Governing the green shift: the moderating role of governance quality in the climate policy and just transition nexus

The global imperative to decarbonize economies and mitigate climate change has led to the widespread implementation of stringent climate policies, particularly in high-emitting sectors such as energy, manufacturing and transportation (IEA, 2022; OECD, 2021). These measures, ranging from carbon pricing to regulatory mandates and emissions trading schemes, are essential to meet international climate goals such as those outlined in the Paris Agreement (UNFCCC, 2015). However, while climate policy stringency is critical for achieving environmental objectives, it often entails complex socio-economic trade-offs. In particular, communities and workers embedded in carbon-intensive sectors may face job displacement, income loss and broader regional economic decline, raising urgent concerns about social equity and inclusiveness (Cha, 2020; International Labour Organization (ILO), 2015).

In response to these concerns, the concept of just transition has emerged as a key normative and policy framework to ensure that climate action does not exacerbate inequality but instead supports vulnerable populations through social dialogue, reskilling, social protection and participatory governance (Heffron and McCauley, 2018; Newell and Mulvaney, 2013). Just transition is commonly perceived as the pursuit of distributive, procedural and restorative justice in climate action planning, implementation and outcome (ILO, 2015). More than 70% of nationally determined contributions now touch the concepts of justice, although their implementation is still undermined by attempts at being concrete and uncoordinated (Chan et al., 2024). Key justice elements in this context encompass equitable allocation of transition-related benefits and burdens, inclusive decision-making processes and acknowledgement of socio-culturally created inequalities that affect how policies impact various stakeholders (Wang and Lo, 2021).

Stringent climate policies create both transition opportunities and transition pressures (Dorband et al., 2019). They may stimulate green innovation, reduce pollution exposure, encourage low-carbon investment and accelerate the restructuring of carbon-intensive sectors. However, they may also impose adjustment costs on workers, households, firms and regions that depend on fossil fuel–based economic activities (Gounder and Brown, 2025). These costs may include job displacement, higher energy prices, declining competitiveness of emission-intensive industries and uneven regional impacts.

Despite its growing policy relevance, empirical evidence on how stringent climate policies influence just transition outcomes remains limited. Although extensive literature exists on climate policy effectiveness, this literature has primarily focused on outcomes such as emissions reduction, low-carbon innovation and mitigation effectiveness rather than just transition outcomes (Dechezleprêtre and Kruse, 2022; Nachtigall et al., 2022; Stechemesser et al., 2024). Emerging studies have begun to address this gap. Liu et al. (2026) provide emerging empirical evidence that climate policy can support just transition outcomes, while Gounder and Brown (2025) show that ambitious climate policies may reproduce social inequities when justice concerns are not adequately embedded. Sovacool (2021) also notes that some countries have successfully integrated equity-focused mechanisms into their climate strategies, while others have experienced backlash, protests and increased social tensions. These mixed outcomes suggest that contextual factors may critically shape the relationship between climate policy stringency and just transition.

One such factor is governance quality, which refers to the extent to which political, legal and administrative institutions are capable, accountable and inclusive (Kaufmann et al., 2011). Governance quality matters because it shapes whether the adjustment pressures created by stringent climate policies are translated into inclusive and equitable transition outcomes. Strong institutions can reduce the level of climate vulnerability, enable the involvement of stakeholders and ensure adequate compensation for the most affected groups (Albahouth and Tahir, 2025). Moreover, high governance quality may foster effective policy design and implementation, promote stakeholder engagement and ensure the equitable distribution of benefits and burdens associated with climate transitions (Meckling et al., 2015).

In contrast, where governance quality is weak, stringent climate policies may fail to produce inclusive outcomes because implementation capacity is limited, transition funds may be misallocated, affected groups may be excluded from decision-making and enforcement may be inconsistent (Aklin and Urpelainen, 2013). In such contexts, climate policy stringency may increase social burdens or generate policy backlash rather than promote a just transition. This study therefore argues that governance quality moderates the relationship between climate policy stringency and just transition by shaping the institutional process through which climate policy ambition is converted into socially inclusive outcomes. Yet, scholarly inquiry into the moderating role of governance quality in the climate policy–just transition nexus remains underdeveloped.

Building on these gaps, the study seeks to answer two central questions: (1) How does climate policy stringency influence just the transition outcome, and (2) Does governance quality moderate this relationship? To answer these questions, we utilize a balanced panel of 46 countries, leveraging the climate actions and policies measurement framework (CAPMF), Worldwide Governance Indicators and Social Progress Imperative database. We used robust estimation techniques such as panel-corrected standard errors (PCSE) and two-stage least squares (2SLS) estimations to address key econometric concerns: endogeneity, cross-sectional dependence, autocorrelation and heteroscedasticity.

This study makes several contributions. First, it contributes theoretically to the just transition literature by explaining why climate policy stringency may produce different just transition outcomes across countries. The study extends institutional complementarity theory by demonstrating that governance quality functions as an enabling institutional condition that strengthens the relationship between climate policy stringency and just transition outcomes. This shifts the theoretical focus from whether stringent climate policies matter to the institutional conditions under which such policies are more likely to translate into just transition outcomes. Second, the study contributes empirically by using a cross-country panel data set of 46 countries and operationalizing climate policy stringency with the OECD CAPMF database. This allows the study to examine the climate policy stringency and just transition nexus using an internationally harmonized climate policy data set. Finally, the study offers practical implications by suggesting that governments seeking to promote just transition should not focus only on climate policy ambition but also strengthen governance capacity to ensure that climate policies support just transition outcomes.

Transition is an idea or notion that has evolved over the years, and the earliest mention of the concept dates back to the labor movement in North America in the 1970s. The movement emphasized efforts to assist workers displaced by newly enacted environmental policies so as to create a balance between environmental safety and the financial stability of laid-off workers. Among the first manifestations of this thought was the Superfund for Workers proposal, which was intended to assist citizens who lost their jobs or were negatively affected by environmental policies (Newell and Mulvaney, 2013).

The “just transition” idea gained international prominence after it was included in the 2015 Paris climate agreement, aimed at safeguarding the labor and human rights of those affected by climate action. It gained further traction through the Solidarity and Just Transition Silesia Declaration signed by 53 countries at the 2018 COP24 UN conference in Katowice, Poland (Robins et al., 2021). This declaration emphasizes the importance of a just transition, particularly for workers and communities most affected by the shift to a low-carbon economy.

Just transition refers to mitigating the negative impacts of the shift to a green economy on workers and communities (Bainton et al., 2021). It is based on social norms of fairness and justice, including procedural justice, distributive justice and restorative justice (McCauley and Heffron, 2018). Its principles include welfare and dignity of the vulnerable groups, the creation of the conditions of decent work, provision of social protection, worker rights, fair access to energy resources, social talks and democratic participation of all the interested people (ILO, 2015; IPCC, 2023). A growing number of nations and jurisdictions have started implementing targeted just transition initiatives to address this issue (Elder, 2025). Examples include the Scottish Just Transition Commission, South Africa's Just Transition Framework and the EU Just Transition Fund (IPCC, 2023).

