1. Managing environmental and energy transitions: A place-based approach

Regions and cities are pivotal actors in environmental and energy transitions, but need to step up ambitions and investment. Subnational governments – regions and municipalities – are responsible for almost 60% of public investment (OECD, 2018[1]) and are close to citizens. The environmental and energy transition (Box 1.1) requires multiple transformations, ranging from individual behaviours to policy makers that set effective incentive structures, from community projects to multilevel governance. While it is clear that such a shift requires systematic transformations at the local scale, it is not always clear how subnational policy makers can manage such transformations. The COVID-19 outbreak has further led to a context of radical uncertainty. Subnational governments face difficult trade-offs given the health, economic and social challenges the pandemic raises. At the same time, it provides an opportunity to build more sustainable and more resilient regions and cities. The scale and character of the sustainability challenges facing regions and cities differs depending on their geography, which calls for place-based responses. Embedding such a transition in broad and inclusive well-being objectives is also needed. Environmental action comes with important local well-being gains, including less air pollution, less traffic congestion, less water and soil pollution, access to green spaces and better health outcomes (OECD, 2019[2]). It requires both different and more investment. Since infrastructure is long-lived near-term action is cost-effective.

Reducing environmental pressures requires unprecedented decoupling of economic activity from greenhouse gas emissions and the use of natural resources. GDP growth coinciding with absolute reductions in emissions or resource use is denoted as 'absolute decoupling'. This is in contrast to 'relative decoupling', where resource use or emissions increase less than GDP. While relative decoupling is frequent for material use as well as GHG emissions, examples of widespread absolute long-term decoupling of environmental pressures are rare. Several high-income countries, including the European Union as a whole, have decoupled GDP from production-based and from consumption-based CO2 emissions (Haberl et al., 2020[3]). In these countries, GDP generally grows less. The estimated amount of materials needed to meet final demand in the European Union (the “materials footprint”) has risen with GDP. Reaching net-zero greenhouse gas emissions by 2050 while ensuring economic high and growing economic activity requires sharp decoupling.

Policies for the transition to environmental and energy sustainability should address entire socio-economic systems, such as energy, mobility and food. These systems are characterised by technologies (e.g. renewable energy technologies), as well as markets and functions (e.g. health, education, nutrition), and can be referred to as transformation domains (Anderson et al., 2019[4]). They lead to new or different ways to satisfy societal needs (nutrition, housing, communication, mobility, material supply, etc.). A systemic view of transformation domains attempts to capture the interrelationship of various factors. How we feed ourselves, travel or communicate is influenced by product offerings, infrastructure and technologies, market and power relations, societal norms, the temporal framework, etc. (Figure 1.1). These system elements are connected and mutually reinforcing.

Long-term systematic policy frameworks are being developed at the European, national, and local levels. At the European level, strategic frameworks such as the European Green Deal and its more specific initiatives (e.g. the Circular Economy Action Plan) support the sustainability transition. At the national and subnational levels, many countries, regions, and cities have long-term targets for environmental and energy transitions. While still quite fragmented (Matsumoto et al., 2019[6]), these emerging frameworks are characterised by:

  • the emergence of long-term strategies and objectives (e.g. 2050)

  • a shift from sectors to systems, which implies recognising links between the economy, the environment and society and seeking greater policy coherence and alignment

  • an emphasis on a transformation of the economy guided by mission-oriented objectives (e.g. the transition to a climate-neutral and circular economy)

  • multi-dimensional goals (e.g. productivity and sustainability; maximising synergies and minimise trade-offs between conflicting goals)

  • recognising the relevance of diverse public and societal actors and the inclusion of stakeholders in local policy development

  • more “transition thinking”, including a particular emphasis on the role of innovation in different policy areas.

A shift towards framing policies in the context of transitions is taking place in different policy areas. System thinking can help identify and understand critical linkages, synergies and trade-offs between issues that are frequently treated separately, thereby reducing unintended consequences of policies (Hynes, Lees and Müller, 2020[7]). For example, responding to the COVID-19 pandemic requires a systemic approach focused on resilience, encompassing diverse policy areas including health, employment, urban planning and many others, with a strong place-based dimension. In science, technology and innovation (STI) policy, state intervention has shifted from using innovation policies to increase economic performance to improving sustainability (Machado, Qu and Cervantes, 2019[8]). This shift reflects a need to reorient innovation towards addressing societal challenges and achieving sustainability objectives. It also calls for engaging local actors in societal transformations, and significant public investment and policy support at the national and subnational level In environmental and energy transition, improving resource efficiency is essential to reduce the environmental impact of societal activity, reflecting the prominent role of the circular economy in providing environmental, economic, and social benefits (Box 1.2).

Managing sustainability transitions can expand participation and exchange among public and private stakeholders, triggering changes in markets, user practices, policies, technologies and cultural discourse (Loorbach, Frantzeskaki and Avelino, 2017[14]). Transition management is characterised by multiple and parallel changes in socio-ecological systems and by long-term processes over a 40-50 year period. Experiments are used to identify how successful a particular transition pathway could be (Bulkeley and Castán Broto, 2013[15]). Knowledge exchange and learning can take place at the national, regional, and local level. Stakeholders are invited to develop shared visions and goals, which are then tested for practicality with experimentation, learning and reflexivity.

