Climate neutrality in Latvia can be achieved only by integrating climate and industrial policy. Researchers from the Productivity Research Institute “LU Think Tank LV PEAK” (LV PEAK) of the Faculty of Economics and Social Sciences (FESS) at the University of Latvia (UL) conclude in their study that climate neutrality in Latvia is attainable only if climate and energy policy is integrated with industrial policy. Emphasis should be placed on the development of domestic technologies, export-capable value chains, and competitive energy prices for production. The researchers note that such an approach promotes both emissions reduction and economic growth.
On 6 February 2026, LV PEAK researchers presented to the wider public the results of last year’s study “Economic Growth and Climate Targets,” commissioned by the Ministry of Economics (MoE). The researchers conclude that Latvia’s economic development, energy, and climate policy documents contain several significant inconsistencies (including differing GDP growth assumptions, divergent investment trajectories, and a focus on supporting final consumption), while the industrial dimension is insufficiently developed in policy documents.
“In the study, we wanted to determine whether we will have sufficient energy resources, including electricity, to develop our economy and various sectors — industry and modern technologies, which are impossible without it,” explained LV PEAK Director Professor Inna Šteinbuka, outlining the overarching objective of the study. “We were particularly concerned about cost competitiveness, especially electricity prices. At the same time, we worked extensively on the ‘Latvia 2050’ strategic framework, in which the energy section is a crucial component of the long-term strategy.”
“On the one hand, we have climate and energy policy and targets. We must become greener. On the other hand, entrepreneurs feel that productivity remains low across nearly all industries, while wages are rising faster than inflation, meaning companies must pay employees more while production volumes remain unchanged,” explained Kaspars Rožkalns, Chairman of the Board of the Latvian Exporters Association “The Red Jackets,” one of the project implementers, describing the practical necessity of the study. “This means that sooner or later we lose competitiveness. When climate and energy targets and green transition policies are discussed, entrepreneurs become concerned because they anticipate further pressure. Wages must increase, production remains the same, and additional investments in green measures are required without immediate direct gains.
If investments are planned within climate and energy policy, then emissions must be reduced while ensuring that the funds generate the highest possible return on GDP. Investments should not be dispersed indiscriminately but should focus on exports, which discipline businesses to become more competitive. When discussing investments of billions, we know that allocating very large sums into a narrow industry over a short period can lead to overheating. Additionally, the study sought to identify priority directions and specific technologies where each euro invested yields the highest multiplier effect in the economy.”
The LV PEAK assessment of Latvia’s economic development scenarios confirms that the scale of planned energy investments poses macroeconomic risks by exceeding the economy’s absorption capacity and potentially undermining competitiveness. Overly optimistic scenarios are not feasible; priority must be given to high-quality, export-oriented investments rather than merely their volume.
As priority export-capable industrial sectors with high multiplier effects and the greatest economic return, the researchers identify: manufacturing of electrical equipment and power electronics, sensor production and automation, biomethane and circular bioeconomy, as well as advanced biomaterials and chemical technologies. Investments in these areas would stimulate exports and reduce import dependency.
UL Rector Professor Gundars Bērziņš, who led the LV PEAK study for the development of the “Latvia 2050” framework, explained the link between the climate neutrality study and the long-term strategy:
“The central idea is how energy policy can influence Latvia’s cost competitiveness. Latvia’s competitiveness consists of cost competitiveness and productivity-based competitiveness. Energy is a critical component of cost competitiveness. Future business development is directly tied to energy policy. Latvia must define its positioning in terms of energy competitiveness. It must be absolutely clear what we aim to achieve in two components — transmission and distribution. Are we prepared to state that we are working to become the most competitive in the Baltic region in these areas?
The second aspect concerns whether policy prioritizes the interests of electricity producers participating in the market or focuses on consumers. What is needed to ensure that electricity generation projects — which are characterized by high uncertainty and limited financing capacity — can be implemented? These are inherently high-risk projects with constrained access to financial resources.
The third aspect is how to ensure that energy becomes available as quickly as possible in locations where businesses are prepared to develop operations — for example, large data centers. Essentially, ‘Latvia 2050’ outlines three major directions aimed at answering a fundamental question: how to meet the needs of those who wish to consume energy, while also creating conditions that encourage those ready to produce energy to actively engage in generation.”
Associate Professor Laila Zemīte of Riga Technical University presented the role of hydrogen and net-zero emissions technology ecosystems, while LV PEAK Leading Researcher Oļegs Krasnopjorovs explained the impact of climate and energy policy investments on economic growth using a general equilibrium modelling approach.
The researchers behind the study “Economic Growth and Climate Targets” also provide several specific policy recommendations, including: rapidly increasing renewable electricity generation and ensuring competitive prices for industrial consumers; promoting the transition toward higher value-added industries based on affordable and accessible electricity; developing the production of strategically critical technologies and components as a foundation for scalable, export-capable industries; and positioning Latvia as a competitive hub for data and digital infrastructure.
The discussion of the study’s findings concluded with a panel debate titled “Proposals for Enhancing Economic Development and Energy Policy: Synergies Between Economic and Energy Policy (Roadmap 2025–2035),” moderated by Professor Inna Šteinbuka. Participants included UL Rector Professor Gundars Bērziņš, Chairman of the Board of “The Red Jackets” Kaspars Rožkalns, Board Member Jānis Ošlejs, Director of the Climate Policy Department at the Ministry of Climate and Energy Aiga Grasmane, and Senior Expert Einārs Cilinskis from the Ministry of Economics.
Source: eszf.lu.lv
(Translated using artificial intellect tool)
