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Firm-level supply chains to minimize decarbonization unemployment and economic losses

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arXiv:2302.08987v2 Announce Type: replace-cross
Abstract: Urgently needed carbon emission reductions might lead to strict command-and-control decarbonization strategies with potentially negative economic consequences. Analyzing the entire firm-level production network of a European economy, we explore how the worst outcomes of such approaches can be avoided. We compare the systemic relevance of every firm with its annual CO2 emissions to identify optimal emission-reducing strategies with a minimum of additional unemployment and economic losses. Setting specific reduction targets we study various decarbonization scenarios and quantify their economic consequences. We show that for an emission-reduction of 20% the most effective strategy leads to losses of about 2% of jobs and 2% of economic output. In contrast, a naive scenario targeting largest emitters first, results in 28% job losses and 33% output reduction for the same target. This demonstrates that it is possible to use firm-level production networks to design highly effective decarbonization strategies that practically preserve employment and economic output.

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