A ‘green recovery’ can bring long-term benefits to us all
The Chancellor’s actions are a step in the right direction, but time will tell if there’s more to come, writes Karen Turner
THE Covid-19 pandemic has caused unprecedented worldwide economic disruption with nations, communities and entire industries brought to a standstill. Faced with the prospect of its most significant recession ever, the UK Government responded with a rescue package designed to keep businesses and jobs secure whilst the worst impacts of the virus hit the economy.
Now, as attention moves from the initial rescue to longer-term recovery and reform, many are advocating for a “green recovery” and the Chancellor seems to have listened – at least to some extent given this week’s announcement on energy efficiency.
But given the events of the last few months, do we perhaps have a new understanding of the real importance of ensuring we have a healthy economy where people have jobs and opportunities? It’s therefore crucial to evidence that a “green recovery” can bring prosperity for people – something that governments and policymakers will be focused on now more than ever.
Given this context, the Centre of Energy Policy at the University of Strathclyde (CEP) and the Bellona Foundation have published a special joint paper that assesses the near and longer term economic impacts of different types of actions that could be classed as “green”.
The examples we consider here focus on three current or planned climate policy actions: residential energy efficiency gains; facilitating the electric vehicle rollout; and investing in carbon capture and storage (CCS) infrastructure.
Using our economy-wide modelling we considered the net impacts of these three actions and assess how, when and to whom different costs and benefits accrue, including consideration of whether the benefits realised could be used to balance the inevitable costs faced by some parts of the economy or to public budgets.
By assessing the implications and consequences of these policy actions, we can support the Government in assessing how they stack up against other potential stimulus solutions. This is essential when the focus of the Government is likely to be on creating jobs, restoring incomes and earning power and, more generally, getting the economy back on track.
We show that climate orientated policies such as those we consider here can deliver the type of short-term employment, real income and GDP improvements that will be crucial for near-term economic recovery from the pandemic. For example, making homes more energy efficient could not only provide jobs to those installing measures but could also stimulate the wider economy by allowing people to save on their energy bills and spend their money on other things. Something which the Chancellor and the Treasury have clearly understood.
In the case of electric vehicles, we find that making the infrastructure upgrades needed, along with a widescale switch in fuelling from petrol and diesel to electricity, could actually bring benefits to the wider economy, along with cleaner air and emission reductions.
In the last case, we show that investing in CCS infrastructure could immediately create thousands of jobs, a crucial way to stimulate the economy. Importantly, though, this could also lay the foundations for a wider CCS industry that may play a key role in reducing emissions in highvalue industries over the coming decades and to evolve the role of the oil and gas industry.
While we usually consider stimulus actions as government spending only, our analysis identifies that a combination of policy interventions, regulatory changes and government investment could be used to stimulate activity in the UK economy. We also show that different net zero actions can contribute in complementary ways, for example providing GDP expansion, job creation and returns to the public purse at different times throughout the mid-century transition timeframe. However, our analysis also shows that much will depend on how actions are delivered and paid for.
We know there will always be a trade-off when policy decisions come with a significant bill. For example, any large up-front investment activity can introduce price pressures and crowd out other activities. In the net zero context in particular, this might increase energy prices where investments are recovered through consumers’ bills.
This could have a negative impact on those who already struggle to pay bills and could constrain any stimulus that relies on increased consumer spending. Given current fuel poverty levels in the UK, this is something which needs to be seriously considered if a socially just energy transition is to be delivered.
But crucially, what sets these actions apart from, for example, road building is that they can deliver essential foundations for realising deep emission reductions over the coming decades whilst also aiding near-term economic recovery; a crucial win-win that, if delivered in the right way, allows us to protect the prosperity of people today and for future generations.
So the Chancellor’s announcement this week is a step in the right direction. Time will tell whether there is more to come.
We know there will always be a trade-off when policy decisions come with a significant bill