EUROPEAN COMMISSION Strasbourg, 14.12.2021 SWD(2021) 452 final COMMISSION STAFF WORKING DOCUMENT Accompanying the Proposal for a Council Recommendation on ensuring a fair transition towards climate neutrality {COM(2021) 801 final}



1Introduction This Staff Working Document accompanies the proposal for a Council Recommendation on ensuring a fair transition towards climate neutrality. It provides an overview and discussion of the available analytical evidence underpinning the recommended policy interventions, building on the analyses presented in relevant impact assessment reports accompanying the 2030 Climate Target Plan and the various initiatives of the ‘Fit for 55’ package. It further integrates new evidence from additional analyses carried out by the Commission, including updates of energy poverty indicators by income group for those Member States for which 2020 data are already available in the EU-SILC database. Finally, it benefits from the feedback received during targeted consultations in autumn 2021, when the European Commission reached out to, among others, Member States, social partners, civil society, including young people, and experts in the area of labour market analysis, social policy and fair transition. The document thereby provides evidence regarding notably the following aspects: ·Demonstrating how the job creation potential of the transition hinges both on the active support to job creation, labour market transitions and reskilling and upskilling. ·Providing modelling evidence for the ability to shift tax revenues away from labour to climate-related revenue generation, as well as the ability to mitigate adverse distributional effects through measures transferring back revenues from energy taxes and carbon pricing to households, in particular vulnerable ones. ·Underlining how dedicated investments in energy efficiency, decarbonisation of heating, cooling and transport, access to essential services (including alternative sustainable mobility solutions), as well as temporary and targeted direct income support for vulnerable consumers and households ensure a fair and inclusive energy transition. 2Background: commitment to a fair transition Climate change and environmental degradation are an existential threat to Europe and the world, and thus inaction is not an option. Human suffering and economic losses stemming from more frequent climate-related extreme events, such as floods, heatwaves, droughts and forest fires, are becoming more common. In the EU, these losses already average over EUR 12 billion per year. Estimates show that exposing today’s EU economy to global warming of 3°C above pre-industrial levels would result in an additional annual loss of up to EUR 175 billion (1.38% of EU GDP), including the devastating losses of livelihoods and human lives caused by climate change. The urgency to act has been reaffirmed by the Working Group I contribution to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) which documents the alarming state of our climate. IPCC has highlighted the disruptive impact of events such as damages sustained by the electricity system due to storms as well as the climate link of vector-borne diseases. Losses are distributed unevenly and disproportionately harm certain groups, notably those already in vulnerable situations, and regions that already face challenges, such as low growth, high youth unemployment or innovation under-performance. The social cost of non-action in environment and climate policy would be immense for citizens. The European Green Deal (‘the Green Deal‘) sets out the Commission’s commitment to fight climate change and environmental degradation and designs the transformation of the European Union into a sustainable, fair and prosperous society, with a modern, circular and competitive economy, where there are no net emissions of greenhouse gases in 2050. It steps up efforts to tackle climate change and to deliver on the objectives adopted under the United Nations Framework Convention on Climate Change (UNFCCC - the ‘Paris Agreement’) to keep the global temperature increase well below 2°C and pursue efforts to keep it to 1.5°C. Moreover, the Green Deal aims to protect the EU’s natural capital and the health and well-being of citizens from environment-related risks and impacts. It is an integral part of the Commission’s strategy to implement the United Nations’ 2030 Agenda and the Sustainable Development Goals (SDGs), putting sustainability and well-being of citizens at the centre of economic policy, and the SDGs at the heart of the EU policymaking. Reducing greenhouse gas emissions and other sources of pollution will have important co-benefits such as reduced air pollution, healthier soils and better food quality that all contribute to health and wellbeing of citizens. As stressed by the Green Deal the transition must be “just and inclusive”. Particular attention has to be payed to the regions, industries, workers, households and consumers who will face the greatest challenges in terms of employment, social and distributional impacts when decarbonising their economy. While the objectives are ambitious, with the right instruments at disposal a fair transition towards climate neutrality is feasible. To ensure effective action, the European Climate Law of June 2021 enshrines climate neutrality in the Union by 2050 , and a net domestic reduction in greenhouse gas emissions of at least 55% compared to 1990 levels by 2030 as binding objectives into law. The EU Climate Action Progress Report shows that in 2020, EU-27 domestic greenhouse gas (GHG) emissions, including international aviation, were down by 31% from 1990 levels and reached their lowest level in 30 years. In addition, in 2020 the Commission put forward a proposal for the 8th Environmental Action Programme (EAP) , which aims to accelerate the transition to a climate-neutral, resource-efficient and regenerative economy. It reiterates commitments to the 7th EAP’s 2050 vision: to ensure wellbeing for all, while staying within the planetary boundaries. While greater efforts are required to reach the 2030 target and climate neutrality by 2050, evidence shows that decarbonisation and economic growth can go hand in hand, as outlined in the Green Deal. Since 1990, the EU’s GDP grew by more than 50% while the GHG emission intensity of the economy, defined as the ratio between emissions and GDP, fell to 271g CO2 -eq/EUR2015 in 2020, less than half the 1990 level. All Member States agreed to contribute to the achievement of the Union wide targets, with specific targets at Member State level being set, taking into account country specificities and considerations of fairness and solidarity, while leaving no one behind. To achieve the more ambitious intermediate targets in 2030, Member States will have to step up their climate, energy and environmental policies, with diverse implications for people, businesses, households, incomes, and regions. The necessity to address these implications and ensure a fair transition towards climate neutrality is deeply anchored in the European Green Deal. The Commission put forward in January 2020 the Just Transition Mechanism including the Just Transition Fund (pillar 1), a “Just transition” scheme under Invest EU (pillar 2) and a public sector loan facility as well as a Just transition Platform to provide technical assistance and support the implementation of the JTM. In addition, the Commission published a Communication on a Strong Social Europe for Just Transitions, which launched the consultation process on the European Pillar of Social Rights Action Plan. In addition to the 2030 climate and energy targets, and with a view to ensuring a strong social Europe for fair transitions, the EU has notably set itself three headline targets for 2030 in the areas of employment, skills and social protection: at least 78% of the population aged 20 to 64 employed; at least 60% of adults participating in training every year; reducing the number of people at risk of poverty or social exclusion by at least 15 million. These targets are presented within the context of Action Plan for the implementation of the European Pillar of Social Rights, which was presented by the Commission in March 2021 and welcomed by the EU leaders in May 2021 and by the European Council in June 2021. The Pillar was proclaimed by the Council of the European Union, the European Parliament and the Commission at the Gothenburg Summit in November 2017. The need to ensure a fair transition, including through the involvement of all relevant stakeholders and enhanced understanding of the socio-economic and distributional impacts of climate change policies, was also highlighted in a series of dedicated hearings and the outcomes of a public consultation. Stakeholder inputs confirmed a broad support to the initiative. More specifically, parties agreed overall on the need for several elements: comprehensive policy packages to achieve a fair transition, including measures for up-and reskilling; making good use of existing policies and funding instruments, avoiding duplication and administrative burden; an improved understanding of employment and social impacts of climate change policies, including effects on the quality of jobs, and related monitoring and reporting based on “real life data” and relevant indicators; mainstreaming equality, but also requests for more funds and capacity building, notably for SMEs; integration into existing governance mechanisms; and the involvement of social partners and civil society in the design and implementation of climate change and funding strategies for fair transitions. More specifically, the potential impact on inequalities, jobs and skills was raised in several contributions, with an overall appeal for providing adequate funding, as well as technical assistance, notably focusing on vulnerable regions, sectors and groups. Contributions also highlighted an increased need to invest in reskilling and upskilling initiatives, capacity building and infrastructures. There was broad support to strengthening social dialogue and collective bargaining, with some respondents calling for workers’ right to information, consultation and co-decision. Moreover, the vast majority of contributions stressed the need for a granular mapping and analysis. Other issues were mentioned in numerous contributions, notably direct income support measures to vulnerable workers and households, access to essential services, including transport, ensuring health and safety at work which is adapted to ‘green jobs’.

