Regional and local governments play a central role in managing the environmental and energy transition, which involves systemic transformations and challenges of unprecedented depth and breadth. Subnational governments are well placed to lead the response to these challenges. They oversee, on average, 63% of climate-related public expenditure and 69% of climate-related public investment, alongside broader powers over skills, housing, transport, waste, water, energy, and land use. Policy makers should integrate a place-based perspective into national and subnational climate policies – for example by including specific subnational targets and commitments in national climate plans and backing them with strong incentives. Policymakers should also mainstream climate objectives into regional, urban and rural development policy frameworks.
Environmental transition in regions
Regions, cities, and rural areas are key to addressing global environmental challenges, including climate change. Effective solutions require concerted efforts in areas such as land use, infrastructure, and economic activity transformations. Subnational governments are strategically positioned to spearhead responses, overseeing, on average, 63% of climate-related public expenditure and 69% of climate-related public investment, alongside broader powers over skills, housing, transport, waste, water, energy, and land use.
Key messages
Regions and cities face very different challenges in navigating the net zero transition. Cities produce up to 50% of solid waste and 70% of greenhouse gas emissions. Rural and remote areas, on the other hand, have higher levels of emissions per capita, owing to more polluting modes of transport and a greater dependence on heavy industries that will need to undergo radical restructuring.
Certain manufacturing activities pose significant challenges in achieving climate neutrality, with many concentrated in specific regions. Improving our understanding of these challenges and how they differ across regions helps lay the foundation for an equitable and just transition. OECD work identifies the most vulnerable industries and regions and outlines the transformations needed to reach climate neutrality. This work has shown that income and wages tend to be lower in many of the more vulnerable regions, as workers and firms engaged in polluting industrial activities often contend with low-skill jobs and low productivity.
Cities are not only home to a half of the world’s population but are also responsible for the majority of its GHG emissions. Globally, cities account for more than 70% of energy-related CO2 emissions and two thirds of energy demand, and these shares are expected to increase significantly over coming decades without significant climate action, as city populations are projected to increase from 3.5 to 5 billion between 2015 and 2050. Importantly, cities are also facing the most acute challenges in terms of their exposure and vulnerability to climate impacts and shocks, including heat waves, droughts, and floods.
Despite the challenges, cities are leading the charge in climate action. Local governments have control over various areas such as urban planning, transportation, waste management, energy production and distribution, water and wastewater management, and green spaces, all of which can implement measures to limit GHG emissions and drive the green transition. Consequently, it is estimated that local governments have direct power to cut up to one-third of GHG emissions in their cities. Further, 90% of urban emissions can be cut with existing technologies, while at the same time creating 86 million jobs by 2030 and 45 million by 2050.
Numerous municipalities and regions have established climate adaptation and mitigation targets that surpass those of their respective national governments. However, acting alone, their full potential in the response to climate change remains untapped. Co-ordination across levels of government is therefore essential.
Rural regions, covering 80% of the territory and home to approximately 30% of the population in OECD countries, are pivotal in the collective effort to address climate change. Despite their significance, these areas face unique challenges, emitting significantly higher levels of CO2 per capita compared to urban areas, largely due to a dependency on heavy industries and less efficient transportation modes. Yet, their potential for renewable energy production is substantial, contributing to 43% of electricity generation across OECD countries, with 38% derived from renewable sources.
Recognizing the dual aspects of challenges and opportunities in rural areas, the OECD Rural Agenda for Climate Action aims to foster an inclusive dialogue with subnational actors, private stakeholders, and civil society. The objective is to integrate the rural dimension into broader climate policies, leveraging the extensive territory and population of rural areas to transform them into key players in environmental sustainability and fulfil national and global environmental commitments.
Context
OECD regions are still far from reaching climate neutrality goals by 2030
To achieve net-zero commitments, most regions need to undertake big transformations. In 2022, only 110 out of the 433 OECD regions and 137 out of the 360 OECD metropolitan areas with more than 500 000 inhabitants registered production-based emissions per capita below the threshold consistent with the IEA Net Zero Emissions (NZE) scenario (4.7t CO2 -eq per capita). On average, OECD regions will need to cut their emissions per capita by a factor of 2.3 by 2030 to reach this target.
Climate challenge requires place-based, inclusive, and rapid action
A place-based approach is vital to undertake the economic transformations of unprecedented scale and speed that are necessary to reach net zero greenhouse emissions. Major efforts are also necessary to adapt to climate change. Climate action, climate impacts, and vulnerabilities vary across territories. Differences in greenhouse gas emissions per capita are much larger within countries than between countries. They vary also in sectoral composition. Regional climate actions must be aligned with national and global objectives Local climate action can bring immediate and local well-being benefits such as reduced pollution and traffic congestion. These benefits often more than offset the cost of action. To ensure inclusivity, the response should leverage regional and local actors, natural environments, geographies, and infrastructures.
There are disparities in potential and enabling conditions to net zero across cities
Across the globe, cities differ greatly in their potential and enabling conditions towards achieving net zero. As illustrated by the graph, the volume and source of GHG emission vary significantly across cities. For example, the emission per capita in Ruhr metropolitan area (Germany) is more than 7 times higher than that in Bogota metropolitan area (Colombia). In cities like Boston (United States) and Madrid (Spain), the largest share of emissions comes from transport, accounting for 29% and 31% of the total emissions, respectively. In contrast, emissions from the building sector are the largest in cities like Istanbul (Türkiye) and Rome (Italy) accounting for 38% and 58% of the total emissions, respectively. Such differences illustrate that the pathways to achieving a net-zero transition will also differ from place to place.
Subnational governments account for the majority of public climate-significant investment
Financing the green transition calls for greater investment, including by subnational governments. Climate compatible infrastructure demands large=scale investment, much of which is administered by subnational governments, responsible for 69% of climate-significant investment in the OECD and the EU.
However, the capacity of subnational governments to invest in a tight fiscal environment is limited, creating significant funding gaps for current and future climate-compatible infrastructure needs. Based on a pioneering methodology, the OECD’s Subnational Government Climate Finance Hub tracks climate-related expenditure and revenue across the OECD and the EU. It also features tools at the micro=level to support regional and local governments in implementing green budgeting initiatives including key guidelines and a self-assessment tool.
Collective business action in regions helps reach climate neutrality in prosperity
To achieve the Hamburg Chamber of Commerce’s target of climate neutrality by 2040, its businesses need to reduce CO2 emissions from their energy use to net zero by 2040. They also need to work towards achieving emission-free value chains towards mid-century. They can work with local authorities to develop the region’s potential as a hydrogen hub and provide affordable, emission-free transport services to businesses in Europe. Establishing networks that connect businesses and researchers facilitates resource sharing among SMEs. Companies can cooperate to prepare the transformations for a circular economy through innovative business models.
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