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1. Introduction

All Nordic countries have ambitious climate goals and are endeavouring to become carbon-neutral before or by 2050. Finland aims to achieve carbon neutrality by 2035. Iceland strives to reach the same goal before 2040, while Sweden and Denmark seek to be carbon-neutral or even climate-neutral by 2045 and 2050, respectively. Norway aims to become a ‘low-emission society’ by 2050. These national goals are all enshrined in climate laws in the various Nordic countries (Tapia et al. 2022). 
By working towards their nationally defined climate goals, Nordic countries also contribute towards achieving international and European climate ambitions as formulated e.g. by the UN Framework Convention on Climate Change (UNFCCC) in the Paris Agreement and at the level of the European Union (EU) in the European Green Deal and the European Climate Law. Moreover, Nordic climate policies are also key enablers for Our Vision 2030, the shared Nordic strategy to become ‘the most sustainable and integrated region in the world’ by actively working towards carbon neutrality (Nordic Council of Ministers 2023).
Attainment of the ambitious climate goals calls for a systematic overhaul of societies and economies. This process is commonly referred to as the ‘green transition’ (Cedergren et al. 2022). The way we produce, heat, travel, use available resources and address waste products all have to undergo fundamental rethinking. Some have described the green transition as ‘revolutionary’ and as one of ‘the most significant social and economic transitions in world history’, with potentially major implications for households, communities, industries, and regions (Clark II and Cooke 2014).
Against that backdrop, this report explores the macroeconomic and socioeconomic implications of three specific types of climate policies in the Nordic Region: the electrification of car fleets, the implementation of ambitious biofuel goals, and the phasing-out of all remaining coal-fired energy. Unlike existing studies, which generally focus modelling on an individual country, this report covers the majority of the Nordic Region, including the five Nordic countries Denmark, Finland, Iceland, Norway, and Sweden, as well as the autonomous territory of Åland. The report is guided by the following research questions: 
  1. How do the three key climate policies mentioned above affect the income and consumption of various household types across the Nordic Region?
  2. How do the policies affect major macroeconomic variables in the Nordic countries, as well as industry outputs and employment across sectors?
  3. How do such impacts differ across subnational regions within each country?

1.1. Background to the report

In policy debates and academic discussions, there has long been a focus on understanding how various climate policies contribute to reaching climate goals, as well as on estimating their macroeconomic impacts (Flam and Hassler 2023, Calmfors and Hassler 2019). The Nordic countries have developed climate models that are equipped to produce these types of estimates, including the Norwegian SNOW model (Fæhn et al. 2020, Bye, Fæhn, and Rosnes 2018) and the Danish GreenREFORM and IntERACT models (Beck and Dahl 2020, Naturvårdsverket 2022). In Sweden, Konjunkturinstitutet bases its analyses on the EMEC model (Carlén and Sahlén Östman 2015, Klevnäs, Stefansdotter, and von Below 2016) while in Finland the FINAGE model has been used to estimate the impact of climate policy measures on macroeconomic trends and emissions (Honkatukia 2019). Somewhat less attention has often been devoted to how the impact of climate policy measures differs across regions and households with different income levels in the Nordic countries. Nonetheless, it is essential to consider such effects since they may influence public support for climate policies and the green transition. 
In recent years, however, this field has increasingly been a focal point of policy-making and research. That process has been fuelled by developments at the EU level, where the social impacts of climate policies have attracted increasing attention. Most importantly, the European Green Deal includes the pledge that no person and no place shall be left behind in the transition to low-carbon economies and societies (European Commission 2023a). The European Green Deal also includes a Just Transition Mechanism, which provides financial and technical support to regions that will be most affected by the shift to a low-carbon economy, including support for vulnerable groups and communities (European Commission 2023b). That mechanism is designed to ensure that the impacts of the transition to carbon neutrality will not hit some groups or regions harder than others. It is also intended to ensure that public support for the green transition and the European Green Deal can be maintained.
Responding to the increasing focus on socio-economic and geographical implications of the green transition, a growing number of projects and studies have analysed the distributional and household effects of climate policies. In Finland, Statistics and Research Åland (ÅSUB) has worked together with its partners to analyse the economic costs of climate policy measures, such as an emissions tax, and how they affect household incomes (Alimov et al. 2020; see also Tamminen et al. 2019). In Sweden and Norway, recent studies with a similar focus have also been produced (von Below et al. 2023, Fæhn and Yonezawa 2021, Brännlund and Kriström 2020, Andersson and Atkinson 2020). The Danish Economic Councils have estimated the impact of a CO2 tax on regional employment in industry and agriculture (De Økonomiske Råd 2021). Most of these existing studies, however, analyse policy impacts for individual countries and have not compared impacts across the Nordic Region.
Nonetheless, some recent studies have taken a broader macroregional perspective and have, for example, discussed the distributive effects of EU climate mitigation policies (Chen et al. 2020, Pye et al. 2019). In addition, the OECD and other actors have published extensive literature reviews for the purpose of summarising current knowledge on the distributive effects of climate policy measures (OECD 2014 and 2017, McInnes 2017, Mackie and Haščič 2018, Zachmann, Fredriksson, and Claeys 2018). Similarly, the Nordic Council of Ministers has recently published a report that analyses current Nordic practices for assessing the distributional effects of environmental and energy taxes (Gravers Skygebjerg et al. 2020). 
In addition, two research projects by the Nordic Council of Ministers, namely ‘A socially sustainable green transition in the Nordic Region’ (Høst, Lauritzen, and Popp 2020), and ‘Not just a green transition’ (Tapia et al. 2022), focus on how the green transition in the Nordic countries can be implemented without increasing socio-economic inequalities. By and large, existing studies find that climate policy measures can have varying impacts on household finances; moreover, these impacts may be regressive in character, i.e. hit low-income households harder than high-income households (OECD 2014). Nonetheless, many of those studies conclude that it is possible to counteract such effects by redistributing revenues back to households (see e.g. Chen et al. 2020, Fragkos et al. 2021, Zachmann, Fredriksson, and Claeys 2018). Moreover, some recent studies also report progressive impacts of climate policies (see e.g. Fæhn and Yonezawa 2021, Tamminen et al. 2019).
All of these studies underline the importance of analysing the impact of climate policies on household finances and differentiating between households with varying income levels and locations of residence. It is only with sound knowledge of the impact of climate policies on various types of households and regions that adequate mitigation measures can be designed. Such measures are crucial to preserve social justice and to maintain public support for the green transition and progress towards ambitious climate policy goals.

