2. Managing the transition to a climate-neutral economy in regions and cities

Climate change happens now, affecting urban and rural regions. After more than 10 000 years of relative climate stability, the earth's temperature is rising due to human activity. Since the start of the Industrial Revolution in the 1880s, the global average surface temperature has increased by around one degree Celsius (°C), driven mainly by higher atmospheric concentrations of greenhouse gas emissions from human activities (IPCC, 2018[1]). This temperature rise already brings with it many risks for urban and rural areas. For example, changes in rainfall reduce agricultural yields in many rural regions. Urban heat islands occurring on roofs and pavements can be up to 50°C hotter than the air temperature surrounding it. (Ürge-Vorsatz, Boza-Kiss and Chatterjee, 2019[2]). The disruption of the water cycle reduces the quality and quantity of the available water resources in all areas.

Regional, rural, and urban actors play a pivotal role in reaching climate-neutrality by 2050. In the Paris Agreement, parties agreed to the long-term goal of limiting climate change to well below 2°C and making efforts towards 1.5°C. In parallel, the 2030 Agenda on Sustainable Development (the Sustainable Development Goals, SDG) includes a dedicated goal on climate that seeks to “take urgent action to combat climate change and its impacts" (SDG 13). The European Green Deal, adopted by the European Commission in December 2019, aims to make the European Union climate-neutral by 2050. Several countries, including France and Spain, have already passed legislation to bring all greenhouse gas emissions to net-zero by 2050. Given the magnitude of the transformations required, the climate transition will entail profound transformations, which in their breadth are unrivalled in recent economic history over a relatively short period of time. It will unevenly affect citizens, regions and sectors. The transition to a climate-neutral economy needs to reflect the diversity of conditions and starting points between and within countries. It should also deliver broader well-being and sustainable development goals. While decarbonisation will come at a cost, it is likely to be small (around 1% to 1.5% to GDP, see also Chapter 6). The cost is possibly even negative in fossil-fuel importing regions once the key well-being benefits beyond climate, including from economic and health benefits from reduced air pollution, better thermal insulation, lower traffic congestion, and others are taken into account (UK Committee on Climate Change, 2019[3]). Regions and cities are well placed to develop effective solutions together with the private sector and citizens. Since many of the well-being benefits associated with climate accrue locally, a well-being perspective can also help foster local action. Still, support from and co-ordination with the national level is needed to manage this transition in a targeted and tailored manner.

This chapter discusses transition pathways and governance mechanisms available to regions and cities as they move towards climate-neutrality. The chapter starts with illustrating the climate urgency: actions and investment have to scale-up over the next decade. It then looks at how regions and cities can manage the transition in three critical transformation domains: energy, mobility, and food. Finally, the chapter discusses climate governance issues. The chapter builds on the OECD-EC seminar series on “Managing Environmental and Energy Transition for Regions and Cities” and in particular on the seminar entitled “Managing the Transition to a Climate-Neutral Economy”. The main theoretical frameworks and regional case studies were identified in or inspired by the following publications:

  • Chapter 1 of this publication, “Managing Environmental and Energy Transitions: A Place-Based Approach”.

  • Chapman (2019), “Managing the Transition to a Climate-Neutral Economy in Cities and Regions”, Background paper for an OECD/EC Workshop on 17 May 2019 within the workshop series “Managing Environmental and Energy Transitions for Regions and Cities”, OECD Paris.

  • Ürge-Vorsatz (2019), “What Policies can Prepare Cities and Regions for the Transition to a Climate-Neutral Economy?” Background paper for an OECD/EC Workshop on 17 May 2019 within the workshop series “Managing Environmental and Energy Transitions for Regions and Cities”, OECD Paris.

Global warming is likely to reach 1.5°C already between 2030 and 2052 if it continues to increase at the current rate. The IPCC has shown that a further increase in the global average surface temperature poses considerable physical and socio-economic risks to living conditions on earth. Already a 1.5°C rise provides a substantial threat to natural ecosystems and human well-being. Coral reefs in warm regions and the northern ecosystem already show significant damage. They could disappear completely with an increase of 1.5°C. Such an increase will also almost completely melt the Greenland ice sheet. The release of methane, which is bound in permafrost, would possibly further accelerate climate change (IPCC, 2018[1]). Given these climate impacts, it is imperative to limit the rise in global average surface temperature. Limiting global warming to 1.5°C is still feasible but requires rapid action (UNEP, 2019[4]) (IPCC, 2018[1]).