The Union’s transition towards a sustainability-centred economic and societal model will be a unique opportunity to implement the 20 principles of the European Pillar of Social Rights, notably through the creation of quality jobs and the reduction of social hardships and systemic inequality, as highlighted in the chapeau communication of the “Fit for 55” package of 14 July 2021. Well-designed accompanying policies, notably in the area of employment and social policy, are key in this transition, and will also help to safeguard the social acceptance of climate change policies and of social and territorial cohesion overall. In line with the Political Guidelines of the Commission 2019-24, the European Pillar of Social Rights Action Plan highlights that, as part of a new ‘social rulebook’, social rights and the European social dimension need to be strengthened across all Union policies as enshrined in the Treaties, in particular Article 3 TEU and Article 9 TFEU, to move towards a greener and more digital decade in which Europeans can thrive. It aims to anticipate and address the impacts of the green transition on people working and living in Europe, so that the transition is fair and leaves no one behind. It lays down further guidance to Member States as how to best address the social and labour aspects of the green transition. At the international level, the ILO Guidelines for a just transition towards environmentally sustainable economies and societies for all provide a framework and a practical tool defining a just transition. After the concept of “just transition” was included in the final agreement of COP-16 in Cancun, the Parties to the Paris Agreement, including the Union and its 27 Member States, pledged to take into account the imperatives of a just transition of the workforce and the creation of decent work and quality jobs in accordance, in particular, by pursuing the long-term temperature goals on the basis of equity and in the context of sustainable development and efforts to eradicate poverty. At COP-24 in Katowice, 54 signatories (governments, industry and social partners) endorsed the Solidarity and Just Transition Silesia Declaration, including the European Commission on behalf of the European Union and 21 EU Member States individually At COP-26, 14 governments and the European Commission signed a follow-up Declaration on Supporting the Conditions for a Just Transition Internationally. Employment and social policies – including for support to reskilling and upskilling, adequate social protection and income support facilitating labour market transitions – play a key role for ensuring a fair transition. More specifically, the transition to climate neutrality could, ‘with the right accompanying policies in place’ , create around 1 million jobs in the EU by 2030 according to the 2030 Climate Target Plan, and possibly a multiple of it by 2050, particularly middle-skilled, middle-paying jobs , with varying impacts across countries and sectors. This could not only provide the livelihoods and raise incomes for many people but also contribute to mitigating labour market polarisation stemming from other megatrends, notably digitisation, and reducing poverty overall . In particular, this could help contain and prevent energy and transport poverty, tackle socio-economic inequalities and social exclusion, ensure affordable access to energy and mobility for all, improve health and well-being, and promote gender equality. However, in a more pessimistic scenario the impacts of the green transition towards climate neutrality combined with an inadequate policy mix could imply GDP and employment losses. Member States have outlined and are preparing a multitude of actions to promote a fair transition towards climate neutrality, which is a basis for implementing adequate fair transition policies, ensuring coherence at EU and national level. Against this background, the Commission announced as part of the ‘Fit for 55’ package a proposal for a Council Recommendation on ensuring a fair transition towards climate neutrality. 3Context: energy union and climate action The Energy Union Strategy of February 2015 aimed to provide EU consumers – households and businesses – with secure, sustainable, competitive and affordable energy. With an ambitious climate policy at its core, it presented initiatives on five dimensions: energy security; the internal energy market; energy efficiency; decarbonisation; research, innovation and competitiveness. The Energy Union and Climate Action Governance Regulation provides a governance framework encouraging Member States to define ambitious national plans and set incentives reducing greenhouse gas emissions through decarbonisation of their economies and societies and promoting behavioural change of producers and consumers towards carbon-neutral technologies, products and services, while ensuring the protection of energy poor and vulnerable households . There are many instruments in place in the EU and its Member States to reduce greenhouse gas (GHG) emissions, including target setting at EU and national levels, target and standard setting for energy efficiency, energy performance of buildings and CO2 emissions of vehicles, as well as instruments setting price signals and financial incentives such as the EU ETS, the Energy Taxation Directive (ETD) and national carbon taxes. Whereas the EU ETS is an EU-wide system with a cap on emissions at European level, carbon taxes are applied at the national level. The ETD leaves some flexibility for Member States to design their energy taxation systems. In addition, there are dedicated funding instruments to promote investments in energy efficiency and carbon-neutral technologies and to support sectors or regions most affected by the green transition, including through the Recovery and Resilience Facility, the Innovation and Modernisation Funds under the ETS, the Just Transition Fund (JTF) and the remaining two pillars of the Just Transition Mechanism. Also the share of environmental taxes varies strongly between Member States. National energy taxes are the largest part of environmental taxes and therefore are key instruments for achieving the environmental targets set by the European Union, moving towards a decarbonised economy, incentivising consumers to use energy sources alternative to fossil fuels and raising revenue. As regards decarbonisation, to date nine Member States have phased out coal, 13 have made national commitments to do so by a certain date, four are considering possible dates and only one has not yet started national discussions on a phase-out. Moreover, a number of Member States have indicated their intention to work on setting up plans to phase out fossil fuel subsidies, although not all of them have fully developed their plans and data is incomplete. Energy subsidies, including fossil fuel subsidies and their phase-out, also affect energy prices and impact the incomes of energy consumers and the supply of energy products. In 2019 and 2020, almost 60% of energy subsidies could directly be linked to the energy sector. The share of industry and transport was both above 10%, while the shares of the household sector and agriculture were respectively lower, 8% and 4%. In 2020, subsidies in the energy sector rose further, whereas in the transport sector they decreased (-20%) compared to 2019, principally in the aviation sector (EUR -3.3 billion), owing to lower fuel consumption amid the pandemic-related restrictions of travel. Also, energy efficiency subsidies continued showing an increasing trend, and in 2020 they were estimated reaching EUR 17 billion, up by almost 50% compared to 2015. Price regulation both on the consumer and producer sides plays an important role in the EU energy markets, although subsidies for these measures showed a decreasing trend over the last few years. Consumer price guarantees, e.g. in the form of social tariffs, amounted to EUR 2.1 billion in 2019, benefitting mainly the household sector. Producer price guarantees, e.g. in the form of purchase agreements and fuel costs guarantees, were mainly characteristic in the energy sector, and amounted to EUR 3.6 billion in 2019. The ‘Fit for 55’ package includes a series of proposals for updating relevant legislation in line with the higher climate ambition. Proposals cover the EU Emissions Trading System (ETS), energy taxation, energy efficiency, renewable energy, CO2 emission standards for cars and vans and alternative fuels infrastructure, as well as effort sharing between Member States via national reduction targets in sectors outside the current ETS. The package also includes new legislative proposals notably to support the use of cleaner fuels in the aviation and maritime transport sectors, as well as the introduction of a Carbon Border Adjustment Mechanism and the establishment of a Social Climate Fund, the latter directly related to the proposed new emissions trading system for fuels used in buildings and road transport. The ‘Fit for 55’ package, combined with measures taken at EU level to support and incentivise the necessary public and private investments will help to support and accelerate the growth of new markets, for instance for clean fuels and low-emission vehicles, thereby driving down the costs of the sustainable transition for businesses and citizens alike. Moreover, the package included fairness elements in its legislative proposals where relevant. In particular, the legislative proposals are designed to mitigate the impact on households, and transport users, and foresee additional funding to support those most affected (see Box 1). Box 1. Social fairness elements built into the design of the “Fit for 55” package On an aggregate level, the transition to climate neutrality embedded in the package is expected to improve employment and welfare, compared to the outcome of climate inaction, and also compared to climate action without a fairness component. However, as any transition it will also imply impacts that notably affect certain parts of the population and economy. Therefore, social fairness is built into the design of the legislative proposals in the ‘Fit for 55’ package. For instance, the proposal for revision of the Energy Taxation Directive offers possibilities for temporarily exempting vulnerable households from higher energy taxes. The proposed recasts of the Energy Efficiency Directive and of the Energy Performance of Buildings Directive, and the proposed revision of the Renewable Energy Directive stimulate energy savings thereby alleviating energy poverty. The proposed recast of the Energy Efficiency Directive includes a specific obligation for Member States to support energy-poor and vulnerable households to achieve energy savings. Likewise, the revision of the Energy Performance of Buildings Directive foresees a prioritisation of financial incentives for vulnerable customers, people affected by energy poverty and social housing; moreover, it tackles the main non-economic barriers to renovation such as split incentives, including owner-tenant settings, and co-ownership structures. Instruments such as the Effort Sharing Regulation, aim at a fair distribution of efforts between Member States, to ensure solidarity and burden sharing between Member States and regions. Moreover, the proposed Alternative Fuels Infrastructure Regulation aims to ensure that charging and refuelling infrastructures for zero emission vehicles will reach all parts of Europe and be accessible to all. While every Member State will have to contribute to the increased emissions reduction target, different starting points and different capacities are taken into account. As regards emissions trading, in the proposal to revise the existing EU Emission Trading System, fairness and solidarity remain key elements of the carbon pricing architecture. Lower-income Member States will continue to benefit from redistribution of allowances for the purposes of solidarity, growth and interconnections within the Union. The Commission has also proposed to increase resources under the Modernisation Fund, by auctioning an additional 2.5% of the revised ETS cap (in addition to the current 2%). The proposed Social Climate Fund will help mitigate the impact on vulnerable households, transport users and micro-enterprises that are significantly affected by the price increases in fossil fuel prices as a result of the introduction of emissions trading. It will promote fairness and solidarity between and within Member States while mitigating the risk of energy and transport poverty, complementing existing solidarity mechanisms. The proposed Social Climate Fund will provide EUR 72.2 billion in current prices from the EU budget for the period 2025-2032 to enable Member States to address the impacts on the most vulnerable households, micro enterprises and transport users. The amount corresponds to 25% of the expected revenues from the new emissions trading. 4Employment, social and distributional impacts of the green transition 4.1Current situation and trends While the urgency to fight climate change is uncontested, the necessary policy measures bring not only new opportunities but also challenges on the labour market as well as for individual and household welfare. Such opportunities and challenges include job creation and destruction, new job profiles and labour reallocation both in traditional industries, such as the car or building sectors, and to new emerging sectors of the green and circular economy, as well as to other growing sectors such as the healthcare and education. They may imply also higher costs for energy and transport and distributional impacts from shifts in taxation. Employment challenges notably arise as declining industries will see job losses and others need to transform substantially. For instance, the former comprise fossil fuel extraction and fossil fuel-based electricity generation and the latter manufacturing sectors including the automotive industry and high-emission industries such as chemicals, steel and cement. Helping workers to readjust and find jobs in emerging or established sectors hinges on effective policy measures, primarily in the area of skills. Distributional impacts will be most prominent among households who are already (financially or otherwise) vulnerable. This may include, among others, households and persons in the lower income deciles, individuals with long-term careers in activities requiring skills which are non-transferrable to other sectors, individuals in precarious employment or (solo-) self-employed, young and old persons, women, or various combinations of aforementioned characteristics. Attributing parts of new revenues to vulnerable households can thus help overcome regressive impacts, address regional disparities, and further spur job creation.