Environmental and energy transitions are iterative processes of build-up and breakdown over a period of decades. In a transition model (Figure 1.3), change agents – for example pioneering regions and cities – start to experiment with ideas, technologies and practices towards a climate-neutral and circular economy. Over time, pressure to transform current socio-ecological systems (e.g. the current food system) builds up. Such pressure destabilises the current production and consumption system and creates space for alternatives to emerge, e.g. more sustainable food production systems. Change agents operate in parallel to so-called incumbents – actors (e.g. enterprises) that profit from the current, potentially unsustainable model. Incumbents can (and often do) prevent the successful emergence of new business models and institutional structures, such as renewable sources of electricity, cleaner fuels for mobility or more sustainable agricultural practices. During the process, elements of the old structure(s) that do not transform are broken down and phased out. The actual transition is chaotic and disruptive, and eventually leads to changed socio-economic systems, such as a sustainable food system or a sustainable energy system.

Transitions start with new technologies, social practices and business models. The bottom left and top right arrows in Figure 1.3 show the different stages of the transition process: Experimentation, Acceleration, Emergence, Institutionalisation; and Stabilisation. The early stages are the hardest and most unexpected. This is where government help and vision are needed (Mazzucato, 2018[17]). Government support can include financial assistance (e.g. grants or co-funding), or non-financial support, for example using convening power to bring together different stakeholders and interest groups.

Transitions also imply phasing out existing technologies, practices or business models that cannot adapt (the bottom right arrow in Figure 1.3). System transitions necessarily disrupt and challenge established investments, jobs, behaviours, knowledge and values in the destabilisation and disruption stages. All levels of government often want to help businesses that are in trouble and/or protect the jobs involved. However, it might be better to focus on helping workers transition (retraining and finding new employment) and supporting economic diversification.

History shows that transitions create conflict and generate resistance. Existing beliefs, behavioural patterns, institutions, investments and qualifications, as well as the allocation of resources, income and wealth are called into question. When new actors appear, power and distribution conflicts arise between the new and traditional, but also between different approaches to how a sustainable transition system should actually look like. Society, politicians and administrations often view the necessity, direction and speed of the transformation differently (Chapman, 2019[18]). Regional, urban, and rural policy makers and decision takers can facilitate the exchange among actors and approaches, and can communicate place-based visions for a climate-neutral and circular economy.

The ability to adapt to current environmental and resource vulnerabilities requires building on the specific resources, assets, and capacities of individual regions and cities. For instance, it is important to recognise that renewable energy systems emerge differently in cities, regions or countries, e.g. in terms of pace or scope, as well as in type of policies or technologies that are preferred or implemented. Food or transport systems are also largely place-based and embedded in geographical areas due in part to ecological conditions. This place-based characteristic determines, to a large extent, the production system used, the commodities that can be produced, the habitats for biodiversity, and the specific transition challenges that can be expected. The COVID-19 pandemic also reveals that regional and local impacts of this current and future shocks to society are highly heterogeneous, with a strong territorial dimension and significant implications for crisis management and policy responses (Box 1.3).

A place-based focus allows people to address the sustainability challenges and to be part of the transition in the making. Place is also relevant as the site of social interaction. It is where people can discuss the qualities of their local ecosystem, what they value, or how to build a place-based narrative for the future. This can lower resistance to change because it allows trusted relationships to develop among key stakeholders, which in turn provide a basis for more meaningful processes of knowledge transfer (Grenni, Horlings and Soini, 2020[20]).

This report contributes to a place-based approach to sustainability transitions by highlighting the role of regions and cities in transition management. This includes the specific actions that need to be undertaken by regional and city authorities, including needed investment. The report also discusses the challenges that cities and regions might face (e.g. distributional impacts) and how these can be minimised and mitigated; as well as how to increase the synergies between climate and wider sustainability goals. Finally, it also reflects on whether transitions can ‘travel’ between places and across different scales, i.e. whether there is a flow of innovation, knowledge, technologies and so on beyond the places where they were initially conceived.

The report is structured as follows:

Chapter 2 discusses how regions and cities can manage transition pathways towards climate-neutrality and outlines several important climate governance considerations.

Chapter 3 focuses on the role of regions and cities in managing the transition to a circular economy. The chapter sheds lights on strategic approaches and tools that local and regional policy makers can use to support the circular economy in important circular sectors such as waste, construction and demolition and food.

Chapter 4 highlights the role of cities in managing environmental and energy transitions. City governments can enable transformations with urban planning, housing and transport policies as well as circular economy initiatives.

Chapter 5 explores how to manage environmental and energy transitions in rural areas. Successful transition in rural areas requires overcoming specific challenges related to rural risk management, governance, and achieving a just transition.

Chapter 6 features how cities and regions can scale-up and finance transition projects. It proposes a set of policy levers to meet investment needs and encourage private investment.

A series of high-level expert workshops jointly organised by the OECD and the European Commission in 2019 led to a set of recommendations for managing environmental and energy transitions for regions and cities. These recommendations are intended to support urban, regional, and rural decision makers in promoting, facilitating and enabling environmental and energy transitions (See box on Recommendations for urban, regional, and rural decision makers). They are suggested throughout this report to foster transitions in important local transition domains, including energy, mobility, and food.

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