Not acting now means higher costs and systematic risks later. The longer emissions increase or plateau, the steeper reductions in the future must be because greenhouse gas emissions accumulate in the atmosphere. Delaying action means that the destruction of ecosystems, biodiversity loss, a collapse in global food production and falling labour productivity due to high temperatures are becoming increasingly acute. Delay leads to the "lock-in" of emissions-intensive infrastructure and related spending, which becomes obsolete when action is taken to cut emissions. Furthermore, rather than changing economic structures gradually, by delaying action eventually a sudden adjustment that could cause economic and social disruption will be required. “Lock-in” of emissions can also be the result of wrong choices in the near future, even if they have short term-gains (e.g. investments in natural gas to replace coal). Overcoming the challenges of “non-action” and “climate-inconsistent choices” requires overcoming institutional barriers (e.g. misaligned incentives and capacity gaps) as well as political economy factors (e.g. employment in the fossil fuel industry, short time horizons, incumbent market interests) (OECD/The World Bank/UN Environment, 2018[5]).

Climate change has direct consequences for human well-being. For example, extreme high air temperatures contribute directly to deaths from cardiovascular and respiratory disease, particularly among elderly people. Rising sea levels and increasingly extreme weather events will destroy homes, medical facilities and other essential services. More than half of the world's population lives within 60 km of the sea (WHO, 2018[6]). Climate change is, therefore, also one of the most significant challenges of health policy in the 21st century (OECD, 2019[7]). To help understand the magnitude of the climate challenge, Box 2.1 summarises the already present and growing risks from climate change.

Urban areas are greatly affected by the impact of climate change while being significant contributors to greenhouse gas emissions. More than half of the world's population lives in urban areas. By 2050, around 55% of the world population is expected to live in cities (OECD/European Commission, 2020[10]). Many climate risks, such as sea-level rise, storm surges, and heatwaves, are challenging cities and threatening urban livelihoods. They risk affecting essential infrastructure systems such as water, energy supply, and transportation, particularly in places where infrastructure is ageing and in need of repair or replacement. If several of these systems are hit simultaneously, the risk of systemic collapse increases. There is a need for city-level climate action planning to address the threats and opportunities presented by climate change. Chapter 4 of this report presents several tools and instruments to support cities in this process.

Rural areas are vulnerable to climate change because of their larger dependence on natural resources in economic activity. Global warming, extreme weather events, and environmental change are already affecting the economies and social structures of rural areas. Rural areas may face in the future increased food market volatility, shifts and losses in plant and animal species and, depending on the region, increased water scarcity, flooding and coastal erosion, or wildfires. Changes in the timing of seasons, temperatures, and precipitation will also shift the locations where rural economic activities (like agriculture, forestry, and recreation) can thrive. Because many rural communities are less diverse than urban areas in their economic activities, a decline in one traditional sector will affect the community as a whole. Remoteness, lower incomes, an ageing population and weaker health and emergency response systems also increase the vulnerability of rural communities to climate change. Responding to climate change impacts will require significant adaptation within rural transportation and infrastructure systems. Climate change impacts will not be uniform or consistent across rural areas. While some communities lose, others may benefit from climate change by being able to adapt agricultural production. Governments in rural communities need to build institutional capacity to respond to, plan for, and anticipate climate change impacts. Chapter 5 of this report presents several tools and instruments to support rural areas in this process.

Adaptation will have to complement mitigation, it is not a substitute. Adaptation strategies are particularly necessary in the short and medium-term. Irrigation systems, higher dikes, coastal protection and more resilient infrastructure, are some examples. The effectiveness of these measures is difficult to assess, as the future consequences of climate change could undo adaptation efforts in the longer-term. For example, cities can cope with a 20 or 30 cm rise in sea level by building dams and other forms of protection. However, if the sea level rises by several meters, a dam no longer helps. Entire cities may then need to be relocated, which might not exist as an option for many megacities that lie by the sea. Plants such as rice, corn, or wheat, which are crucial for the world food supply, are unlikely to deliver sufficient yields if the global average surface temperature rises by more than 4 degrees (Reckien et al., 2018[11]).

City and regional government agencies and organisations have developed adaptation plans and policies. Examples include disaster risk management, infrastructure systems, agricultural adaptation and public health. Investments in “no-regret and low-regret options”, which have no or low trade-offs with other policy objectives, should be favoured where possible and relevant. Examples of such options can be found in the build environment (the insulation of buildings to cope with heatwaves), in land use and planning (reducing the risk of flooding by avoiding building in high-risk areas) and water (improving water efficiency). Adaptation efforts require co-operative private sector and governmental activities, but institutions face many barriers to implementing co-ordinated efforts. The efficiency and effectiveness of adaptation planning can be increased by integrating it with the relevant policy processes and decision cycles, for instance, regarding land use planning and resource management. Organisations like ICLEI, C40 and World Mayor Council on Climate Change play essential roles in supporting subnational policy makers to exchange and learn from one another to make the most of the resources invested in adaptation (OECD, 2015[12]).

The message of urgency cannot be overstated. To reduce emissions as cost-effectively as possible, the maximum of emissions globally needs to be reached by 2020, followed by a rapid decrease. The later the peak of emissions is reached, the more drastic the emission reductions necessary. Postponing climate action leads to higher costs, requires faster expansion of new technologies, is subject to greater susceptibility to errors and might be even more challenging to enforce politically. Excessive time pressure, which leaves little space to win necessary public support, could significantly reduce the chances of success for ambitious climate policy (Chapman, 2019[13]).

