith and McNamara, 2015[189]) (IPCC, 2014[188]). To avoid such catastrophic risks, mitigation efforts require a reduction in GHG emissions of at least 78% by 2100, relative to 2010 (IPCC, 2014[188]). The international community has committed itself to tackling these issues, notably through adopting the Paris Agreement and the 2030 Agenda for Sustainable Development in 2015, which have generated strong momentum for multi-level, multi-stakeholder climate action in line with global goals (Box 4.2).

Climate change will considerably affect economic growth and human well-being. The OECD’s modelling of the economic consequences of climate change projects that in scenarios with a 4.5°C or 6°C temperature increase, annual global GDP losses would rise to 6% and more than 9% respectively, by 2100 (OECD, 2015[187]). Africa and Asia, where regional economies are vulnerable to a range of climate impacts such as heat stress and crop yield losses, would be particularly affected (OECD, 2015[187]). The Intergovernmental Panel on Climate Change projects with high confidence that throughout the 21st century, climate change is expected to lead to increases in ill-health in many regions and especially in developing countries with low incomes. These health impacts include greater likelihood of injury and death due to more intense heatwaves and fires, increased risks from foodborne and waterborne diseases, and loss of work capacity or reduced labour productivity in vulnerable populations (IPCC, 2014[188]). For health and economic reasons, the irreversibility of certain consequences of climate change – e.g. the high risk of abrupt and irreversible change in the composition, structure and function of marine, terrestrial and freshwater ecosystems during this century (IPCC, 2014[188]) – thus confers a great urgency to implementing effective adaptation and mitigation policies at the subnational level.

Figure 4.11. Projected change in surface temperature

Notes: The Intergovernmental Panel on Climate Change Representative Concentration Pathways (RCPs) are based on certain factors – population size, economic activity, lifestyle, energy use, land-use patterns, technology and climate policy – and describe different 21st century pathways. RCP 2.6 represents a stringent mitigation scenario aiming to keep global warming likely below 2°C above pre-industrial temperatures. RCP 8.5 is the most extreme of baseline scenarios and represents a high greenhouse gas emissions scenario.

Source: Figure SPM .07 in IPCC (2014[188]), Climate Change 2014: Synthesis Report,

Box 4.2. The Paris Agreement and the 2030 Agenda for Sustainable Development

The Paris Agreement was adopted at the 21st Conference of the Parties (COP21) of the United Nations Framework Convention on Climate Change on 12 December 2015. It aims to strengthen the global response to the threat of climate change over the course of the century by: keeping a global temperature rise below 2°C above pre-industrial levels; and pursuing efforts to limit the temperature increase even further to 1.5°C. To reach these goals, appropriate financial flows, a new technology framework and an enhanced capacity-building framework will be put in place, thus supporting action by developing countries and the most vulnerable countries, in line with their own national objectives. The Paris Agreement also provides enhanced transparency through a more robust monitoring and reporting framework.

Adopted during the UN Sustainable Development Summit in September 2015, the 2030 Agenda for Sustainable Development aims for all countries to promote prosperity while protecting the planet. The Sustainable Development Goals (SDGs) include a series of climate-related goals, including SDG 13 (climate action), SDG 6 (clean water and sanitation), SDG 7 (affordable and clean energy), SDG 11 (sustainable and resilient cities), SDG 12 (responsible consumption and production), SDG 14 (life below water) and SDG 15 (life on land).

Sources: UNFCCC (2015), Paris Agreement,; UN, Sustainable Development Goals,

The local and regional dimensions of climate change

The impacts of climate change have a strong local dimension. For instance, sea-level rise will disproportionally affect coastal areas, with average global flood losses estimated at about USD 6 billion per year in 2005. By 2050, these losses may potentially increase to USD 52 billion in 136 of the world’s largest coastal cities, even in the absence of climate change, as projected socio-economic change (i.e. growing populations and assets) alone will lead to heightened vulnerability (Hallegatte et al., 2013[190]). Often, seemingly contradictory weather phenomena, such as floods and droughts, can occur at the same time in different regions of a country.

The OECD’s Environmental Outlook to 2050 projects that climate change will contribute to roughly 40% of the additional loss of terrestrial mean species abundance between 2010 and 2050, in the baseline scenario (OECD, 2012[49]). The extensive loss of biodiversity will also bring about an associated loss of ecosystem goods and services, with marine ecosystems such as coral reefs being especially at risk from ocean acidification (IPCC, 2014[188]). On a regional level, the loss of ecosystems such as the Great Barrier Reef would have significant repercussions for biodiversity as well as for a wide range of economic activities, including tourism.

Nevertheless, the regional economic effects of climate change are diverse. Most regions will be harmed by climate change. For example, of the 143 French Alpine resorts currently skiable with low snow depths, only 123 would remain open in the event of warming by +1°C, 96 if warming reaches 2°C and only 55 in the event of warming of 4°C (Dupeyras and MacCallum, 2013[191]) (OECD, 2007[192]). However, some regions can expect to benefit economically from warmer climate. The OECD ENV-Linkages model projects that tourism in countries such as Canada, the Russian Federation and the United  States will experience gains, while Latin America, Africa and developing countries in Asia will experience the largest negative impacts by 2060, underscoring the variability of climate change which requires tailored policy decisions (OECD, 2015[187]), not only across countries but also within countries.

Similarly, the production areas of food crops around the world are expected to shift due to the effects of climate change, but with large differences at the regional scale (IPCC, 2014[188]) (OECD, 2015[187]). On the one hand, climate change without adaptation is projected to negatively impact the production of wheat, rice and maize in tropical and temperate regions for local temperature increases of 2°C or more above late 20th century levels (IPCC, 2014[188]). On the other hand, by 2050, climate change is expected to positively benefit wheat yields in regions with cold climates such as Canada, the Russian Federation and Scandinavian countries (OECD, 2015[187]).

Beyond rising temperatures, the consequences of climate change on water availability will have strong effects on crop yields. Variability in water quality and available quantity is likely to increase competition between water users in rural and urban areas in many regions (OECD, 2016[193]) (IPCC, 2014[188]). Yet, beyond a general pattern of more frequent droughts, regional changes in water availability are difficult to predict (OECD, 2014[194]).

