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

Abstract

The transition to a net-zero economy is vital for global sustainability, but it could cause social problems if it is not managed carefully. This paper contributes to this pressing concern by examining how climate policy stringency affects just transition and whether governance quality shapes this relationship. A panel data set of 46 countries covering the 2011–2022 period was used for the analysis. Panel-corrected standard errors (PCSE) estimation, which accounts for cross-sectional dependence, heteroskedasticity and autocorrelation, was employed to test the hypotheses. The findings were further assessed through a series of robustness and additional analyses, including two-stage least squares (2SLS), alternative model specifications, disaggregated outcome measures and channel analysis. The results indicate that climate policy stringency and governance quality have significant positive relationships with just transition. The result also shows that governance quality strengthens the positive relationship between climate policy stringency and just transition. Policymakers should actively facilitate just transitions by designing policy frameworks that anticipate social impacts and integrate mechanisms for compensation, participation and accountability. In addition, proceeds from the carbon tax and emissions trading system should be channeled towards worker reskilling, community revitalization and social-protection plans. This study advances the theoretical understanding of just transition by positioning governance quality as a key institutional condition that shapes whether climate policy stringency translates into just transition outcomes. By conceptualizing governance quality as an institutional complement, the study extends institutional complementarity theory and deepens existing knowledge by explaining why similar climate policies may generate different just transition outcomes across countries.