However, global greenhouse gas emissions show no sign of peaking. Increasing energy efficiency and the increased use of renewable energies have so far not been sufficient to stop an increase in emissions, let alone initiate a turnaround towards falling emissions. Although the COVID-19 crisis has led to a temporary drop in emissions, global GHG emissions have overall increased 1.5 fold since 1990, driven mainly by economic growth and rising fossil energy use in developing countries (OECD, 2020[14]). The IEA’s Stated Policies Scenario sees energy-related CO2 emissions constantly growing from 33 gigatonnes (Gt) to 35 Gt in 2040 (Table 2.1). In the Sustainable Development Scenario, energy sector CO2 emissions peak immediately at around 33 Gt and then fall to less than 10 Gt by 2050.

For a long time, OECD countries were the largest emitters but have been overtaken by the BRIICS [Brazil, Russia, India, Indonesia, China (People’s Republic of), South Africa] countries. For example, emissions in OECD countries remained practically unchanged from 1990-2014, while they more than doubled in Asia in the same period (OECD, 2020[14]). Nevertheless, the industrialised countries still have far higher per capita emissions than developing countries. Since the invention of the steam engine, they have also sent more CO2 emissions into the atmosphere than developing and emerging countries.

On average, energy industries are responsible for 29% of greenhouse gas emissions in OECD countries, followed by transport (24%), manufacturing industries (13%), agriculture, (9%), industrial processes (7%) and waste (3%). The share of emissions from energy industries has decreased since 2005. However, emissions from transport and agriculture increased, accounting for more than 30% in some countries in 2017, including Luxembourg, Slovenia, Sweden and Switzerland. Agriculture emits most emissions in Ireland and New Zealand (Figure 2.1). Progress in reducing greenhouse gas emissions has been uneven across countries, reflecting differences in levels of economic development, energy supply and demand, and energy prices (OECD, 2020[14]).

Achieving net-zero greenhouse gas emissions by 2050 requires a deep transformation of societal systems of unprecedented breadth over the next decade. Pursuing such transformations will require deliberate long-term structural changes in resource use, infrastructure, institutions, technologies, and social relations, which have to happen in a relatively short time period (see Chapter 1 and Box 2.2). The transition puts energy centre stage, as energy is responsible for a large share of emissions. Better urban planning and strategic infrastructure investment, as well as a shift to more sustainable land use, are two other important pillars of the zero-net transition (New Climate Economy, 2019[17]). The transition also requires scaling-up of technological innovation in energy, construction, transport, industry and agriculture. Breakthroughs in digitalisation, information and communications, artificial intelligence and biotechnology can accelerate the transition further, but also pose risks, for example by increasing energy demand. The expansion of new systems and processes, with co-operation across sectors, is also required. A good example of a system-oriented approach is the circular economy, which aims to generate a sustainable economic system by fundamentally reducing resource consumption and waste. The transition will also require co-operation at different levels of government to maximise synergies and pool resources and knowledge.

Urban, regional, and rural actors drive the climate-neutral transition. Achieving climate-neutrality by the middle of the century requires systematic changes at the regional and local level. Many OECD member countries have expressed ambitious, long-term goals for sustainable growth, in particular concerning the climate-neutral economy and the circular economy. Cities and regions are well-positioned to contribute to these targets for several reasons:

  • Cities and regions provide critical emission reduction opportunities, as they often have jurisdiction over crucial sectors for climate action, including buildings and parts of transportation, and other local infrastructure. Almost all decisions taken by local authorities affect GHG emissions directly or indirectly, such as local regulation on transport, building construction mandates, spatial planning, and economic policies.

  • Cities and regions can take action towards a climate-neutral and circular economy more rapidly than national governments. Many cities and regions are also motivated to take action as many of the co-benefits of environment and energy transition, such as improved health outcomes, accrue locally.

  • Since local governments are in close contact with citizens and local businesses, local governments can be in a better position to influence consumer and producer behaviour by implementing emission-reduction policies based on their knowledge of local conditions and capabilities.

  • Cities and regions can set examples of progressive emission reduction and circularity targets. In a world in which the exact shape of climate change dynamism and disruption are not predictable and foreseeable, the capacity of cities and regions to generate, develop and implement technological and social innovations, from e-scooters to local housing strategies, support sustainability transitions (Chapman, 2019[13]).

Moving to a climate-neutral and circular economy comes with substantial non-climate benefits, which improve individual well-being in cities and regions. These benefits range from health and productivity benefits to reducing energy poverty. Urban and regional policy makers have an interest in supporting such well-being benefits because they often materialise locally. Some costs and well-being benefits can be quantified. Some are non-quantifiable well-being benefits. Overall, the state of understanding of co-benefits is inadequate and the IPCC has pointed out that societal well-being gains of climate-neutrality and a circular economy remain mostly unaccounted for (IPCC, 2018[1]).