Just transition is also a contested political economy concept (Newell and Mulvaney, 2013). Critical perspectives caution that transition processes and policies may reproduce existing inequalities when the costs of decarbonization are shifted onto low-income households, fossil-fuel-dependent regions, precarious workers or developing countries with limited fiscal and technological capa (Carley and Konisky, 2020; Markkanen and Anger-Kraavi, 2019). These critiques highlight concerns related to North–South inequality, energy or green colonialism, labor-market segmentation, energy poverty and transition trade-offs (Hickel and Slamersak, 2022). From this perspective, just transition depends on how transition costs and benefits are distributed, who participates in decision-making and whether affected groups are protected through credible institutional and policy mechanisms.

The just transition agenda emphasizes that the shift toward a low-carbon economy must balance environmental ambition with social protection to ensure that decarbonization does not exacerbate inequality or marginalize vulnerable groups (Braga and Ernst, 2023). Ecological modernization theory (EMT) posits that environmental protection and economic-social development are not inherently in conflict and can be aligned (Hajer, 1997; Mol and Spaargaren, 2000). From this perspective, stringent environmental policies are not necessarily a burden but can function as a policy instruments that can drive the structural shift from “polluting brown” economies to innovative and sustainable “green” ones, catalyzing technological innovation and social modernization (Jänicke, 2008; Satoh, 2025).

From the EMT perspective, climate policy can drive the restructuring of industries towards greener production, stimulate green employment and support broader social welfare improvements, thereby promoting social cushioning, retraining and equitable participation (Jänicke, 2008). While these mechanisms support just transition, the effects remain contingent on how transition costs and benefits are governed and distributed. Empirical studies show that environmental policies stimulate eco-innovation and generate green jobs (Godawska, 2024). However, stringent climate policies may generate uneven social costs. Carbon pricing, fossil-fuel phase-outs, emissions standards and energy-efficiency mandates can raise energy prices, reduce the competitiveness of emissions-intensive industries, displace workers in carbon-dependent sectors and deepen regional inequalities in fossil-fuel-dependent communities (Carley and Konisky, 2020; Dorband et al., 2019; Newell and Mulvaney, 2013). Therefore, climate policy stringency may create both opportunities and risks for just transition. This is particularly important because just transition is not only a technical policy objective but also a contested political economy process shaped by power relations, labor-market structures, energy access, fiscal capacity and the distribution of transition costs and benefits (Newell and Mulvaney, 2013). Climate policies may reproduce inequality when their burdens fall disproportionately on low-income households, precarious workers, fossil-fuel-dependent regions or developing countries with limited fiscal and technological capacity (Dorband et al., 2019; Hickel and Slamersak, 2022).

Climate policy stringency refers to the degree to which policy instruments require adjustment by firms, households and governments. It refers to the extent to which climate policy instruments impose binding obligations, compliance pressures or meaningful economic costs on carbon-intensive activities, while creating stronger incentives for low-carbon adjustment (Nachtigall et al., 2022). Thus, stringent policies include instruments such as high carbon taxes, binding emissions standards, fossil fuel phase-out mandates and enforceable renewable energy requirements (D'Arcangelo et al., 2024). In contrast, less stringent policies rely more on voluntary commitments, weak incentives or nonbinding targets that generate weaker compliance pressure.

Stringent policies such as shutting down coal plants or mandating emissions reductions may advance environmental justice because polluting facilities are disproportionately located in low-income and minority communities (Newell and Mulvaney, 2013). By reducing these exposures, such policies can function as distributive justice measures, deliver cleaner air and improve public health and land remediation to vulnerable populations (de Vries et al., 2024). Yet, they may also risk displacing low-skilled workers through industrial phase-outs. They may also increase household energy burdens or intensify regional decline where affected communities depend heavily on carbon-intensive employment (Carley and Konisky, 2020; Pollin, 2023). Consequently, the transition from “modernization” to “justice” is not direct.

Recent studies have begun to examine the climate policy–just transition nexus, but important gaps remain. For example, Liu et al. (2026) suggest that climate policy can support just transition outcomes. However, their study focuses on advanced G7 economies and operationalizes climate policy mainly through renewable energy and energy-use indicators. Similarly, Gounder and Brown (2025) provide a critical analysis of the US Inflation Reduction Act and show that ambitious climate policy may still reproduce social inequities when policy benefits are distributed through corporate-centered mechanisms and when marginalized communities and environmental racism are insufficiently addressed.

Building on these insights, climate policy stringency can function as a potential enabler of just transition by generating environmental benefits, fostering innovation-driven modernization, creating green jobs, mitigating environmental injustice and enhancing societal resilience. However, these effects are conditioned on complementary institutional arrangements. Thus, while climate policy stringency (CPS) provides the necessary structural shift, the just nature of this outcome is conditional. Transition outcomes such as social protection, labor rights, redistribution and political participation require additional institutional and policy arrangements that may develop independently of climate policy ambition. Climate policy stringency is therefore treated here as a potential contributor to just transition rather than as a guarantee of just transition outcomes. Therefore, we propose our first hypothesis:

Institutional theory emphasizes that organizations and actors operate within broader institutional environments that shape behavior through rules, norms and expectations (North, 1990). Prior studies (Andrews-Speed, 2016; Jehling et al., 2019) have applied this perspective to explain climate transition outcomes. To successfully achieve just transition in the shift to a green economy, a country must effectively manage the process of change. High-quality governance provides the institutional capacity to manage this process.

Drawing on institutional theory, governance quality reflects the effectiveness of the rules, norms and structures through which societies organize and enforce collective action (North, 1990). The broader institutional environment surrounding just transition includes both formal and informal institutions. Formal institutions refer to laws, regulations, administrative procedures and enforcement systems that shape policy implementation and accountability. Informal institutions refer to social norms, trust, traditions of consultation and accepted patterns of interaction among governments, firms, workers and communities.

Countries with robust institutional frameworks are better able to coordinate large-scale transitions and protect vulnerable populations. This aligns with Rothstein and Teorell’s (2008) argument that effective, impartial institutions are the primary determinant of positive social outcomes. Effective governance mitigates inequality by ensuring that the benefits and costs of green transition are impartially distributed. Stronger governance is characterized by effective administrative and implementation capacity, more credible regulatory oversight, stronger rule-of-law protections and corruption control. In contrast, weak governance reflects limited implementation capacity, high corruption risks and weaker enforcement. Weak governance may lead to greater risk of uneven or socially regressive policy outcomes, where transition funds are misappropriated, or social protections are inconsistently applied.