Climate change will pose unique challenges to both rural and urban areas and requires place-based policy responses. In urban areas, climate change will increase local urban heat island effects, which, in addition to increasing local temperatures, alter small-scale meteorological processes (e.g. land-sea breeze effect) thereby increasing the risk of heat-related morbidity and mortality (IPCC, 2014[195]) (IPCC, 2018[48]). At 1.5°C, twice as many megacities could become heat-stressed, exposing 350 million more people to deadly heat by 2050, under mid-range population growth scenarios (IPCC, 2018[48]). The increased temperatures in urban areas due to heat island effects may increase energy demand for space cooling, further driving up energy demand during higher peak loads (IEA, 2016[196]).

Scaling up regional and local climate action with a whole-of-government approach

In 2013, the world’s urban areas accounted for about 64% of global primary energy use and about 70% of global CO2 emissions (IEA, 2016[196]). Within urban areas, major sources of final energy demand are residential and commercial buildings, industrial processes, transport systems, and generation of electricity and heat. Near-term policy actions must be taken to avoid “lock-in” effects of inefficient urban energy systems during upcoming periods of rapid urban population and GDP growth. If current trends continue, global urban primary energy use would grow by about 70% and global urban CO2 emissions by about 50% between 2013 and 2050 (IEA, 2016[196]). Such growth in emissions would make the above-mentioned climate mitigation target virtually unachievable.

Subnational governments have an important role to play in mitigating and adapting to climate change (OECD, 2010[197]). Cities are instrumental to mainstream climate resilience into their spatial planning, infrastructure, local policies and investments, through locally tailored climate strategies in line with national objectives (OECD, n.d.[198]). Local governments across the world have increasingly taken ambitious climate action, sometimes beyond the scope of their respective national governments. In the United States, an analysis of city climate action in 2015 reveals that 52 of the 132 cities that reported their climate commitments to public platforms had reduction targets that were equal to or more ambitious than the national government ones (ICLEI USA, 2017[199]). For example, Copenhagen (Denmark) intends to phase out GHG emissions from all sources by 2025, and London (United Kingdom) aims to reduce its CO2 emissions by 60% by 2025 from 1990 levels. Furthermore, up to 65% of the Sustainable Development Goals agenda may not be fully achieved without the involvement of urban and local actors (UN, 2016[200]). However, the efforts of local government have often been undervalued and subnational implementation of climate action faces certain challenges.

Challenges to subnational climate action differ from case to case, but are often institutional, financial or technical in nature. These may include limited municipal capacity, knowledge or resources; restricted monitoring and reporting; lack of local engagement or authority; non-existent multi-level co-ordination; and insufficient data (GIZ, 2017[201]) (Salon, Murphy and Sciara, 2014[202]). Furthermore, local governments do not always have the legal authority to implement climate-related policies, such as introducing congestion charges.

In addition to facing such challenges, local governments may encounter obstacles in collaborating with the private sector and presenting companies with a compelling business case for climate action (C40, 2016[203]). In some cases, national governments are not well aware or informed of innovative local actions and may thus neither provide the most effective support to local governments nor facilitate the replication of good practices to other places and contexts. Such disconnects represent a barrier for cities and regions to contribute meaningfully to the effective implementation of the Paris Agreement with innovative climate action (OECD, n.d.[198]).

The role of regions, moreover, varies across countries depending on their legal rights and responsibilities. Almost everywhere, they have an important role in climate adaptation. In many countries, regions are also responsible for substantial public investment that can be targeted towards low-carbon infrastructure. As an intermediate tier of government, regions have also gained much traction in facilitating vertical co-ordination among national and local levels, as well as horizontal co-operation across local authorities within their territories.

Mainstreaming subnational investment

The largest share of climate-related spending occurs at the subnational level in the OECD. Across a sample of 30 OECD countries, subnational governments were responsible for 55% of environment and climate-related spending and 64% of environment and climate-related investment between 2000-16, on average (OECD, n.d.[204]). However, the share of environmental and climate-related spending and investment remains low relative to GDP: subnational climate-related spending represented 1.3% of GDP (2.3% at national level) while subnational climate-related investment represented around 0.4% of GDP (0.7% at national level). The gap between the global need for investment in climate action and the ability or willingness to pay highlights the need for co-ordinated investment across all levels of government.

The real or perceived costs of climate action may lead to subnational opposition, requiring policy makers to manage trade-offs in order to overcome political hurdles. Clear policy signals are essential to guide the transformation of technologies and business models towards a low-greenhous gas economy (OECD, 2017[51]). For instance, where restructuring or plant closures are likely, relevant local authorities should aim for transparency and work with relevant companies, sectors and communities to develop economically sustainable and yet low-carbon alternatives and gain political and social support for policy measures.

Aligning climate policies across levels of government

Policies at all levels of government that are misaligned with policies at other levels of government may potentially result in maladaptation and misallocation of resources. Misalignments with climate adaptation include regulatory regimes for infrastructure that deter investment in resilience, planning policies that encourage development in vulnerable areas and under-pricing of natural resources. Effectively implementing adaptation measures remains a challenge across a range of countries and policy contexts, as is exemplified by the United States National Flood Insurance Program, in which reforms in 2012 to encourage risk reduction were ultimately reversed due to political opposition, illustrating the barriers to reform even if the defects of current arrangements are well understood (OECD, 2015[205]). Implementing aligned climate policies requires pursuing a multi-stakeholder, multi-level methodology that combines both bottom-up and top-down approaches.

Multi-level governance is increasingly a feature of national climate mitigation and adaptation strategies and plans, where regional- and city-level actions contribute to overall national climate policy strategies (OECD, 2012[49]). Aligning incentives and effective co-ordination among different levels of government will help to avoid duplicative or costly policy measures. Moreover, when there is a lack of co-ordination, significant emissions leakage can potentially be transferred across jurisdictions, whereby an emissions reduction in a regulated sector or area may be offset by consequent emissions in an unregulated sector or area (OECD, 2012[49]) (Mehling, Metcalf and Stavins, 2017[206]).

