Towards a Green Recovery after COVID-19
Over the last year, COVID-19 has caused untold environmental, social and economic damage across the world. It has caused millions of deaths, trillions of dollars of economic damage, and set back our progress towards the Sustainable Development Goals (SDGs), in everything from gender equality to child vaccinations. And if action is not taken, we will continue to stumble towards an even larger threat to humanity – climate change. Without significant decarbonisation, we are heading towards a 3.2°C rise in global temperatures by the end of the century. With that sort of global warming comes an increased likelihood of extreme weather events, flooding, droughts and pandemics, all of which will cause social and economic far in excess of the COVID-19 pandemic. For many, this is not a remote threat. Even while tackling the effects of COVID-19, Bangladesh has suffered from super-cyclone Amphan. Similar disasters will only become more common if action is not taken. Even the 7% reduction in CO2 emissions in 2020 is still below the almost 8% needed every year from 2020 to 2030 to reach the 1.5°C target set by the Paris Climate Agreement. Reaching the target will require systemic changes to the global economy, and the unprecedented fiscal stimulus packages that will be required for a post-COVID economic recovery are an ideal opportunity.
This article will draw on the latest literature to present some of the policies that could be deployed to foster economic growth while also tackling climate change. The dichotomy between economic growth and environmental action is a false one – in fact, green economic stimuli could actually be associated with higher fiscal multipliers. Many of these policies also have other social co-benefits, and go some way to achieving several SDGs. The article will also review some of the stimulus packages that have already been put in place, identifying their strengths and shortcomings. It will also highlight the need for institutional frameworks in order to effectively implement these measures, as well as some of the lessons we should learn from the ‘green recovery’ packages that were passed after the Global Financial Crisis (GFC) of 2008. The stimuli brought in after the GFC were a missed opportunity to reorient the global economy to make it greener and fairer. We must not make the same mistakes this time around.
Compared to the GFC however, a few things make the response to the COVID-19 crisis an even better opportunity for change. The scale of the current economic crisis is much larger, and has necessitated unprecedented levels of public expenditure. Governments are finding themselves forced to adopt more flexible fiscal frameworks, and so spending large sums on ‘green’ investments is now regarded as much more acceptable. Furthermore, over the last decade, the costs of key green technologies, such as solar and wind, have fallen considerably, and combined with record low interest rates, this makes large deployments of these technologies much more feasible than they previously were. Between 2010 and 2019, the cost of solar photovoltaics declined by 82%, while onshore and offshore wind costs declined by 40% and 29% respectively. And compared to the period after the GFC, both policymakers and the general public are more aware of the threat posed by climate change. In a survey of over 28,000 people in 14 countries, IPSOS found that 71% of respondents agreed that ‘in the long term, climate change is as serious a crisis as COVID-19’. The same poll found that 65% of those surveyed agreed that their government should prioritise climate change in the post-COVID economic recovery. COVID has also demonstrated that we can very rapidly alter our behaviour in an emergency, proving that dramatic changes for net-zero are not impossible.
Policy suggestions for a ‘green recovery’
This article will now detail a number of the changes required to move towards net-zero, both short-term and long-term, as well as some of their economic benefits.
Conditional bailouts. Government bailouts to carbon-intensive industries should be conditional on significant reductions in corporate emissions, as well as the creation of a clear pathway to net-zero. For example, bailouts to airlines could require them to eliminate short-haul routes where rail is a practical alternative, or implement complete emissions offsetting, while bailouts to vehicle manufacturers could stipulate an increased focus on electric vehicles. Unfortunately, many opportunities to bring in these ‘green strings’ have been missed. European airlines have received over €37 billion in state funds, the vast majority of which were given without any climate conditions attached. Even when such strings exist, they are not legally binding (the Air France and Austrian Airlines packages will be detailed later in this article).
Ending fossil fuel subsidies. In 2019, global fossil fuel subsidies amounted to around 478 billion USD. In the European Union, these subsidies actually increased by 6% from 2015 to 2018. And across the G20, the balance of state support is skewed to fossil fuels – with over 47% of support directed to fossil fuels, compared to 39% for clean energy. Low oil prices provide an ideal opportunity to cut fossil fuel subsidies with minimal effects on consumers.
