Climate change is caused by excessive greenhouse gas emissions.^[9] See, for instance, Causes and Effects of Climate Change. Greenhouse gas emissions are an example of what economists call a negative externality. This means that those who cause the emissions do not bear the full cost of the consequences of the emissions. There is a broad consensus in economic research that the most important factor in reducing greenhouse gas emissions is to make them more expensive, so that those who cause them bear a greater share of the economic costs. One way of achieving this is through various kinds of taxes, on carbon emissions, for example. Another way is through overall quantitative limits, where allocation to companies is made through the purchase of emission rights.

Global emissions are steadily increasing; see Figure 1. At the same time, Swedish emissions have decreased since the 1990s; see Figure 1. There are several explanations for this. The heating of homes and premises has become more efficient and shifted to energy sources with lower emissions. There have also been fuel shifts in industry and domestic transport. More efficient vehicles and the reduction obligation have also contributed to the reduction of emissions in domestic transport. A ban on landfilling of organic waste has contributed to reduced emissions related to Swedish waste management. In the energy sector, emissions have decreased as a result of reduced use of oil and coal.

If it is taken into account that Swedish consumption gives rise to emissions in other countries, measured as consumption-based emissions in Figure 1 on the right, Swedish emissions are at a considerably higher level. Furthermore, the declining trend in consumption-based emissions was broken in 2020 and Swedish emissions have increased again according to this calculation method. The territorial and production-based emissions metrics are similar to one another. The difference is that the production-based metric also includes an estimate of international transport caused by Swedish companies and persons.^[10] See Sveriges utsläpp av växthusgaser[Sweden’s greenhouse gas emissions] and Tre sätt att beräkna klimatpåverkande utsläpp[Three ways to calculate climate-changing emissions].

The Swedish Government’s goal is to make Sweden climate neutral by 2045. This involves reducing emissions measured as territorial emissions to zero. Emissions will continue to fall, and at a faster rate than in the last 30 years.^[11] See Regeringens klimatpolitik [Government climate policy]. According to assessments, emissions are not falling fast enough to achieve the target; see, for example, Klimatpolitiska rådets rapport 2024[the Climate Policy Council’s report 2024] and Naturvårdsverkets underlag till regeringens klimatredovisning 2024[the Swedish Environment Protection Agency’s basis for the Government’s Climate Report 2024]. In the EU, the goal is to be climate neutral by 2050. Achieving this will require significant investment.^[12] There are different estimates of the investment need. One study finds that it may amount to 4 per cent of GDP in the EU every year until 2030; see C. Nerlich, et al. "Investing in Europe’s green future - Green investment needs, outlook and obstacles to funding the gap", ECB Occasional Paper Series No 367, European Central Bank. Financial market actors thus play a key role in the transition to a sustainable economy, by allocating capital and savings to sustainable investments.

Billion tonnes of carbon dioxide equivalents

Million tonnes of carbon dioxide equivalents

The increased emissions pose several risks. The physical risks of climate change are becoming increasingly clear. These include both extensive fires caused by drought, as well as torrential rains and floods that cause injury to people, animals, nature and property. Reduced biodiversity and the risks it may pose to food production are also a physical risk that follows on from climate change. There are also transition risks that arise when the world’s economies and societies need to take action to adapt to reduce emissions. There is a high risk that these measures are taken to a too small extent, too late or not at all. Then there is the risk of a disorderly transition. If international cooperation on climate issues is weakened, the risk of a disorderly transition increases.