Managing environmental and energy transition in regions and cities requires adjustments in wider electricity, transport and food systems (see Chapter 1 on sustainability transitions). Policies often focus on single technological solutions, such as promoting renewable electricity or electric vehicles, potentially neglecting necessary complementary innovations and other changes such as relevant infrastructure development or coupling energy end-use to renewables. Transition policy should focus on whole systems rather than on single innovations and tackle production and consumption patterns. At the same time, the transition path differs for cities and rural and remote regions. Chapter 4 on cities and Chapter 5 on rural areas provide more information on the city- and rural specific transition opportunities and challenges.

Connections between systems should also receive more attention, as deep changes in one system may require changes in other systems. For example, transitions in mobility patterns may require changes in land use and spatial planning. District heating systems can be coupled with renewables, leading to integrated systems in which thermal energy fulfils storage and back-up functions for intermittent electricity (Lund et al., 2014[18]). These interdependencies reinforce the point that policies should address entire transition systems and avoid displacing wider sustainability issues. The following section will provide an overview of how climate-neutrality can be achieved in three crucial local economic systems, energy, mobility, and food, and what urban, regional, and rural policy makers can do to support the transition.

The sustainable energy transition is a fundamental building block of climate-neutrality. A sustainable energy system aligns fully with the objectives of the Paris Agreement while also meeting targets related to universal energy access and cleaner air. It requires rapid and widespread change across all parts of the energy system (IEA, 2019[19]). The total share of renewable energy needs to rise from around 15% of the total primary energy supply in 2015 to roughly two-thirds by 2050 to meet climate targets, while the energy intensity of the global economy will need to fall by about two-thirds by 2050 (IRENA, 2020[20]). In light of the urgency and necessity for action, mobilising subnational authorities and exploring multi-level governance of energy systems is key to scale-up local climate and energy action. However, in practice, energy remains mostly a national responsibility. Also, policy efforts often tend to focus on single and often technological solutions, such as promoting renewable electricity or EVs, without taking into account the wider infrastructural and societal changes needed (Chapman, 2019[13]).

The energy transition provides important opportunities for cities and rural areas. Some renewable energy options like solar PV are relatively easy to integrate into an urban environment. Urban areas can even become energy-independent from larger networks through energy-saving urban planning and building refurbishment. Other options, like wind turbines and biomass plantations, are mostly realised with some distance from urban areas because they require geographical space. Particularly in rural areas, support from local communities, for example for large numbers of tall wind turbines does not come by itself. It has to be organised by creating awareness and developing a public interest. A wider public needs to be aware of the required transition and needs to be involved in future benefits (Chapman, 2019[13]). Although this is often a difficult process, this is also a chance for improving social coherence (see Chapter 4 on urban transitions and Chapter 5 on rural transitions).

The transformation of the energy system involves several transition areas, and cities and regions play essential roles in supporting them:

  • Changing energy behaviour can lead to important savings in energy use. Behavioural issues matter in all aspects of the energy transition, from improving awareness of the benefits of energy efficiency and renewable energies, to making sure that technologies are easy to use, and that financial decisions can be taken in a well-informed manner. Behavioural change programmes can support households and industry in using less energy. They can include, for example, advertising campaigns, training plans for domestic appliances sales personnel, various forms of grants and subsidies or infrastructural provisions (e.g. thermostats and timer switches) (Hunkin and Krell, 2018[21]).

  • A sharp pick-up in efficiency improvements is the single most crucial element towards reaching climate-neutrality. Improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. The increase in 2018 was 1.2%, which is about half the average rate seen since 2010. Following all economically viable opportunities for efficiency improvement can reduce global energy intensity by more than 3% each year (IEA, 2019[15]). This reflects a relative lack of new energy efficiency policies and efforts. Energy efficiency is particularly critical in the building sector, with a building renovation rate of just 1% per year of the existing building stock (see Chapter 4). In industry, embracing circular economy principles such as efficient design, use and recycling of materials such as steel, aluminium, cement and plastics would help reduce emission growth and provide rural and urban manufacturing with new business model opportunities (see Chapter 3).

  • A pivotal piece of reaching climate-neutrality is renewable electricity generation. Extending renewable energy supply would require boosting manufacturing capacity of wind turbines and solar panels. Emerging technologies such as hydrogen, carbon capture, utilisation and storage also play an important role to reach a 1.5-degree pathway. Especially rural areas hope to benefit from the expansion of renewable energy by linking its development to sustainable rural development. Recent analysis has however pointed out that while there can indeed be rural development potential in renewable energies; rural areas have until now largely fallen short in unlocking this potential. More unambiguous evidence is needed on how renewable energy projects contribute to rural development beyond the causal relationship of revenues (Clausen and Rudolph, 2020[22]).