Employment The transition to climate neutrality could, ‘with the right accompanying policies in place’, create around 1 million jobs in the EU by 2030, compared to a baseline without such climate action, and possibly a multiple of it by 2050, particularly middle-skilled, middle-paying jobs , with varying impacts across countries and sectors. These positive employment projections, reflect both, job creation potential in growing and emerging sectors of the green economy, including the circular economy, as well as an increased demand for new green technologies and services, including in construction, electro mobility and sustainable finance. Employment projections present a range of possible outcomes, which tend to be positive. According to the available projections, the net aggregate number of jobs in the EU is expected to increase by up to +0.46%, as a consequence of the green transition, relative to a counterfactual ‘business as usual’ baseline. These projections assume in particular well-functioning labour markets, with smooth labour market transitions and absence of skill shortages. The aggregate effects observed will depend on the policies implemented, and may also be smaller, in particular in the absence of targeted active labour market policies and shifts from labour taxes towards energy taxation. While in most scenarios the net employment effects are expected to be positive, in the worst case scenario, there could be also negative impacts (of at most -0.26%). The green transition is expected to have diverging effects on employment developments across sectors and occupations. This is evident from the current structure of the EU economy and workforce. In the EU in 2017, the sectors ‘Electricity, gas, air conditioning’, ‘Manufacturing’, and ‘Transportation and storage’ were responsible for over 80% of the cumulative CO2 emissions. However, more than 70% of jobs were in relatively carbon-non-intensive sectors that also emit less and were also growing faster. These developments contribute to an already ongoing transformation of the carbon-intensive sectors which will be accelerated by more stringent climate change and environmental policies. Notably employment in the coal sector is projected to decrease by an additional 46-49% by 2030, compared to the baseline. Moreover, in line with their projected drop in output, also employment of other energy intensive sectors may decline in absolute numbers in comparison to the baseline. At the same time, employment in those sectors will benefit from restructuring and adjustment to new, carbon-neutral production technologies and business models. An example for the transformation of the whole value chain is the automotive sector, with its structural shift from conventional petrol and diesel engines towards battery cell powered ones. Europe is on a transition path towards increased electro mobility. This evolution could lead to significant workforce reductions notably in the narrowly defined automotive sector, locally and also across the EU. Suppliers of intermediate goods as well as up-stream service providers throughout the EU would also need to adjust to remain in business, with implications for their workforces. The overall job impact of the shift to electro mobility, however, could overall be slightly positive, with new jobs in electricity generation, the operation of the charging infrastructure, and the development and production of battery technology which is crucial for the electrification of mobility. The ‘European Battery Alliance’ underscores this employment potential. More generally, certain sectors may flourish and new occupations will occur, providing new employment opportunities. For example, parts of the construction sector can be expected to benefit from the renovation wave. Also the renewable energy and electricity supply and distribution sectors may expand, as well as the water supply, sewerage and waste sectors and other circular value retention activities. Other existing jobs may expand, benefitting from the focus on sustainability, e.g. sustainable finance specialists, waste managers, urban planners and urban architects, taking into account evolving green and sustainability aspects. Several new jobs are likely to emerge, including in the sharing economy, alternative forms of sustainable transport and urban micro farmers and employment opportunities related to tidal energy production. Many occupations also have a significant green component, making them relatively more future-proof. Existing jobs/occupations are expected to undergo significant changes in task content due to the greening of the economy, or new occupations in the green economy contributing to reducing fossil fuel usage and addressing environmental degradation and greenhouse gas emissions, recycling materials, increasing energy efficiency and developing renewable energy sources. Job creation in such new occupations, notably within existing industries, can compensate job losses in traditional jobs/occupations in the energy-intensive industries. Overall, it is expected that most sectors will rather experience shifting task sets within the sector rather than an overall increase or decrease of employment. The impacts of the green transition will also differ geographically. Regional disparities emerge when looking at dedicated indicators of geographical industrial structures and when assessing the regional potential for expanding various forms of energy generation. In turn, also some opportunities may have a regional focus, for example with regards to the potential of renewable energies (see Figure 1 ). For instance, many parts of Europe have substantial potential to generate renewable energy from various sources, including in regions which may experience a relatively stronger adjustment process. As a consequence, the labour market challenges implied by the green transition are not uniform across or within countries. Indeed, transforming and declining industries tend to be concentrated in specific regions. Employment in energy intensive manufacturing, including in the automotive industry, and in extractive industries for instance tends to be concentrated to a large extent in regions in the South, Central and Eastern Europe. On the other hand, many regions in Europe, including in coastal areas and remote territories which may face specific adjustment challenges, have substantial potential to generate renewable energy. As for industrial sectors, this highlights the importance of existing and future initiatives for targeted re- and up-skilling to support intra- and cross-sector labour market transitions within the regions and communities most affected. In border regions, there can be a significant added value of a cross-border approach, allowing to better address many challenges linked to ensuring a fair transition and to jointly benefit from new opportunities. For instance, creating genuine cross-border labour markets presents many advantages to mitigate negative repercussions on employment of the transition: employers have access to a larger pool of skills and competences, job seekers have access to more vacancies, and SMEs wishing to test the neighbouring markets have direct access to job seekers with potentially different language skills. As another example, energy system integration across borders at the regional or local level will allow to make full use of complementary renewable energy and storage potentials in border regions, also providing new employment opportunities in related sectors. Cross-border energy communities can play a significant role here. The differential state of preparedness of EU Member States and regions and their capacity to address the challenges ahead also shows in the countries’ actual state of progress towards fair and prosperous sustainability, as measured by the Transitions Performance Index (TPI). Skills Existing trends and new challenges in the labour market and in certain sectors require significant up- and re-skilling of the current workforce, mostly through (re-)training at the workplace, to enable workers to keep up with the changes ahead. As the greening of the economy is a long-term, systemic transformation rather than a short-term transition, workers in occupations without substantial changes in tasks will also benefit from training for new skill sets in support of sustainable development and changing production and consumption patterns overall. To realise the opportunities of the green transition, companies, social partners and policy-makers at all levels have a key role in anticipating the necessary skill needs of the future and in supporting training and skill development of the labour force. Skills forecasts point to a shift in the labour market profiles and skill requirements, including due to the green and digital transitions and related technological change. This underlines the importance of the EU’s new headline target on adult learning, aiming to achieve an annual participation rate of 60% by 2030, compared to the current (2016) rate of 37.4%. Reskilling and upskilling are key to strengthen both specific skills needed in the labour market, including through vocational education and training, and transferable skills for participation in economy and society more generally, including through general education for sustainability. Yet, there is no commonly agreed definition or assessment of what exactly the required skills for the green transition are. The European Centre for the Development of Vocational Training (Cedefop) defined green skills as ‘the knowledge, abilities, values and attitudes needed to live in, develop and support a society which reduces the impact of human activity on the environment’. From a labour market perspective, both occupation-specific technical skills (e.g. to monitor waste treatment equipment), and more transversal skills (e.g. digital skills), that enable workers to design, develop, and implement new processes, products, and services to support a sustainable and circular economy, are needed. These are mostly not new skills but to a large extent skills that already exist in traditional occupations (e.g. STEM skills, problem solving skills, communication, social and soft skills). Vocational Education and Training (VET) systems need to equip initial learners with these skills and support companies to ensure that workers who are already qualified in an occupation get additional training throughout their career to acquire new occupation-specific and transversal skills that they need to master the green transition. Adding to the geographic disparity of labour market challenges, adult training remains far from standard practice throughout the EU, with wide cross-country and regional differences. This raises concerns as to Member States’ readiness to ensure a fair transition. In 2020, only 9.2% of adults (and only 3.4 % of low qualified adults) in the EU participated in learning (over the previous 4 weeks). Moreover, adult participation rates in education and training are consistently below the average in regions in which the employment shares of energy-intensive industries are comparatively high. Yet, adequate skills formation is key for supporting labour market transitions of workers most affected by the transition, in particular those with low or obsolete skills, as well as for facilitating restructuring within industrial sectors and ecosystems. Welfare Changes in welfare can be driven by several factors, including changes in prices for some essential goods and services, and the emergence of low-carbon substitutes. Higher prices for some goods and services, notably due to the internalisation of the costs of emissions in price formation, can have both direct and indirect welfare effects, given in particular the costs of adaptation (for example, the costs of improving the energy efficiency of a building or switching to a decarbonised heating system or vehicle). Low- or lower-middle income households have relatively high expenditure shares for essential services such as energy, transport and housing, and encounter more difficulties in funding the switch to alternative decarbonised technologies or adjusting consumption patterns. Price changes could also have indirect effects, such as negative impacts on health or on the ability to access professional and social activities. Such welfare impacts are expected to be stronger for households in the lowest expenditure deciles which would experience a decrease in welfare by about 2%. In turn, the highest deciles would experience a decrease by about 1%, i.e. the relatively less affluent households carry a relatively higher burden. This observation is driven in part by the fact that households in the lowest income/expenditure deciles have a relatively higher share of energy-related expenditure. An EU harmonised indicator for energy poverty, measured as the share of households which are unable to keep their homes adequately warm, also is negatively correlated with income, implying adverse welfare effects of raising energy prices and poor energy efficiency, especially as regards the performance of buildings, in particular for (financially) vulnerable households but also those in the middle of the income distribution. Moreover,this financial vulnerability tends to be correlated with certain socio-demographic factors such as age, gender, location, educational background, or labour market attachment, among other factors. Modelling results show that whether environmental taxes are progressive or regressive will largely depend on instrument design, including, for example, the extent to which income tax cuts or other revenue recycling options are targeted at lower income earners.