Institutional and regulatory frameworks can either enable or constrain a just transition by influencing industry behavior and performance in decarbonization efforts (Karaosman et al., 2024; de Ruyter and Bentley, 2024). In light of these insights, we propose that countries with stronger institutions are better positioned to manage the social dimensions of decarbonization, thereby promoting just transition. Therefore, we propose our second hypothesis:

The moderating role of governance quality can be understood through the lens of institutional complementarity theory (Amable, 2000; Hall and Gingerich, 2009). In this framework, policy outcomes are not determined solely by their design; they are shaped by the institutional environment in which policy operates (Besley and Persson, 2009). Institutional complementarity theory links EMT and institutional theory in the present study. The EMT explains why stringent climate policies may promote low-carbon restructuring, green innovation, decarbonization and sustainable development, while institutional theory explains why governance quality shapes implementation capacity, accountability, participation and distributional fairness. Institutional complementarity theory integrates these arguments by suggesting that climate policy stringency and governance quality operate as complementary conditions. While stringent climate policies are essential for driving decarbonization, their ability to produce a just transition depends heavily on governance quality. Climate policy stringency creates the regulatory pressure required for decarbonization, but governance quality determines whether this pressure is translated into fair and inclusive transition outcomes. This aligns with the institutional theory view that the quality of the institutional environment determines whether policies are effectively implemented and benefits are equitably distributed (Mahmud, 2017). Strong institutions provide the foundation needed to translate climate policy ambition into substantive sustainability outcomes (Eskander and Fankhauser, 2020).

Governance quality reflects a country’s institutional capacity to implement policies transparently, accountably and equitably. Effective governance ensures enforcement, prevents corruption and coordinates stakeholders so that climate policies are translated into tangible social benefits (Linder and Peters, 1990; Wang and Ching, 2013). Institutions can act as transition guarantors by supporting green infrastructure, worker retraining and protections for vulnerable groups, thereby promoting innovation, social inclusion and welfare during the transition (Kortetmäki and Huttunen, 2023). In this way, governance quality strengthens the climate policy–just transition relationship by improving administrative capacity, supporting credible enforcement, reducing corruption risks, enabling stakeholder participation and promoting long-term policy stability. These mechanisms help ensure that stringent climate policies are implemented effectively and that their costs and benefits are distributed more fairly. In contrast, weak governance undermines enforcement, coherence and equitable benefit distribution, exacerbating social inequalities and limiting the potential for a just transition (Newell and Mulvaney, 2013; van der Ploeg and Rezai, 2020). In weak governance contexts, stringent climate policies may be implemented unevenly, captured by powerful interests or disconnected from social-protection systems. As a result, climate policy stringency may increase social burdens without delivering inclusive transition benefits.

This moderating role is especially important because stringent climate policies may also generate adverse social consequences. Climate policies such as carbon pricing, fossil-fuel phase-outs, emissions regulations and energy-efficiency mandates can increase energy costs, create adjustment pressures for workers in carbon-intensive sectors, deepen regional inequalities in fossil-fuel-dependent areas and produce regressive effects when vulnerable households bear a larger share of transition costs (Dorband et al., 2019). Therefore, the social effects of climate policy stringency depend on whether governance institutions can manage these risks through compensation, social protection, worker reskilling, transparent use of climate revenues and meaningful participation by affected groups.

Prior institutional-environmental studies show that governance quality shapes climate and environmental outcomes by influencing policy credibility, enforcement capacity, regulatory effectiveness, accountability and corruption control (Eskander and Fankhauser, 2020). However, this literature has mainly examined emissions reduction, environmental performance, climate policy adoption or mitigation effectiveness, rather than the social and distributive outcomes associated with just transition. Emerging studies further suggest that climate policy may generate different justice outcomes across contexts. While Liu et al. (2026) show that climate policy can support just transition outcomes, Gounder and Brown (2025) demonstrate that ambitious climate policy may reproduce inequities when justice concerns are weakly embedded in policy design and implementation. In support, Markkanen and Anger-Kraavi (2019) argue that governance factors are critical for shaping the social impacts of climate mitigation policies, particularly regarding vulnerable groups and social fairness. Creutzig et al. (2023) found that the quality of governance, social capital and equality can act as enabling conditions for effective climate mitigation, using carbon pricing as an indicator of mitigation policy effectiveness. These results suggest that the climate policy–just transition relationship may depend on the institutional and governance conditions under which policies are designed and implemented. However, it remains unclear whether governance quality conditions the extent to which climate policy stringency produces socially inclusive transition outcomes.

Building on the preceding discussions, we propose that in contexts with strong governance (e.g. effective regulation, low corruption, strong rule of law and accountability), stringent climate policies are more likely to embed equity and justice considerations, thereby advancing a just transition. This is because strong governance provides the institutional transmission mechanism through which climate policy ambition is converted into distributive, procedural and restorative justice outcomes. Similar levels of climate policy stringency may therefore produce different just transition outcomes across countries because governance quality determines how policies are implemented, who participates in the transition process and how transition costs and benefits are distributed. Accordingly, we formulate the following hypothesis:

This study integrates EMT, institutional theory and institutional complementarity theory to provide a coherent explanation of the climate policy, governance quality and just transition relationship. The EMT explains why stringent climate policies may stimulate low-carbon restructuring, green innovation and sustainable development. However, it does not fully explain whether such transformation produces fair and inclusive outcomes. Institutional theory addresses this limitation by emphasizing that governance institutions shape policy implementation, enforcement, accountability, participation and distributional fairness. Institutional complementarity theory connects these perspectives by explaining why the effect of climate policy stringency depends on the quality of the governance environment. In this framework, climate policy stringency provides the regulatory push for decarbonization, while governance quality provides the institutional capacity needed to translate policy ambition into just transition outcomes.

The population of this study comprises of the 50 countries covered in the CAPMF database. The population consists of developed and major emerging countries. These 50 countries account for over 73% of global greenhouse gas (GHG) emissions (D'Arcangelo et al., 2024). Consequently, the study captures the “just transition” dynamics of the world's most significant carbon-emitting jurisdictions, where the institutional capacity for climate policy implementation is most established. Four countries were removed due to data unavailability for just transition. The study covered 2011 to 2022, which represents all available years with just transition data. The final sample size was 46 countries, totaling 552 observations.

Following Htitich et al. (2024), just transition is measured using the Social Progress Imperative (SPI) just transition score. The SPI just transition score is a composite, macro-level indicator designed to capture a country's progress towards reducing damage to the environment while advancing equitable human progress (Social Progress Imperative, n.d.). The SPI's just transition score integrates four dimensions (social progress, CO₂ emissions per capita, material consumption per capita and biodiversity) into a single measure ranging from 0 to 100. The score was obtained from the SPI database. A high score indicates that a nation is attaining higher social progress and biodiversity protection with lower carbon emissions and material footprints (Social Progress Imperative, n.d.).

