The planet has already warmed by over 1o C over pre-industrial levels and is causing severe weather events around the world. In 2022, there were at least 10 climate-related extreme weather events – from flooding and drought in China to Hurricane Ian in the United States – that caused over $3 billion worth of damage each. Continued emissions will warm the planet even further and will likely intensify extreme weather events. In order to keep global warming well below 2o C – a goal enshrined in the Paris Agreement – coal, oil, and gas will need to be phased out rapidly. But phasing out fossil fuels will also impact local and regional economies, as these industries provide jobs, revenues, and other services to local communities. To mitigate these impacts, policymakers and key stakeholders have argued for a just transition that is centered around the economic diversification of fossil fuel-dependent regions.
To gain a holistic understanding of how fossil fuel regions can diversify their economies, we conducted a global review of case studies of past economic diversification efforts in natural resource sectors. Overall, we reviewed 87 papers spanning case studies ranging from countries like Malaysia, and Norway to local regions like Appalachia and Ruhr. Based on the review, we created a holistic framework of economic diversification. Our framework constitutes five key elements:
1. Institutionalize the diversification process;
2. Develop local infrastructure;
3. Identify specific sectors based on competence;
4. Mobilize finance for economic diversification; and,
5. Invest in human capital development
We further categorized each element into several actionable strategies undertaken for diversification.
As fossil-fuel regions decline, economic diversification to sustainable sectors will be at the heart of just transition planning. Our first-of-its-kind framework will be a helpful starting point for key stakeholders including government officials, transition practitioners, and task force members who are interested in pursuing economic diversification of fossil fuel regions.