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Researchers find long-term, climate-friendly stimulus policies are often superior in overall economic impact – not just in slowing global warming.

As ever, good can be extracted from even the darkest hour, but it requires clear thinking, imagination and bold leadership.

Emily Shuckburgh

An analysis of possible COVID-19 economic recovery packages shows the potential for strong alignment between the economy and the environment. The direction of these measures over the next six months will largely determine whether the worst impacts of global warming can be avoided, and research published today reveals that climate-friendly policies can deliver a better result for the economy – and the environment.

Drawing on a global survey of senior central bank and finance ministry officials, as well as learnings from the 2008 financial crisis, economists found that green projects create more jobs, deliver higher short-term returns per dollar spent and lead to increased long-term cost savings, by comparison with traditional fiscal stimulus.

“The COVID-19-initiated emissions reduction could be short-lived,” said lead author Cameron Hepburn from the University of Oxford. “But this report shows we can choose to build back better, keeping many of the recent improvements we’ve seen in cleaner air, returning nature and reduced greenhouse gas emissions.”

“The markets are not unduly worried about UK public debt and neither should we be,” said co-author Dimitri Zenghelis, Special Advisor to the Wealth Economy Project, Bennett Institute, University of Cambridge. “The key is that new borrowing is invested wisely to generate productivity-enhancing innovation, resilient output and a sustainable expansion of capacity. We cannot go back to the old model of business as usual, instead we should confront the economic threat posed by ‘fear’ through investment in building back better.”

A team of internationally-recognised experts came together to assess the economic and climate impact of taking a green route out of the crisis. They catalogued more than 700 stimulus policies into 25 broad groups, and conducted a global survey of 231 experts from 53 countries, including from finance ministries and central banks.

Noting that ‘green’ policies could be widely defined, the study focused on the reduction of greenhouse gas emissions as the key environmentally-beneficial criteria. The paper, to be published in the Oxford Review of Economic Policy, observes that desirable policies have a large return on investment, can be enacted quickly and have a strongly positive impact on climate. Examples include investment in renewable energy production, such as wind or solar. As previous research has shown, in the short term, clean energy infrastructure construction is particularly labour intensive, creating twice as many jobs per dollar as fossil fuel investments, as well as being less susceptible to off-shoring.

Other desirable policies included building efficiency retrofit spending, clean research and development spending, natural capital investment for ecosystem resilience and regeneration, and investment in education and training to address immediate unemployment from COVID-19 alongside unemployment from decarbonisation. For developing countries, rural support scheme spending, such as on sustainable agriculture, was also highly ranked. Meanwhile, non-conditional airline bailouts performed the most poorly on both economic impact and climate metrics.

Most G20 governments have implemented significant relief measures as a result of the pandemic. But, as yet, none has introduced any significant fiscal recovery measures. The study authors hope that countries will seize this generational opportunity to take account of these criteria into national plans – for their economies and the environment.

In addition, the COP26 Universities Network has drawn on this research and other analyses to create a briefing for policymakers outlining a path to net-zero emissions economic recovery from COVID-19. The network, a growing group of more than 30 UK-based universities, including the University of Cambridge, was formed to help deliver climate change outcomes at the UN Climate Summit in Glasgow and beyond.

They have put together a briefing that identifies nine fiscal recovery policies that promise to bring both short-term high economic impact and long-term structural change to ensure the UK meets its 2050 climate goals.

“Shaping the national and global recovery from the coronavirus pandemic in a way that supports the response to climate change and other environmental threats simply makes sense – not only does analysis suggest that green recovery packages deliver greater economic benefit, but investing appropriately in research, innovation, infrastructure and skills training, and matching that with robust institutional structures, will help create a fairer, more resilient, sustainable world with benefits for all,” said Dr Emily Shuckburgh, Director of Cambridge Zero. “As ever, good can be extracted from even the darkest hour, but it requires clear thinking, imagination and bold leadership.”

Among the policies emphasised are: renewable energy, reducing industrial emissions through carbon capture and storage, investment in broadband internet to increase coverage, electric vehicles and nature-based solutions. The group further called for the Cabinet Committee on Climate Change to be renamed the Climate Change Emergency Committee to reflect the urgent need for action.

“Currently, the UK directs €10.5bn in subsidies to fossil fuels. Reallocating this capital to jobs-rich renewable energy projects would be a win-win for the economy and environment,” said Brian O’Callaghan, economist at the Institute for New Economic Thinking, University of Oxford. 

The briefing highlights the leadership role of the UK in the leadup to COP26, as well as the opportunity to lead by example with a green recovery package. But the universities warned that the specific designs of any policy would ultimately determine its effectiveness.

Hepburn, C., O’Callaghan, B., Stern, N., Stiglitz, J., and Zenghelis, D. 2020. “Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change? (PDF)” Oxford Review of Economic Policy, 36(S1), forthcoming.
Allan, J., Donovan, C., Ekins, P., Gambhir, A., Hepburn, C., Reay, D., Robins, N., Shuckburgh E., and Zenghelis, D. (2020). A net-zero emissions economic recovery from COVID-19. COP26 Universities Network Briefing.

Adapted from a University of Oxford press release.


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