Various companies will have to shut down to reduce carbon emissions on large scale. This has been a matter of concern for all economies because shutting down major businesses will majorly affect the countries. But recently CSH discovered that with only 2% economic loss there can be 20% co2 emission reduction.
But how could the economic impact of climate policy actions be mitigated? To answer this, the Complexity Science Hub proposed a new approach. According to this recent study enacting climate policy with minimum economic impact is possible.
The Intergovernmental Panel on Climate Change (IPCC) highlights the importance of immediate and far-reaching action to avoid catastrophic climate change. According to the new rankings reducing CO2 emissions by 20% would necessitate the closure of the top 23 businesses on the list.
Johannes Stangl from the Complexity Science Hub (CSH) said, “However, the transformation of the economy towards climate neutrality always involves a certain amount of economic stress — some industries and jobs disappear while others are created,”
Stangl further highlighted, “To understand how climate policy measures will affect a country’s economy, it’s not sufficient to have data on carbon dioxide emissions. We must also understand the role that companies play in the economy,”
Cover the Entire Economy
They used a huge dataset from Hungary which included almost 250,000 businesses and over a million supplier associations effectively representing the entire country’s economy.
They studied what a country’s overall economy might look like if particular companies felt obligated to discontinue operations that were intended to decrease greenhouse gas emissions by 20%. For this reduction, the country’s seven largest emitters would have to cease operations.
According to Stefan Thurner, president of CSH, “In the first scenario, we looked at what would happen if only CO2 emissions were taken into account,”
Thurner also highlighted “In the meantime, however, around 29% of jobs and 32% of the country’s economic output would be lost. The idea is completely unrealistic; no politician would ever attempt such a thing,”
Understanding Decarbonization Leverage Points
Here is an Illustration of Hungary’s production network and ahead we have discussed it in detail.
B) Production subnetwork of 5 businesses.
The adjacent bars show this sub network’s overall production, job count and cumulative emissions.
C) Strategy of removing largest emitters first
Firm D is the main emitter that is removed to efficiently reduce emissions. As a result, firm E loses its sole supplier thereby halting production and forcing staff layoffs. The firm C’s production is reduced by 50% due to the loss of one supplier. Overall, CO2 emissions fall by 50% but employment falls by 70% reflecting the drop in economic output.
D) Closing systematically
A smart strategy based on finding decarbonization leverage points. Closing systemically insignificant businesses A and B reduces CO2 emissions by 50% while only reducing jobs by 30%.
The total production is similarly influenced by the idea that all firms in this schematic have a linear production function which emphasises the production halts of A and B affect only firm C. This second technique maximizes the ratio of emissions savings to employment loss.
Two-Factor Strategy to Be Followed
In an earlier study, CSH researchers established the Economic Systemic Risk Index (ESRI). This assesses the economic loss that would occur if a company stopped production. Based on this, researchers developed a new ranking of businesses based on two factors:
- Their greenhouse gas emissions
- Their risk assessment for the national economy
This ranking highlights the emissions of businesses concerning their economic impact thus leading to only 2% economic loss per 20% co2 emission reduction. Stangl stated, “Two factors are crucial – the CO2 emissions of a company, as well as what systemic risks are associated with it, i.e. what role the company plays in the supply network,”
Source: Cutting CO2 emissions by 20% with only 2% economic loss