1.2. Goal and approach

This report contributes to a socially fair green transition in the Nordic Region by analysing the impact of three key climate policy measures on household income and household consumption and by comparing impacts at the subnational level and by location of residence. The policies that come under the scope of the report are:
  1. The attainment of national targets for a higher biofuel share of motor fuels;
  2. The attainment of national targets for a higher share of electric vehicles in passenger car fleets; and
  3. The phasing-out of all remaining coal-fired electricity.
The analyses in this report are based on a newly developed computable general equilibrium (CGE) model called Nordic-TERM. The Nordic-TERM model distinguishes between 53 industries, 39 occupations, eight wage bands, and 30 types of households, differentiating by income decile and rural, intermediate, and urban location of residence. This detailed setup allows for analyses of the impact of climate policies on employment and wages – a key source of household income – as well as impacts on consumption patterns. In addition, analyses using the Nordic-TERM model allow us to investigate the impacts of climate policies on macroeconomic variables, CO2 emissions, and industry outputs.
The Nordic-TERM model is the first model to cover almost the entire Nordic Region. It encompasses the five Nordic countries Denmark, Finland, Iceland, Norway, and Sweden, as well as the autonomous territory of Åland. However, Greenland and the Faroe Islands – which also form part of the Nordic Region – could not be included in the model due to data limitations. Within each Nordic country, the Nordic-TERM model identifies subnational regions at the NUTS-2 level. The impact of the three abovementioned climate policies can therefore be compared across the Nordic countries, as well as across subnational regions within and across countries.
Overall, this report aims to contribute to the growing academic and policy-based discussion on how the green transition in the Nordic countries will affect different population groups in different regions, and how climate policy measures can be designed to ensure that the transition will be as just as possible in terms of social and regional impacts. 
The remainder of the report is structured as follows: Chapter 2 provides an overview of the overall climate policy framework in the Nordic Region and how it has contributed to cutting carbon emissions and transforming energy mixes since the 1990s. Chapter 3 delves into the multi-level nature of the climate policy framework and explains the mechanisms leading to social and economic impacts at the household level. Chapter 4 introduces the key analytical tool used in this research and presents the main modelling assumptions and scenarios. Chapter 5 presents simulation results for the effects of the greenhouse policy shocks on the Nordic economies. Chapter 6 presents a number of conclusions and key lessons learned in this study.