  • To achieve net-zero emissions, policy makers will need to focus not only on new infrastructure but also on reducing the emissions that are "locked-in" to existing systems. That means addressing emissions from existing power plants, factories, and other capital-intensive infrastructure already in use. Stopping investment into infrastructure that is inconsistent with the net-zero emission transition is key to avoiding unnecessary costs. The longevity of the existing stock of coal-fired power plants accounts for 30% of all energy-related emissions today (IEA, 2019[15]). While new power plants are still being constructed, many European coal-fired power plants are more than 40 years old and are reaching the end of their planned lifespan (Rentier, Lelieveldt and Kramer, 2019[23]). Replacing those provides a window of opportunity for substantial change.

  • Urban, regional, and rural policy makers and regulators will have to move fast to keep up with technological change and the rising need for flexible operation of power systems. Transforming the entire energy system will require progress across a much more comprehensive range of energy technologies and uses including market design, efficiency, carbon capture, utilisation and storage, hydrogen, and others. It will also require educating consumers about transition risks and opportunities.

Subnational authorities play an important role in the large-scale deployment of niche innovations such as passive houses and building retrofits. While those have diffused in some countries (e.g. the Netherlands, Austria, and Finland), they have not yet gained much attraction in many others (Ürge-Vorsatz, Boza-Kiss and Chatterjee, 2019[2]). Energy co-operatives and municipal energy have also only developed well in some countries, but not in others, depending on public policies and cultural contexts (Herbes et al., 2017[24]). The climate and energy model regions in Austria are an example of how national-scale policies are combined with regional renewable electricity initiatives to achieve a climate-neutral transition in the electricity sector (Box 2.3).

Moving towards climate-neutrality requires a paradigm shift in mobility. Historically, the policy direction in transport has been expressed in terms of supporting mobility for economic growth, sometimes with social progress (including health), but often with externalities such as climate change seen as a lower priority consideration. That order of priorities is not consistent with reaching a net-zero transition. The solution is to redesign mobility systems around accessibility to ensure that people can reach their jobs, opportunities, services, goods, and amenities. This means that priority is given to sustainable transport modes such as walking, cycling, public transport and other forms of shared mobility, particularly in cities (OECD, 2019[7]).

A sustainable mobility transition in regions, cities, and rural areas needs to advance electrification of vehicles while also making sure that the dominance of the automobile over railway, bus, e-rollers, cycling and walking is reduced. To decarbonise, this sector would need to shift rapidly to zero-carbon sources of energy. Cities and regions are supporting vehicle electrification through several policy levers, including by setting policy targets for market shares for EVs by a given date (i.e. 30% by 2030) and the installation of public charging stations or subsidies for EV purchasing (see Chapters 4 and 5). Although electrification is vital in achieving climate-neutrality, it needs to be complemented by additional measures, which also address other well-being challenges and urban quality-of-life issues, such as pollution, congestion, accidents, noise as well as active mobility and its health benefits. Important measures are:

  • Encouraging behavioural change: Promoting mobility behaviour change for inspiring more walking, cycling, and public transport and minimising car use can be done through behavioural change campaigns in regions and cities. Typically this will involve either ‘hard’ measures within regional and urban transport (e.g. new footpaths or bike lanes, safer crossings, or investment in more comfortable public space) or ‘soft’ measures like information and communication campaigns, organising services and co-ordinating activities of different partners (Partnership for Urban Mobility, 2019[28]).

  • Discouraging private vehicle use: Cities and regions can help to reduce the overall mileage driven by personal vehicles through policies that discourage individual vehicle use. This includes banning cars in city centres, taxing vehicles on a per-mile-travelled basis, and encouraging the use of public transport.

  • Making use of digital-based ride sharing: Shared mobility, thus replacing individual car rides by rides in shared taxis or minibuses, can improve equality of access to jobs, health services, education and other opportunities. Extensions of the model from the core city to a broader metropolitan area have shown that shared services can also complement existing metro and commuter rail lines and help increase their ridership (ITF, 2018[29]).

  • Supporting a modal shift from cars to railways, bus and active mobility: The integration of walking, cycling bus, e-rollers, subway and railway regimes into an intermodal transport system could also make such a modal shift more attractive, as happened in London, where car use declined by 25-35 % between 1995 and 2015 (Cass and Faulconbridge, 2016[30]).

  • Reducing trip lengths by changing spatial planning: This includes, for example, compact cities or transit-oriented development, which aims to mix residential, business and leisure space within walking distance of public transport (OECD, 2012[31]).

The current food system does not meet the food and nutrition security needs of a growing global population and creates high environmental and health costs. Modern agricultural methods have depleted carbon in the soil, and agriculture remains a net emitter of carbon dioxide despite some absorption through crops and plants (OECD, 2019[32]). A food system transformation requires several transitions, including sustainable supply chains, a healthier diet, and higher production efficiency. These transitions imply a fundamental change in the way food is produced, treated and consumed. Food system transformation targets agro-industrial operations as well as the practices of more than 500 million smallholder farmers around the world (OECD, 2019[7]). Delivering the emissions reduction needed to reach a 1.5-degree pathway sustainably requires several actions at the same time, to which urban, regional, and rural policy makers need to contribute:

  • Encouraging behavioural change: Food systems and the way they are set up are a key driver of malnutrition in all its forms (undernutrition and overweight and obesity). At the same time, food systems are also responsible for one-third of global GHG emissions (OECD, 2019[7]). To provide better access to affordable and healthy diets, food systems need to be transformed, particularly to address the rising burden of overweight, obesity and diet-related diseases. Healthier diets would also reduce emission-insensitive meat and dairy production. Regions and cities can invest in consumer education and awareness, create clear dietary guidelines and leverage public channels to deliver healthier products (e.g. school canteens).

