As countries begin to form post-pandemic recovery plans, many are considering it an opportunity to tackle climate change.
According to the International Energy Agency, CO2 emissions are expected to drop 8% this year, but as economic recovery begins, emissions could increase to pre-COVID-19 levels. Many policy makers are considering how a green recovery could not only reduce emissions but speed economic recovery.
There is new evidence in support of green economic recovery policies. Three researchers at Oxford University looked at the link between firms’ environmental, social, and governance practices (ESG) and GDP between 2002-2017. Their paper, The Effect of Firm-Level ESG Practices on Macroeconomic Performance showed a positive correlation between firm-level ESG practices and the effect on living standards in that country, as measured by GDP growth. The positive correlation held true for both emerging and developed countries.
This study complements a previous University of Oxford working paper, Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?, published by a team including Lord Nicholas Stern and Nobel Prize winner Joseph Stiglitz that argued that non-conditional support for high carbon industries would see a lower return on investment than green stimulus packages.
The research was based on 230 surveys from leading economists that asked them to rate recovery policies according to speed of implementation, long-term economic benefit and climate impact, ranging from positive to negative.
Five policy types that earned the highest scores in terms of environmental impact were:
clean physical infrastructure investment in the form of renewable energy assets, storage (including hydrogen), grid modernization and CCS technology
building efficiency spending for renovations and retrofits including improved insulation, heating, and domestic energy storage systems
investment in education and training to address immediate unemployment from COVID-19 and structural shifts from decarbonization
natural capital investment for ecosystem resilience and regeneration including restoration of carbon-rich habitats and climate-friendly agriculture
clean R&D spending
Similarly, consulting firm McKinsey identified 12 stimulus measures with strong socioeconomic benefits and decarbonization effects. They are:
● Improve industrial energy efficiency through such means as replacing equipment and upgrading waste-heat technologies
● Build carbon-capture-and-storage infrastructure around large industrial clusters
● Retrofit houses to increase energy efficiency—for example, by installing heat pumps
● Install smart-building systems, particularly in commercial property, to better manage heating, ventilation, air conditioning, lighting, and security
● Reinforce the electricity-distribution grid (including interconnections) to support widespread electrification
● Expand large- and community-scale energy storage
● Accelerate the build-out of wind- and solar-power generation capacity
● Accelerate the rollout of street lights using light-emitting diodes (LEDs)
● Expand electric-vehicle (EV) charging networks
● Create major bus rapid transit and urban rail projects
● Scale up EV manufacturing
● Develop infrastructure for active transport (such as bicycling lanes)
While research supports tying economic recovery plans to green initiatives, which countries are committing to doing it?
European Union
The European Union is committing to make climate change the centerpiece of its post-pandemic development plans. Top officials in the EU have doubled down on the bloc’s Green Deal, an investment program designed to create jobs while eliminating the EU’s carbon footprint. European Commission President Ursula von der Leyen promised to make the $1 trillion-plus program “our motor for the recovery” while the environment ministers from 17 EU countries, including those from Germany, France and Italy, the block’s largest economies, recommitted their countries to the scheme. Even the EU’s more immediate relief efforts, more than $2 trillion worth have been approved already, include provisions that require corporate recipients to track whether their funds are being used in alignment with the EU’s climate goals.
China
In China, the world’s largest emitter, national leaders have endorsed big spending on low-carbon infrastructure and development priorities. The Politburo Standing Committee, headed by Xi Jinping, has endorsed spending on “new infrastructure” estimated to cost $1.4 trillion over the next five years to fund a wide range of low-carbon technologies that facilitate the transition away from fossil fuels and set the country up to expand its economic influence in the 21st century, according to an analysis published by Australian National University’s East Asia Forum. That funding includes support for technologies specifically aimed at reducing emissions like electric vehicle charging, high-speed rail and long-distance power transmission that can bring renewable power to cities as well as other tech, like data centers and 5G, that will make the country’s economy less dependent on polluting industries.
Canada
In Canada, Prime Minister Justin Trudeau's government has mandated that large companies receiving loans must disclose their environmental plans. There are also several groups calling on the federal government to build back a green economy
New Zealand
New Zealand released its economic recovery plans which included $1.1 billion for “nature-based jobs”, including in pest control and conservation.
World Bank / IMF
The World Bank and the IMF, crucial lenders to the developing world, have stressed sustainability as they grow their lending in response to the pandemic, and many of their borrowers have followed suit.
And yet, according to Climate Change News, countries are due to submit updated 2030 climate plans to the UN before the end of the year. A major step up in ambition would be needed to hold global heating “well below 2C”, as agreed in Paris. Only a handful of countries, including the Marshall Islands, Norway, Moldova, Chile and Rwanda, have increased their climate plans so far.
Over the next few months, we will see which countries and companies will demonstrate their commitment to a green recovery.
If you would like help on developing your own company’s green recovery plans, contact SSC for a free consultation.