It is important to address indirect negative effects on access to essential services to ensure an inclusive transition, thereby also promoting public support for the policy measures, investments and reforms needed to ensure a just green transition, notably in view of concerns regarding the fair burden-sharing of effective contributions to emission reductions so far. Policies to implement the Green Deal take full account of their potential impacts regarding household welfare, including energy-related consumption, such as fuel, heating, electricity, and other related goods and services, as well as expected positive effects such as improved health, cleaner air and reduction in local noise pollution. Using the fiscal space made available by additional revenues, for example from energy taxation, ETS auctioning or extending the Polluter Pays Principle, to redistribute revenues to the most affected and vulnerable households, for instance in the form of lump sum transfers, labour tax cuts or support to reskilling and upskilling,can maximise the employment impact and raise incomes. It would address potential impacts by upholding the purchasing power of lower income households during the time needed for achieving the necessary investments in energy efficiency and alternative forms of sustainable mobility. By making the households in the lowest income brackets better off compared to a baseline situation without energy taxation, such measures could also decrease pre-existing inequality and poverty. 4.2Realising opportunities Policy makers have a rich set of tools to anticipate and address employment opportunities and social impacts related to the green transition. This includes identifying the groups most affected and designing policy answers to maximise job creation and mitigate regressive effects, thereby transforming them into opportunities for the economy and for society overall. Policy action in the following areas is of particular importance: 1.Active labour market policies: e.g. facilitating and supporting labour market transitions, facilitating restructuring and retraining, and promoting up- and reskilling, including across borders; 2.Vocational Education and Training (VET) and adult learning can act as an enabler of this transition ; 3.Revenue recycling: i.e. making use of revenues stemming from measures related to policies with a climate and environmental objective, notably environmental taxation (including energy taxation and carbon pricing) and phasing out of the environmentally harmful subsidies, to support households, energy customers and transport users most affected during the transition; 4.Access to essential services is a right enshrined in the European Pillar of Social Rights (principle 20) and a precondition for enabling households, notably those in vulnerable situations, to participate actively in the green transition including by changing their consumption and mobility behaviours (e.g. use of renewable energy, increased energy efficiency, alternative forms of sustainable transport and consumption of locally produced goods and services). Based on economic modelling tools, the impacts of different ways to address labour market and welfare challenges through revenue recycling have been assessed, notably the potential of policy interventions that redistribute part or all of the additional revenues. These potential interventions mix various forms of lump-sum redistribution measures (LS), labour tax recycling (TR) and modalities regarding the auctioning of emission certificates under emission trading (FA, AU). The analysis allows distinguishing the welfare effects of redistributing revenues to all households or of targeted measures to vulnerable households in given income deciles. The modelling results are based on a series of technical assumptions which may imply that the outcomes are too optimistic (e.g. assumption of perfect labour markets ensuring smooth labour market transitions and without skill shortages) or too pessimistic (as potentially underestimating the potential of accelerating innovation and external demand). Moreover, the results also reflect assumptions regarding the state of the economy and its potential to expand and the climate actions undertaken in the rest of the world. This is relevant e.g. in light of the more ambitions approaches by other countries announced at COP-26. If they materialise this may imply a higher global demand for European technology and green goods and services, thus with additional positive impacts on GDP and labour market outcomes. Without presenting full detail, the main modelling results regarding the impacts of potential policy interventions show that redistribute revenues to the most affected and vulnerable households can be summarised as follows: 1.As regards labour market outcomes overall, subject to policy choices, the analysis suggests that it is possible to achieve a ‘double dividend’; i.e. to reduce GHG emissions in line with the 2030 targets while also achieving a net increase in total employment. This implies that new jobs will be created, compensating for losses in some sectors but even going beyond to foster an overall labour market expansion. At the same time, negative employment effects overall may materialise in case of insufficient policy action, or inadequate policy choices, highlighting the key role of fair transition policies. 2.As regards sectoral employment effects, more ambitious climate policies imply expected negative employment effects in energy intensive/fossil fuel sectors and potential room for expanded employment opportunities in sectors such as renewable energy, the bio-economy, and sectors (e.g. construction) that are central in shaping modern and low-carbon infrastructure. For other sectors, notably including market services and agriculture, the results are mixed and depend crucially on the policy mix chosen. The disparities in expected employment effects across sectors and skill levels imply significant labour reallocation across and within sectors, highlighting the need for the transition to be managed carefully and in way that is socially fair. Low-skilled workers are shown to benefit under the considered policy interventions, provided that accompanying support measures for reskilling and upskilling and for supporting labour market transitions, including income security during the transitions and access to essential services, are in place. 3.As regards welfare effects, a careful design of policies, including for revenue use, can ensure that vulnerable and/or low income and lower middle-income households do not bear a disproportionate burden and actually do realise concrete benefits from climate change policies. Figure 2 illustrates how expected regressive impacts (the black line in the chart) across households can be mitigated and avoided by revenue recycling transfer schemes representing various amounts of revenue recycling. As regards targeting, the analysis distinguishes between allocating the revenues across different groups of income deciles. When targeting the revenues to specific groups, the analysis considers the following two groups of recipients: households with below median income or with an income below the national poverty threshold, i.e. below 60% of median income. 4.With proper targeting and moderate revenue recycling, the analysis suggests that time inconsistency problems can be partly addressed and households in the lowest expenditure decile can be made better off relative to the situation before the introduction of the policy measure. One way to do so would be by using 50% of the new revenues and target the lump sum transfers to the households with equivalised income below 60% of the median. Then welfare of the three lowest deciles are shown to improve in absolute terms vis-à-vis the baseline, with a relative improvement for the fourth decile, as well. The choice of transfer modalities and the scope for compensation will depend mostly on the revenues raised as well as on the range and nature of the households that policy makers aim to support. Options include targeting only low-income households, also lower middle income households, or providing transfers to all households. The latter, untargeted, modality has the least favourable welfare implications. Figure 4 compares the impact exclusively for the lowest and the highest expenditure deciles, i.e. the difference between the welfare changes. Table 1 provides the values for selected expenditure deciles. The graph showcases that, even when recycling less than 10% of the revenue, the regressive impact between the lowest and highest income deciles can be reversed when applying narrower targeting. While the policy interventions and considerations must look beyond the comparison of the lowest and the highest income deciles, the comparison exemplifies that targeted redistributive policies may still leave ample funds to support (solo-) self-employed, small and medium enterprises, and other vulnerable actors in the transition process. 5.The analysis hence suggests that targeted measures allow to maintain at least existing levels of consumption, or even foster equity and overcome regressive impacts of the green transition and the related policy measures. The results also suggest that targeted transfers can be combined with other ways of revenue recycling that may stimulate employment, achieving multiple goals simultaneously. Fostering a more careful targeting may allow for a more efficient use of the funds and hence further improved welfare outcomes, for specific (vulnerable) individuals as well as society as a whole. Similar results were achieved when modelling impacts of the introduction of pricing instruments in other areas than carbon. In conclusion, depending on the accompanying policies, the green transition can achieve a reduction in GHG emissions, positive employment effects and non-regressive welfare effects, making at least the most vulnerable better off. This amounts to a ‘triple dividend’. The chosen policy mix may still entail cost increases and welfare reductions, such as for households in the lower middle-income group (3rd to 5th decile of the disposable income distribution). However, inaction would lead to undesirable outcomes, leading to job losses, increasing inequality and, eventually, welfare reduction for all. Progressive welfare effects based on targeted transfers could also help reduce income inequality in the EU, which is expected to increase under the baseline scenario.

