The Economics of Just Transition: A Framework for Supporting Fossil Fuel-Dependent Workers and Communities in the United States

We develop a Just Transition framework for U.S. workers and communities that are currently dependent on domestic fossil fuel production. Our rough high-end estimate for such a program is a relatively modest $600 million per year. This level of funding would pay for 1) income, retraining and relocation support for workers facing retrenchments; 2) guaranteeing the pensions for workers in the affected industries; and 3) mounting effective transition programs for what are now fossil-fuel dependent communities. The paper first summarizes the evidence on how much the U.S. fossil fuel industry will need to contract to achieve CO2 emissions reduction targets consistent with the global targets established by the Intergovernmental Panel on Climate Change (IPCC). We then consider the impact of fossil fuel cutbacks on five ancillary U.S. industries, including support activities for coal and oil/gas as well as oil refining, electric power generation, and natural gas distribution. Section 3 presents estimates on job cuts that will occur in the fossil fuel and ancillary industries due to U.S. fossil fuel production cutbacks. Combining all fossil fuel and ancillary industries, we show that fully 83 percent of the job losses can be covered through attrition-by-retirement. To address the remaining 17 percent of job losses through fossil fuel industry cutbacks, we propose reemployment guarantees in the growing clean energy industries for displaced workers. As part of this job guarantee program, we estimate the costs of three provisions for the displaced workers: 100 percent compensation insurance for five years; retraining; and relocation support. Section 4 reviews the status of pension programs in the fossil fuel and ancillary industries and propose measures to maintain these pension programs at full funding into the future. Section 5 examines measures to support communities that are presently heavily dependent on the U.S. fossil fuel industry. The concluding section 6 brings together our cost estimates for the three components of our Just Transition program.