Reducing CO2 emissions by 20% is possible with only a 2% economic loss

Climate change is the crisis of our generation. Scientists warn of dire consequences if we don’t act soon. But tackling carbon dioxide (CO2) emissions means transforming our economy – and that sounds scary. Economic losses? Businesses collapsing? The end of the good life?

Hold on! It doesn’t have to be that way. A new study shows how we can cut carbon emissions significantly with minimal damage to the economy.

CO2 and economic loss

Our first instinct might be to simply shut down the companies that produce the most carbon emissions. After all, if we eliminate the biggest sources of pollution, we should solve the problem, right?

Unfortunately, it’s not that simple. Our economies are highly interconnected. When you forcibly shut down major companies, especially those at the core of supply chains, it triggers a chain reaction. A study from the Complexity Science Hub provides more details.

According to the research, closing the seven largest polluters in Hungary alone would cause a staggering 29% of jobs to disappear across the country. This means a huge number of people would lose their livelihoods and become unable to support themselves and their families.

The loss of jobs would ripple through the economy. With less income circulating, businesses in every sector would suffer a decline in demand. Hungary’s economic output (the total value of goods and services produced) would plummet by 32%.

This kind of economic shock is unsustainable. It would cause immense hardship and social unrest, far outweighing the environmental benefits of cutting emissions from those few companies. Therefore, we need a different approach.

Look beyond CO2 to save economic losses

Focusing solely on a company’s carbon emissions is shortsighted. To understand the true impact of climate policies, we need to examine how individual companies fit into the intricate web of our economy.

Every company has a level of “systemic risk” attached to it. This measures how deeply embedded a company is within the supply chain network.

Some companies act as vital links that provide essential goods or services to many other businesses. Remove them, and you weaken or even break those chains, impacting the viability of their suppliers and customers.

To accurately assess the potential disruptions caused by climate policies, researchers at the Complexity Science Hub created the Economic Systemic Risk Index (ESRI). This innovative tool simulates the effects of a company shutting down. It reveals the ripple effects across the economy, helping policymakers identify companies whose closure would trigger widespread economic damage.

Imagine a company that provides a key component needed by many other businesses. If it closes, those dependent businesses may face production delays, revenue losses, and potential layoffs. Understanding this “systemic risk” helps us make climate policy decisions that don’t cause excessive harm to the overall economy.

Transformations reduce CO2 emissions and save economy

So, how do we reduce emissions without sacrificing jobs and the economy? The researchers developed a more strategic approach to identify companies for emission reduction efforts. This new ranking system goes beyond simply targeting the highest emitters.

Here’s how it works:

Dual focus

The ranking considers two crucial factors:

A company’s CO2 emissions: This remains important, as we still need to reduce overall greenhouse gas output.

The company’s role within the supply chain: The ranking considers how critical a company is to the smooth functioning of the economy. This is measured by the newly developed ESRI we discussed earlier.

Prioritizing impact

Companies are ranked based on a combined score that takes both emissions and systemic risk into account. Those with high emissions but a relatively low impact on the supply chain would be prioritized for transformation.

Essentially, the system helps us target companies that pollute the most while causing the least disruption to the economic flow.

This approach allows for a more balanced and effective strategy. We can significantly reduce emissions while minimizing the negative consequences on jobs and economic output.

The result? “A 20% reduction in CO2 emissions would require the top 23 companies on the list to cease operations. This, however, would only result in a loss of 2% of jobs and 2% of economic output,” said Johannes Stangl, Complexity Science Hub.

That’s much more manageable!

Need for better data

Now, this doesn’t mean every company will skate through the green transition. There will be disruptions, and new green jobs will need to emerge. But this study gives us a powerful tool to be strategic about it.

Here’s the challenge, though – this kind of research depends on highly detailed data about companies and their supply chains. In some countries, this data simply isn’t available.

“This puts us at a disadvantage…where detailed data is available at company level…extensive information is available on the country’s supply network.” explained Stefan Thurner, co-author of the study.

Tips to reduce CO2 impact and save economic loss

This research should be a rallying cry. It’s time for governments and businesses to:

Demand better data

This study highlights the critical importance of detailed, company-level economic data. To design effective climate policies that minimize harm, we need to truly understand the complex relationships and dependencies within the economic system.

Citizens and policymakers should demand greater transparency from both governments and corporations. Detailed information about supply chains, carbon footprints, and the potential impacts of shutdowns should be made readily available for analysis and informed decision-making.

Invest in the green transition

The green transition isn’t just about reducing CO2 emissions from existing businesses to save economic loss. It’s a call to reshape our entire economic model with sustainability at the core.

Governments, investors, and businesses need to invest heavily in research and development of clean technologies, renewable energy, and sustainable infrastructure. This will create a thriving new green economy and plenty of new jobs in the process.

The green transition offers an opportunity to build a more resilient and equitable economy for all, not just maintain the status quo with slightly less pollution.

Support affected workers and businesses

As we shift towards a greener economy, there will inevitably be disruptions. We cannot allow workers and communities to be left behind.

Governments and businesses need to invest in robust programs offering retraining and career transition support for workers in declining industries. Help them develop the skills needed to thrive in emerging green sectors.

Small and medium-sized businesses, which are often more vulnerable to economic shocks, deserve targeted support to adapt to new sustainability requirements and find their niche in the green economy.

The climate crisis is daunting, but knowledge is power. This study shows that with the right approach, the green transformation doesn’t have to be an economic apocalypse. Let’s demand smarter, data-driven climate policies that protect both our planet and our livelihoods.

The study is published in Nature Sustainability.

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