The use of the SPI just transition score is particularly appropriate for this study because the analysis examines whether climate policy stringency is associated with broader just transition performance across countries. Rather than focusing on a single dimension of transition, the index captures the extent to which environmental improvement occurs alongside social progress. This multidimensional perspective is consistent with the broader concept of a just transition, in which environmental objectives are expected to be pursued while maintaining or improving social well-being. The composite nature of the measure also allows the analysis to capture the broader just transition performance rather than examining environmental or social performance in isolation.

As such, the score captures whether lower environmental pressures are associated with higher levels of social welfare and broader social progress. This aligns with the general objective of a just transition, which seeks to ensure that environmental transition is pursued alongside social inclusion and human well-being. However, the score is not a direct measure of distributive justice, labor-market transition or procedural fairness. Therefore, this measure was adopted in this study as a macro-level, outcome-based proxy for the just transition to assess the extent to which countries combine social advancement with environmentally sustainable outcomes. Given that the index combines social and environmental dimensions, potential conceptual overlap with climate policy stringency is acknowledged. To assess this concern, the study additionally conducted disaggregated outcome robustness tests using components of the SPI just transition score.

Using the SPI's index ensures measurement consistency and cross-country comparability, as the same methodology is uniformly applied across all countries and years. This is particularly important for the present panel analysis, which compares just transition performance across countries over time. A standardized index provides a consistent outcome measure for the cross-country empirical analysis. In addition to its academic development, the SPI just transition score has also appeared in policy- and practitioner-oriented measurement resources such as the European Commission’s catalog of just transition measurement approaches, as a comparative macro-level indicator relevant to monitoring just transition performance (European Commission, 2023).

Following prior studies like D'Arcangelo et al. (2024) and Nachtigall et al. (2024), this study measures climate policy stringency using the OECD CAPMF. The CAPMF provides a structured and internationally harmonized database of climate mitigation actions and policies. It contains 130 policy variables organized into 56 policy instruments, which are classified into three ways. Firstly, the policy instruments are categorized into three building blocks: sectoral, cross-sectoral and international climate policies. Sectoral policies apply to specific emitting sectors: electricity, industry, transport and buildings. Cross-sectoral policies refer to economy-wide measures that cannot be assigned to a single sector, such as emissions targets or climate governance arrangements, while international policies capture participation in international agreements and climate-related international cooperation. Secondly, they are categorized into 3 policy types: market-based instruments (e.g. carbon taxes and emissions trading systems, feed-in tariffs), non-market-based instruments (e.g. energy-efficiency mandates and bans or phase-outs of fossil-fuel equipment and infrastructure) and climate targets, governance and data (e.g. climate advisory bodies and net-zero targets). Lastly, the policy instruments are categorized into 15 policy modules. The structure of the CAPMF is included in supplementary file figure S1 and S2.

The CAPMF is suited for this study because it systematically quantifies the extent and strength of national climate-mitigation policies. It is based on verifiable governmental initiatives, laws and regulations rather than subjective assessments, thereby providing an objective measure of policy stringency (Nachtigall et al., 2024). Moreover, the CAPMF’s panel structure enables researchers to analyze how climate policies impact sustainability outcomes, potentially aiding in the formulation of comparable policy recommendations across nations (Nachtigall et al., 2024).

In line with prior studies using CAPMF, such as D'Arcangelo et al. (2024) and Nachtigall et al. (2024), the climate policy stringency is operationalized as a composite index calculated from the average stringency values of all 56 policy instruments. The index is standardized to a mean of zero and a standard deviation of one, following the approach of Nachtigall et al. (2024). The use of composite index for policy stringency in a cross-country analysis aligns with prior studies, such as the application of the OECD EPS index to evaluate how climate policies impact emissions reduction (Frohm et al., 2023) and low-carbon innovation (Dechezleprêtre and Kruse, 2022). The policy stringency scores ranged from 0 signifying absence of policy instrument to 10 indicating strict policy instrument.

The governance quality index was computed from the six world governance indicators: regulatory quality, government effectiveness, rule of law, voice and accountability, political stability and absence of violence and control of corruption. This captures formal institutional mechanisms. The data were collected from the World Governance Indicator (WGI) database. The governance quality index was estimated using principal component analysis (PCA) on the six WGIs. This is in line with previous studies by Chen et al. (2024) and Ganie et al. (2024). The Kaiser–Meyer–Olkin (KMO) test was used to test the appropriateness of PCA for the data set. The overall KMO is 0.9017, indicating no sampling inadequacy concern and confirming that PCA is statistically appropriate for these data.

This study includes several control variables to account for the potential effects of other factors on just transition. Consistent with previous research by Liu et al. (2024), this study accounts for economic growth. We measured economic growth using GDP per capita collected from the WDI. Economic growth affects a nation's capacity to finance social safety nets and green investments essential for an equitable transition (Htitich et al., 2024). We also account for differences in human capital development. This is consistent with past researchers like Liu et al. (2024). Human capital development measures a country's average achievement in key human development dimensions. The Human Development Index (HDI), sourced from the United Nations Development Programme (UNDP) database, was used to assess human capital development.

Climate vulnerability is included to account for variations in climate risk exposure and sensitivity, reflecting the urgent need for just transition. In line with Xiao and Fei (2024), the Notre Dame Global Adaptation Initiative (ND-GAIN) Climate Vulnerability Index was used to measure climate vulnerability. Financial market development is included to account for the country’s capacity to finance the transition. Financial market development is measured as domestic credit to the private sector (% of GDP), and the data were collected from the WDI. Finally, fossil fuel share in total energy consumption is included to account for the effect of fossil fuel energy dependence on just transition outcomes. The data were collected from the WDI.

To mitigate unobserved heterogeneity, this study also included year and income group fixed effects in the model (Wooldridge, 2010). This approach controls for global shocks and structural differences across country income classifications. Table 1 presents the summary measurement of the variables.

Linear panel data regression models are employed to investigate the impact of climate policy stringency and governance quality on just transition. The model for the first objective is presented in Equation (1):

The study further investigates the moderating impact of governance quality on the relationship between climate policy and just transition. Model 2 is shown as follows.

β₀ is the constant, and β₁ indicates the coefficients. JTS refers to just the transition score. CPS stands for climate policy stringency, and IQI represents governance quality. x represents control variables (economic growth, human capital development, climate vulnerability, financial market development and fossil fuel energy share), u denotes year and income group effects and e_i represents the error term.

Table 2 represents descriptive statistics for all the variables in the study. The mean value for just transition in the sample is 73.83 with a standard deviation (SD) of 8.69. This indicates a wide dispersion in the just transition of the sampled countries. The min and max values are 47.5 and 86. The min and max values of the CPS score after standardizing are −2.37 and 2.36. The mean of climate vulnerability is 0.34 with an SD of 0.04. The sample firms have a high average value of 9.87 with max and min values of 0.97 and 0.59. The min and max values of financial development are 12.91 and 196.83. Fossil fuel shares have a mean and SD of 73.05 and 17.60, respectively.

