A day after the Dubai summit agreed to pursue a fair and accelerated transition away from fossil fuels aimed at keeping warming near 1.5 degrees Celsius, the OECD published a long-awaited update. The organization of developed economies updated its long-term growth projections through 2060 and assessed the first visible impacts of a rapid energy transition. According to OECD estimates, maintaining fossil fuels in the economy could shave up to 3.7 percent from the GDP of advanced economies by 2050, while major developing economies could see as much as an 11 percentage point deficit by the same horizon. At the same time, the report highlights that carbon pricing and related revenue could offset some of these losses through lower payroll and income taxes, potentially supporting work and consumption without raising overall tax burden.”
OECD estimates decarbonization could subtract 3.7 percentage points from advanced economies’ GDP by 2050 and increase unemployment unless compensatory measures are adopted
The OECD assumes a continuing trend of real GDP growth across OECD and G20 members, though it notes a gradual slowdown from about 3 percent before the pandemic to roughly 1.7 percent by 2060. This deceleration is driven by an aging working-age population and a slowdown in labor productivity growth in emerging markets. The energy transition is expected to accelerate in the next decades as countries reduce or eliminate coal use by 2026 and shrink oil and natural gas shares to make way for cleaner energy sources. Primary energy demand could rise in some forms while global growth slows modestly, with an estimated drag ranging from 0.2 percentage points in early years to 0.6 percentage points by the end of the transition period.”
The OECD notes that the impact will be uneven. The burden should be lighter in OECD economies and more pronounced in large emerging markets within the G20, such as China, India, Saudi Arabia, Brazil, Indonesia, and Turkey, where carbon emissions are concentrated. The projection shows a cumulative GDP loss of 3.7 percent for developed countries by 2050 relative to a reference path without transition, and an 11 percent loss for the major developing economies under the same comparison.”
To balance these costs, the OECD identifies policy options to raise additional revenue and support employment. It projects that carbon fees, emission rights, or fuel excises could total about 3.25 percent of GDP. The guidance emphasizes channeling part of this revenue into reductions in taxes on employment so that income tax and social contributions fall, which could help preserve purchasing power and maintain incentives to work. Transitioning policies are described as politically feasible when paired with gradual reform and clear social protections.”
The OECD also argues that well-designed compensation could shield living standards. It suggests that the transition might keep living standards at or above baseline projections in many OECD economies through 2035, and could even raise the euro area and other OECD regions above baseline in several scenarios. Yet it warns that a successful pivot will require deliberate actions to protect workers during the shake-up. The report highlights wage-tax reductions as just one mechanism to help households adapt, and it underscores active labor market programs and retraining as essential components of a resilient strategy. Childcare and family support schemes are noted as particularly impactful for increasing female labor force participation and overall employment during the transition.”
To illustrate how a policy mix could sustain employment and spur innovation, the OECD analyzes a scenario in which two-thirds of carbon-related revenues fund additional public R&D while one-third supports childcare and related social services. In this scenario, 2035 would see a slightly higher total employment rate than the transition baseline and a modest uplift in labor productivity, with the global distribution of carbon income helping to offset some regional disparities. This demonstrates how climate action and economic vitality can be pursued together rather than as competing goals.”
The report also highlights structural reforms as a low-cost approach that can ease the transition. By removing barriers to labor mobility, investment, and productivity, these reforms can cushion the economy without adding significant fiscal burdens, according to OECD economists. Overall, the message is that with careful policy design, decarbonization can be paired with steady job creation and higher investment in innovation, while maintaining reasonable living standards across advanced and emerging economies alike. The assessment is careful to acknowledge that some increases in unemployment may occur in the short term as the economy adjusts, but with targeted training, childcare, and tax measures, the transition can be steered toward broad-based improvement for households and workers in North America and beyond.”
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