News & Insights

Social protection schemes are heavily underfunded globally

Government policy is a fundamental component of a just transition from fossil fuels to renewable energy. When it comes to safeguarding vulnerable workforces, social protection mechanisms can include both passive and active benefits.

• Passive benefits include income support, employment subsidies and schemes for self-employment and microenterprises.
• Active labor market policies (ALMPs) include reskilling and training programs, job protection and re-employment services, or even "cash for public work" programs offering immediate financial relief and employment.

Half of respondents working in the oil and gas industry are concerned about their future job prospects, according to Gallagher's January 2024 study, Workforce Attitudes to the Net Zero Transition 2024, a survey of over 1,500 semi-skilled workers around the world across the sectors most exposed to the green transition.

Keynote Series

Why a Just Transition Matters
Gallagher takes an in-depth look at how to prepare the workforce for net zero and support a more seamless transition toward a green economy.
VIEW REPORT

"While governments can't do everything, they should focus on social protection. However, more than half of the world's population lacks social protection, which is a staggering statistic," says Lorcán Hall, advisory member of the SDG Academy of the Sustainable Development Solutions Network of the United Nations. "Most of that is in the developing world, where almost all employment is informal, and governments aren't collecting taxes that can be used to create social protection safety nets. So, while social protection is critical, we must also consider that it doesn't exist for many people."

China introduced one of the most comprehensive social protection frameworks when 28.2 million workers — more than 15% of the urban labor force — were laid off between 1998 and 2003.¹ The Chinese government introduced a three guarantee lines strategy, which included an early retirement program for workers within five years of the retirement age, a re-employment program backed by public and enterprise funds and an income support benefit system for those who could not find work.

However, schemes like these remain heavily underfunded overall, with the International Labor Organization (ILO) estimating that active labor market policies don't exceed 0.6% of gross domestic product in any global region. Indeed, no social protection at all is in place in many low-income countries.

Social insurance initiatives tend to require employee contributions and are beyond the financial reach of those working in informal sectors, leaving significant portions of the developing world's population without coverage.

Fiscal reforms, such as using revenues from carbon pricing to fund social expenditures, can also support social protection.

However, these reforms must be carefully integrated into social protection design to avoid unintended consequences, such as exacerbating inequality.² For example, national carbon taxes can disproportionately impact the poorest households by reducing income and increasing consumption costs.

Mitigating social risks and promoting resilience through government policy

Governments can play a critical strategic role in ensuring an orderly transition. In this context, they might provide clear policy and guidance to mitigate social risks associated with business closures, invest in social protection and resilience-building measures, and engage in ongoing dialogue with stakeholders during the planning, execution and aftermath of these transitions.

"A just transition will have little meaning without social protection and accompanying measures in place," says the ILO's Mia Seppo. "Jobs will probably disappear and appear in different places at different times, so data and tools will be needed to manage skills anticipation. We also need to update skills development programs to protect groups that may have had very poor access to labor markets in the first place."

Governments that embed social protection and just transition considerations into their efforts to scale the energy transition are better equipped to achieve ambitious targets.

For example, Denmark's commitment to achieve net zero by 2025 includes a pledge to ensure a just transition for impacted regions and for the approximately 4,000 workers directly and indirectly employed by the oil and gas industry. Its strategy includes exploring opportunities to use old oil and gas wells for carbon capture and storage and to electrify existing oil and gas production to minimize job losses.