Table 2 also shows the correlation analysis results. The univariate analysis shows that climate policy stringency, governance quality and human capital development have positive relationships with just transition, while other variables have negative relationships with just transition. The result also shows that all bivariate relationships are less than 0.8, except for the relationship with governance quality (IQI) and human capital development (HDI). We further tested this likely multicollinearity concern using the variance inflation factor (VIF). The result shows that all the VIF values of the explanatory variables are below the threshold of 5 (Hair et al., 2014). This indicates that there are no multicollinearity issues in the study.

Diagnostic tests conducted show that there is presence of heteroscedasticity, autocorrelation and cross-sectional dependence (CSD). Panel heteroscedasticity and autocorrelation render the Ordinary Least Squares inadequate and result in erroneous standard errors (Tobechukwu and Azubuike, 2020). Another important issue with panel data estimation is the phenomenon of CSD that may lead to inaccurate estimates and wrong statistical conclusions (Tayyab Ayaz et al., 2024). CSD exists in the event that some observations across countries are affected by some spatial, spillover effects or nonobservable common shocks (Baltagi and Hashem, 2007). The results are presented in the supplementary file table S1.

The study addressed this problem through the PCSE regression as previously suggested in the literature. Marques and Fuinhas (2012) argued that the adequacy of PCSE to use to overcome the panel-heterosexual variability and contemporaneity correlation between the observations in cases where the number of time periods is smaller than the cross-sectional ones. Similarly, PCSE presents strong panel data models that are cross-sectionally dependent (Hoechle, 2007). The standard errors that are given by PCSE are rather strong and provide valid statistical inference over the complicated error structure in the panel data (Chen et al., 2010).

The PCSE results are shown in Table 3. M1 and M2 show the direct effect model with and without the year and income group effects. Likewise, M3 and M4 show the interacting effect model with and without the year and income group effects. CPS has a significant positive relationship with just transition across M1 to M4. This suggests that countries with more stringent climate policies are associated with better just transition performance. This shows the importance of climate policy design in supporting just decarbonization efforts. Well-designed climate policies contribute not only to environmental improvement but also to broader social and institutional conditions that support a fairer transition toward a low-carbon economy. This positive relationship suggests that climate policy stringency may support social progress when it is designed and implemented in ways that consider fairness, inclusion and institutional capacity. In this sense, stringent climate policies encourage investment in cleaner technologies, promote green innovation, strengthen environmental accountability and create opportunities for more sustainable development.

The result supports H1 and EMT, which argues that environmental policy and economic development are not necessarily conflicting goals. Instead, strong environmental regulation can stimulate institutional reform and more sustainable development pathways. This finding is also consistent with some existing literature that highlights the relevance of climate policy in driving just transition outcomes, such as Nachtigall et al. (2022), who show that climate policy stringency contributes positively to emissions reduction, and Malafry and Brinca (2022), who suggest that climate policy has the potential to enhance the social welfare of vulnerable households. However, while the results suggest that more stringent climate policies are associated with stronger just transition performance in the sampled countries, they do not imply that climate policy stringency alone is sufficient to deliver just transition outcomes. Climate policy may still generate short-term or uneven burdens such as energy affordability pressures, labor displacement, regional inequality and regressive distributional effects, particularly where affected households and workers lack adequate protection. Rather, it suggests that more stringent climate policies are associated with better just transition performance in the sampled countries. The findings provide evidence of a macro-level association rather than proof that all affected groups benefit equally from stringent climate policies. Just transition is a multidimensional concept, and several of its components, including social protection, labor rights, redistribution, community participation and political inclusion, may be shaped by broader welfare-state arrangements, labor-market institutions, democratic practices and fiscal capacity. Climate policy stringency should therefore be understood as one important potential contributor to just transition outcomes, rather than as a complete explanation of them.

The coefficient of governance quality is positive and significant at 1%, indicating that governance quality has a positive influence on just transition. This is consistent across M1 to M4, highlighting the importance of governance quality in achieving just transition. This indicates that stronger governance is associated with just and inclusive outcomes in the transition process to a green economy. Countries with effective institutions, stronger rule of law, political stability, lower corruption, better regulatory quality and more accountable public administration are more likely to manage the social and economic challenges associated with decarbonization. This is because the transition to a low-carbon economy requires coordination among governments, firms, workers, communities and financial institutions.

Strong governance can improve policy credibility, reduce uncertainty, ensure fair implementation and protect vulnerable groups from the negative effects of transition policies. For example, where governance quality is high, governments are more likely to design compensation mechanisms, social-protection programs, retraining policies and inclusive consultation processes. In contrast, weak governance reduces the effectiveness of climate policies, increases inequality and weakens public trust in transition programs. This finding supports institutional theory, which emphasizes the role of institutions in shaping social and economic outcomes. It is also consistent with Sovacool et al. (2023), who found that strong governance mechanisms promote inclusive and just energy transitions by shaping social innovation dynamics, and Creti and Ftiti (2024), who emphasize the vital importance of institutions at all levels in facilitating an inclusive and equitable green transition.

The interaction results show that governance quality positively and significantly strengthens the relationship between climate policy stringency and just transition. The result is consistent across M1 to M4. This means that the positive impact of climate policy stringency on just transition is stronger in countries with better governance quality. Therefore, climate policy stringency alone may not be sufficient to guarantee a just transition. Its effectiveness depends partly on the quality of institutions through which such policies are designed, implemented, monitored and enforced. This finding is substantively important because many just transition outcomes do not automatically arise from climate policy ambition. Social protection, labor rights, redistribution, procedural inclusion and community support require complementary governance and welfare arrangements. Strong governance can help connect climate policy stringency to these broader social outcomes by ensuring that climate policies are implemented alongside compensation mechanisms, retraining programs, social protection, stakeholder consultation and accountability systems.

At the same time, this result should be interpreted in light of the possible adverse consequences of stringent climate policies. Climate policies such as carbon pricing, fossil-fuel phase-outs and emission regulations may increase energy prices, displace workers in carbon-intensive sectors, create regional adjustment pressures and generate regressive effects if vulnerable households and communities are not adequately protected. Thus, governance quality is important not only because it strengthens the positive effects of climate policy stringency but also because it helps manage and reduce these potential social costs. This finding is particularly important because it shows that similar levels of climate policy ambition may produce different just transition outcomes across countries. In countries with strong governance, stringent climate policies are more likely to be implemented transparently, supported by social dialogue, and accompanied by measures that protect affected workers, households and communities. In contrast, in countries with weak governance, similar climate policies may increase social burdens if compensation mechanisms are weak, transition funds are poorly targeted, affected workers are not reskilled or vulnerable groups are excluded from decision-making processes. Under such conditions, climate policy stringency may reproduce or deepen inequality rather than support a just transition.

