Society is being turned upside down to safeguard the carrying capacity of the environment. The energy system is being redesigned, and industry is in the middle of upheaval. This is what the green transition is about.
Since free markets do not solve environmental problems, national and EU-level regulation is needed.
“On a global scale, we are now experimenting with an entirely new kind of climate policy whose effects are yet to be discovered,” says Associate Professor of Environmental and Resource Economics Lassi Ahlvik from the University of Helsinki and the Helsinki Graduate School of Economics (GSE).
Ahlvik investigates the drafting of climate policy and its effects on businesses and markets. Through regulation, businesses and people are encouraged to reshape production and consumption. Meanwhile, decisions have costs and effects of their own. Understanding these effects is Ahlvik’s remit.
“Most often, climate and environmental regulation applies specifically to businesses. However, the costs are distributed through the end market to people who use the products, and through the labour market to employees.”
There are two big questions: how do costs fall on different groups of people, and who should be compensated for them? With the help of data, research aims to find fair ways to curb the climate crisis.
“We want to avoid a situation where a well-meaning and – at last – ambitious climate policy in fact exacerbates inequality.”
According to estimates, current climate measures will result in global warming of 2.5 to 2.9 degrees Celsius, which is a far cry from the limit of 1.5 or 2 degrees set in the Paris Agreement. Let’s talk about the emissions gap.
“While the current measures remain on an entirely wrong scale, the goals are starting to look increasingly encouraging. The current goals of governments would make it possible to halt the warming at around 2 degrees Celsius or slightly below.”
Ahlvik points out that previous government pledges were too modest to begin with in contrast to the kind of measures actually needed. Now, the deficit has shifted to another level: the pledges are beginning to show ambition, but policy measures are yet to match them.
According to Ahlvik, the power of economics in the green transition lies in the fact that researchers in the field are designing and establishing mechanisms and tools for politicians, as well as increasing their understanding of the effects thereof.
“We are describing how tools reduce emissions or harm to the environment, their cost-efficiency, their effects on income distribution, and how acceptable they are considered to be.”
Making research-based tools available
According to Ahlvik, prior climate policy is lightweight compared to what is to come in terms of emission reduction targets. If change is implemented without research and data, there is a high risk that some people will be disregarded. Regulatory measures aimed at reducing emissions take a varying toll on people’s pockets.
“Fit-for-purpose methods for reducing emissions have been known for decades. It is equally important to know the societal impact of each measure.”
It is difficult for research to take a stand on the ideal distribution of income – ultimately, it is a political issue. However, research can support political decisions by illustrating the effects of decisions and omissions.
Appropriate data help produce a fair climate policy
Researchers have a lot of knowledge that Ahlvik believes would be useful in decision-making. At the same time, many researchers are unfamiliar with everyday policymaking. A link that would facilitate dialogue and the dissemination of research-based knowledge remains incomplete between researchers and politicians.
In a dataroom pilot conducted by the Helsinki GSE, the VATT Institute for Economic Research and Statistics Finland, data are compiled to support decision-making. The pilot provides for research unique data combined with registry datasets of Statistics Finland and other data sources.
In terms of climate policy, the dataroom can help, for example, in planning regulations pertaining to carbon sinks. If forests and farmland are regulated in order to increase carbon sinks, data would allow assessment of which landowners are affected and how costs can be compensated.
Relevant data improves the quality of decision-making and promotes the societal acceptance of strict environmental policy.
“Research helps us understand the transition even better. By putting data into the hands of policymakers, we can reach the climate and environmental goals in a fair manner.”
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