GREEN STIMULUS WORKS
Major economic disruptions offer spaces for reflection and retooling that can enable entrepreneurs to change course into stronger and healthier business models. A butcher might want to reopen as a barbecue restaurant. Jeremy Stone, SFU Ample scope to make
While we are battling the COVID-19 pandemic, our environment has been taking a breather. Because the pandemic has slowed economic activity, global CO2 emissions could fall by eight per cent in 2020.
As the economy picks up speed again, can some of the emission reductions be preserved? As we are planning for the economic recovery, does the pandemic hold lessons and opportunities that can help us address climate change, too?
Our experience with physical distancing may change behaviour permanently. Millions of employees have been introduced to telecommuting and online tools. Many commutes and long-distance flights may become unnecessary if video conferencing works just as well. Businesses will love the cost savings, too.
Pandemics and climate change have commonalities: Both are physical shocks that have profound socioeconomic impacts. Both are systemic as they propagate through our interconnected world economy. Both are non-linear as their impact grows disproportionately or even catastrophically once certain thresholds are crossed. And both are also disproportionately affecting vulnerable parts of the population.
Yet there is also a crucial difference: Pandemics create immediate and discernible dangers, while the effects of climate change are measured in years and decades, not days and weeks.
The urgency of the pandemic has prompted swift and decisive government action. Climate change, on the other hand, is still mired in partisan politics and even denialism despite the overwhelming scientific evidence. As governments gear up to support the economic recovery, there is ample scope to make climate action an integral part of this recovery.
We cannot quickly bounce back to where we started in January: Many small businesses will not survive or cannot operate at inefficient levels of capacity utilization, such as restaurants. Necessary health protection at some workplaces may increase costs and shift production in the economy. Fiscal and monetary stimulus programs will be needed to get the economy back on track.
The way fiscal support programs are designed could help or hinder progress on climate action. Many fiscal programs are aimed at workers and businesses in distress, as they should. However, programs aimed at supporting emission-intensive industries could also benefit the environment if they include measures that steer these industries toward a net-zero emissions future by targeting activities that help reduce their carbon footprint.
A new study by eminent economists, among them Nobel Prize winner Joe Stiglitz and Nicholas Stern, looked at 196 recovery packages that were tried after the global financial crisis in 2008 — 63 were “green” (lower CO2), 16 were “brown” (raise CO2), and the rest were “colourless.” The ideal recovery package generates more jobs in the short run and less so in the long run, as the recovering economy can sustain newly created jobs through expanding demand, and also generates beneficial long-term effects: higher productivity and lower emissions. Economists favour fiscal policies that have a high “long-run multiplier” — how much a tax dollar spent today generates dollars of GDP in the next years.
Renewable energy fits this ideal trajectory very well — more jobs short term than long term. Even quicker results come from green construction projects, including energy efficiency retrofits and small-scale energy infrastructure such as EV charging stations and heat pumps. Upgrading the aging electric grid and making it ready for electrified transportation will require many small-scale and large-scale investments: from upgrading power supply to buildings to modernizing the transmission lines that can carry renewable energy output to cities.
Construction always has the added benefit of being quite immune to offshoring jobs. For example, the federal government will spend $1.7 billion on cleaning up orphaned and abandoned oil wells, creating 5,200 jobs. The government has stepped in where oil companies have failed their environmental responsibilities.
Low- and middle-income countries will particularly benefit from natural capital spending — afforestation and enhancing rural ecosystems. Such programs are attractive because of low planning and procurement requirements, and less need for worker training. They also provide easy physical distancing.
In the short term, focusing on greening the transportation sector will generate the largest benefits. Electrifying personal transportation is already on its way and can be accelerated. Experts expect electric cars to reach cost parity to internal combustion engine cars by mid-decade. Who will still drive gasoline-powered cars when electric cars become cheaper? Charging stations can be deployed quickly and widely. Revenue-neutral “feebates” in favour of electric vehicles can increase uptake.
Canada also has important decisions to make in the face of massive environmental deregulation in the United States. The Trump administration has rolled back fuel economy standards for automobiles that would have required cars to reach 4.3L/100km by 2025. Canada’s federal government will need to consider abandoning its alignment with U.S. standards, forcing the auto industry to stay true to their promises or face a split market.
Yet the largest threat to a green recovery comes from oil prices that have reached historic lows, not only because of COVID-19 but also because of a price war launched by Saudi Arabia. Cheap oil will only benefit emission-intensive industries, and makes it harder for electric cars to reach cost parity. Perhaps counterintuitively, an ailing oil industry isn’t necessarily good for the environment. The crisis hurts the oil industry, but will not displace it globally. What will is the rise of cheaper clean-energy alternatives.
A loss of trust in safe public transit could also undermine a green recovery. Physical distancing will remain difficult during rush hour. Innovative solutions are needed to keep transit users safe. Growing urban populations require safe, fast, and reliable public transit.
COVID-19 also taught us that space for pedestrians and cyclists matters more than space for cars. The City of Vancouver implemented temporary road closures on Beach Avenue and in Stanley Park. Cities such as Milan, Italy, have announced ambitious schemes to reduce car use after the lockdown. A green recovery could also change the urban landscape for the better.
Climate policies may also capture co-benefits: lower local air pollution, less money spent on energy, and more electrification in low-income countries. Research shows that green programs are among the best placed to contribute to a swift recovery. The post-pandemic recovery gives us a unique opportunity to chart a course back to economic prosperity that is also greener and more environmentally resilient.
Yet the largest threat to a green recovery comes from oil prices that have reached historic lows.