A national urban policy can play a key role in mainstreaming climate policies into a broader urban policy framework (OECD, 2017[207]). As climate change will have an impact across a broad range of sectors, it is critical to identify its impacts at the local level, to assess cross-sectoral synergies and to streamline policy decisions. For example, land-use zoning has significant impacts upon sectors such as transportation, natural resources, built environment, energy, water and waste, underscoring how urban development requires co-operation and co-ordination at different levels of government and across policy areas to avoid welfare losses. In the Netherlands, the Spatial Planning Act manages land development at the national, state and municipal levels of government. The national planning agency issues broad guidelines for land use that provide an outline for the strategy, policy and purpose of land development, based on the ecological and economic environment of the entire country (OECD, 2010[1]).

Making the most of the comparative advantage of local governments

In light of the interconnectedness across policy sectors, local governments may more easily identify and combine complementary cross-sectoral climate policies than higher levels of government. There are also important co-benefits from policy actions that can be reaped immediately and locally, such as improvements in air quality. Policy makers must consider such co-benefits when determining appropriate policy action. As discussed in Chapter 2, a national urban policy can provide the platform for the required co-ordination effort.

While local governments and the private sector have different, regionally varying functions, they are increasingly recognised as critical to progress in adaptation due to their roles in scaling up the adaptation of communities, households and the civil society, and their management of risk information and financing (IPCC, 2014[188]). In 2015, Acre, the third smallest of Brazil’s 27 states, had already achieved 63% of its goal to reduce deforestation by 80% by 2020, largely thanks to Acre’s State System of Incentives for Environmental Services (SISA). SISA’s reduction of deforestation is both an adaptation and a mitigation measure that is expected to benefit up to 30 000 rural property owners, indigenous peoples and other traditional populations. If Acre’s forest conservation efforts were to be scaled up nationally, they could contribute 31% to Brazil’s 2020 GHG reduction ambition (Yale University, 2015[208]).

Developing an “interface” to localise the Paris Agreement

The Paris Agreement and the subsequent process of developing nationally determined contributions (NDCs) provide a unique opportunity to develop a “whole-of-government” approach to tackle climate change. The NDCs are required by the Paris Agreement to be implemented in each country, but mainly concern the national level of government. Starting in 2023 and then every five years, governments will take stock of the implementation of the Paris Agreement to assess collective progress and to eventually propose successive NDCs. It will thus be critical to incorporate the subnational level of government into the national climate policy framework in successive NDCs.

Currently, neither subnational governments nor co-ordination across levels of governments are explicitly mentioned in most of the existing NDCs. Little information is available, either, as to whether subnational governments have been consulted or given opportunities to give their opinion in the process of developing their NDCs. While the Paris Agreement is techincally a commitment among national governments, the lack of subnational government presence in the NDCs reveals an important concern since emission-reduction targets and policies may not have fully considered the local and regional governments’ emission-reduction potentials. What needs to be urgently developed is an “interface” between national and subnational governments which allows countries to assess the impacts of subnational climate action and incorporate them into national policy frameworks in the NDCs. As the complementary role of different levels of government in climate action has been well recognised, this is a crucial moment for national governments in setting and implementing a national policy framework that is conducive to subnational actions.

Integrated city-level action to reduce emissions

Local governments have control over a wide range of policy instruments that are crucial to fight climate change. This section highlights some of the most important measures that can be taken locally to reduce carbon emissions and adapt to the adverse effects of climate change. Such measures are related in particular to local governments’ regulatory competences on transport, the built-up environment, long-term land-use planning, local resilient infrastructure and inclusive development..


In order to reduce traffic congestion, fiscal measures such as vehicle licencing fees, parking fees and congestion charges can effectively shift the cost of car usage to vehicle owners. In cities like London, Singapore and Stockholm, congestion-charge systems have resulted in reductions in congestion (13-30%), GHG emissions (15-20%) and fine particulate pollution (up to 10%) (OECD, 2018[209]) (Pike, 2010[210]).

Promoting modes of transport such as electrically powered cars, bicycles and scooters can accomplish a range of goals, including potentially reducing traffic congestion as well as air and noise pollution. In 2016, Norway had the highest electric car market share globally (29%). This was largely due to a favourable policy environment in recent years comprising a large range of incentives, from tax breaks and exemptions to waivers on road tolls and ferry fees (IEA, 2017[211]). Policy makers can also consider a purchase subsidy programme to encourage the usage of electrically powered bicycles and scooters, instead of subsidising car ownership. Subsidy programmes have been used in both OECD and non-OECD countries with considerable amounts of success (OECD, 2018[209]).

The built environment

The concept of zero-energy and near zero-energy building programmes has increasingly gained traction over the past 20 years while the cost-effectiveness of such new constructions is increasingly viable. In the pursuit of reducing emissions, communities also have much to gain from retrofitting old buildings; bypassing the process of demolition and reconstruction alone can make adaptation and reuse of old buildings attractive, along with their environmental benefits and energy savings. Or, when such technologies are not feasible, alternative integrated energy solutions such as district energy or heat pumps can also be viable options. For example, the Yokohama Smart City Project in Japan strives to improve energy management and mitigate climate change. The city introduced a Community Energy Management System to achieve efficient energy management by linking individual emergency management systems (e.g. in homes, buildings and factories) to stationary energy storage. Specific achievements of the programme included the installation of emergency management systems in 4 200 homes, the introduction of 2 300 electric vehicles and of 37 MW of photovoltaic generation, and the reduction of 39 000 tonnes of CO2 emissions (IEA, 2016[196]).

OECD work on urban green growth demonstrates that green urban investment can contribute not only to environmental sustainability, but also increase economic growth potential. In fact, green urban investment can create jobs, attract firms and workers with an improved urban environment, and spur innovation and entrepreneurship (OECD, 2013[212]). In France, the multi-regional cluster Moveo is devoted to sustainable mobility (notably the development of electric and hybrid vehicles) and focuses on research on mechatronics and the recycling of materials for automobiles. The cluster has more than 300 members, including 76 large firms. In its three host regions, Haute Normandie, Basse Normandie and Île-de-France, Moveo conducted 70% of the country’s automotive R&D and represented 18% of patents filed in France in 2012 (Kamal-Chaoui and Plouin, 2012[213]).

