What Explains the Reduction of Greenhouse Gas Emissions of the Finland’s Manufacturing Sector?

Energy-intensive industry is one of the largest sources of greenhouse gas emissions in Finland: its share in the total emissions was 23 percent in 2020. During the last 20 years, industrial emissions decreased from 18 million tons to 11 million tons, or on average approximately 2 percent per year. Which characteristics explain the evolution of emissions? Does the structural change in manufacturing sector and the renewal of companies affect the reduction of greenhouse gas emissions, and thus the mitigation of climate change? To answer these questions, we analyze the carbon productivity growth and the impacts of its components. Based on our results, continuing manufacturing firms were the main drivers of carbon productivity growth of the manufacturing sector in the period 2000–2019. The entry of new firms and exit of unproductive firms (creative destruction) is part of structural change of industries. Its effect on carbon productivity growth was, however, negative. This suggests that some of the most efficient companies in terms of the use of greenhouse gas emissions, for some reason, were unprofitable and exited the market. In addition, the allocation of greenhouse gas emissions across manufacturing firms seems to be inefficient. Its impact on carbon productivity growth was negative. It means that emissions were allocated towards the most polluting companies and the reduction of emissions was due to companies with low emissions. Accordingly, there is a positive relationship between labour productivity and carbon productivity, whereas firm’s competitiveness is negatively associated with carbon productivity growth.