Should Economic Stimulus Be Green? It’s a Matter of Timing
(Bloomberg) -- With every passing week, the pandemic-led economic crisis gets deeper and the interventions to cushion the blow get bigger.
Such upheavals in world economies are rare. With governments announcing hundreds of billions of dollars in stimulus packages, many see this as an opportunity to shape the economic interventions to be as green as possible—but don’t always agree on when to push for it.
“With this massive bailout and stimulus, which is needed right away, we could put in very strict conditions to make sure we build solid, resilient, inclusive and sustainable economies,” Mariana Mazzucato, economics professor at University College London, told the BBC. Those conditions, she said, could be for improving the treatment of workers and cutting emissions.
The sums involved are huge. The U.S. Congress is considering a package worth $1.8 trillion—a little less than 10% of the country’s GDP. It includes loans to small businesses, cash payments to individuals, and a rescue program for airlines. There’s also provision to give $425 billion to ailing firms, but without any details on what types of companies or industries qualify for it. Stimulus packages of European countries are of similar size, when adjusted for their economies.
Some see it as an historic opportunity to steer the world in a more sustainable direction. Fatih Birol, executive director of the International Energy Agency, wants clean energy to be at the “heart of the stimulus plans to counter the coronavirus crisis.” “This situation is a test of governments and companies’ commitment,” he wrote on LinkedIn. “Observers will quickly notice if their emphasis on clean energy transitions fades when market conditions become more challenging.”
Many are heeding these calls. In the U.S., for example, some environmentally minded lawmakers only want to support bailing out airlines after extracting promises to improve fuel efficiency and lower emissions. Other environmental groups are lobbying to extend tax credits for renewable energy and electric cars. Many are demanding that oil companies facing bankruptcies not be saved.
Other environmentalists say it’s important to wait. “Right now I would have no explicit climate or clean-energy angle,” says Ted Nordhaus, founder of the Breakthrough Institute, an environmental think tank. “It’s not the time to be talking about climate change or demanding climate policy.”
Nordhaus worries that the economic recession will be deep, and without a “miracle cure,” could go on for more than a year. “That’s going to cause extraordinary economic pain for a lot of people, most of whom don’t have the privilege of worrying about climate change,” he says. “It would be tone-deaf to talk about climate change now.”
Millions of people may lose their jobs over the next few weeks without any assurance of when they’ll get them back. That demands swift action, with minimal conditions. “It's not the time for stimulus yet. We're in disaster mode,” says Jesse Jenkins, assistant professor at Princeton University's Andlinger Center for Energy and the Environment. “Relief now. Recovery next.”
During the financial crisis a decade ago, the U.S. government spent $700 billion bailing out banks in a bid to rescue the economy. There was nothing green about the relief package. Then months later, it injected $800 billion through a stimulus package—more than 10% of which went to measures that cut emissions, improved efficiency, and spurred energy innovation.
Mazzucato wants a different way. “All these bailouts have contracts to them. We can make sure that citizens and people benefit—not just the businesses,” she said. “That can be done in a simple way.”
Despite their differences, most agree that if companies need to be bailed out then governments should consider taking an equity stake in them. Here’s an example Mazzucato likes to share. In 2009, as part of the recovery program, the U.S. government provided about $500 million in loan guarantees to two green startups: Solyndra LLC and Tesla Inc. Within a few years, Solyndra declared bankruptcy but Tesla registered wild successes. If the government had taken equity in both companies, it would have more than made up for the loss incurred by one. It wouldn’t even be an unprecedented move: In the same recovery program, the U.S. government nationalized automaker General Motors and insurance giant AIG—then re-privatized both a few years later.
At least some people in power have similar ideas. U.S. President Donald Trump said last week that he is considering taking equity in companies that need bailouts.
“If we do this in the right away, we will come out of this crisis with public ownership of most of the industries that climate advocates care about,” says Nordhaus. “It creates an opportunity for a much more expansive overhaul of huge sectors of the economy.” First governments could save carbon-heavy industries like airlines, hotels, and oil companies; then once the economic recovery begins, they’d be able to shape these companies for a carbon-constrained world where emissions will have to be lower as climate goals once again start to become more important.
What would that reshaping look like? Governments could insist that airlines offset all their emissions based on strict criteria. They could ban small oil and gas producers, who have together created barriers for climate legislation, from lobbying against environmental rules. They could even buy up coal mines, then shut them down while providing retraining for miners to enter cleaner industries. David Livingston, senior analyst at the Eurasia Group, says: “Done right, it could really tip the scales in favor of cutting emissions.”
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