Long-term land-use planning

Land use has been linked to approximately one-third of all anthropogenic CO2 emissions. As such, land-use practices have major consequences for climate change mitigation as well as for factors that affect public health, like air pollution and the walkability of cities (OECD, 2017[121]). For instance, transit-oriented development is an urban development strategy designed to maximise access to mass-transit systems by promoting relatively dense, mixed-use development around existing or new public transport infrastructure, thereby minimising congestion. Toyama (Japan) renovated its existing mass-transit system and introduced an incentive programme to encourage residential development near the transit stations in urban centres. This resulted in an increase in public transport use and a gradual movement of citizens from the suburbs to the targeted areas (OECD, 2012[215]). Transit-oriented development can thus be an effective instrument for better integrating land-use and transport planning that also reduces urban sprawl (OECD, 2012[215]).

Land-use planning must include a long-term perspective to incorporate potential climate change impacts. Economic incentives can be strengthened to be more aligned with land-use policy objectives. For instance, those who generate liabilities with regards to water management (property developers who build in flood-prone areas) may be required to also bear the costs (OECD, 2014[216]). Such an approach may not be applicable in every context, but can be an effective tool for dissuading land-use planning decisions that are at odds with potential climate change impacts.

Building resilient infrastructure

Investing in resilient infrastructure requires an understanding of potential future risks and threats. Risk assessment is an integral component of climate adaptation measures and begins with the identification of natural phenomena, accidental or deliberate human-driven events (“hazards”) that could have a significant adverse impact on society. While countries are generally aware of the major hazards in their environment based on historical experience, collaborations with local universities and (re)insurers can provide detailed information about spatial occurrence, frequency and magnitude. The immediate causes and sources of hazards need to be identified – whether they originate on the national territory or from abroad – as well as any interlinkages (e.g. earthquake leading to a tsunami) or external drivers (e.g. climate change, deforestation, suburban development) that could affect exposure, vulnerability or possibly the hazard itself. Identifying risks arising from interconnections or interlinkages may present complexities, which have to be acknowledged when conducting risk assessment (G20/OECD, 2012[217]).

Improving water resources management is an important adaptation measure that ensures water security. Water resources management currently relies primarily on “grey”, human-built infrastucture at the expense of “green”, nature-based infrastructure. Nature-based infrastructure can promote a sustainable use of natural resources and generate social, economic and environmental co-benefits, delivering a range of ecosystem services (WWAP/UN-Water, 2018[218]). In the Netherlands, a new paradigm to make “room for the river” combines innovative architecture, urbanisation and landscape solutions to build with nature and live with water. This new adaptive perspective and the subsequent Delta Programme aim to protect current and future generations from high water levels and ensure a sufficient supply of freshwater (OECD, 2014[216]).

Inclusive climate policies

Climate change is poised to exacerbate the effects of structural inequalities in cities. The impact of climate change on inequalities is still an emerging field of research, and large uncertainties remain; yet, the evidence suggests that climate change, if not mitigated, will increase inequalities and slow down growth (Hsiang et al., 2017[219]). While wealthier populations have more assets at risk from climate change, vulnerable populations are more exposed to its impacts (IPCC, 2014[47]). The vulnerability of low-income populations to climate change impacts is due to several factors, including increased exposure to climate risk and hazards, higher susceptibility to damage, and lower ability to recover (OECD, n.d.[204]).

Policy makers should assess and address ex ante potential regressive impacts of climate policies. For example, this includes investing revenues from climate-related taxes in measures that reduce inequality. The intelligent use of carbon pricing revenues is an opportunity to improve fiscal space and make climate policies more inclusive and progressive by reducing other taxes and alleviating the burden on the poorest households (OECD, 2017[51]). For instance, authorities can invest the income earned through carbon-pricing instruments or energy savings from green buildings in sustainable, low-carbon initiatives that benefit low-income populations. Other successful initiatives include the provision of green spaces in low-income neighbourhoods to create a “cooling effect”, and the reconversion of the physical landscape of the mining and fossil fuel sectors into tourist attractions in North-Rhine Westphalia in Germany, which, in addition to fostering an inclusive low-carbon transition also generate tourism revenue for the region. Such actions can defray some of the negative impacts of climate action on low-income populations over the long term.

Likewise, regressive impacts from transport taxes have to be avoided. For example, this can involve the provision of alternative transport offers. This has been done in London, where revenues from congestion charges are invested in efforts to extend/improve access and services in public transport (OECD, n.d.[204]). Alternatively, the increased revenues due to transport taxes can be redistributed to low income households.

Managing resources efficiently for the future

Climate change is the most urgent and widespread environmental trend that needs to be addressed by all levels of government. However, it is not the only environmental concern. Another major environmental issue is resource availability and resource extraction. Resource extraction is also closely related to the technological megatrends discussed in Chapter 3, because new technologies will require new resources, and, vice versa, new technologies will transform the extraction of resources.

To address resource needs in an environmentally, socially and economically sustainable fashion, two steps have to be taken. First, resource extraction needs to become more sustainable. Since extractive activities are usually localised, this is to a large extent a regional issue. Second, resources need to be used and reused more efficiently. In this context, the concept of circular economy has been gaining ground in recent years. The term describes the idea of using a side or waste product of one production process as an input to another production process.

Sustainable resource extraction

Specialisation in mining and extractive activities fosters dynamics such as greater volatility in economic performance, high wages, changes in land use, and transport movements that generate costs and impacts upon local quality of life. Mining and extractive activities (see Figure 4.12 for the case of Chile) are concentrated in particular places, in which the costs and negative externalities are amplified.

Figure 4.12. Specialisation in mining and extractive activities (employment), Chile

Notes: The locational quotient is the ratio between the sector weight in the regional employment and the weight of the same sector in the national employment. A value above 1 implies that the region is more specialised in that sector than the rest of the economy.

Source: OECD (2019), OECD Regional Statistics (database),


If poorly managed, resource extraction can increase inequality. A higher natural resource share in the economy is often associated with higher income inequalities. Often, only a very low share of the workforce and the population benefits from the high productivity (which supports the high wages) of this sector. This workforce is also increasingly mobile and characterised by “fly-in/fly-out” dynamics (OECD, 2017[220]). Moreover, increasing inequalities can undermine long-term economic performance at a national and subnational level. Therefore, a greater focus is needed on making resource-related growth more inclusive.

