The Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) are providing public investments to accelerate the decarbonization of the US economy, with a focus on delivering Economic benefits to communities most impacted by climate change. According to a 2021 report by Brookings Metro, a key component of this strategy is recognizing that transitioning away from fossil fuels can disrupt the local economies that have historically relied on oil, gas, and coal. While these communities have long struggled with their reliance on fossil fuels, any nationwide decarbonization plan should also provide place-based support to enable a just transition to new sources of economic competitiveness and prosperity.

However, supporting Regional economic transitions is a complex, long-term process that requires significant local capacity and resources. To address this need for federal support, programs like the Economic Development Administration’s $1 billion Build Back Better Regional Challenge are investing in carbon-dependent economies to aid in their transition, including a $100 million carve-out for distressed coal communities.

This article explores the economic necessity of place-based support in regions with histories of fossil fuel dependence, and how regional coalitions are using federal resources to accelerate their economic diversification.

THE TRANSITION AWAY FROM FOSSIL FUELS HAS HIT CERTAIN REGIONAL ECONOMIES HARD

In recent years, the declining reserves of coal and growing restrictions on sulfur emissions, coupled with the availability of low-cost and high-supply alternative energy sources like natural gas and renewables, have made energy from coal-fired power plants less economically attractive.

While natural gas has been a suitable substitute for coal, the collapse of the global oil market in 2014-2016 caused employment in oil extraction to decline dramatically. Companies in the oil and gas industry have since turned to automation as a cost-saving strategy. Despite the rebound in oil profitability, jobs in this sector have not returned. Between 2014 and 2021, employment in oil extraction and coal mining fell by 45%, with job losses primarily concentrated in metropolitan areas dependent on carbon.

During the same period, 15 metropolitan areas with populations over 250,000 and a concentration of jobs in mining, quarrying, and oil and gas extraction at least 2.5 times higher than the national average saw a 48% decline in employment within that sector, while metropolitan areas with lower concentrations lost 30%.

Although there is ongoing political controversy surrounding the use of fossil fuels, the loss of jobs in the industry highlights the need for federal involvement in regional strategies to mitigate the impact on workers in places heavily affected by the transition to alternative energy sources.

According to a recent report by Brookings Metro, regional economies specializing in fossil fuels have faced significant economic challenges over the past decade. In analyzing regional economic performance between 2011 and 2021 for the nation’s 192 metro areas with populations greater than 250,000, regions specializing in oil and gas ranked near the bottom for changes in economic prosperity. For instance, among 56 metro areas with populations over 1 million, New Orleans ranked 56th, Houston 55th, Oklahoma City 53rd, and Tulsa, Okla. 54th on changes in regional prosperity.

In 79 metro areas with populations between 250,000 and 500,000, Shreveport, La. ranked 79th, Gulfport, Miss. 74th, Beaumont, Texas 58th, and Charleston, W.Va. 68th. These rankings show the challenges facing carbon-specialized metro economies, despite significant prosperity gains in many other regions. Over the past decade, wages in metro areas with a high concentration of jobs in the mining, quarrying, and oil and gas extraction sector grew at one-third of the national average rate.

Regional productivity (output per job) and standards of living (output per person) grew significantly over that period on national averages, but carbon-specialized regions posted declines for both indicators. Multiple indicators of economic vitality and opportunity suggest that fossil fuel economies were not the only ones lagging the national averages, but regions strongly tied to legacy, carbon-intensive energy sources have been falling behind significantly.

PLACE-BASED FEDERAL INVESTMENTS ARE ONE KEY TO SUPPORTING REGIONAL ECONOMIC TRANSITIONS AWAY FROM FOSSIL FUELS

The recent Metro Monitor report reveals that regional economies that specialize in fossil fuels have encountered significant economic challenges over the past decade. Between 2011 and 2021, regions specializing in oil and gas ranked near the bottom for changes in economic prosperity when compared to the nation’s 192 metro areas with populations over 250,000. These regions have experienced significant declines in productivity, standards of living, and wages. For example, among the 56 metro areas with populations over one million, New Orleans, Houston, Oklahoma City, and Tulsa ranked near the bottom on changes in regional prosperity.

These trends suggest that the United States’ energy transition is already underway, resulting in disruptions in carbon-dependent regional economies. However, developing competitive, dynamic clusters in these regions is critical to replacing jobs lost in oil, gas, and coal. The challenge is scaling successful cluster strategies, which can take substantial time and resources, as well as significant coordination across sectors and sources of investment, learning, and adaptation as the global economy evolves.

For example, the Austin, Texas region is famous for its high-tech sector, which was developed in the mid-20th century to diversify its economy beyond oil extraction. Public investment, particularly in research and development, played a vital role in the region’s long-term transition. However, it took several decades to incubate the cluster, and even as recently as 2015, a significant percentage of the University of Texas at Austin’s research and development was funded by federal agencies, such as the Department of Defense, Department of Energy, Department of Health and Human Services, and the National Science Foundation. The state of Texas also provided funding to build a research-to-commercialization pipeline and collaborated with industry across the region.