  • Repurposing public investment and policies: By realigning incentives in the policy and regulatory environment and by using public-sector investments, local, regional, and national governments can change the behaviour that drives companies, investors, and farms. For example, fertiliser subsidies should be removed as they can lead to overuse, which causes water pollution from fertiliser run-offs and an increase in GHG emissions from chemicals. Governments could also set prices on natural resources to address negative externalities associated with food systems (e.g. a higher price on water) (OECD, 2019[32]). Local agency procurement can play an important role in what type of food is being purchased, provided and distributed. By mandating and encouraging specific requirements, these policies can help drive demand for and improve the availability of healthy and sustainable foods. Box 2.4 provides several examples of how cities and regions can support a food system transformation.

  • Fostering business-model innovation: Companies can redesign business models towards greater climate compatibility. Many companies are recognising that their future competitiveness will depend on their commitment to helping solve society's problems. To mainstream and scale business model innovation, urban, regional, and rural policy makers can help local companies with technical assistance, funding and capacity building to address key barriers such as innovation risk, economic return and corporate culture challenges (OECD, 2019[33]).

  • Reducing waste: About one-third of global food output is currently lost in production or wasted in consumption. Curbing waste would reduce both the emissions associated with growing, transporting, and refrigerating food that is ultimately wasted and the methane released as the organic material in wasted food decomposes.

Regions and cities need to step up their capacity for transformative climate governance. In light of the persistent failure to reduce emissions decisively, cities, regions, and rural areas need to build long-term resilience against climate change and other associated social, environmental and economic concerns. Different capacities are required to successfully address environmental and energy transition. These include long-term and strategic planning, including phasing-out investment that is inconsistent with transition objectives, designing and implementing coherent policies in support of transition, capitalising on well-being gains from environmental and energy transition, and co-ordinating stakeholder engagement.

Urban, regional and rural sustainability transitions take place in a context of multi-level governance. Policy makers at the international, national, and local level all define visions and targets for the transition, such as setting stringent building codes for retrofitting or supporting zero-emission vehicles. National governments and supranational institutions, such as the European Union, are responsible for investment and legislation. At the same time, much of the implementation, innovation and learning that advances the transition occurs at regional and local levels. This means that regional and local administrations must have the resources and ability to implement transition initiatives. They are also likely to have a much better understanding of local needs, skills, barriers, knowledge and capacities. Policy makers at different levels of government must be clear in their role and responsibilities with respect to sustainability transitions. Ensuring that the governance approaches and policy choices of these different actors are aligned and mutually supportive rather than at odds is at once the challenge and the requirement of an effective multi-level governance system (OECD, 2019[35]).

Effective multi-level governance is a pre-condition to achieving a climate-neutral and circular economy, but there are barriers. Ensuring that the objectives, priorities and targets for transition are aligned and coherent is fundamental but often challenged by co-ordination failures across sectors or among different levels of government. There are positive examples. For example, the European Union's Strategy for Low-Emission Mobility emphasises that regions and cities will be major actors in delivering low-emission mobility solutions (European Commission, 2016[36]). Other cases are less favourable. (Ohlhorst, 2015[37]) analyses the multi-level governance of Germany’s energy transition policy, concluding that experimentation at the subnational level of the Länder advances the energy transition, but the German Laender risk increased inefficiencies and macroeconomic cost if they focus on an inwardly directed policy, arguing therefore for enhanced co-ordination efforts. Other multi-level governance challenges arise when national governments hinder the spread of local initiatives by withdrawing crucial national-level funding, as occurred in the United Kingdom when it significantly cut government subsidies for local and community energy installations (Armstrong, 2015[38]). However, such influences are dynamic, and positions can change over time.

There are a number of practical ways to overcome barriers associated with multi-level governance, among these are:

  • Identifying policy inconsistencies: A mapping of actors and potential policy inconsistencies can help identify misalignment among stakeholder priorities and needs with respect to sustainability issues. This includes identifying who can influence environmental and energy transition in different policy fields such as energy, mobility or agriculture and at different levels and fostering the integration of national and subnational policies and strategies (OECD, 2019[39]). Where implementation responsibilities may be too large for any one municipality or region to tackle on their own, co-operative agreements may be helpful (OECD, 2017[40]).