Retrofitting buildings. Buildings are responsible for nearly 30% of global CO2 emissions, through the burning of fossil fuels for heating and their electricity consumption. In the UK, heat accounts for about one third of greenhouse gas emissions. Direct grants and interest free loans should be used to assist homeowners with improving the efficiency of their homes (for example, by installing insulation). Support could be targeted at low income households that suffer from fuel poverty, where households forgo heating due to cost. This would also help fulfil SDG 7 (Ensure access to affordable, reliable, sustainable and modern energy for all) and SDG 10 (Reduce inequality within and among countries). Moreover, retrofit programmes would be a boon for the construction industry, which faces 6 million job losses in the EU alone due to COVID-19. In the long term, Allan et al. suggest that all properties should be moved over to ‘heat pumps, hydrogen or district heating’, while the Cambridge Zero Policy Forum recommends that measures should include using heat pumps, adapting gas central heating systems to run on electrically heated water, and exploiting rooftops to install photovoltaic systems.
Nature-based solutions. Nature-based solutions (NbS) are defined by the International Union for Conservation of Nature (IUCN) as ‘actions to protect, sustainably manage and restore natural and modified ecosystems in ways that address societal challenges’ for both ‘human well-being and biodiversity benefits’. Examples of such interventions include tree planting, as well as restoring and protecting wetland and peatland. These actions not only have the potential to mitigate climate change through carbon sequestration, but also provide significant co-benefits in the form of building resilience to climate-related hazards and increasing biodiversity. The restoration of salt marshes, coastal lagoons, coastal peatlands, sand dunes and oyster reefs can minimise the impact of storm surges while also providing habitats for wildlife. Co-benefits of NbS can also include improvements mental and physical health; urban gardens, for example, can form a key part of flood prevention strategies while also improving wellbeing. In the context of a green recovery, NbS is relevant because of the sheer number of jobs it could potentially create. In the United States, ecosystem restoration directly employs 126,000 people and generates 9.5 billion USD in economic output annually. A further 95,000 people are employed indirectly. One study found that 31.5 jobs were created by ecosystem restoration projects (directly and indirectly) for every 1 million USD spent. The World Resources Institute puts the job creation rate of NbS as a whole at 39.7 per 1 million USD invested, which they note is ‘over ten times the job creation rate of investments in fossil fuels’.
Circular economy. Shifting to a circular economy, where products, components and materials are constantly reused, would not only eliminate waste and reduce raw material extraction, but it could also significantly decrease carbon emissions. One report has found that if applied to four key industrial materials (cement, steel, plastic and aluminium), a circular economy approach could reduce emissions by 40% in 2050. The European Environment Agency has found that a number of circular economy actions could reduce materials-related greenhouse gas emissions by 61% across buildings’ life cycles. A circular economy could also be economically beneficial, with the ILO suggesting that by 2030, a shift to circularity will create 7 to 8 million jobs globally (net). The EU also estimates a net increase of 700,000 jobs, and a GDP boost of 0.5%.
Invest in clean energy infrastructure. As noted previously, the cost of renewable energy has fallen drastically, making large-scale deployments more practical than ever. Decarbonising energy production is a key part of reaching net-zero. Furthermore, renewables deployment could boost employment – by one estimate, the wind and solar sectors could create 52 million jobs worldwide in the next decade, more than compensating for the 27 million jobs that will be lost in the transition away from fossil fuel. Estimates for the United States show that for every 1 million USD spent on renewable energy, 7.5 full time jobs are created, compared to only 2.7 for equivalent spend on fossil fuels. As such, renewable energy is very labour intensive in the short term. As clean energy technology advances and becomes less labour intensive, the resulting energy cost savings will have flow-on effects for the rest of the economy. Investment will also be required in electricity storage (especially lithium ion batteries) to facilitate the integration of various renewable energy sources.