Further, the analyses highlight that outcomes and challenges, and hence also optimal policy responses, are a function of local, regional and national circumstances. These include in particular, the local structure of the economy, the skill distribution in the workforce and society, the potential to implement active labour market policies e.g. to facilitate matching and re-matching on the labour markets or restructuring within firms and sectors, to mention but a few factors. In turn, this calls for locally, regionally and nationally ‘optimised’ yet coordinated responses within the Union, making use of (a mix of) the various tools and measures. 5State of play: policy action for a fair green transition Against the backdrop of the political commitment to ensuring a fair transition and the evident need to do so via a range of policy tools, Member States have put in place and are preparing a multitude of measures, reforms, and investments relating to the social and labour aspects of the green transition. This section presents an overview of relevant existing EU governance processes in which several national plans are embedded with different scopes in terms of their time horizon, geographical focus and thematic emphasis. 5.1National plans contributing to a fair transition The European Semester, the reference economic and employment policy coordination framework, put environmental sustainability at the centre of its narrative already in 2019 , including in relation to economically and socially relevant aspects of the green and digital transitions. The strategy integrates the objectives of the Sustainable Development Goals (SDGs), and reflects the principles of the European Pillar of Social Rights. In this context, the latest (2020) country reports featured a reinforced analysis and monitoring of the Sustainable Development Goals (SDGs), included a new dedicated section on environmental sustainability, and identified possible synergies between environmental, social and economic policies at national level. Furthermore, they also included an analysis of transition challenges and identified priorities for steering support by the Just Transition Fund (JTF). Under the JTF, territorial just transition plans (TJTPs) set out the transition process for selected regions most affected by the green transition, in line with a description of the national-level transition, and outline a set of specific investments and policies for those regions. Mitigating the impact of the crisis and rebuilding the economy, while integrating the green transition and the digital transformation, were key focus areas in the European Semester cycle in 2020. Based on the 2020 country-specific recommendations (CSRs), the Communication accompanying the 2020 CSRs points to the need of promoting investments in several areas, including for example energy efficiency and renewable energy production and networks, as well as ‘high social impact’ infrastructure actions, such as renovation in social housing and dwellings of low-income households, and investments tackling air pollution. In the context of the COVID-19 pandemic hitting Europe in 2020, the Recovery and Resilience Facility (RRF), the centrepiece of the temporary recovery instrument NextGenerationEU, provides large-scale financial support to Member States based on national recovery and resilience plans (RRPs), which are assessed by the Commission against the targets of 37% of expenditure for climate investments and 20% of expenditure to foster the digital transition. At the same time, each Member State is requested to explain in its Recovery and Resilience plan how the investments and reforms put forward will strengthen job creation, growth and economic and social resilience in the long term, including how the plan contributes to the implementation of the European Pillar of Social Rights. The aim is to mitigate the economic and social impact of the coronavirus pandemic and make European economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions, in line with the CSRs adopted by the Council in the context of the European Semester. Furthermore, Member States pursue policies based on tailored strategies and action plans, often relating to specific policy areas and tools. For instance, in the context of the European Skills Agenda, the Commission supports all Member States to prepare national skills strategies, building on previous work with the OECD in several Member States and other existing skills strategies. Member States also establish specific national plans following the Council Recommendations on establishing a Youth Guarantee in 2013, on access to social protection for workers and the self-employed, and on establishing a European Child Guarantee. The implementation of these Recommendations is monitored through the multi-lateral surveillance in the framework of the European Semester. Moreover, the Governance of the Energy Union and Climate Action sets out the framework for actions ensuring the achievement of the 2030 and 2050 climate targets and of 2030 energy targets in the Union, in particular by the Member States. In this framework, Member States draw up integrated national energy and climate plans (NECPs), which cover 10-year periods and the five dimensions of the Energy Union, as well as national long-term strategies (LTS), which cover a period of at least 30 years, present notably national and sectoral emission reduction pathways and measures. Based on the national LTS, the EU LTS is submitted to the UNFCCC in the context of the Paris Agreement, in line with the Nationally Determined Contribution (NDC) of the EU and its Member States. The (updates of the) NECPs and LTS should include assessments of socio-economic impacts of the presented measures with a particular focus on energy poverty, according to the Governance Regulation. In their NECPs and updates thereof, Member States should assess the number of households in energy poverty, taking into account inter alia Commission indicative guidance on relevant indicators, and, where necessary, present indicative targets and appropriate measures, including social policy measures. Moreover, NECPs and updates thereof should include assessments of the impacts of planned policies and measures with view to, inter alia, macroeconomic, health, environmental, employment and education, skills and social impacts, including fair transition aspects. Also the national LTS, as well as the EU LTS, should cover assessments of the expected socio-economic impacts of the outlined measures . In addition, under the Energy Performance of Buildings Directive, Member States set out Long-Term Renovation Strategies, which form part of the integrated NECPs and outline actions that contribute to the alleviation of energy poverty. Moreover, the Social Climate Plans under the proposed Social Climate Fund (SCF), put forward by the Commission as part of the ‘Fit for 55’ package on 14 July 2021, would address important complementary social and distributional aspects of the transition. In specific, the SCF would support Member States in mitigating the social impact on vulnerable households, transport users and micro-enterprises that are significantly affected by the price increases due to the introduction of emissions trading for new sectors (buildings, road transport). According to the proposal, Member States would design Social Climate Plans to outline measures and investments to be financed by the Fund and submit them by mid-2024 together with the update of their NECPs. 5.2Member States’ key policies for a fair transition At the aggregate level, preliminary analysis of the RRPs assessed by the Commission by mid-November shows that Member States have planned for significant green spending in the RRPs accounting for about 40% of total expenditure. With three of the six pillars setting out the scope of the Facility focusing on social elements, a significant share of measures addresses active labour market policies, such as skills, education, training and life-long learning. The Commission’s preliminary analysis of 22 RRPs submitted by member states as of mid-September shows that around 30% of their total expenditure accounting for around EUR 130 billion of the Recovery and Resilience Facility will be directed towards social policy. The fair green transition will be specifically supported by for example financing the creation of green jobs, the development of green skills or providing support to households and regions most affected by the green transition. From the adopted RRPs, 11 Member States planned measures related to green skills and green jobs. These measures seek to target primarily people working in sectors already affected by the green transition, such as energy, transport, waste management; new industries and sectors with a potential for the creation of jobs stemming from or linked to the green transition; as well as vulnerable groups. Additionally, it is worth noting that 21 out of the 22 adopted RRPs have dedicated measures on energy efficiency, which can significantly contribute to address energy poverty concerns. In the framework of the Energy Union and Climate Action Governance, some NECPs address energy poverty, including indicators, in the plans. Many NECPs also address affordability, notably in the context of the energy and climate transition. This is the case, for instance, in Austria, Belgium, France, the Netherlands or Denmark. At the same time, according to the Commission assessment of the final NECPs, the NECPs could have provided a clearer prioritisation of funding needs regarding fair transition, investment needs for reskilling and upskilling and for support of labour market adjustments. A description of how the different sources of funding will complement each other is key for promoting a fair transition. Across the 27 NECPs, regional impacts tend to be evaluated in different manners, focusing mainly on coal-dependant areas. Some plans refer to specific groups, such as vulnerable groups affected by increases in energy prices. Moreover, many national LTS refer in varying forms to the need for ensuring a fair transition and/or related actions, and socio-economic impact assessments are included in a number of them. For instance, Austria commits to a fair transition in its LTS, Lithuania aims to ensure a socially fair transformation of all sectors and via social dialogue, and Germany states that the transition must be fair to garner public support for climate policies. In the LTS of Portugal, social fairness is highlighted as a principle and value underpinning the transition and the strategy also highlights the potential of the transition to strengthen the economy and improve air quality and public health. The 2020 update of the nationally determined contribution (NDC) of the European Union and its Member States under the UNFCCC refers to the need for addressing social and economic consequences of the green transition and, in particular, the Just Transition Mechanism. Hence, overall, a range of plans is in place and under development to address important complementary aspects of the transition and outline the policy approach and measures for ensuring a fair transition. The NECPs and LTS lay out the framework and measures to achieve the 2030 and 2050 climate targets and 2030 energy targets, and incorporate certain social and labour aspects. RRPs are designed to focus on the recovery period up to 2026 and, within the MFF period until 2027. TJTPs are designed to focus operationally on tackling the socio-economic impact of the transition in selected territories. The TJPTs also include a general section on the national transition process based on the NECPs. Similarly, other available sources of funding complement actions in this area, e.g. the ESF+, ERDF, EGF, REACT-EU, and underpin specific actions in the area of fair transition, including via cooperation across borders. In line with the European Green Deal objective to transform the EU into a fairer and more prosperous society, it is key to ensure via adequate tools that the green transition is fair and contributes to implementing the European Pillar of Social Rights. As presented in section 3, the EU climate, energy and environmental policies incorporate by design social fairness and solidarity in many ways. The impacts of certain policies geared towards climate and environmental objectives can impact different occupations, sectors and regions in both positive and negative ways, necessitating a set of accompanying policies to transition towards a fair and prosperous society. As section 5.1 and this section have shown, social and labour aspects of the green transition are reflected in the design of EU governance systems and work strands in different forms and to different extents. Building on these plans and policies in place, actions geared towards integrating the social and labour aspects of the green transition within one framework can contribute to effectively and coherently designing, implementing and monitoring policies advancing the transition as a whole. To this end, a Council Recommendation can serve as a tool to further building such a common framework for a comprehensive and integrated approach to a fair transition. 6Comprehensive policies for a fair transition As highlighted previously, the concept of fair transition is deeply embedded in key actions at the EU level notably the European Green Deal, the European Pillar of Social Rights and the Communication of January 2020 on ‘A Strong Social Europe for Just Transitions’. To ensure a comprehensive approach to a fair green transition and ensure upward convergence, social fairness and shared prosperity, developing policy packages of measures, reforms and investments can help achieve coherence and consistency of measures cutting across several policy areas. 6.1Policy packages for a fair green transition In line with the EASE Recommendation, policy packages refer to a comprehensive and coherent set of measures addressing multiple objectives, with a view to maximising synergies through an integrated, well-coordinated approach based on one or several national strategies and actions plans. This should also allow aligning cross-cutting measures with the principles of the European Pillar of Social Rights. Active support to quality employment

As part of labour market measures, job creation measures and well-designed, time-bound employment programmes can help people, in particular those in vulnerable situations, integrate labour markets while stabilising incomes in the short term. They further prepare beneficiaries for participation in the private sector, notably through providing upskilling and reskilling opportunities and tailored assistance. At the same time, such measures can contribute to activities with climate and environmental objectives. There examples of such measures in the Member States, for example in Slovenia, and national and ESF funding have supported them. Hiring and transition incentives are effective and widely used measures to support the integration of job seekers into the labour market, in particular those in vulnerable situations. Along with training programmes, they have the largest medium- to long-run effects, as they improve workers’ employability and their skills. Optimizing the design of these measures, including through continued monitoring and evaluation, can help mitigate deadweight and substitution costs. As highlighted in the EASE Recommendation, incentives can also promote quality job creation amid subdued economic growth and should be targeted and designed to facilitate job transitions and the creation of jobs that would not have happened absent those incentives. In particular, supporting apprenticeships can be effective to develop the skills required on the labour market and help young people into employment (see Box 2). Moreover, transition incentives encouraging the hiring of workers at risk of displacement can contribute to easing those transitions and increasing the supply of skills in expanding sectors.