This supports H3 of the study and institutional complementarity theory, which suggests that policies are more effective when they are supported by strong institutional arrangements. The finding also supports Markkanen and Anger-Kraavi (2019), who argue that climate policies can either reduce or reproduce inequalities depending on the policy context, design and implementation environment. The risk of adverse consequences was found to be higher in settings with high corruption levels and economic and social inequalities. Therefore, governance quality acts as an enabling condition that allows climate policy stringency to produce more inclusive and socially balanced transition outcomes.

To further demonstrate the moderating role of governance quality, Figure 1 presents the marginal effect of climate policy stringency on just transition across different levels of governance quality. The marginal effect can be expressed as β1 + β3 (Governance Quality), where β1 is the coefficient of climate policy stringency and β3 is the coefficient of the interaction term between climate policy stringency and governance quality. Since the interaction coefficient is positive and statistically significant, the marginal effect of climate policy stringency increases as governance quality improves.

Figure 1 provides visual evidence for this interpretation. The upward-sloping marginal-effect line shows that the effect of CPS on just transition becomes stronger at higher levels of governance quality. At lower levels of governance quality, CPS still has a positive association with just transition, but the magnitude of the effect is smaller. As governance quality increases, the marginal effect becomes progressively larger, indicating that stronger institutions improve the capacity of countries to convert climate policy ambition into socially inclusive transition outcomes.

The 95% confidence intervals remain above zero across the observed range of governance quality, suggesting that the marginal effect of climate policy stringency is positive and statistically significant at different levels of governance quality. However, the magnitude of the effect is substantially larger when governance quality is high. This result strengthens the empirical basis of the study's central argument: governance quality not only has a direct positive association with just transition but also conditions the effectiveness of climate policy stringency.

Substantively, the finding suggests that stringent climate policies are more likely to support just transition when they are implemented in countries with stronger administrative capacity, regulatory enforcement, rule of law, accountability and corruption control. These governance features help ensure that climate policies are accompanied by compensation mechanisms, social protection, worker reskilling, community support and participatory decision-making. In contrast, where governance quality is weaker, CPS may have a more limited effect because weak institutions reduce the capacity to manage distributional impacts and protect vulnerable groups.

These findings are applicable within the scope of the developed and developing countries covered in the sample. They do not imply that stringent climate policies will necessarily support only transition outcomes under all country conditions. In least developed countries settings, the social effects of policy stringency may differ because firms, workers and governments may face stronger constraints in accessing alternative technologies, climate finance and institutional support. In addition, differences in policy stringency across countries may generate concerns about carbon leakage as firms in emission-intensive sectors may face incentives to relocate production toward jurisdictions with weaker climate regulation. These considerations suggest that the relationship between CPS and just transition is likely to be context-dependent and shaped by international as well as domestic conditions. Likewise, in countries with stronger governance, more coherent climate policy frameworks can support more inclusive transition processes, while in others, weak implementation capacity, fossil fuel dependence or limited social protection may constrain just outcomes. These further suggest that similar levels of policy ambition may produce different transition outcomes depending on the national context and institutional arrangement.

Regarding the control variables, climate vulnerability is positively associated with just transition in most baseline specifications, suggesting that countries exposed to greater climate risks may have stronger incentives to pursue sustainability-oriented measures. GDP per capita and financial market development are negatively associated with just transition, indicating that higher income or deeper financial systems do not automatically translate into more inclusive and environmentally balanced transition outcomes. Fossil fuel dependence is not statistically significant.

To ensure the robustness of our findings, we conducted several robustness checks.

To address concerns associated with reverse causality, this study runs a robustness test using a one-period lag and a two-period lag for the independent and moderating variables in the models. This assumes a potential time lag between CPS and governance quality on just transition. This aligns with existing literature, such as D'Arcangelo et al. (2024) and Nachtigall et al. (2024), who used a one-year lag of CPS in their studies. This approach strengthens causal inference and mitigates reverse causality and simultaneity bias (Nachtigall et al., 2022). In addition, lagging the explanatory variables by more than a year can effectively mitigate reverse causality concerns (Faleye et al., 2014). The findings of the one-and two two-period lagged values are reported in Table 4. The results show that both the direct and moderating effects are consistent with our baseline results. Overall, the findings suggest that reverse causality is unlikely to bias our empirical results.

Endogeneity arises in panel estimation when explanatory variables are correlated with the error term, potentially leading to biased estimates and undermining the credibility of the findings (Wooldridge, 2009). This study employs 2SLS to address potential endogeneity issues in the model. In particular, reverse causality may arise if changes in just transition outcomes influence subsequent climate policy decisions or institutional arrangements. Following prior studies such as Orazalin et al. (2024), we use the one-year lag of the explanatory variables as instrumental variables. This approach exploits the temporal ordering of the lagged variables to mitigate potential endogeneity concerns in the subsequent period (Likitapiwat et al., 2024).

The use of lagged instruments is motivated by their temporal precedence over the current outcome and the persistent nature of climate policy and governance quality. Specifically, the identification strategy relies on the assumption that the lagged instruments affect the current outcome primarily through their effects on the corresponding endogenous variables. This exclusion restriction cannot be established directly from the data and is therefore treated as an identifying assumption. Its plausibility is supported by the persistent nature of climate policy and governance quality, which tends to evolve gradually over time. Their lagged values are therefore expected to be correlated with the corresponding contemporaneous endogenous variables while being less susceptible to contemporaneous shocks affecting the current just transition outcome. Thus, the temporal ordering of the instruments helps reduce concerns regarding contemporaneous reverse causality.

Specifically, contemporaneous climate policy stringency and governance quality are treated as endogenous and are instrumented by their respective one-year lagged values. As an additional robustness specification, both one-year and two-year lagged values are used jointly as instruments. The relevance of these instruments is motivated by the persistence of both climate policy and governance quality over time. Since these factors generally evolve gradually, their lagged values are expected to provide substantial predictive power for their contemporaneous counterparts. Moreover, the use of both one-year and two-year lags provides overidentifying restrictions that allow the joint validity of the instruments to be assessed using the Hansen J test.

The 2SLS diagnostic tests provide evidence supporting instrument relevance and identification. The Kleibergen–Paap rk LM statistic is statistically significant at the 1% level across all specifications, rejecting the null hypothesis of underidentification. The Kleibergen–Paap rk Wald F-statistic also indicates that the instruments are sufficiently strong, with values exceeding the relevant Stock–Yogo critical values. This provides evidence of no weak identification problem. For the specifications using both one-year and two-year lagged instruments, the Hansen J statistics are 1.538 (p = 0.4634) and 3.443 (p = 0.3283), respectively. Thus, the null hypothesis of valid overidentifying restrictions cannot be rejected, providing no statistical evidence against the joint validity of the overidentifying restrictions. Finally, the 2SLS estimates reported in Table 5 are consistent with the baseline results, suggesting that the main findings are robust to address potential endogeneity concerns. The results are reported in Table 5.