Investing in R&D. Investment in promising technologies is a key part of reaching net-zero. In particular, greenhouse gas removal technologies, like carbon capture and storage (CCS), will be essential in meeting the Paris Agreement target of limiting global temperature increases to 1.5°C above pre-industrial levels. The Intergovernmental Panel on Climate Change has laid out a scenario where CCS could remove up to 300 gigatons of CO2 by 2050. To put that into context, that is 800 times the UK’s CO2 emissions in 2018. The International Energy Agency estimates that around 2,000 CCS facilities are needed by 2040 to meet the Paris goals, and so significant investment is required to make CCS economically viable.
To support these policies, countries must develop institutional frameworks that allow cross-government co-ordination and an unprecedented deployment of resources to deliver net-zero sustainable development. In the United Kingdom, for example, the All-Party Parliamentary Group (APPG) on the Global Goals for Sustainable Development heard evidence that current government policy on the SDGs was too ad-hoc, with a lack of co-ordination between governmental departments. The SDGs were felt to be the primary responsibility of the Secretary of State for International Development (before the merger of the DFID and FCO), despite the SDGs explicitly targeting both developed and developing countries. The APPG recommended that a cross-government strategy for achieving the SDGs should be developed, with the Cabinet Office being responsible for oversight. Furthermore, a mechanism should be established for regular engagement with stakeholders, including civil society, businesses, trade unions, and the general public. Similarly, others have suggested the establishment of a Net Zero Delivery Body, which would be responsible for the preparing and delivering a ‘Net Zero Delivery Plan’, ensuring that governmental efforts are coherent and integrated. They also emphasised the importance of engaging with stakeholders, including public participation through a Citizens’ Assembly approach.
Learning the lessons of the GFC
In implementing ‘green recovery’ policies, we must also learn the lessons of the 2008 financial crisis. Over 16% (around 500 billion USD) of fiscal stimuli deployed after the GFC can be regarded as ‘green’, having targeted renewable energy, energy efficiency, scrappage of low fuel efficiency vehicles, clean technology R&D, public transport, resource management and nature conservation. Yet despite this, there is a lack of ex post assessments that detail the effects of these ‘green’ stimuli on the economy, the environment and employment. This time around, policy evaluation needs to be built into stimulus measures from the very start, with measurement against clear policy objectives, allowing the effects of these policies to be closely monitored and evaluated over time. Standardising these evaluation frameworks globally would allow direct comparison between countries, facilitating the transfer of best practice between them. To this end, the OECD has devised thirteen indicators for monitoring progress towards green economic growth. These indicators were selected based on their ability to ‘capture the interface between the environment and the economy’, to ‘monitor key environmental trends’, and their ‘measurability and comparability across countries and over time’.
Investing in human capital
Furthermore, the move to a net-zero economy will be impossible without sufficient investment in human capital, to create a workforce that is well placed to take advantage of the employment opportunities offered by a ‘green’ economy. The International Labour Organisation has noted that skills shortages are a ‘major bottleneck in a number of sectors’, including ‘renewable energy, energy and resource efficiency, renovation of buildings, construction, environmental services and manufacturing’. Part of this means reskilling workers whose jobs will be affected by the transition to net-zero. If care is not taken to ensure a ‘just transition’, there is the danger that pre-existing patterns of inequality will be reinforced. In the UK, the 2.2 million jobs at risk (if no reskilling is undertaken) are mostly located in the East Midlands, West Midlands, and Yorkshire and the Humber, areas which have previously suffered large scale deindustrialisation. Furthermore, the areas with the largest proportion of jobs that require reskilling have an average of 28% BAME residents, compared to the national average of 13%. A just transition, therefore, means a recognition of the fact that the shift to net-zero will have uneven impacts, and that action is needed to mitigate this. Successful reskilling programmes would not only help assuage these negative impacts, but also form part of a larger green investment package specifically targeted at regions with high levels of unemployment and deprivation. For example, low carbon industry could be concentrated in these areas, helping to drive more even economic growth across the UK, rather than have it be mostly concentrated in the South East. This would deliver on the UK Government’s promise to ‘level up’ disadvantaged regions, and would further progress towards SDG 10 (reduce inequality within and among countries).
How have governments done so far?