Box 2. Incentives as a well-tested policy tool under the Youth Guarantee Through the EU Youth Guarantee, Member States commit to ensure that all young people receive a good quality offer of employment, continued education, an apprenticeship or a traineeship within four months of becoming unemployed or leaving formal education. Since the launch of the scheme in 2013 until 2020, 24.7 million young people are known to have taken up an offer of employment, continued education, a traineeship or an apprenticeship through the scheme, corresponding to 71.3% of all entries into the scheme. Overall, 18.2 million young people took up an employment offer, while 1.2 million started an apprenticeship and 3.1 million a traineeship. In total, around 18 million opportunities came from the open market and 6.7 million were partially or fully funded through public money, including about 1.6 million employment offers. A large share of traineeship offers within the Youth Guarantee are fully or partly subsidised with public money. Subsidised employment offers are implemented by public employment services and typically include hiring incentives, direct job creation programmes (public works) and start-up incentives. Hiring incentives are one of the most common types of measures included in Youth Guarantee schemes. They generally take the form of wage subsidies or reductions in hiring costs through social security bonuses. Almost two thirds of Member States have started putting these hiring incentives in place. Direct employment creation programmes and start-up incentives have been less common. The Youth Guarantee contributed to lowering the youth unemployment rate from 24.4% in 2013 to 14.9% just before the COVID-19 pandemic, though other factors also contributed to this trend. The Council Recommendation of 30 October 2020 on A Bridge to Jobs – Reinforcing the Youth Guarantee will also aims to help young people harness the opportunities arising from the digital and green transitions, notably by obtaining the relevant skills. Source: SWD(2020) 124 final, Commission Staff Working Document Accompanying the document Proposal for a Council Recommendation on a Bridge to Jobs - reinforcing the Youth Guarantee, 1.7.2020. Promoting entrepreneurship, including social enterprises, in particular in regions facing transition challenges, with a focus on people most affected by the green transition, can contribute to facilitating labour market transitions and stimulate job creation. Support should combine financial measures including grants, loans and equity, with non-financial measures, including improved access to social protection for the self-employed, the development of entrepreneurial skills and advisory services. Only a limited share (2-5%) of displaced workers typically return to work by starting a business, though a relatively high rate of entrepreneurial success may be observed among displaced workers under certain conditions, noting that entrepreneurial ventures are most likely to succeed when redundant workers master market-competitive and tacit knowledge. For instance, as part of the Swedish programme Stöd till start av Näringsverksamhet (“Support for starting a business”), the public employment service offers pre-selected participants – primarily adults over 25 who are unemployed or facing dismissal – an integrated package over six months, including a review of business plans, counselling and advice, and the possibility to participate at workshops, webinars and networking opportunities. Entrepreneurial projects also receive a grant that is based on the individual’s unemployment insurance entitlements. Moreover, measures stimulating job creation are needed, particularly in territories most affected by the green transition. These measures should facilitate access to finance and markets for micro, small and medium-sized enterprises, particularly those contributing to climate and environmental objectives, to promote competitiveness, innovation and employment across the single market, including in sectors and eco-systems of strategic relevance in national and local contexts. Start-ups and SMEs can contribute to the application of sustainable practices, for instance in the circular economy, areas of organic agriculture, low-carbon energy provision and tackling energy poverty, reduction of waste or financial support to environmentally friendly activities. New business models, such as ‘carbon farming’ in line with the EU carbon farming initiative, may also emerge and offer new opportunities while contributing to climate and environmental objectives. Measures aimed at safeguarding the quality of work are needed to support climate change mitigation, inter alia by protecting workers and the attractiveness of green jobs. They are further aimed at climate change adaptation, in particular with a view to addressing challenges for workers most at risk, including outdoor workers and public service workers, notably in light of extreme weather events and emergencies. At the same time, care must be taken to ensure that the necessary sectoral shifts are accompanied by policies to ensure high job quality in the circular economy, considering for instance the exposure to occupational safety and health risks in the waste management and construction sectors. Social partners have a vital role to play to contribute to addressing, through dialogue, the employment and social consequences of the restructuring processes related to the green transition. The EU Quality Framework for anticipation of change and restructuring promotes, among others, their involvement in restructuring operations, in anticipating change and in identifying skill needs. In addition, as pointed out by the Single Market Barriers Report and the first report of the Single Market Enforcement Taskforce, alongside the work on the remaining COVID-19 related barriers, it is important to address concrete practical barriers, including in relation to the recognition of professional qualifications where relevant, that may hamper the full functioning of the Single Market, which is one of the main assets to accelerate the economic recovery and the green and digital transitions. Box 3. Anticipating and managing change with social partners As part of the closure of the Márkushegyi mine in the Oroszlány region, Hungary, the close collaboration between the company's management, trade unions and the local employment service proved very effective in mitigating the social consequences of the closure, which took place at the end of 2014. The mine had been uncompetitive for some years and with the onset of the crisis and entry into force of the EU ETS Phase III in 2013 continued operation became uneconomical. A gradual restructuring plan was drawn up, giving priority to natural exits through retirement, and continued employment of 40% of the workforce (235 people), who worked towards environmental rehabilitation and the salvaging of the equipment at the site for up to four years after the closure. The company's management, trade unions and local public employment service worked closely together to find new job opportunities for dismissed workers with companies in the area. In addition, they provided information and assistance with the redundancy procedure to the dismissed employees and organised personalised support, which included training, advice and guidance on job search and applying for new jobs. As a result of the tri-partite collaboration, which went beyond what is mandatory according to the national legislation, the actual impact of the closure of the mine on the labour market was very limited. Source: European Commission (2018), Stocktaking report on the application of the EU Quality Framework for anticipation of change and restructuring, Luxembourg: Publications Office of the European Union, 2018; Energiainfo.hu (2014) ‘Bezárják a Márkushegyi bányát – most már végleg’ [Definitive closure of the Márkushegy mine], https://www.energiainfo.hu/bezarjak_a_markushegyi_banyat_most_mar_vegleg-32682/ Finally, with a view to supporting quality employment also at local level and to integrating marginal groups in the labour market, socially responsible public procurement standards should be incorporated alongside green public procurement criteria, in line with the legal framework, including in sectors of particular relevance for the green transition, such as energy systems, construction and renovation and sustainable mobility and transport. Equal access to quality and inclusive education, training and life-long learning Investment in people is essential to facilitate job-to-job transitions of workers most affected by the green transition, including those facing job losses or changing task and skill requirements on the job, taking into account in particular those in vulnerable situations. Indeed, principle 1 of the European Pillar of Social Rights outlines the right to access to education, training and lifelong learning for all. Investment in skills formation is also essential for enabling transitions towards the green and digital sectors, including of the people most affected by structural changes where adequate, and to ensure that the skilled workforce required for delivering the green transition is in place, in line with the EASE Recommendation and the Employment Guidelines 2021. As part of policy packages, the development and implementation of National Skills Strategies, in line with the European Skills Agenda, can incorporate aspects relating to the green transition to form the basis for holistic, whole-of-government approaches on providing access to education, training and lifelong learning to all. Strategies, together with transition pathways co-created for industrial ecosystems under the EU’s new updated Industrial Strategy, will support employment and secure strategic competitive advantages in sustainable economic activities at local, regional and national levels. Box 4. Setting strategic policy actions in VET for the period of 2021-2025 in line with the EU vision and strategic objectives The Osnabrück Declaration on vocational education and training as an enabler of recovery and just transitions to digital and green economies : This Declaration was adopted by the Ministers in charge of vocational education and training of the Member States, the EU Candidate Countries and the EEA countries, the European social partners and the European Commission. Objective 2 of the declaration refers to “Establishing a new lifelong learning culture – relevance of CVET and digitalisation” while Objective 3 of the Declaration covers “Sustainability – a Green Link in VET”. Objective 3 encompasses for example: incentives for greening VET programmes and increasing, inter alia, sustainability within the provision and management of training programmes, and the new commitments and partnerships for quality and effective apprenticeships linked to green technologies and occupations, under the renewed European Alliance for Apprenticeships. Additionally, key to enabling the green transformation is the training and professional development of teachers, trainers and guidance counsellors and the need for partnerships, including across sectors and with new actors. Pro-active steering of new skills partnerships under the Pact for Skills