The economic crisis and its consequences for the environment and environmental policy

A review study of the impacts of the economic crisis on the environment and environmental policy in Nordic countries indicates that the short run economic slowdown translates into a levelling or decline of various emissions in the Nordic countries. The extent of greenhouse gas emission reductions vary by countries' economic structures. Some other emissions, e.g. of sulphur dioxide, have not been affected by the crisis. In general, emissions curtailed by well established policies, appear to have been extensively decoupled from economic growth. In contrast, emissions for which policy is still evolving, such as for climate mitigation, seem more sensitive to variations in economic growth. Effective decoupling is essential to the sustained fulfilment of environmental objectives.  Long term effects of the economic crisis are threatening. In the absence of new policy initiatives, the reduced need and investment capability will slowdown the renewal of production capacities and structures. In due course, also environmental R&D efforts may decelerate and postpone eco-efficient innovations. Considering the strains on public budgets, creative policy solutions need to be found. Green, as other stimulus applied in response to the crisis, cannot be sustained for long. Though the effectiveness of some efforts may be doubtful, the idea of a green transformation in society and the economy is vital for sustained efforts and achievement of goals. The vigorously growing economies in Asia and Latin America offer significant export potential for environmental innovations. Such technology transfers are indispensable for the achievement of global climate policy objectives. Export success, however, frequently requires proven performance. Hence, Nordic innovation policies should promote joint demonstration projects to overcome small home market size. Despite their progress in the greening of the fiscal system, Nordic countries maintain considerable scope in (fossil) energy and natural resource use taxes, and environmentally harmful subsidies. New incentives such as feebates and tradable certificate systems also merit consideration. Moreover, emerging systems for tailored monitoring and feedback systems for companies and households regarding energy use, transport performance, and embodied emissions, can address untapped potential at moderate costs. The report has been commissioned by the Working Group on Environment and Economics under the Nordic Council of Ministers. The study was conducted by the Government Institute for Economic Research (VATT) in Helsinki.