The Virus-Hit Global Economy Needs a Green Stimulus

(Bloomberg) --

It’s obvious to anyone watching global markets that the coronavirus poses serious risks to the global economy. It’s less obvious that any economic slowdown might also pose a threat to the climate. 

There’s still a lot we don’t know. The virus may slow down on its own or a drug could put the brakes on its spread. But in the short term we can already begin to measure the economic toll of the epidemic in falling carbon emissions.

Just look to where this all began: Over a two-week period following the Chinese New Year in late January, that country’s factories produced fewer goods and power plants didn’t burn as much coal. It cut emissions from the world’s biggest polluter by as much as 100 million metric tons—close to what Chile emits in a year. The widening global crisis over the virus could see that replicated in multiple countries.

However, conventional wisdom says that an economic slump could spell trouble for long-term climate action. Following the 2008 financial crisis and subsequent global recession, public concern about climate change fell drastically, only recovering when the economy got back on track. “There’s a clear risk that an economic downturn will distract governments from spending on green projects,” said Maeva Cousin of Bloomberg Economics.

That’s particularly bad news in a year when governments were expected to set more ambitious emissions cuts under the UN framework. The annual climate meeting in November in Glasgow could end in failure, seriously hurting global efforts that got a boost after the 2015 Paris climate agreement.

That doesn’t have to be the case.

Broadly speaking, policymakers have two big pulleys they can use to draw their economies out of a ditch. Central banks can levy monetary instruments, such as lowering interest rates (as Australia did on Tuesday) and buying bonds; governments can enact fiscal policies, such as tax cuts and increased investment. The goal is to rev up the economy with enough money that people start spending again.

This sort of government stimulus action could be attached to emissions-cutting projects. Policymakers could provide tax breaks to buyers of electric cars, subsidize energy-efficient homes and lower the cost of capital for renewable energy projects. 

The bad news is that politicians will feel tempted to go back to policies, such as cutting sales tax, compensating citizens for lost work, or spending on shovel-ready infrastructure projects that may or may not have a climate benefit. An ailing economy could lead a country, such as China, already reeling from a trade war with the U.S., to easily approve projects that will pour more steel and concrete, pushing up emissions.

The European Union could show a greener way out of the mess. On Wednesday, the bloc’s executive arm will unveil its version of a Green New Deal, with legislation that would compel the continent to become carbon neutral by 2050. Though we won’t get the details, the EU has been considering policies that could result in a green stimulus package.

Fighting climate change would mean the bloc will need to mobilize as much as 260 billion euros ($290 billion) each year over the next decade. To get there, the EU will make it easier to get public money for green projects, turning the European Investment Bank into a climate bank. And it will create a “just transition” mechanism to compensate the regions most affected by the clean-energy transition, as it moves away from carbon-heavy industries.

Such green thinking could have been deployed to aid the recovery after the recession a decade ago, but it largely didn’t happen. “We are in a slightly better place than last time on thinking about a green stimulus to overcome a downturn,” said Cousin.

Dive deeper: Economy and climate change

• Public concern over climate issues may change more on what politicians say than what the economy does. (Yale)
• How a small group of powerful voices helped the EU lay out a bold vision under its own Green New Deal. (Bloomberg)
• “It’s absolutely the case that emissions and growth can be decoupled.” (New Yorker)
• Climate change could spark another great recession, without much hope of a recovery. (Time)

Akshat Rathi writes the Net Zero newsletter on the intersection of climate science and emission-free tech. You can email him with feedback. 

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