will also be an important lever to support and navigate the transition, including through partnerships contributing to climate and environmental objectives, for instance in the battery value chain and hydrogen deployment. Those partnerships can take inspiration from existing initiatives, such as the Blueprint for Sectoral Cooperation on Skills, the Centres of Vocational Excellence and the reinforced European Alliance for Apprenticeships. Box 5. Mobilising local partnerships and networks for skills ecosystems The Centres of Vocational Excellence (CoVEs) bring together a wide range of local partners, such as providers of vocational education and training, employers, research centres, development agencies, and employment services (among others). They aim to develop "skills ecosystems" that contribute to regional, economic and social development, innovation, and smart specialisation strategies. In this context, green skills play a key role. Out of the seven CoVEs selected under the 2020 call for Erasmus+ pilot projects, three focus on green topics (GREENOVET - European VET Excellence Platform for Green Innovation; Three-level Centers of Professional Excellence: Qualification, Entrepreneurship and Innovation in the Green Economy; European Platform for Urban Greening). In the context of the green transition, there is a risk of skills gaps and mismatches on the labour market. Sectors which have already been struggling with skills and labour shortages might see these challenges being exacerbated by higher demand due to green policies (e.g. in the construction sector) . Hence, anticipating changes to understand better the impact on the different sectors and therefore the need to support workers in up- and reskilling become increasingly important. In this context, targeted green skills intelligence and foresight , through partnerships of different stakeholders, are crucial. The green dimension, including green jobs and skills for the green transition, featured prominently in the 2020 European Commission’s first Strategic Foresight Report . The foresight report found, amongst others, that effective green reskilling could be a way to protect middle class jobs. However, it is important that the skills identified in such forecast and foresight exercises are consequently included in VET curricula and teaching materials, both for school- and work-based learning, including apprenticeships. The Skills Agenda highlights that the key role of social partners and other stakeholders in making labour market projections and the identification of training needs to develop skills intelligence. Curricula and vocational education and training programmes require adaptation to this end to ensure they provide to their graduates the necessary skills. Actions should utilise existing expertise of and cooperation with social partners and relevant stakeholders in this process. Actions can build on EU actions developed under the European Skills Agenda, when available over the coming years, in particular a taxonomy of skills for the green transition, a core set of green skills for the labour market and a European competence framework on sustainability. Box 6. How skills intelligence can help VET keep up with new skills needs A successful concrete example of how VET has adapted to the green transition is the Erasmus+ funded project SolarCV . Between 2015 and 2018, the project aimed to address the skills needs for Concentrated Solar Power (CSP). CSP is an emerging technology in the solar energy sector. In this area, project partners had identified a high level of skill gaps. The project, an Erasmus+ action type ‘Sector Skills Alliances in vocational education and training’, aimed to: (i) Increase the response of VET systems by anticipating the CSP labour demand; (ii) Integrate work-based learning (WBL) in the design of CSP VET; and (iii) Increase mobility of EU CSP learners, by the recognition of learning outcomes and by achieving qualifications One of the main concrete outputs of this project was the creation of an e-learning platform, including an e-simulator, with training materials for formal VET training on CSP. The e-simulator is an innovative tool, combining e-learning with advanced teaching methods based on plant operation experiences. The project also developed an EU Competence Profile and an EU CSP CV standardising the skills set for the CSP sector at EU-level. Finally, the project delivered a methodology for validation of non-formal learning in the field of CSP. 16 organisations from five EU-Member States participated in the project, including solar energy VET experts, national sectoral associations, energy agencies, government representatives in the field of qualifications, and two EU umbrella institutions. The displacement of workers with the greening of the economy and society, the increase in occupational demand, the transformation of tasks and new emerging green occupations will require the enhancing of quality and comprehensive supporting policies and services for the individual . These include enabling individuals through acquisition of career management competence, validation of non-formal and informal learning as well as financing opportunities. Building on previous knowledge and validating skills and competences acquired in non-formal and informal settings will facilitate and ease individual transitions. Individuals, especially those with greater barriers, will need updated and flexible guidance, counselling and career services. In turn, this will require a greater investment in practitioner training, particularly short and continuing in-service courses such as those involving interpreting labour market information and intelligence on greening skills demands to respond quicker to the identified needs .

Apprenticeships have great potential in providing opportunities to develop the right skills for the green transition for young people in initial education and for adults in need of upskilling or reskilling, taking into account prior learning. Existing apprenticeship schemes will have to adapt by updating and expanding curricula. New programmes will need to be developed in new sectors or occupations, and, most likely, also at education levels higher than upper secondary VET. Apprenticeships can also play a role helping workers transition from declining to growing sectors or occupations, as many countries are increasingly using or considering using apprenticeships as a way to upskill or reskills adults. The development of schemes combining apprenticeships and paid traineeships with training, particularly in micro, small and medium-sized enterprises, including those contributing to climate and environmental objectives and in sectors facing particular skill shortages, can also be considered. Attractive and accessible initial education and training allows learners to be equipped with skills and competences relevant for the green transition, in particular in the area of science, technology, engineering and mathematics (STEM), guaranteeing equal access to promote gender equality and equal opportunities. In particular, the ‘Council Recommendation on vocational education and training (VET) for sustainable competitiveness, social fairness and resilience’ inter alia highlighted the need for significantly adapting and/or expanding the offer of vocational education and training needs, especially for adults, by fostering the acquisition of entrepreneurial, digital and green skills. Box 7. Greening vocational education and training in Germany across all sectors An example of how to integrate horizontally sustainability issues in VET curricula is the German ‘standard job position’ . In 2020, German authorities together with researchers and social partners decided to update and extend the ‘standard job position’ on environmental protection in VET. The new ‘standard job position’ on environmental protection and sustainability encompasses a set of six core skills and competences which apprentices across all sectors should acquire during their apprenticeship. As of 1 August 2021, the new ‘standard job position’ needs to be integrated in all modernised or newly developed apprenticeship curricula and is recommended to be included in all existing apprenticeship curricula. Increasing adult participation in training is key to meet the upskilling and reskilling to meet the changing skill requirements of many jobs the creation of new ones as part of the green transition needs for the green transition. Promoting short courses focusing on specific skills for the green transition, building on the European approach to micro-credentials, will also make it easier to value and recognise the outcomes of such courses. Fair tax-benefit systems and social protection systems Tax-benefit and social protection systems require careful analysis and possible adaptation in view of the new challenges and needs stemming from the transition and in order to enable them to support effectively a fair transition, in particular in line with principles 11 to 18 of the European Pillar of Social Rights. The regressivity of pricing measures, such as energy taxes, depends on multiple factors, such as taxed commodity, the level of country’s economic development and the way the collected revenue is used. In the context of climate action to reduce greenhouse gas emissions, carbon prices and energy costs are set to increase, including through carbon taxes and possible extensions of emissions trading and strengthened integration of the Polluter Pays Principle. Public revenues, in particular from energy and environmental taxes and the EU Emissions Trading System, can be used to offset adverse, regressive social and distributional impacts of climate change policies. They can also reduce pre-existing poverty, social exclusion and inequalities, while protecting revenue for adequate social protection and sustainable investment expenditure. Specific interventions may include, for instance, transfer payments, revenue recycling and tax swapping, sometimes with revenues earmarked for social spending. Based on annual reporting it is estimated that, during 2013-20, 75% of total revenues (i.e. EUR 56.5 billion) generated under the EU Emissions Trading System (ETS) was used for climate and energy purposes, mainly domestically. Revenue use for social and labour purposes is accounted as part of the reporting requirements: about 25% of total EU ETS revenues were used for “measures intended to increase energy efficiency and insulation or to provide financial support in order to address social aspects in lower and middle income households”. Less than 0.1% of the reported spending was allocated to the category “ skill formation and reallocation of labour” in 2020 , for instance to support the employment service in Slovenia in promoting green jobs, though skill formation might well be part of activities under other categories too. Overall, due to the existing reporting requirements, the available data does not allow to conclusively quantify the use of revenues for social and labour aspects. Shifting taxation away from labour towards other sources contributing to climate and environmental objectives, such as carbon pricing and environmental taxation, following the ‘polluters pay’ principle, allows reducing