The Intergovernmental Panel on Climate Change (IPCC) stresses the urgent need for significant and rapid changes to prevent devastating climate change. However, transitioning to a climate-neutral economy inevitably brings economic challenges—some industries may decline while others emerge. So, how can we minimize economic harm while implementing climate policies?
Researchers at the Complexity Science Hub offer a promising approach to tackle this issue. Using a comprehensive dataset from Hungary, encompassing nearly 250,000 companies and over a million supplier relationships, the researchers simulated different scenarios aimed at reducing greenhouse gas emissions by 20%. They analyzed how the entire economy would be affected if certain companies ceased production.
Striking a balance
In the first scenario, the researchers looked at what might happen should governments focus purely on reducing emissions. This would mean the seven largest emitters in a country grinding to a halt in order to reduce emissions by 20%.
“In the meantime, however, around 29% of jobs and 32% of the country’s economic output would be lost,” the researchers explain. The idea is completely unrealistic; no politician would ever attempt such a thing.”
The impact is significant because of not only the emissions produced by a company but also the role that the company plays in the wider supply chain.
The researchers combined a company’s greenhouse gas emissions and its economic risk index to create a new ranking. According to this ranking, cutting CO2 emissions by 20% would mean the top 23 companies on the list would have to stop operating. However, doing so would only lead to a 2% loss in jobs and economic output.
“In reality, companies would naturally try to find new suppliers and customers,” the authors conclude. “We want to take this aspect into account in a further developed version of our model in order to obtain an even more comprehensive picture of the green transformation. However, our study clearly shows that we need to take the supply network at the company level into account if we want to evaluate what a particular climate policy will achieve.”
