The most important policy question of 2020: Impact of climate policy on employment

“Why do we thrive to maintain economic growth if we cannot keep the planet habitable?”, stated the primary shareholder of Kone, and one of the key business figures in Finland, in the Helsingin Sanomat newspaper. The urgency of climate action is widely recognised, as is the deficit of the economy. We need more jobs, but not by all means possible. Therefore, both climate and employment policy will have to be designed in the midst of huge tensions. The success of this endeavor will define the well-being of future generations.

Demos Helsinki’s three insights on climate policy and employment

  1. The employment rate will soon be the least of our worries, if we are unable to manage the worsening environmental crisis.
  2. Together, ambitious climate policy and employment represent one of the most pressing policy topics of the 2020’s. Their goals do not have to be mutually contradictory.
  3. Globally, trillions of euros are available for the development of green infrastructure and related RDI operations for the coming decade. It opens up tremendous new opportunities for businesses.

Combining the fight against climate change with managing employment is one of the most central political topics of the decade. Finland’s welfare state’s funding relies on a high employment rate: income taxes and necessary social security payments make up about 63% of tax revenue, and in addition to that, a high employment rate reduces the pressure on the receiving side of income transfers. The purpose of work  is not solely to fund the society, but rather, it is still the most essential way of framing people’s everyday life, engaging with society in relevant ways, and building your own identity.

However, if the global environmental crisis cannot be stopped, the employment rate will soon be the least of our worries.

Per capita, Finland has one of the highest rates of greenhouse gas emissions in the world. This is somewhat explained by long distances and a cold climate, but another relevant factor is Finland’s reliance on carbon-intensive industry. However, Finland currently has the world’s most ambitious carbon neutrality goal: year 2035. The objective is being targeted with a broad political programme containing, for example, improved emission control in the production of heat and electricity, investments in bio-economy and circular economy, adding investment aids to energy technology, affecting the emissions of building, living, and transportation, and strengthening carbon sinks (read more in the government programme). Cooperation from all sectors of society is required in order to put this ambitious programme into practice.

Together, ambitious climate policy and employment represent one of the most central political topics of the 2020s. Luckily, they do not need to have contradictory goals.

Ambitious climate policy can sometimes be seen as a threat to the competitiveness of industry and employment opportunities, for example. Sometimes, climate measures are considered to be over-the-top, given Finland’s minimal absolute level of emissions when compared to the rest of the world. However, the image of the relationship between ambitious climate politics and economic competitiveness doesn’t need to be this pessimistic. Ambitious climate policies can also lead to economic benefits if targeted successfully.

Global research shows that strict climate policy does not necessarily have negative effects on total employment. Instead, it is clear that climate politics affect the focal points of an economy. In the short and medium term, these actions can cause issues with skills matching in the labour market. Therefore, investments in the transition to the model of lifelong learning are important for the employment market shift that is already taking place.

Another interesting framework for the analysis of climate policy’s effect on employment is the so-called Porter hypothesis, where strict environmental regulation can increase competitiveness due to the positive impacts on efficiency and innovation. The hypothesis claims that strict environmental regulation can increase the innovation operations of regulated companies and, thus, improve productivity, competitiveness, and value for the end-user.

 As the third framework, we also see that the development of green infrastructure and related R&D operations will receive trillions of euros from all over the world during this decade.

Already, the EU’s Green Deal investment programme promises investments worth 1,000 billion during this decade to clean energy, industries relating to the circular economy, and the R&D promoting it. The US presidential candidate Joe Biden’s corresponding “Climate and environmental justice” proposal promises to mobilise USD 1,700 billion from the national budget in order to develop a cleaner energy system and corresponding jobs. China’s carbon neutrality goal of 2060l, will inevitably mobilise massive investments.

 All of this means that unprecedented amounts of money will flow into the green economy in the near future. It also opens great opportunities for Finnish business — for example, according to EK’s Matti Kahra, the publishing of China’s carbon neutrality goal will open a massive market opportunity for the Finnish energy transportation, and other sectors’ clean solutions.

ETLA, SYKE, and Demos Helsinki are looking into the effects of climate policy on employment for the Finnish Prime Minister’s office

ETLA, SYKE and Demos Helsinki have been commissioned by the Prime Minister’s Office of Finland to study in close cooperation, with central stakeholders, what effects climate policy will have on employment. This VN TEAS research  project studies, among others, the key channels of influence between climate policy and employment, as well as the changes in skills and jobs happening in the move towards a carbon-neutral economy. For example, the key channels of influence on climate policy’s effects on employment, and the know-how needs and the changes of the professional structures, are being slowly figured out in the recently started VN TEAS research project moving towards a carbon neutral economy. Moreover, the research project will study which types of climate actions are most risky and most beneficial for employment rate targets. 

The research is conducted using diverse methods. The industry-specific effects of climate policy are reviewed in the global trading analysis project (GTAP) model, which is complemented with detailed input-output analyses. The results gained from the quantitative material are deepened and clarified with qualitative methods. Interviews with stakeholder representatives are used to understand how knowledge, skills, and profession change as a result of climate policy., and, regarding employment, the specifically risky and positive political activities from different sectors are being plumbed. The project is done interactively with the important stakeholders regarding employment and climate policy, which, alongside state actors, include for example representatives of labor market organisations, companies, and non-governmental organisations.

The project began with an opening event held on 9/10/2020, where stakeholders’ points of view were collected regarding the project’s research questions. The project is expected to be completed by the end of March 2021.

 If you have any questions about the project, please contact the research team.

Research team contact information

Project Manager: ETLA, Tero Kuusi,, +358 41 444 8144

Project interaction: Demos Helsinki, Tuuli Kaskinen,, +358 50 514 9752

Research Partner: SYKE, Johanna Pohjola,, +358 295 251 518