This research additionally employs alternative methods to calculate CPS score, adhering to the modular structure of the CAPMF. This is necessary because CAPMF does not provide a single composite policy stringency score for each country. We calculate three alternative average stringency scores, in addition to the simple average of all 56 policy instruments previously used in the baseline regression. These include the unweighted average of the policy stringency value of the three policy building blocks, namely sectoral, cross-sectoral and international policies; a PCA-based index using the three building blocks; and the unweighted average of the policy stringency value across all 15 policy modules. These are represented as CPS3A, CPSPCA and CPS15 A, respectively. The findings of all three alternative approaches for calculating the CPS index align with our baseline results. The results are reported in Table 6.

As a robustness check, the present study applies the Driscoll and Kraay standard error (DK-SE) approach proposed by Driscoll and Kraay (1998). This method estimates standard errors using cross-sectional averages of the regression residuals and explanatory variables, ensuring that the standard errors remain reliable even when cross-sectional dependence is present. The DK-SE approach is particularly suitable for panel data analysis because it produces standard errors that are robust to heteroscedasticity, serial correlation and CSD (Baloch et al., 2019; Yang et al., 2022). The result reported in the supplementary file Table S2 is consistent with the baseline findings.

To provide further insight, the study examines the effects of climate policy stringency subcomponents and governance quality indicators. The results show that the three CAPMF building blocks, namely sectoral, cross-sectoral and international climate policies, are positively associated with just transition. Governance quality significantly moderates the effects of sectoral and cross-sectoral policies, but not international policies. Second, this study also examines the effect of three policy types: market-based instruments and non-market-based instruments, targets, governance and climate data. The result shows that all three policy types are positively associated with just transition. However, governance quality significantly moderates only market-based and non-market-based instruments. Finally, the findings indicate that all six governance indicators have a positive and statistical impact on just transition except government effectiveness, which has an insignificant relationship. Additionally, all governance indicators significantly moderate the relationship between CPS and just transition. The results for the three subcomponent analyses are included in the supplementary file table S3, S4 and S5.

The study conducts heterogeneity analysis for developed and developing countries. The results are included in the supplementary file table S6. The results show that climate policy stringency has a positive and statistically significant association with just transition in developed countries, whereas its direct effect is not significant in developing countries. However, the interaction between climate policy stringency and governance quality is positive in both groups and is relatively stronger in developing countries. This suggests that governance quality is a more critical enabling condition for translating climate policy ambition into just transition outcomes in developing-country contexts.

The channel analysis examines whether social protection expenditure serves as a potential transmission mechanism through which CPS influences just transition outcomes. The results are presented in Table 7. We measured social protection expenditure using total social protection expenditure as a percentage of GDP. The data were collected from the OECD database. Model 1 shows that climate policy stringency has a positive and significant relationship with social protection expenditure, suggesting that countries with stricter climate policies tend to allocate more resources to social protection. This finding is consistent with the possibility that social protection expenditure represents a policy-response channel through which governments address the social implications of climate policy. Model 2 shows that the interaction between CPS and governance quality is positive and significant, indicating that governance quality strengthens the policy to social protection channel. This indicates that the relationship between CPS and social protection expenditure is stronger in countries with higher governance quality. This finding suggests that governance quality strengthens the institutional channel through which CPS can contribute to a just transition.

Model 3 examines the second stage of the proposed channel and shows that social protection expenditure is positively and statistically associated with just transition. This supports the argument that social protection expenditure may help address the social costs of decarbonization by supporting affected workers, households and vulnerable communities. Model 4 further shows that social protection expenditure remains positive and significant even after retaining the original interaction between CPS and governance quality. The results suggest that social protection expenditure serves as a potential transmission channel linking CPS to just transition, and governance quality strengthens this channel by improving the responsiveness of social protection expenditure to CPS.

To assess the sensitivity of the baseline findings to unobserved heterogeneity, we estimate alternative fixed-effects specifications. The baseline model includes year and income group effects, while additional specifications incorporate region and country fixed effects. The region fixed-effect PCSE estimates remain broadly consistent with the baseline results, with CPS, IQI and the CPS × IQI interaction retaining their positive and statistically significant coefficients.

For a more stringent sensitivity analysis, we estimate models with country and year fixed effects. The coefficient of CPS remains positive and statistically significant, indicating that the main CPS finding persists after controlling for time-invariant country-specific heterogeneity. However, the coefficients of IQI and the CPS × IQI interaction become statistically insignificant.

This difference may reflect the substantial persistence of governance quality and the relatively limited within-country variation available over the 12-year panel. In cross-country panel settings, fixed-effects estimation can substantially reduce the identifying variation available for persistent or rarely changing variables (Plümper and Troeger, 2007). Overall, the findings support the robustness of the CPS relationship, while the estimates involving governance quality are more sensitive to the use of within-country variation. The results are included in the supplementary table S7.

To examine whether the baseline relationship is driven by the construction of the just transition score, the baseline specifications are estimated using the disaggregated SPI components. Specifically, we separately examine social progress, carbon emissions per capita and material consumption per capita as outcomes, as shown in Table S8 of the Supplementary File. The models retain the same controls, year effects and income group effects as the baseline PCSE specification. The component data were obtained from the respective underlying data sources used in the construction of the SPI just transition score. The biodiversity component is not included because the corresponding Environmental Performance Index data are available biennially and therefore do not provide consistent annual observations for our panel. In addition, Iceland is excluded from the CO₂ emissions specification due to the unavailability of consumption-based emission data.

The results show that CPS is positively associated with social progress and negatively associated with carbon and material footprints. The significant positive relationship between CPS and social progress provides support that the main CPS relationship is not solely driven by the composite construction of the just transition score. This provides complementary evidence that the relationship between CPS and just transition performance is also reflected in its social and environmental components. Governance quality also exhibits significant associations with the three disaggregated components. The results are reported in Table S8.

As the global community is gaining pace in the quest of decarbonization, it is more important than ever to make the transitions not only ecologically efficient but also socially just. The goal of the present study is to investigate the impact of CPS on just transition and whether governance quality influences this relationship. For the analysis, we used a balanced panel of 46 countries (Table S9) with a time span of 12 years (2011–2022) and relied on harmonized databases such as CAPMF, the WGI and the SPI. This offers robust and consistent empirical results to inform policy debate, as well as academic discourse.

The findings of the current research suggest that CPS is positively associated with just transition. The findings suggest that strict climate policy does not necessarily undermine just transition outcomes. Rather, our findings indicate that stringent climate policies may facilitate a just transition. Further analysis shows that sectorial, cross-sectorial and international climate policies facilitate just transition. The quality of governance was equally significant in all the baseline and robustness tests, signifying that strong institutions enhance just transition. The results remain consistent across several robustness tests.