Mining and extractive activities also generate environmental impacts and externalities, which need to be carefully managed to ensure long-term quality of life and well-being for local residents and to minimise impacts on other industry sectors. Across OECD countries, mining and extractive activities are closely regulated to reduce environmental risks and impacts such as the erosion of soil, sinkholes and contamination of water. For some mining activities, the use of water has to be carefully planned in relation to other users (such as residents and agricultural producers), particularly in remote areas which may lack the necessary infrastructure. Overcrowding of infrastructure and public services in mining regions is another externality that can occur during a period of rapidly increasing investment and prices. Subnational arrangements for the distribution of resource rents have been established across different countries in order to mitigate these externalities.

These negative externalities of mining and extractive activities can reduce both the support of local communities for mining operations and the resilience of these regions when market conditions deteriorate or resources are depleted. Mining regions are strong drivers for economic growth; however, there is a need to deliver high quality life for citizens and protect the natural environment.

Successfully dealing with future megatrends such as climate change, the energy transition, urbanisation and technological innovation by meeting future demand for metals and minerals is dependent on local communities benefiting from these activities. This can be achieved through “bottom-up” economic development strategies that focus on regional competitive advantages and open up opportunities for related diversification and participation in global value chains. Among the future transformations for the mining and extractive industries that will also have important local and regional implications are the increasing demand for “new” natural resources, and the automation of mining.

An increasing demand for new natural resources for new technologies: Lithium, cobalt and nickel

A key driver of future resource demand is the transition to a low-carbon economy, discussed above. A cornerstone for decarbonising the economy is electricity storage. Most sources of renewable energy, including wind and solar power, produce electricity only intermittently. To use them on a large scale, storage is thus essential to balance electricity demand and supply. Storage based on rapidly improving batteries and other technologies will also permit greater system flexibility. Electricity storage allows for a transport sector dominated by electric vehicles, enables effective 24-hour off-grid solar home systems and supports 100% renewable mini-grids (IRENA, 2017[221]).

Pumped hydro is still the dominant form of energy storage, representing more than 90% of storage capacity (IEA, 2018[222]), but other technologies are progressing. Currently, the best-performing batteries for electricity storage are lithium rechargeable batteries. Lithium rechargeable batteries are the power source of choice for sustainable transport and are being used in the next generation of electric vehicles. Lithium-ion battery capacity (excluding pumped hydro) represented 28% of the storage capacity in 2017 and its usage over other technologies has been increasing over time (Figure 4.13).

Figure 4.13. Share of annual battery storage growth, by technology

Source: IEA (2018[222]), Energy Storage, Tracking Clean Energy Progress,


Lithium is highly concentrated in just a few regions. Five countries – Argentina, the Plurinational State of Bolivia, Chile, the People’s Republic of China (hereafter “China”) and the United States – represent roughly 90% of global lithium resources. The most important lithium brines are those located in the Andes and China. The Salar de Atacama in Chile is the world’s largest producing deposit of lithium, while the Salar de Uyuni in Bolivia is estimated to contain the largest lithium reserve in the world, though it currently does not produce lithium (Egbue and Long, 2012[223]).

The materials used in electrodes are notably rare metals, such as cobalt and nickel, which are scarce and expensive. Cobalt is often a by-product of copper and nickel mining. It requires capital-intensive processes to be produced, involving roasting, flash smelting and the use of poisonous gases (Turcheniuk et al., 2018[224]). Half of the current production of cobalt-rich minerals is concentrated in the Democratic Republic of Congo. As to nickel, rising demand has boosted its price by about 50% since 2015 (Turcheniuk et al., 2018[224]). The growing use of lithium batteries can further boost the demand for cobalt and nickel and outstrip the supply. Therefore, other materials have been tested for use in lithium-ion batteries, such as iron and copper. Nevertheless, batteries from alternative metals are still less efficient at holding charge than cobalt- and nickel-based batteries.

The automation of mining

The automation of mining activities is a trend with significant implications for local communities and economies. Technological change will make mines more autonomous, operated primarily from distant centralised control centres that rely on Geographical Information Systems, GPS, remote equipment monitoring and automated algorithms. This automation will have an impact on local spending and employment, which ultimately will change the benefit for local communities.

The future of mining will be determined by data and the ability to organise, manage and process it. The transition to future digital mines will change core mining processes and encompass the automation of physical operations and digitalising assets. This includes the adoption of autonomous vehicles, drones, 3D printing and wearable technologies, all potentially operated through a connected network using Internet of Things sensors to capture and process data in real time. For example, at the Yandicoogina mine in Western Australia, self-driving trucks work 24 hours a day, hauling high-grade iron ore. This driverless technology led to a 15-20% increase in output, a 10-15% decrease in fuel consumption and an 8% decrease in maintenance costs (Cosbey et al., 2016[225]).

Thus, automation is likely to reduce the number of operational jobs for tasks such as drilling, blasting, and train and truck driving. These tasks typically constitute over 70% of employment in mines (Cosbey et al., 2016[225]). New roles will be created in the development and monitoring of remotely controlled autonomous equipment and in data processing, but it is unlikely that these jobs will be open to all workers in operational roles.

To fully embrace the transition and distribute the extractive industry’s benefits to local communities, policy makers should seek to improve the skills of and retrain the local workforce. Identifying and supporting one or more new and profitable regional activities is also a needed strategy to reduce regional dependence on extractive industries as well as create backward productive linkages with existing industries (Cosbey et al., 2016[225]).

The transition towards a circular economy in cities and regions

Sustainability will not only be achieved through more sustainable resource extraction. Using and reusing resources more sustainably is equally important. This is reflected in the idea of the circular economy, i.e. a concept that aims to improve economic and resource efficiency by linking production processes so that a side or waste product of one production process is used as an input to another production process. In an ideal scenario, this would allow for an almost complete elimination of waste and a strong decrease in the need for new resources.

