The Intergovernmental Panel on Climate Change (IPCC) has emphasized the need for “rapid and far-reaching changes” to avert dire climate change consequences. Johannes Stangl of the Complexity Science Hub (CSH) notes that transitioning to a climate-neutral economy is not without economic challenges, as it can lead to the disappearance of certain industries and jobs while creating new ones. The question arises: How can we implement climate policy measures that minimise economic harm?
To address this, the CSH team has devised a novel approach. “Assessing the economic impact of climate policies requires more than just data on CO2 emissions; we must also consider the integral role of businesses within the economy,” states Stangl, a co-author of the study published in Nature Sustainability.
Utilising a comprehensive dataset from Hungary, encompassing nearly 250,000 companies and over a million supplier connections, the researchers simulated the effects on the economy if specific businesses ceased production under various scenarios, all targeting a 20% reduction in greenhouse gas emissions.
Stefan Thurner of the CSH explains, “Initially, we considered the implications of focusing solely on CO2 emissions.” To achieve a 20% emissions reduction, would necessitate shutting down the seven largest emitting companies. “However, this would concurrently result in the loss of approximately 29% of jobs and 32% of economic output—a wholly impractical notion that no policymaker would entertain,” Thurner remarks.
Moreover, when both greenhouse gas emissions and company size are factored in, significant economic repercussions emerge.
“Two key elements are the CO2 emissions of a business and its systemic risk, which reflects its significance within the supply network,” Stangl elaborates. The CSH team previously developed the Economic Systemic Risk Index (ESRI), which gauges the economic fallout if a business halts production.
By considering both a company’s emissions and its economic risk index, the researchers established a new hierarchy of high-emission companies based on their economic influence.
The revised ranking indicates that to cut CO2 emissions by 20%, it would be necessary for the top 23 companies listed to shut down. This action would lead to only a 2% loss in both jobs and economic output.
The authors acknowledge that in practice, businesses would seek alternative suppliers and clients. “We aim to incorporate this dynamic in an advanced model iteration to gain a fuller understanding of the green transition,” they state. Their findings underscore the importance of considering the supply network at the business level to accurately evaluate the outcomes of climate policies.
Austria, however, faces a data availability challenge at the company level, unlike Hungary, Spain, or Belgium, where detailed business transaction data is systematically recorded, providing rich insights into the national supply network. “This lack of granular data places us at a comparative disadvantage,” Thurner concludes.