More importantly, our study shows that the quality of governance is an effective moderator: the positive relationship between CPS and just transition is stronger in countries with higher governance quality. This means that CPS alone is not sufficient to guarantee a just transition; rather, strong governance provides the institutional capacity through which climate policy ambition is translated into socially inclusive outcomes. Specifically, governance quality supports effective implementation, credible enforcement, accountability, corruption control, stakeholder participation and fair distribution of transition costs and benefits. Through these mechanisms, stronger institutions help ensure that stringent climate policies are accompanied by practical just transition measures such as compensation mechanisms, worker reskilling, social protection, community support and inclusive decision-making. Conversely, weak governance may limit or dampen the just transition benefits of CPS by weakening implementation capacity, reducing public trust and increasing the risk of unequal burden-sharing. In such contexts, the same level of CPS may intensify social resistance or reinforce existing inequalities if policy costs are not distributed and affected groups are not adequately protected. The heterogeneity analysis further shows that the climate policy and just transition relationship are more conditional on governance quality in developing countries.

This study has several contributions to existing literature. First, it extends the just transition literature by providing cross-country panel evidence on the relationship between CPS and just transition outcomes, an area where empirical evidence remains limited. Prior studies on CPS have primarily focused on emission reduction. This study advances the literature by shifting attention to the social and distributive implications of CPS. Second, the study differs from prior research by examining governance quality as an institutional condition that shapes the relationship between CPS and just transition. Our findings show that governance quality helps explain why similar levels of climate policy ambition may produce different just transition outcomes across countries.

Theoretically, this study extends institutional complementarity theory to the just transition context by demonstrating that the effects of CPS depend on the institutional environment in which policies are implemented. Our findings show that governance quality conditions the relationship between CPS and just transition outcomes, shaping whether climate ambition is translated into socially inclusive transition outcomes. Governance quality functions as an institutional complement that strengthens the capacity of climate policies to generate more favorable just transition outcomes. Climate policy ambition provides the regulatory direction for decarbonization, while governance quality provides the institutional capacity needed to implement such policies fairly and effectively. In doing so, the study also contributes to the climate policy literature by highlighting that the consequences of policy stringency are conditional on governance quality. This theoretical contribution shifts attention from the effects of policy stringency alone to the institutional conditions under which stringent climate policies are more likely to generate just transition outcomes.

Methodologically, this study is among the early studies to use the CAPMF to measure CPS. CAPMF offers a harmonized panel data set that consistently measures CPS for several countries over time. This allows for a more comparable assessment of how climate policy ambition relates to just transition outcomes across different national contexts.

Our research provides actionable guidance for policymakers who are navigating the social externalities of climate policies and actions. Policymakers should embrace the concept of a just transition as an underlying principle in climate policy formulation to alleviate the negative effects of the transition to a low-carbon economy for vulnerable populations. In addition, the subcomponent analyses provide a more nuanced view of policy design. They suggest that both sectoral and cross-sectoral climate policies, as well as both market-based and non-market-based instruments, can contribute positively to just transition outcomes, although the moderating role of governance is stronger for some categories than others. The findings suggest that policymakers should focus not only on the overall ambition of climate policy but also on the institutional conditions under which such policies are implemented. Further additional analysis shows that sectoral, cross-sectoral and international climate policies each have positive associations with just transition, while both market-based and non-market-based instruments also matter. These results imply that governments should adopt balanced climate policy portfolios rather than relying on a single instrument type. Where market-based instruments such as carbon taxes or emissions trading systems are used, policymakers may consider channeling the revenues for specific worker reskilling, community revitalization and social protection plans (e.g. flash insurance, mobility allowances).

The findings suggest that more stringent climate policies are more likely to be associated with favorable just transition outcomes when supported by stronger formal governance arrangements. Thus, stronger governance capacity, transparency, accountability and coordination are important for translating policy ambition into broader, inclusive and just transition outcomes. Policymakers should therefore complement stringent climate policies with stronger governance arrangements that improve implementation capacity, accountability, stakeholder participation and fair distribution of transition costs and benefits. In practical terms, this means that climate policy packages should be accompanied by institutional mechanisms such as compensation frameworks, worker reskilling programs, community support measures and transparent decision-making structures.

The significant positive impact of governance quality suggests that governments should serve as just transition guarantors, given their role in coordinating global mitigation efforts and ensuring accountability. Governments must not implement stringent climate policies in isolation; they should actively facilitate transitions by integrating mechanisms for compensation, participation and accountability. The heterogeneity results suggest that policy implications differ across country groups. The result suggests that in developing-country contexts, strengthening governance capacity, implementation quality and institutional credibility may be a necessary complement to climate policy ambition if just transition objectives are to be achieved. Finally, our subcomponent analysis indicates that voice and accountability are potential drivers of outcomes. Therefore, increasing awareness and social dialogue at the macro and corporate levels is essential to foster the informal institutional readiness needed to support workers and communities.

Our study has some limitations. The sample includes only developed and developing countries and is concentrated on OECD economies and major emerging markets. While these samples represent the major environmental polluters, it limits the generalizability of the findings to least developed countries and other under-represented settings, where weaker state capacity, larger informal sectors, limited social protection and lower access to alternative technologies may shape the just transition process differently. The exclusion of these countries is due to data constraints.

Another limitation concerns the measurement of the just transition. Although the SPI just transition score provides a comparable macro-level indicator across countries and years, it may not fully capture all dimensions of just transition, particularly labor rights, collective bargaining, social dialogue, redistribution, targeted compensation and political participation. These dimensions may evolve independently of CPS and may be influenced by broader welfare systems, labor-market institutions, fiscal capacity and political arrangements. In addition, because the index combines social progress with environmental indicators such as CO₂ emissions, biodiversity and material consumption, there may also be conceptual overlap with CPS. Although our disaggregated robustness tests provide complementary evidence by showing that policy stringency is also associated with social progress and improved environmental performance, the aggregate positive association should still be interpreted cautiously. Therefore, the positive association between CPS and the SPI just transition score should be regarded as reflecting broad macro-level just transition performance, rather than as direct evidence of specific just transition outcomes such as distributive justice, labor-market adjustment or procedural fairness. Future studies should employ more direct and disaggregated cross-country measures such as worker displacement, compensation, labour rights, social dialogue, retraining, participation and distributive outcomes as comparable data become available.

While this study investigated only transition at the macro level, future studies could extend the analysis by investigating only transition practices at the firm level. Also, the analysis was restricted to the period 2011–2022 because complete data on the just transition score were only available for these years. Future research may update and extend the analysis once newer just transition data become available. Finally, while the governance index captures formal institutional quality, it does not directly measure informal institutions. Informal institutions such as social trust, civic culture and traditions of social dialogue may also shape just transition outcomes; however, these dimensions are not directly observed in the present analysis. Future studies may extend this work by testing the effects of informal institutional dynamics.

The supplementary material for this article can be found online.