While cities are great producers of wealth, they are also great consumers of natural resources and the cause of negative environmental externalities. Globally, cities are responsible for up to 80% of GHG emissions (World Bank, 2010[226]) and 50% of global waste (UNEP, 2013[227]). In recent years, the “circular economy” has increasingly gained traction at both national and subnational levels of government. In contrast to a linear system, waste is not necessarily the end of the consumption processes, but constitutes the beginning of new production. The circularity implies putting resources back into environmental and economic systems, and postponing material losses through reusing and reducing waste. This can occur through different means, from product design to more pro-environmental behaviours.

Circular economy in cities is expected to have a positive impact on economic growth and the creation of new jobs, and to reduce the negative impacts on the environment generated by unsustainable production and consumption patterns. For example, in London, benefits from circular approaches applied to the built-up environment, food, textiles, electricals and plastics are estimated at GBP 7 billion every year by 2036.3 In Amsterdam, projections show that the construction sector can save EUR 85 million per year from material reuse, while decreasing GHG emissions by 500 000 tonnes of CO2 along the construction chain. In the Île-de-France, about 50 000 jobs linked to the circular economy are estimated to be created by 2030.4

At city level, dedicated soft and hard infrastructure can pave the way for the development of broader circular economy strategies. Some cities have put in place infrastructural systems that connect several sectors, saving natural and financial resources. Examples are the industrial symbiosis in Kalundborg (Denmark), which fosters eco-innovation among eight public and private companies to reuse water and energy and recycle materials, and the Eco Park in Kitakyushu (Japan), which allows to recycle waste, while producing energy, saving water and creating new business opportunities. In the future, cities would need to think about the consequences of infrastructure investments on future generations, to consider green infrastructure and decoupling alternatives, such as new electric vehicles, solar panels, smart-grids, retrofitting of buildings, recycling facilities (Wijkman, 2016[228]).

The potential of the circular economy still needs to be unlocked. Today, less than 10% of the global economy is circular (Circle Economy, 2018[229]). Unlocking the potential of the circular economy in cities implies going beyond solely technical aspects and putting the necessary governance in place to create incentives (legal, financial), stimulate innovation (technical, social, institutional) and generate information (data, knowledge, capacities). It would also mean looking at the barriers for businesses, to “close the loop” by rethinking business models towards the transition from linear to circular ones (e.g. by including the use of leasing and sharing), and analysing the economic instruments that could support the transition in several sectors, including waste, food, built environment and water.

The role of local governments in the transition to a circular economy

Investments, innovation and infrastructures for the transition from a linear to a circular economy in cities and regions are gaining in importance. By 2030, USD 6.3 trillion per year will be needed for global investments in energy, transport, water and telecoms to support economic growth and development. This figure is estimated to be higher when considering further climate action (OECD, 2017[230]). Subnational governments play an important role in public investments. Worldwide, in fact, they are responsible 40% of public investment – 57% in OECD countries (OECD, 2018[50]).

Compared to upper levels of government, cities and regions are laboratories for innovation and pilot-test experimentations (see Chapter 5). In fact, because cities take key decisions on public services, transport, solid waste, the built environment, water and energy, they can contribute to circular approaches by developing a forward-looking vision promoting synergies across sectors (water, waste and energy). However, innovations are not only technical; social and institutional innovations consist in new forms of businesses, partnerships, information sharing and co-ordination across levels of government and within city departments.

Cities and regions have an important role in promoting, facilitating and enabling circular economy strategies. Cities such as Paris, Brussels, London and Amsterdam have developed strategies that identified priorities and promoted a number of concrete projects engaging several stakeholders. Local governments also act as intermediary actors and facilitators. They connect stakeholders that operate along the value chain but are not necessarily used to collaborating with one another, directing and facilitating contacts, informing about existing projects, and providing soft and hard infrastructure for new circular businesses. For example, Circular Glasgow, an initiative by the Glasgow Chamber of Commerce, supports businesses of all sizes interested in the circular economy, through capacity building and co-operation. The city of Amsterdam created a revolving sustainability fund for businesses to pay back within 15 years with a very low interest rate.

Lessons learnt and ways forward

Circular economy is not a panacea for all the problems that cities will be facing in the future (e.g. climate change, natural resource decline, increasing population). However, it provides the opportunity to do more with less and is a possible to achieve green growth – improving environmental sustainability and increasing economic productivity. At the same time, it is a vehicle to achieve global agendas, such as the Agenda 2030 and the Paris Agreement. For example, the 3Ps framework – people, policies and places (OECD, 2016[193]) – can provide a valid conceptual framework to implement a circular economy in regions and cities.

Circular economy should be a shared responsibility across all levels of governments: it is important to clearly define the role of stakeholders and strengthen co-ordination. Co-ordination across national and subnational strategies can help clarify concepts and definitions, as well as identify objectives. Co-ordination across local government departments is needed to avoid greys areas and overlaps.

In addition to co-ordination among stakeholders, the issue of scale is key for the circular economy in cities: it is important to adopt a functional urban approach at the appropriate scale. Cities are not isolated systems, but a space for inflows and outflows of materials, resources and products, in connection with surrounding and more distant areas. The reflection on the broader benefits and costs of circular economy strategies beyond the administrative boundaries of cities requires a discussion on the interlinkages across urban cores, neighbouring and rural areas.

Furthermore, due to its systemic nature – i.e. the fact that in every case somebody’s waste can be a resource for somebody else – the circular economy also provides the opportunity to foster complementarities across policies. Often, these complementarities are overlooked, and the lack of a systemic approach might lead to the implementation of fragmented projects both in time (over the short or medium run, rather than sustainable long-run policies) and in space (isolated initiatives, experiments and pilots).

To build such a co-ordinated, interlinked and complementary system, the circular economy should rely on the engagement and mobilisation of a wide range of stakeholders as well as of the civil society. This is important for inclusive decision making and concrete implementation. For example, the circular economy Strategy of the Greater Paris (Mairie de Paris, 2017[232]) has been developed by 240 stakeholders from over 120 different organisations. The Italian Ministry of Environment promoted a two-month online consultation for the national strategic document on the circular economy (Ministry of Enviroment and Ministry of Economic Development, 2017[233]). About 3 900 people took part in the consultation and 300 organisations and institutions provided specific comments on the proposed text.


