The Green Reallocation Insurance Hypothesis: Carbon Exposure, Renewable Capacity and Macroeconomic Resilience

Abstract

Climate policy creates a structural-reallocation problem. Carbon-intensive economies must redirect capital, technology and labor toward lower-emission activities, yet the same policy shock may generate very different outcomes across countries and regions. This paper develops the Green Reallocation Insurance (GRI) framework, which treats renewable capacity and adjacent productive capabilities as an endogenous form of transition insurance. The framework predicts that carbon exposure raises adjustment pressure, while renewable capacity and related capabilities can reduce the social cost of reallocation. Using 2000–2024 World Bank country data for up to 260 countries and territories, the paper builds a lagged panel with carbon emissions per capita, renewable electricity output, unemployment, GDP per capita and GDP per person employed. Because the renewable-electricity series is complete only through 2021 in the acquired release, the principal lagged regressions cover 2001–2021. Two-way fixed-effects models with country-clustered standard errors find no statistically significant association of lagged carbon exposure, renewable electricity or their interaction with unemployment or labor productivity. The interaction is positive and statistically significant in the GDP model, with a coefficient of 0.000940 and a p-value of 0.007, although this association is not causal and may reflect selection into productive, energy-intensive economies. The results reject the idea that renewable capacity automatically operates as labor-market insurance. They instead support a more disciplined policy principle: transition insurance requires renewable capacity to be combined with worker mobility, training, fiscal capacity and related industrial capabilities. The paper contributes a mechanism-based framework, a reproducible global baseline and a clear agenda for regional and firm-level identification.