  • Scaling-up and deploying local innovations in governance: The heterogeneity of local contexts can enable local administrations to experiment with options that may not be politically feasible at higher levels of government (see Chapter 4). Where such experiments are replicated or adapted at higher levels, they may help promote coherence and create space for greater ambition at the national level. For example, local-level actors are an active part of Denmark’s renewable energy processes, and support a progressive agenda on climate and renewable energy expansion (Jänicke and Quitzow, 2017[41]).

  • Strengthening resource and knowledge flows and dialogue among levels of government: Platforms for knowledge sharing among local and regional governments and levels of government provide an opportunity to empower local actors. Networks such as the Covenant of Mayors for Climate and Energy and the ICLEI GreenClimateCities Programme help identify and share best practices, standardising local climate and energy policy plans in line with national and EU/OECD policies.

  • Integrating scientific advisory bodies. National and regional scientific climate advisory bodies provide independent advice to the government on setting and meeting greenhouse gas emission targets. These bodies should be integrated into dialogue opportunities among levels of government as they promote an integrated policy approach to environmental and energy transitions.

Most climate change mitigation policies have the potential to generate positive as well as negative well-being impacts. The extent and direction of these co-impacts depend on contextual factors, policy design and implementation, and action that is taken to mitigate the potentially harmful outcomes (Markkanen and Anger-Kraavi, 2019[42]). Positive outcomes for economic equality emerge when policies reduce expenditure (e.g. on fuels) or raise productivity (e.g. by reducing traffic congestion) or improve opportunities for economic participation among poorer households, regions or countries. Negative outcomes for economic inequality, on the other hand, are associated with policies that have regressive distributional impacts, increase the cost of basic consumer goods reduce or remove employment opportunities or limit people’s access to natural resources (Ekins et al., 2019[43]) (Marcu and Vangenechten, 2018[44]) (ILO, 2015[45]).

The transition towards climate-neutrality will likely lead to changes within and between economic sectors, affecting different places in different ways. Whereas the number of jobs is projected to increase in some sectors, such as renewable energy, for other sectors the transition can be difficult. Particularly affected could be the regions whose economies depend on activities that either are expected to decline or will have to transform in the future (OECD, 2019[39]). Areas with high regional employment in coal mining, oil and gas exploration are likely to be affected (Figure 2.2). Regions, which depend economically on these sectors, will be challenged. Many of those are located in Central and Eastern Europe and lower-income European Union countries. Energy-intensive sectors such as steel, cement and chemicals as well as car manufacturers, will see a shift to new production processes with new skills required (European Commission, 2018[8]). Other existing jobs will have to be transformed and adapted to the new economy. Managing this change requires taking into account place-based challenges. Mainly rural areas will face difficulties to adapt as they are less economically diversified, have older populations and weaker skills to adapt.

A just transition involves an explicit focus on using policies to benefit disadvantaged groups and on taking active measures to address economic inequalities and mitigate regressive outcomes. The pathway to positive equality outcomes involves carefully considering who might be impacted by a given policy and involving these groups or communities in the decision-making process and policy implementation through means such as community consultation (Chapman, 2019[13]). Policy measures with potentially negative impacts on household income or livelihoods must be accompanied by corresponding mitigating measures, such as exemptions, subsidies, compensation for losses and concrete support to help affected individuals and communities (see Box 2.5). This also supports transition acceptance. In policy and programme implementation, socioeconomic benefits can be achieved by utilising the local workforce where possible, while also seeking to ensure equitable distribution of benefits at the local level. This can happen for example through locating large-scale renewable energy projects in areas of high unemployment, by training local unemployed people to fill the new jobs, and by ensuring that new employment opportunities do not exacerbate existing inequalities (Ürge-Vorsatz, Boza-Kiss and Chatterjee, 2019[2]).

Cities and regions need strategic long-term planning in order to manage environmental and energy transitions and integrate it in current decision making. Strategic planning includes determining the cities or regions mission, vision and overarching strategy when it comes to the transition to a climate-neutral and circular economy. Long-term planning is about setting the process by which the strategic plan will be achieved and allocating resources accordingly. Decisions taken today, particularly for infrastructure assets with long lifecycles, can either contribute to or hinder efforts to achieve the transition (OECD/The World Bank/UN Environment, 2018[5]) (see also Chapter 6). Long-term planning needs to inform new courses of action in the present, as well as planning in the near- and medium-term. This requires aligning different time horizons and different levels of government. Several countries have started to develop governance platforms to co-ordinate transport and land-use development between national, regional and local co-operation. Examples are the Norwegian urban growth agreement and the Swedish Urban Environmental Agreements (Westskog et al., 2020[47]).

Long-term strategic planning can enhance the effectiveness of policies in different urban and regional contexts. For example, land-use zoning policies that encourage higher densities can reduce trip distances and frequency in the transport sector. Natural resource policies to increase vegetation and green space can reduce the impacts of heat extremes and flooding. Such local efforts can be complemented with tailored building standards and energy retrofit projects that take into account climate objectives (Ürge-Vorsatz, Boza-Kiss and Chatterjee, 2019[2]).

