Don’t overestimate the negative financial consequences of the green transition

A question that permeates the debate around the green transition is to what extent households might be negatively affected. Almost everyone agrees that the transition should take place quickly – but how do we know that the economic burden on Swedes will not be too large?

By dividing Sweden and the other Nordic countries into 25 regions, researchers and experts affiliated with Nordregio have conducted a unique model study that provides policymakers with concrete guidance. The study investigates the socio-economic effects of some common transition measures up to the year 2030 and shows that those who see an inherent conflict between living costs and reduced emissions are overly pessimistic.

The study was initiated due to the concerns many Swedes feel about the economic consequences of the climate transition. It focuses on the effects of the following three measures: Electrification of the vehicle fleet, blending of biofuel in fossil-fueled vehicles, and phasing out of all remaining coal power. Together, these measures significantly reduce the environmental impact, ensuring that Sweden easily meets the EU’s legally binding target of reducing net emissions by 55 percent compared to 1990.

So, what do the results specifically show? The report is extensive and should be read in its entirety, but some of the researchers’ observations deserve special mention.

Firstly, the impact on Sweden’s GDP is small. According to model calculations, Sweden’s GDP would increase by 21.5 percent by 2030 if the three measures were omitted. If, on the other hand, the measures are implemented as planned, the increase is 19.9 percent, only slightly lower.

Secondly, the measures don’t seem to affect the number of jobs significantly. The number of jobs will decrease most in Western Sweden, but this reduction (0.37 percent) is offset by an increase in northern Central Sweden, likely due to its rapidly growing forestry industry.

However, it is true that households in rural areas may be negatively affected. This is largely because people living outside urban areas tend to spend a larger portion of their disposable income on vehicle fuels, the prices of which are likely to increase. However, it is positive that the negative effect in this regard is much smaller than many feared: the living costs for those most affected seem to increase by just under one percentage point.

The above conclusions should not prevent us from taking the negative effects that do exist very seriously. The climate transition will affect different household groups in various ways, and it is up to politicians and other decision-makers to decide how best to manage these differences in the short and long term.

It is equally important, however, not to paint the economic consequences in too dark colors. If crucial decisions are made without the support of relevant research, there’s a significant risk that Sweden will fall behind in the transition work, or that we will implement measures that are unnecessarily costly at the group or societal level. Worst-case scenario, we might miss the emission target for 2030 and simultaneously lose the world’s trust in climate matters.

It is better to prioritize research and implement effective climate measures with thorough impact analyses for households.

(This article was originally published in Swedish on