Although it is impractical to suggest that other metro areas should copy Austin’s approach, its success factors are replicable if the federal government is willing to co-invest at the scale and duration needed to diversify away from fossil fuels. Otherwise, the nation’s transition to alternative energy sources will be hindered by the lack of new sources of jobs to replace those in oil, gas, and coal.

The Build Back Better Regional Challenge (BBBRC) is a program of the Economic Development Administration’s American Rescue Plan Act-funded portfolio, which seeks to strengthen regional industry clusters across the United States and create resilient, high-paying jobs while boosting global competitiveness. Through this program, carbon-specialized communities are investing in high-potential clusters to transition away from carbon-based energy. The BBBRC program offers a unique opportunity for these communities to fund multipronged cluster strategies with one grant, unlike other narrower federal funding programs.

Tulsa is an example of a city using the BBBRC funding to diversify its economy away from carbon-based energy and towards the rapidly growing advanced mobility sector, focusing on automation and unmanned aerial systems. The Tulsa Regional Advanced Mobility (TRAM) Corridor initiative will use nearly $39 million in BBBRC funding to modernize Tulsa’s mobility infrastructure, scale its existing private aerospace manufacturing industry, and create higher-paying jobs with low barriers to entry. TRAM also plans to implement a pre-apprenticeship bridge program to reduce barriers for students without the technical skills required for other credentialling programs and provide robust wraparound services to all participants in its workforce upskilling projects.

The H2theFuture coalition in southern Louisiana plans to use $50 million in BBBRC funding to build advantages in the production of zero-carbon hydrogen, an energy source for industrial processing and other applications. This case highlights the possibility of repurposing physical infrastructure created by the oil and gas industry and combining institutional assets in productive and inclusive ways.

The H2theFuture coalition is using federal funds to leverage Louisiana’s hydrogen pipeline system and port complex to become the top producer and consumer of green hydrogen in the United States. With a focus on community-based organizations, historically Black colleges and universities, and community colleges, H2theFuture plans to establish southern Louisiana as a hub for green hydrogen-related companies and make the production of green hydrogen cost-competitive for commercial applications. By embedding demand-driven training and upskilling programs into their workforce development approach, H2theFuture hopes to create career pathways for historically excluded communities and displaced oil and gas workers. The coalition estimates that green hydrogen will account for over 70% of total hydrogen demand by 2050.

In Oklahoma City, the Oklahoma Biotech Innovation Cluster (OBIC) aims to strengthen the region’s biosciences industry to reduce its reliance on oil and gas production. Using resources from Oklahoma State University and the University of Oklahoma, OBIC intends to anchor the biotechnology supply chain to Oklahoma City, broadening access to high-wage career pathways for displaced oil workers and other historically excluded communities. By leveraging its relationships with Work Ready Oklahoma and Chickasaw Nation Work Study, OBIC hopes to cultivate workforce development pathways for middle-skill, living-wage employment in some of the city’s most poverty-persistent neighborhoods.

SUCCESSFUL ECONOMIC TRANSITIONS REQUIRE BOTH LOCAL SOLUTIONS AND FEDERAL INVESTMENT

Place-based investments are just one part of a larger plan for infrastructure and energy generation in the United States. As the economy continues to decarbonize, resiliency-oriented industry transition strategies are likely to emerge in carbon-specialized communities. For example, communities with long histories of fossil fuel production are applying for the Department of Energy’s $8 billion Regional Clean Hydrogen Hubs program to contribute to decarbonizing multiple sectors of the economy. Two coalitions in Houston have submitted applications, and the Department of Energy has encouraged a three-state coalition formed by Arkansas, Louisiana, and Oklahoma to submit a hub proposal for consideration.

The strategies supported by the Build Back Better Regional Challenge have several key takeaways. First, regions seeking to transition to new industries must identify market opportunities they are best positioned to exploit. This may involve repurposing existing economic strengths or investing in scalable sources of growth and jobs.

Second, there must be a critical mass of public investment. Large-scale regional transition strategies will require significant public investment, justified by the need to decarbonize the economy without displacing workers.

Third, just industry transitions must acknowledge that greater inclusion can enhance regional productivity, prosperity, and cohesion. The coalitions supported by the BBBRC focus on inclusive growth as the core outcome, with investments in historically excluded people and communities critical to scaling and strengthening regional ecosystems.

Fourth, multisector delivery is critical. No single institution typically has the knowledge and capacity to execute transformative regional economy strategies on its own. Rather, these strategies require networks of institutions working together seamlessly across a unified vision.

The development of the clean energy transition strategies highlighted by the BBBRC shows that communities are ready to meet the challenge of transitioning to new industries if the federal government, states, industry, and other co-investors are prepared to invest in place-based economic development. While it is too early to tell if these strategies will reverse negative economic trends, this unprecedented level of federal commitment combined with a targeted investment approach has begun the urgent process.

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