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The five key policies where economics and environment meet

Written by on 29 mai 2020

Brian O’Callaghan is a Renewable Energy and Finance scholar. He is currently based at the Smith School of Enterprise and the Environment in Oxford. With a group of other academics, he has recently published a paper on a potential green recovery from the coronavirus crisis. It’s called ‘Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?’. Brian spoke to us about what he thinks the priorities of any ‘green new deal’ should be.

First of all Brian, there’s a perception that in times of crisis the economy should trump all other concerns, including climate change. But are these two things, looking out for our climate and protecting our economic health, necessarily opposed?

“The question is a good one, and it’s the exact question we tackled in that recent Oxford Review of Economic Policy Paper. The short answer is no, they’re definitely not opposed. And the long answer is that in fact, clean recovery policy can simultaneously meet climate goals and outperform dirty policies on economics. So in that paper, out this month, I partnered with leading economists, including Nobel Prize winner Joseph Stiglitz and prominent environmental economists like Cameron Hepburn and Nicholas Stern to show exactly how that is possible.”

So for the paper, you created a survey in which you asked leading economists from 53 countries around the world to rate the potential economic and environmental impact of various ‘recovery’ policies. Where did you come up with these policies from?

“We began by putting together a database of all economic fiscal recovery policies used during the global financial crisis, and the rescue policies used to date during Covid-19. There’s a list of about 700 policies there. From that list, we drew out 25 archetypal policies, types of policies that we might expect governments to be considering as a part of their new fiscal spending packages. And from there, we were able to ask respondents to provide indications on the key metrics which you mentioned for each of those 25 policy archetypes.”

Which were the most popular?

“We identified five leading policy types that could, as we say, help us avoid jumping from the Covid frying pan into the climate fire. And they are, number one, clean physical infrastructure investment. Here we’re talking about solar energy plants or transmission grid upgrades. Second, building efficiency retrofits like home insulation. Third, investment in education and training. And with this, we’re both trying to address the immediate Covid unemployment and also the structural unemployment shifts from decarbonisation.

Fourth, we looked at natural capital investment, ecosystem resilience: climate friendly agriculture, for example. And finally, the fifth policy was clean research and development spending. So each of those performed very well on both economic and climate metrics.

When I mentioned these five top policies, we integrated perspective from that survey as well as reviews of literature. And again, from these 700 policy types from which we derive the archetypes, with those three different perspectives, we were able to derive that top five list.”

In the graph below, bubbles represent the 19 “recovery” policies. Policies with higher long-run economic multipliers have greater economic impact per dollar spent. Faster policies achieve their desired economic impact more quickly. Policies with positive climate impact are likely to support efforts to achieve net-zero emissions. Bubbles in bold are loosely defined as green policies.

Now airline bailouts were way down at the bottom of the pile – why is this policy so unpopular? Surely you could argue that people still need to fly, even if it’s less and less, so protecting these industries would remain a priority? 

Yeah, that’s right, and let’s be specific here; we were talking about unconditional airline bailouts. They faired the most poorly on both economic and climate metrics across all respondent categories. So consistently the worst of the worst.

The reason for that on the climate side is quite clear. The air transport industry is a significant contributor to greenhouse gas emissions. And by unconditionally bailing out the industry, we would be supporting the fossil fuel driven status quo. In terms of economics, unconditional bailouts support what is existing as opposed to enabling what is new. So we’re not saying they’re a complete waste of money. What we are saying is that there are more effective ways to restart an economy.

And so in the ideal world, we would be spending on new projects as opposed to existing ones already established. That being said, we’ve already seen airline bailouts and they’ll continue to happen. And that’s because there are non-economic, non climate benefits associated with competitive air transport. Many of those are supporting the national interests; higher mobility for citizens, for example.

And so the question we should be asking is, if we do support airlines financially and we don’t gain economically, should we as taxpayers be demanding something else? We, the authors of the study think so. We propose bailouts with green conditions like meeting net-zero by 2050, or 30% sustainable fuel use by 2030, as reasonable other side to the quid pro quo.”

Did you find that the experts’ responses varied from country to country? 

“There was some variation. Generally, the trends towards supporting green policies seemed to be even starker in Europe than the rest of the world. And it was the opposite, they were less pronounced in the US. That’s perhaps unsurprising given the current culture on climate action in each, which is more favourable the EU than the US. And it probably also reflects a greater economic prominence of existing fossil industry in the US versus in Europe, although now I’m speculating.

Otherwise, we found some variation between surveys of high income country respondents versus low and middle income country respondents. In low and middle income countries there was a greater support of rural spending, and less on clean research and development projects. But overall, the priority of clean spending, over dirty or neutral, remained across country groups.”

There’s been a lot of talk in the media recently about learning from 2008, and the bailout package that followed the crash. Do you think our governments now, a decade on, are any more likely to take into account climate concerns when designing their post-pandemic recovery package?

“It’s a great question. And some media commentary in this area as rightly placed I think. I think I’ve been quoted as saying it’s time for us to rethink economic stimulus almost on a fundamental level. Recovery spending should be about more than just increasing next year’s GDP. It should be seen as a once in a generation chance to reduce inequality and set up new industries for the coming decades.

Are governments more likely to do that this time? I think they are. This time they have more time to think it through and therefore less excuses if they get it wrong. So there’s more to lose. Last time spending in many locations got us out of the dip. But it didn’t do very much to strengthen the long term. And in Europe in particular, you know, we saw slow growth throughout the 2010s.

This time, we’re already seeing some positive signs out of the European Commission in particular. And I’ve been a part of a number of hopeful conversations with leaders from other countries, too. So, there’s hope going forward. And I think we should also remember democratic governments tend to listen to their people in the long run. And so there’s a need for us to continue to show our representatives, whatever country we’re in, that we want to be spending on our future economy rather than supporting the economy of the past.”

How important is global cooperation going to be to ensure a green recovery? What role might the EU play in the coming months?

“Well again here we can learn from the Covid-19 crisis. Global collaboration is essential to solving global problems. Multilaterals like the IMF and the United Nations can do a lot to encourage accountability and to bring parties together. The EU, of course, can play a similar role right here in Europe, helping bring together coalitions of the willing for learning and mutual edification. A Sustainable Recovery Alliance was proposed in one of our companion papers with input from Jennifer Allen, at Cardiff university. That’s also worth look and it’s a similar concept : let’s bring together coalitions of the willing on a clean economic recovery in advance of COP26.”

You briefly mentioned GDP, and obviously there are a lot of problems with measuring a country’s success by looking at growth, especially when thinking about creating a sustainable future. And the importance of good health has hit home in recent months like never before so, how would you, Brian O’Callaghan, define the health of a nation?

“I think that’s probably more a political question than anything else. I think economic, social, environmental and even spiritual factors are all relevant in thinking about the overall health of your country. But I’ll probably leave the nuance of the details to the philosophers.”

Brian O’Callahan, is a renewable energy and finance scholar at the Smith School of Enterprise and the Environment at Oxford. His paper on a green recovery from coronavirus, co-authored by Cameron Hepburn, Nicholas Stern, Joseph Stiglitz and Dimitri Zenghelis, can be found here: https://www.smithschool.ox.ac.uk/publications/wpapers/workingpaper20-02.pdf


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