So far, global progress towards implementing the kind of ‘green’ measures described above has been a mixed bag. Vivid Economics’ ‘Greenness of Stimulus’ Index analysed 23 economies (G20 plus Spain, the Philippines and Singapore). Of the economies examined, only Germany, the United Kingdom, Spain, France, and the European Union have announced stimuli that have a net positive environmental impact. Leading the pack is the European Union, which has allocated 37% of its €750 billion stimulus package towards green initiatives. The package will invest in building efficiency (aiming to double the annual renovation rate of existing building stock), clean technologies (renewable energy, energy storage, clean hydrogen, batteries, carbon capture and storage), support for electric vehicle infrastructure, reducing emissions from agriculture, and a ‘Just Transition Fund’ to support communities that have historically relied on carbon-intensive industries through the transition to net-zero. The EU has also stipulated that use of the funds by member states should follow the ‘do no harm’ principle.
The Vivid report put France in second place. The country has announced €30 billion to support energy efficient building renovations, the decarbonisation of industry and agriculture, green energy and green transport. It has also attached climate conditions to bailouts of carbon-intensive industries. For example, the French government has asked Air France, which received €7 billion of state aid, to reduce emissions by 50% by 2030 (compared to 2005 levels) and to use a minimum of 2% renewable fuel by the same year. ‘Asked’ is used intentionally here; they are unfortunately not legally binding and rely on Air France’s goodwill. Austria has also set green strings for its bailout of Austrian Airlines, which will have to reduce its total emissions by 30% by 2030 (from 2005 levels) and end all flights where a rail connection under three hours exists. It is unclear how binding these commitments are, but it is still an improvement over airline bailouts carried out by other countries. The UK has granted RyanAir and EasyJet loans of £600 million each, while WizzAir and British Airways have both received loans of £300 million – all without any green strings. Furthermore, both Spain and Italy have also bailed out airlines without climate conditions, with Spain giving Vueling and Iberia a combined €1 billion in loans, and Alitalia receiving an injection of €3 billion from the Italian government. These are all missed opportunities to achieve significant improvements in the emissions output of airlines, and any further financial support should come with legally binding climate conditions.
In contrast to the more positive picture above, many countries have succumbed to the temptation of trying to boost the economy through investments in traditional carbon-intensive industries. In China, a large number of coal plants have been approved, and construction demand caused a rise in cement (10%), aluminium (11%) and steel production (13%) between October 2019 and October 2020. China’s share of the global output in the three sectors rose from fifty to sixty percent in the same period. Overall, the industrial sector’s contribution to Chinese GDP growth in the second quarter of 2020 was 61%, compared to an average of 35% over the previous three years. In fact, China’s CO2 emissions have been above their pre-pandemic level since May 2020, despite the Chinese government’s pledge to reach net zero by 2060. India has also announced significant support for highly polluting industries, including 6.6 billion USD for coal infrastructure, tax incentives for coal gasification, and the fast-tracking of forest clearance applications for industrial use. The country has also put up 41 coal blocks for auction to private investors. So far, a $780 million afforestation and forest management programme is the only measure that has been announced that could have a climatic upside. The programme is expected to stimulate the rural economy while increasing carbon sequestration, decreasing soil erosion, and providing habitats for wildlife, but is only a small step in the right direction.
This article, then, has demonstrated that COVID-19 has offered us an opportunity to ‘build back better’ and create a greener and more inclusive world. By channelling stimulus money into the green stimuli described above, it is possible to achieve a robust economic recovery, while staying within planetary boundaries, and also capture significant social co-benefits. And to successfully implement these policies, governments need to develop institutional frameworks to co-ordinate their efforts towards net-zero, build policy evaluation mechanisms into their measures from the very start, and invest in skills to build the workforce of the future. Some governments have taken steps in the right direction, but much more is needed to stave off a social and economic disaster that could prove more devasting than even COVID-19.
Note about the author: Hassan Hassan is beginning his final year studying History at the University of Cambridge. He strongly believes that one of the biggest problems faced by the world is how development and improvements in quality of life can be achieved without jeopardising the fight against climate change. As such, he is keen to be involved in finding solutions, and hopes that Covid-19 can be an opportunity for rethinking our trajectory and achieving long-lasting systemic change.
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