There is a growing acceptance that the prospect of a V-shaped recovery is unrealistic. “A couple months ago I was optimistic, I was hopeful, that maybe we would have a ‘V’-shaped recovery – shut things down, clamp down on the virus, and then have a quick recovery,” Minneapolis Federal Reserve Bank President Neel Kashkari said in an interview on the PBS Newshour. But Kashkari now says that “we are in for unfortunately a slow, long recovery,” characterized by “devastating” job losses.
The world finds itself at a crossroads. The coronavirus pandemic has ravaged the global economy, leading to massive (and growing) unemployment.
At the same time, the climate problem is not going away. Last month was tied for the warmest April on record globally, and 2020 is on track to be the warmest year ever. Larger and more frequent natural disasters are increasingly likely to happen.
In the face of multiple crises, governments can kill two birds with one stone by going big on green stimulus, rescuing the economy while also making big cuts to greenhouse gas emissions. But failure to seize the opportunity may mean that we “leap from the COVID frying pan into the climate fire,” according to a group of leading economists.
A new report from the University of Oxford examined over 700 fiscal stimulus policies under 25 umbrella categories. The options were gauged by four factors: speed of implementation, economic multiplier, climate impact potential and overall desirability.
The crisis has “demonstrated that governments can intervene decisively once the scale of an emergency is clear and public support is present,” wrote the report’s authors, which included renowned economists Joseph Stiglitz and Nicholas Stern.
Facing the worst downturn since the Great Depression, governments are passing once unthinkable pieces of legislation, with price tags that boggle the mind. Still, they are still falling short, and more trillion-dollar fiscal packages are likely.
But simply rebuilding the old economy isn’t good enough, the Oxford report argues. First of all, it may not work. Shoveling tens of billions of dollars at the airline industry, for instance, will do little if nobody wants to fly for the foreseeable future.
More importantly, re-inflating old industries will lead to climate disaster. Given the scale of spending under consideration, then, there is a once-in-a-generation opportunity to “build back better,” the Oxford report argues. “The recovery packages can either kill these two birds with one stone – setting the global economy on a pathway towards net-zero emissions – or lock us into a fossil system from which it will be nearly impossible to escape,” they warned.
These aren’t just the conclusions of environmental groups or activists. The results of the Oxford paper stem from a survey of 231 finance ministry officials, central bankers, and other economists, representing 53 countries.
“A lesson from the [2008-2009 Global Financial Crisis] is that green stimulus policies often have advantages over traditional fiscal stimulus,” the economists wrote. Construction jobs for renewable energy installation or retrofitting buildings, for instance, cannot be offshored. They are also labor intensive – for every $1 million spent, 7.49 full-time renewable energy jobs are created but only 2.65 jobs in fossil fuels. And, of course, the long-term effects of cleaner air and lower emissions offer additional benefits.
Some policies are quick to implement and have long-run economic multiplier effects, such as direct liquidity support for households and small business. But they don’t move the needle on climate. Other ideas, such as investing in green spaces, carry substantial climate benefits but don’t have strong economic multiplier effects. (Notably, bailouts for airlines score very poorly on both metrics – negative climate impact and a poor economic multiplier effect).
The report found five major buckets that the 231 respondents tended to prefer to satisfy both economic and climate goals: clean physical infrastructure, building efficiency retrofits, investment in education and training, natural capital investment, and clean R&D.
The call from hundreds of economists is echoed by a growing number of global leaders. The head of the International Energy Agency (IEA) says fiscal stimulus should focus very strongly on clean energy. The President of the European Commission has called for a “European Green Deal.”
It remains to be seen if this kind of stimulus comes to pass. The Trump administration is obviously resisting any talk of a Green New Deal, instead aggressively deregulating environmental protections and offering various bailout measures for the oil industry.