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Green transformation

Crisis as an opportunity

by Andreas Burger

In depth

Sustainable transport boosts the economy: metro contstruction site in Nagpur, India, in 2019..

Sustainable transport boosts the economy: metro contstruction site in Nagpur, India, in 2019..

Since the onset of the pandemic, countries around the world have launched economic recovery programmes on a historically unprecedented scale. In most cases, however, there is no focus on environmental sustainability. Yet “green” economic recovery programmes offer a great opportunity not only to tackle the economiccoronavirus crisis but also to address the multiple global environmental crises at the same time. However, this opportunity has so far been insufficiently exploited.

After the outbreak of the Covid-19 pandemic, the German Environment Agency (UBA) conducted a meta-analysis encompassing around 130 studies and position papers on economic stimulus programmes designed to promote sustainable development. That analysis showed that there is a broad consensus on the need for such programmes and their benefits within the scientific community and at international organisations such as the World Bank, International Monetary Fund (IMF), Organisation for Economic Cooperation and Development (OECD) and UN Environment Programme (UNEP).

Studies confirm that green programmes can be very effective drivers of economic recovery, sometimes even more effective than conventional measures. For example, investment in renewable energy pays off more in macroeconomic terms than state support for fossil fuels. Investment in nature conservation, too, can have a very high multiplier effect, meaning that it generates high impacts on demand and employment. Money spent on unsustainable land use, on the other hand, tends to have a negative impact on an economy.

Criteria for green measures

There is widespread agreement in the scientific community on the criteria that green stimulus measures should meet. It is important that they:

Some economic areas are particularly suitable for sustainable recovery programmes. They include non-fossil energy production, energy-efficient building renovation, sustainable mobility and measures for the ecological transformation of industry. The last area mentioned encompasses, for example, the development of a hydrogen-based economy and the promotion of technologies to increase energy and material efficiency. Climate adaptation measures and nature-based solutions such as reforestation are also often rated very highly.

Which particular measures can be feasibly implemented depends partly on country-specific circumstances, such as economic structure and administrative, technical and financial capacities, and partly on the availability of projects that are already planned and can be swiftly implemented.

Evaluations of existing green recovery programmes show significant differences. In industrialised countries the range of support areas is very broad, whereas in emerging economies and developing countries the focus is often solely on the development of renewable energy – especially solar energy – and preservation of the natural capital stock, for example economically important ecosystem services such as forests or marine sanctuaries.

Just a flash in the pan

Studies on green economic recovery programmes launched during the 2008/2009 financial and economic crisis show that they might only have a momentary effect. For example, although global greenhouse gas emissions declined slightly in 2009, they rose sharply again in 2010. The main reasons for the upturn were low energy prices and high government spending on fossil fuel-based activities.

Therefore, it is necessary to check all economic stimulus measures for environmentally harmful and climate-damaging effects and to embed green recovery programmes in structural reforms. This includes dismantling environmentally harmful subsidies and implementing carbon pricing. In addition, regulatory barriers need to be removed and green investment targets set.

It is also important to promote green financial instruments, build green infrastructures such as charging points for electric vehicles, expand public transport networks and power grids, and launch training programmes so that the social and ecological transformation is not hampered by a shortage of skilled workers.

Policy-making is lagging behind

More than two years after the onset of the corona crisis, questions need to be addressed about the extent to which policy-makers heeded the recommendations of the scientific community and the scale on which green economic recovery programmes were implemented. The answer is sobering: from a global perspective, green recovery measures played a minor role to combat the corona crisis.

The Global Recovery Observatory – a platform created by the UN Environment Programme (UNEP), IMF and GIZ to promote knowledge exchange and green fiscal policy – tracks countries’ COVID-19 recovery spending. It estimates that total spending worldwide on measures to address the crisis amounted to around US$ 18 trillion (as of August 2022), most of which went on short-term rescue efforts. Only a little over US$ 3 trillion was longer-term recovery spending and less than a third of that was used to fund green programmes.

Even so, compared to the 2008/2009 financial crisis the importance of green economic recovery measures has increased significantly. Evidence of this can be seen, among other places, in many EU countries, partly as a result of the EU Recovery and Resilience Facility earmarking considerable financial resources for green measures.

Green recovery spending has been confined to relatively few countries, most of them in the industrialised world. This is largely due to the fact that the financial resources of developing and emerging economies are much more limited. In 2020, per capita spending on recovery programmes in industrial countries was 17 times higher than in developing and emerging economies. This shows how important debt relief and targeted financial support by the industrialised world is. They empower developing and emerging nations, too, to implement green programmes.

Moreover, green programmes’ positive impacts on the environment are often counteracted by negative impacts from other stimulus measures. The IMF found that in the Group of 20 leading economic nations (G20), 1.4% of corona spending in 2020 had a positive climate impact, while 1.7% was harmful to the climate. Analyses by the Global Recovery Observatory conclude that only 3% of expenditures on economic recovery have a positive effect on the natural capital stock but 17% of spending has a negative impact. With regard to the goal of air pollution control, the positive and negative impacts are more or less equal. These are shocking findings and underline the importance of applying environmental and sustainability checks to all stimulus measures.

Whether the world as a whole will emerge from the crisis greener as a result of the corona programmes that have been implemented is impossible to say at this stage. It is too early to make a final judgement because programmes are still ongoing and quantitative impact studies are hardly available.

Because of the war in Ukraine, the world is now once again in an economic crisis. And the measures taken in response to that crisis will again be decisive. If the sharp rise in fossil fuel prices is used as an opportunity to promote energy efficiency, green energy and post-fossil production technologies, the crisis could become a catalyst for sustainable development. Developing countries and emerging economies urgently need support in this regard because the constraints on their financial capacities have been even intensified by the current surge in energy and food prices and the economic crisis.

If, on the other hand, the response to sharply rising fossil fuel prices and gas supply shortages is to subsidise fossil fuels even more and to develop new sources of fossil fuels, the targets of the Paris Climate Agreement will hardly be achievable any more.

 

References

Umweltbundesamt (German Environment Agency), 2020: The Green New Consensus. Study shows broad consensus on green recovery programmes and structural reforms.

Green Fiscal Policy Network (UNEP, IMF, GIZ) and University of Oxford: Global Recovery Observatory.

IMF Working Paper, 2021: Monitoring the Climate Impact of Fiscal Policy – Lessons from tracking the COVID-19 response.


Andreas Burger heads the section for Economic and Social Environmental Issues, Sustainable Consumption at the German Environment Agency in Dessau-Roßlau.
andreas.burger@uba.de