Vision-led scenario planning can help cities and regions in long-term strategic planning. Tools such as scenario planning can encourage urban, regional, and rural policy makers to envisage and design more sustainable futures (OECD/The World Bank/UN Environment, 2018[5]). The IPCC also supports the contribution of a vision-led path: ‘Pathways that encompass joint, iterative planning and transformative visions, for instance… in urban contexts, show potential for liveable and sustainable futures(IPCC, 2018[1]). While vision-led scenario planning can be less feasible at higher levels (for political reasons, for example), it can work well at the local community and the city level. In addition to local government, businesses, households, NGOs, and unions can all play valuable roles, responding creatively to the vision and goals of sustainability transitions. The Helsinki-Uusimaa region in Finland managed to successfully create a shared vision and long-term planning towards achieving climate-neutrality by 2035 (see Box 2.6).

Successful transition management integrates well-being gains. Cities and regions need to recognise that increasingly one-dimensional outcome measures (such as economic growth) are replaced by a richer set of objectives, including addressing inequality and enhancing resilience and sustainability, as embodied in the UN’s Sustainable Development Goals (SDGs). Systematically placing people’s well-being at the centre of decision making is necessary to increase the political and social support for more ambitious mitigation action and to overcome the barriers to change. Adopting a well-being lens means ensuring that decisions aim to deliver simultaneously on multiple well-being objectives, including environmental and energy transitions (see Box 2.7).

Regions and cities can and should take action to maximise locally arising well-being gains and to minimise trade-offs. Quantifying and mapping, to the extent possible, regional and metropolitan non-climate well-being gains from climate mitigation policies (e.g., how much air pollution would improve with ambitious climate policy) can help judge where well-being gains arise and where losses occur. Maximising well-being gains and minimising losses requires policy makers to look for multiple synergies between policies that eliminate greenhouse gas emissions, have local well-being gains and improve productivity and employment. Cities and regions are well-placed to seek such synergies. For example, where cities invest in energy-efficient buildings, they not only support greenhouse gas emission reduction, but they also provide several wider benefits to local citizens such as health benefits, productivity benefits, local employment generation. Green urban infrastructure does not only uptake carbon, but also it improves domestic thermal comfort by reducing surface and air temperature. By reducing car usage, air pollution can be mitigated to a significant level (Ürge-Vorsatz, Boza-Kiss and Chatterjee, 2019[2]). Understanding and profiling co-benefits and equity-enhancing dimensions of policies are necessary to support change makers' ability to receive political support for a coherent mitigation strategy. The Welsh Government introduced a low carbon prosperity strategy that seeks to combine climate-action with a more comprehensive well-being framework (see Box 2.8).

Crosscutting policies such as innovation policy, tax policy, educational policy, and regional/industrial policy influence policies towards climate-neutrality. However, because sectoral policies are often prepared by different departments with different objectives and expertise, misalignments and contradictions between policies can occur (Ürge-Vorsatz, Boza-Kiss and Chatterjee, 2019[2]). In addition, inconsistent policy instruments can be counterproductive to reaching specific policy goals. For example, policy makers may promote renewables to replace fossil fuel generation to reduce emissions, while at the same time providing subsidies to the fossil fuel industry to protect employment in these sectors, which delays the climate-neutral transition (Janipour et al., 2020[48]). Similarly, subsidies for animal farming to support the economy in rural areas are likely to slow down the introduction of non-meat diets, even if the alternatives receive subsidies as well (see Chapter 5). While these challenges are not unique to environmental and energy transition, they are particularly important in a context, where cities and regions need to take large-scale and rapid action that requires persistent and long-term efforts.

Co-ordination and integration are needed to promote policy alignment. Co-ordination refers to horizontal and vertical alignment of policy areas. Integration seeks coherence by integrating specific objectives (such as environmental sustainability) into other domains such as transport, housing and finance (Matsumoto et al., 2019[49]). Urban, regional and local policy makers can promote both. For co-ordination purposes, it can be helpful to appoint a national, regional, or local body (depending on where policy responsibility lies) or platform that can bring together different policy areas (e.g. energy, climate, and transport policy). Inter-departmental committees can support dialogue and facilitate more informed policy making to minimise policy misalignments and trade-offs. Appointing individual civil servants at the cross-section of two or more city or regional departments can also help in information exchange. The United Kingdom's Climate Change Act (CCA) is a good example of a high-level policy for the climate-neutral transition that promotes co-ordination and directionality, although it does not explicitly include local levels (Gillard, 2016[50]). The Netherlands’ National Environmental Policy has a long tradition of integrating transition perspectives into other policy areas (e.g. industry, innovation, education, transport, energy, food) through its policy plans. In the Dutch case, different ministries were in charge of implementing their transition of energy, mobility, agriculture and health, with the environment ministry playing an overall co-ordinating role. Recent analysis on food and climate change policies in the Netherlands emphasised an essential role for science in advocating changes of the dominant policy framing toward strengthened integration (Biesbroek and Candel, 2020[51]).

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