[5] Acemoglu, D. and P. Restrepo (2018), “Demographics and Automation”, NBER Working Paper, No. 24421, National Bureau of Economic Research.

[4] Acemoglu, D. and P. Restrepo (2017), “Secular Stagnation? The Effect of Aging on Economic Growth in the Age of Automation”, American Economic Review, Vol. 107/5, pp. 174-179.

[28] Aitken, R. (2016), “Blockchain Startup TamTam Eyes Trillion Dollar Travel Industry Offering 'Crypto'”,, (accessed on 31 October 2017).

[9] Batista e Silva, F. et al. (2018), Regionalisation of demographic and economic projections: Trend and convergence scenarios from 2015 to 2060, European Commission, Joint Research Centre,

[3] Börsch-Supan, A. (2008), “The Impact of Global Aging on Labor, Product, and Capital Markets”, Population and Development Review, Vol. 34/Population Aging, Human Capital Accumulation, and Productivity Growth, pp. 52-77.

[52] C40 (2016), Unlocking Climate Action in Megacities: The City Practitioners’ View, C40, (accessed on 12 October 2018).

[80] Circle Economy (2018), The Circularity Gap report,

[30] CLIA (2015), Cruising to New Horizons and Offering Travelers More, Cruise Lines International Association, Washington D.C.,

[76] Cosbey, A. et al. (2016), Mining a Mirage? Reassessing the shared-value paradigm in light of the technological advances in the mining sector, (accessed on 24 September 2018).

[33] CREST (2016), “The Case for Responsible Travel: Trends & Statistics 2016”, Center for Responsible Travel, Washington D.C, (accessed on 31 October 2017).

[152] Daniele, F., T. Honiden, A.C. Lembcke (forthcoming), “Combatting the impact of ageing through productivity growth: New insights from OECD regions”, OECD Regional Development Working Papers, mimeo.

[18] Diaz Ramirez, M. et al. (2018), “The integration of migrants in OECD regions: A first assessment”, OECD Regional Development Working Papers, No. 2018/01, OECD Publishing, Paris,

[39] Dupeyras, A. and N. MacCallum (2013), “Indicators for Measuring Competitiveness in Tourism: A Guidance Document”, OECD Tourism Papers, No. 2013/2, OECD Publishing, Paris,

[2] EC (2017), The State of European Cities 2016: Cities Leading the Way to a Better Future, European Commission (Directorate-General for Regional and Urban Policy) and UN Habitat.

[74] Egbue, O. and S. Long (2012), “Critical Issues in the Supply Chain of Lithium for Electric Vehicle Batteries”, Engineering Management Journal, Vol. 24/3, pp. 52-62,

[16] Eurostat (2017), Migrant Integration 2017 Edition, Publication office of the European Union.

[8] Eurostat (2015), People in the EU: who are we and how do we live? 2015 Edition, Eurostat Statistical Books.

[24] Future Foundation (2016), “millennial traveller report: why millennials will shape the next 20 years of travel”, Expedia, (accessed on 31 October 2017).

[68] G20/OECD (2012), Disaster Risk Assessment and Risk Financing: A G20/OECD Methodological Framework, (accessed on 19 September 2018).

[50] GIZ/ICLEI/UN-HABITAT (2017), Enabling subnational climate action through multi-level governance, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.

[27] Gjerding, K. (2017), How Blockchain Technology Will Dominate The Travel Sector, (accessed on 31 October 2017).

[25] Guttentag, D. (2015), “Airbnb: disruptive innovation and the rise of an”, Current Issues in Tourism, Vol. 18/12, pp. 1192-1217,

[37] Hallegatte, S. et al. (2013), “Future flood losses in major coastal cities”, Nature Climate Change, Vol. 3/9, pp. 802-806,

[70] Hsiang, S. et al. (2017), “Estimating economic damage from climate change in the United States”, Science, Vol. 356/6345, pp. 1362-1369,

[29] IATA (2016), IATA Passenger Forecast - Global Report - Research and Markets, IATA, (accessed on 31 October 2017).

[48] ICLEI USA (2017), Localizing the Paris Agreement: A Guide for Local Government Action in Support of the U.S. Nationally Determined Contribution Localizing the Paris Agreement Localizing the Paris Agreement, ICLEI USA, Denver, (accessed on 12 October 2018).

[62] IEA (2017), Global EV Outlook 2017: Two million and counting, IEA, Paris,

[45] IEA (2016), Energy Technology Perspectives 2016, OECD Publishing, Paris,

[44] IPCC (2018), Global Warming of 1.5°C: Summary for Policymakers, IPCC.

[43] IPCC (2014), “Chapter 8: Urban Areas”, in Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge, United Kingdom and New York City, NY, USA.

[71] IPCC (2014), Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change,

[34] IPCC (2014), Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, Intergovernmental Panel on Climate Change, Geneva,

[73] IRENA (2017), Electricity Storage and Renewables: Costs and Markets to 2030,

[167] Jacobs-Crisioni, C., C. Baranzelli, F. Batista e Silva, F. Daniele, A. Kucas, C. Lavalle, A.C. Lembcke, C. Perpiña Castillo (forthcoming), “Ageing in regions and cities: High resolution projections for Europe in 2030”, Background paper prepared for the Regional Outlook 2019, mimeo.

[64] Kamal-Chaoui, L. and M. Plouin (2012), “Cities and Green Growth: Case Study of the Paris/Ile-de-France Region”, OECD Regional Development Working Papers, No. 2012/2, OECD Publishing, Paris,

[83] Mairie de Paris (2017), On the Circular Economy,

[56] Mehling, M., G. Metcalf and R. Stavins (2017), Linking Heterogeneous Climate Policies (Consistent with the Paris Agreement), Harvard Kennedy School, Cambridge, Massachusetts, (accessed on 25 September 2018).