the tax wedge, in particular for low and middle income groups, and thereby promote job creation and increase incomes. This shift is necessary not only to support the achievement of environmental and climate goals, but also to address broader challenges brought by the ageing of population, digitalisation, robotisation and globalisation. At the same time, potential negative distributional impacts need to be mitigated and adequate social protection needs to be ensured. Compensatory labour tax cuts have been shown to hence lead to gains in terms of employment and economic activity, as a high tax wedge on labour may negatively affect both labour demand and supply, particularly at lower income levels. This policy guidance has been provided by the Commission at several points, including the Annual Sustainable Growth Strategy (ASGS) 2021, the Euro area recommendations 2021 and the 2020 guidelines for the employment policies of the Member States (‘the Employment Guidelines’), which are maintained for 2021. The average tax wedge in the EU27 for a single person on an average wage has gradually declined since 2010, to 39.7% in 2020. The tax wedge for low-income earners is usually lower than for those with higher incomes, but with a high diversity among EU Member States. In 2020, the tax wedge for people earning 50% of the average wage was above 40% in Hungary and Germany, while below 20% in Cyprus and France. In many EU countries the tax wedge has decreased for workers at the bottom of the income distribution over the last decade. For the EU average, a tax wedge decrease by 2.6 pps was observed between 2010 and 2020 for earners at 50% of the average wage. While the overall trajectory is thus positive, there is scope in some cases for shifting taxation away from labour, in particular by reducing the tax wedge for low and middle income groups. In light of the social, economic, health and environmental impacts linked to the green transition, social protection and social inclusion systems need to remain adequate and provide income security as well as effective accessible and affordable social, health and long-term care services. Developing and administering adequate and transparent support for those in particular need, including through transfer payments tailored to needs and vulnerabilities, while accounting for price and income developments, will be central to maintaining broad public support and social acceptance for the structural changes and reforms needed to deliver on the target of climate neutrality. Box 8. Germany’s scheme providing income security for affected coal miners Within the EU, Germany has the largest number of coal-fired power plants (53) and produces most coal. Germany’s phase-out of lignite mining for the generation of electricity entails significant structural change and economic and social challenges, with over 19,650 direct and 35,734 indirect jobs in coal mining affected. The transition to clean energy will especially affect three coal mining areas: The Lausitzer Revier, the Rheinische Revier, and the Mitteldeutsche Revier. Demographic developments in the eastern regions are less favourable as the working population is projected to decline more drastically until 2035 than in the west. In order to advance the coal exit in a socially acceptable manner, certain workers facing job losses due to closures or rationalisation measures of coal and lignite mines or coal-fired extraction plants may be entitled to the Anpassungsgeld (“adjustment allowance”) under the Steinkohlefinanzierungsgesetz or the Kohleverstromungsbeendigungsgesetz. For instance, under the former, former mining workers above the age of 50 and meeting certain conditions can receive a bridge aid for a maximum of five years until entitlement to benefits from the miners' pension insurance. The allowance is partly funded by the federal budget and the Federal Ministry for Economic Affairs and Energy determines further details through guidelines. Furthermore, based on the report by Germany’s commission on growth, structural change and employment (referred to as the ‘Coal Commission’), the federal government has pledged to support the affected Länder with up to EUR 14 billion in financial transfers for regional investments until 2038 at the latest. The federal government will fund additional measures with up to EUR 26 billion, such as rail and road infrastructure, research institutions. People in the most affected regions will also be supported by the Just Transition Fund. Building resilience in a fair manner is essential so that the benefits of climate adaptation are widely and equitably shared. European regions and citizens are directly affected by climate change, for example through job losses in climate-affected sectors such as agriculture, fisheries, and tourism. Unequal exposure and vulnerability to climate impacts of different regions and socio-economic groups worsens pre-existing inequalities and vulnerabilities. The impacts of climate change are not neutral. Men and women, older people, persons with disabilities, displaced persons, or socially marginalised have different adaptive capabilities. Adaptation measures need to consider their situation. To this end, the Commission is already stepping up support to the planning and implementation of local adaptation, launching an adaptation support facility under the EU Covenant of Mayors, as well as supporting the reskilling and requalification of workers for a just resilience with education and training through ESF+, Erasmus+ and European Solidarity Corps. In particular, the climate protection gap refers to the share of non-insured economic losses in total losses after a climate-related catastrophe event, such as floods, wildfires or droughts. To close this gap also for lower and middle income groups, the availability of affordable insurance solutions is key. Once the supply of insurance products exists, the frequency, severity or dependency characteristics of the associated risks may imply high risk-based insurance premiums, which can make insurance products unaffordable, notably for low-income households and micro- and small enterprises. As Figure 3 shows, COACCH estimates the growth of unaffordability of flood insurance in the period 2010-2080 under existing national insurance systems and different climate and socio-economic scenarios, showing that the long-term increase in flood frequency and related losses may pose additional affordability challenges in this context. Beyond risk-based premiums, better determining and measuring risks or public-private joint solutions, an effective incentive for taking out insurance could be through taxation or subsidies, for example through a favourable insurance premium tax rate for insurance against climate change risk. Targeted fiscal measures such as tax rebates or the suspension of tax payments also give an incentive to purchase insurance and to avoid moral hazard. Another possible solution would be the partial deductibility of insurance premiums from taxable income where not already in place for small and medium enterprises or retail customers in the relevant cohorts. As for the social issue of more financially vulnerable groups, possible solutions include subsidies on insurance premiums, or offering special rebates, such as a rebate on house insurance when buying natural catastrophe insurance coverage including climate change related risks. The climate protection gap can also be closed by reducing the physical losses as far as possible in the first place, by maximising the efforts to reduce the adverse consequences of the climate related hazards, by investing in disaster prevention, protection, and preparedness as well as other climate change adaptation measures. Access to affordable essential services, mobility and housing During the transition towards climate neutrality, access to essential services for all, in particular energy and transport, as well as mobility, social housing or housing assistance needs to be ensured, in line with principles 19 and 20 of the European Pillar of Social Rights. Inadequate access to services is usually characterised by a combination of factors, for instance, in the case of energy poverty, low incomes, poor thermal efficiency of buildings and high energy costs. Preventing and tackling energy poverty at its root requires mobilising public and private investments for energy efficiency improvements, including of dwellings, for example through tax incentives, grants and loans. Key barriers to renovations are insufficient information on the current energy and resource profile of buildings and the potential benefits of renovation, lack of trust in the actual energy savings, as well as split incentives between owners and tenants as well as among owners of building units. People with low incomes have often little control over their energy expenditure, causing a vicious circle of high energy bills, arrears and problems with wellbeing and health. People in inefficient buildings are more exposed to cold spells, heatwaves and other impacts of climate change. However, also persons and households beyond those with low income may be affected by energy poverty. Efforts to improve renovation rates to increase climate and disaster risk resilience are also needed. Interventions aiming at supporting the renovation of buildings or the uptake of electro mobility should be designed in a way to avoid favouring higher income households. Otherwise, these interventions would yield additional adverse distributional effects. Vulnerable people may also benefit from the application of the energy efficiency first principle in the decision making process of new energy investments. In combination with energy efficiency improvements, in line with the ‘Fit for 55’ proposals, mainstreaming renewable energy in buildings via substantial increases in renewables self-consumption, renewable energy communities, and local energy storage, can result in energy poverty reduction and increased energy security. While policy-makers need to take into account the fact that incentives are needed to increase energy efficiency, investments in this area e.g. for the entire social housing stock need considerable time, during which income support and other measures are needed (the ”time inconsistency problem”).

Actions may also aim at empowering energy consumers, including vulnerable citizens, by promoting inter alia consumer rights, education campaigns, information tools, such as online price and service comparison tools, single access points, self-production and self-consumption models (‘prosumer models’). Renewable and citizens’ energy communities are expected to be key social partners during the implementation of energy efficiency policy; and social innovations in the energy sector have a proven ability to empower citizens and boost ‘prosumerism’, and should be further nurtured. The empowerment can also be driven by, for instance, local renewable energy generation, collective schemes and community initiatives, including switching campaigns and micro generation cooperatives, as well as accessible and effective consumer complaint mechanisms in line with the regulatory framework. Effective measures are needed to make sustainable consumption patterns accessible to all so