The need for large upfront investments to switch to green energy may prove more difficult for poorer households. And the approach to reducing poverty must include social protection, vocational retraining programs and the provision of alternative employment opportunities, according to a World Bank report released on Tuesday.

Climate change and mitigation policies can affect household welfare through multiple channels

To understand how climate and environmental shocks and climate-oriented policies may affect households in Romania, this section follows a framework that considers seven main transmission channels of climate and environmental risks and climate actions:

1) prices; 2) labor market; 3) productivity; 4) infrastructure; 5) changes in regulations and policies; 6) land use schemes; 7) protective nets.

Understanding these channels is essential to adequately design climate change mitigation policies to minimize impacts on welfare and migration.

While some of the implications of climate risks and adaptation policies are described below, the main focus is on the role of climate change mitigation policies. Well-being outcomes take into account monetary indicators such as poverty and vulnerability, as well as non-monetary indicators such as food security, human capital and social cohesion. In addition, migration patterns can be influenced.

After two recent shocks – the COVID-19 pandemic and the Russian invasion of Ukraine – slowing economic growth and demographic trends will slow poverty reduction. The at-risk-of-poverty rate is projected to decline by 1.9 percentage points between 2019 and 2030 to around 9.9% and to continue to decline, but more slowly, over the next two decades.

Real wage growth will slow and become more in line with productivity growth

Households with children and large households with more than five members experience higher levels of poverty, and by 2030 the rate of poverty reduction is likely to slow by 0.6 percentage points compared to the baseline.

Other challenges for these households include limited resources, inadequate social safety nets, and barriers to employment for people with disabilities.

Priority attention should be given to these households to meet their needs during the decarbonisation process, such as targeted social safety nets, better access to education and employment opportunities in the labor market.

Although poverty levels may persist or temporarily increase in the short term, long-term progress can be made in reducing poverty among these vulnerable groups.

While the transition to green energy can bring economic benefits and opportunities, it can create potential challenges and risks, especially for low-skilled workers and those employed in gray industries.

Targeted social transfers to the poorest 40 percent of the income distribution can effectively minimize welfare losses during the decarbonization process and be significantly more effective in reducing poverty than universal transfers with the same fiscal resources.

Untargeted social transfers can lead to higher costs and risks in the short term

Poor people are more exposed to natural disasters and climate risks, more vulnerable to climate shocks when they occur, and less able to recover due to reduced coping capacity.

This vulnerability stems from the geographical distribution of climate change and the fact that sectors such as agriculture and fisheries, which are sensitive to climate change, depend on poor populations. Often, this population lacks the assets, social networks, and safety nets to effectively respond to the impacts of climate change, resulting in low resilience. Climate change exacerbates the risks faced by the poorest, perpetuating poverty.

Compared to other EU countries, Romania faces a higher risk of loss of assets and welfare due to the high risk of disasters, which can be partly explained by climate change.

According to the latest data, the risk to which assets are exposed due to natural disasters in Romania is estimated at 0.41 percent of GDP and the risk of welfare loss is estimated at 0.58 percent of GDP, both values ​​are higher than other CEE countries.

Poor people are often disproportionately affected by natural disasters, experiencing greater loss of wealth and income, with less resilience and limited capacity to cope. Applying preventive measures in Romania can reduce asset losses by up to 13 percent and welfare losses by up to 16 percent.

It is critical to determine whether municipalities at higher risk of poverty are also at higher risk of climate and natural disaster risks.

The green transition will disproportionately affect unskilled workers

The impact of climate change mitigation measures on total employment is expected to be slightly negative in the short run but somewhat positive in the long run.

Under the decarbonisation scenario, total employment may decline more rapidly, with mining, manufacturing and power generation (among the main sectors subject to decarbonisation) experiencing the sharpest decline in employment, followed by wholesale and retail trade, transport and some services (banking and real estate). . .

Agriculture, construction, government and other services are expected to be minimally affected. But by 2050, the decarbonization scenario is expected to increase overall employment, especially in services, with no difference in real wage growth.

As Romania’s labor market shifts to greener sectors, unskilled workers will suffer from a greater reduction in employment opportunities. In the short term, the decline in unskilled employment can be attributed to the restructuring of carbon-intensive industries, which will lead to low demand for labor.

But positive employment growth is expected in the medium to long term as decarbonisation efforts create new job opportunities in the renewable energy, energy efficiency and green technology sectors. Skilled workers will be in high demand in these growing sectors, highlighting the importance of effective training programs to fill the skills gap.

The transformation of the labor market in Romania will mean a change in the qualifications of workers in various sectors. An increase in the share of low-skilled workers in agriculture is expected, and in industry, construction and the service sector – medium and high-skilled workers. In the long term, the public administration, financial intermediation, education and health sectors will provide a higher percentage of highly skilled jobs.

The transition to a green economy will require significant workforce conversion and upskilling efforts

“Green” jobs began to appear in Romania. A World Bank analysis based on artificial intelligence (AI) and machine learning (ML) shows that green job offers make up 9 percent of job advertisements in the Romanian labor market.

The most common environmental occupations are engineering, sales and marketing in renewable energy or energy efficiency, mostly in Bucharest and Cluj-Napoca. It is worth noting that the majority of such vacancies currently appeared in new professions, and not in more ecological forms of traditional professions.

Employers who offer environmental work often require a higher level of qualifications. In particular, STEM knowledge and skills are sought, which require better numeracy and literacy skills than the Romanian average, in addition to language skills, active listening and design.

In addition, more work experience is highly valued in the green labor market. In addition, workers in green jobs not only have stronger basic skills, but also use them more intensively and frequently both at home and at work.

Demand for skills compatible with environmental jobs is highest in retail, construction, agriculture and manufacturing. These industries offer the clearest pathways for workers to transition to green jobs, given the similarities in tasks in the respective roles, but transitioning from one sector to another may not always be easy.

Read the full World Bank report here