[84] Ministry of Enviroment and Ministry of Economic Development (2017), Verso un modello di economia circolare per l'Italia,

[12] OECD (2018), Edinburgh Policy Statement on Enhancing Rural Innovation, 11th OECD Rural Conference,

[82] OECD (2018), Key data on sub-national governments,

[1] OECD (2018), OECD Regions and Cities at a Glance 2018, OECD Publishing, Paris,

[23] OECD (2018), OECD Tourism Trends and Policies 2018, OECD Publishing, Paris,

[60] OECD (2018), OECD Urban Policy Reviews: Viet Nam, OECD Urban Policy Reviews, OECD Publishing, Paris,

[17] OECD (2018), Working together for local integration of migrants and refugees, OECD Publishing,

[54] OECD (2017), Investing in Climate, Investing in Growth, OECD Publishing, Paris,

[11] OECD (2017), Making public services work for rural communities, Background document for the 20th meeting of the Working Party on Rural Policy, CFE/RDPC/RUR(2017)4..

[72] OECD (2017), Mining Cities and Regions:Scoping paper.

[57] OECD (2017), National Urban Policy in OECD Countries, OECD Publishing, Paris,

[13] OECD (2017), OECD Territorial Reviews: Northern Sparsely Populated Areas, OECD Territorial Reviews, OECD Publishing, Paris,

[10] OECD (2017), Preventing Ageing Unequally, OECD Publishing, Paris,

[81] OECD (2017), Technical note on estimates of infrastructure investment needs. Background note to the report. Investing in Climate, Investing in Growth.,

[65] OECD (2017), The Governance of Land Use in OECD Countries: Policy Analysis and Recommendations, OECD Publishing, Paris,

[20] OECD (2016), International Migration Outlook 2016, OECD Publishing, Paris,

[7] OECD (2016), OECD Territorial Reviews: Japan 2016, OECD Territorial Reviews, OECD Publishing, Paris,

[41] OECD (2016), Water Governance in Cities, OECD Studies on Water, OECD Publishing, Paris,

[55] OECD (2015), Aligning Policies for a Low-carbon Economy, OECD Publishing, Paris,

[36] OECD (2015), The Economic Consequences of Climate Change, OECD Publishing, Paris,

[42] OECD (2014), Climate Change, Water and Agriculture: Towards Resilient Systems, OECD Studies on Water, OECD Publishing, Paris,

[67] OECD (2014), Water Governance in the Netherlands: Fit for the Future?, OECD Studies on Water, OECD Publishing, Paris,

[63] OECD (2013), Green Growth in Cities, OECD Green Growth Studies, OECD Publishing, Paris,

[66] OECD (2012), Compact City Policies: A Comparative Assessment, OECD Green Growth Studies, OECD Publishing, Paris,

[38] OECD (2012), OECD Environmental Outlook to 2050: The Consequences of Inaction, OECD Publishing, Paris,

[46] OECD (2010), Cities and Climate Change, OECD Publishing, Paris,

[58] OECD (2010), Regional Development Policies in OECD Countries, OECD Publishing, Paris,

[40] OECD (2007), Climate Change in the European Alps: Adapting Winter Tourism and Natural Hazards Management, OECD Publishing, Paris,

[47] OECD((n.d.)), “A Territorial Approach to the Paris Agreement: Accelerating the role of local and regional governments in climate action”, internal paper.

[19] OECD (forthcoming), Final report of the project on ensuring better integration of vulnerable migrants.

[53] OECD((n.d.)), “Financing climate objectives in cities and regions to deliver sustainable and inclusive growth”, internal paper.

[6] Oliveira Martins, J. et al. (2005), “The Impact of Ageing on Demand, Factor Markets and Growth”, OECD Economics Department Working Papers, No. 420, OECD Publishing, Paris,

[14] Pesaresi, M. and S. Freire (2016), “GHS Settlement grid following the REGIO model 2014 in application to GHSL Landsat and CIESIN GPW v4-multitemporal (1975-1990-2000-2015)”, European Commission, Joint Research Centre (JRC),

[61] Pike, E. (2010), Congestion Charging: Challenges and Opportunities, International Council on Clean Transport, Washington D.C., (accessed on 17 October 2018).

[26] PwC (2015), The Sharing Economy,

[51] Salon, D., S. Murphy and G. Sciara (2014), “Local climate action: motives, enabling factors and barriers”, Carbon Management, Vol. 5/1, pp. 67-79,

[35] Smith, R. and K. McNamara (2015), “Future migrations from Tuvalu and Kiribati: exploring government, civil society and donor perceptions”, Climate and Development, Vol. 7/1, pp. 47-59,

[75] Turcheniuk, K. et al. (2018), “Ten years left to redesign lithium-ion batteries”, Nature, Vol. 559/7715, pp. 467-470,

[49] UN (2016), Getting Started with the SDGs in Cities, UN Sustainable Development Solution Network, (accessed on 12 October 2018).


[78] UNEP (2013), Shifting to Resource Efficient Cities: 8 Key Messages for Policy Makers,

[21] UNWTO (2018), 2017 International Tourism Results: the highest in seven years, (accessed on 19 December 2018).

[22] UNWTO (2018), “World Tourism Barometer and Statistical Annex”, Vol. 16/5,

[32] UNWTO (2017), FAQ - Climate Change and Tourism | Sustainable Development of Tourism, (accessed on 25 October 2017).

[31] WEF (2016), Industry Agenda Security in Travel Promoting Seamless and Secure Travel through Cross-Border Data Sharing and Collaboration, WEF (World Economic Forum),

[79] Wijkman, A. (2016), The Circular Economy and Benefits for Society, The Club of Rome,

[77] World Bank (2010), Cities and climate change: an urgent agenda, World Bank Washington, DC.

[69] WWAP/UN-Water (2018), The United Nations World Water Development Report: Nature-Based Solutions for Water, UNESCO, Paris, (accessed on 19 September 2018).

[59] Yale University (2015), Scaling Up: Local to Global Climate Action, Yale University, R20, Stanley Foundation, USC Schwarzenegger Institute, (accessed on 12 October 2018).


← 1. See also OECD Regional Statistics: Regional Demography (database); accessed 30 October 2018.

← 2. 2. The section uses preliminary data that will be subject to minor revisions in the future as the estimates of urban population become more precise.

← 3. Amec Foster Wheeler: see focus area profiles in this document (pp. 20-30) (2015),

← 4.

End of the section – Back to iLibrary publication page