Carbon Intensive Industry amidst COVID-19 Recovery Plans
Governments across the globe are pouring trillions of dollars into COVID-19 recovery packages making this a time when direct investments could lock in a more sustainable path of growth. However, fiscal stimulus to carbon intensive industries so far is at least 12 times greater than to low-carbon sectors.
While about USD 54 billion has been approved for green stimulus, including USD 18 billion to carbon intensive industries provided they achieve certain green goals, this is dwarfed by the USD 697 billion to carbon intensive industries with no strings attached, according to Bloomberg New Energy Finance (BNEF) as of 2 July.
Implicit in the name, green stimulus encourages economic growth aligned with climate and environmental targets. Governments boost public spending during crises and green stimulus can be achieved by offering financial support for energy efficiency and environmental improvements, such as investing in renewables, green transport and grid infrastructure. Fiscal stimulus undertaken by governments happens alongside monetary stimulus from central banks, and can include measures like interest rate cuts, government-backed loans and direct market interventions (asset buying).
Germany and the EU are leading the way in green stimulus. In the EU, about 53% of the recovery funds have been invested in green measures compared to only 3% in the US and 1% in Asia , according to BNEF. The European Commission has also proposed a whopping USD 820 billion green stimulus package for the EU.
In contrast, the G20 nations are disappointing: of 200 individual energy policies registered so far, at least USD 159 billion has been committed in support for fossil fuels, with only 20% of these commitments having green strings attached. USD 136.71 billion has been committed to clean energy, but 81% of this support is unspecific about the appropriate environmental safeguards, according to Energy Policy Tracker – a new website tracking climate and energy recovery policies.
Furthermore, after the initial global drop in emissions due to COVID-19, there are signs that emissions are beginning to rebound, and fast. Lockdown in China saw the countries CO2 levels fall by 25%, but by May they rose by 4-5% compared to the same month a year ago, with air pollution returning to pre-crisis levels. There is a risk that other countries may follow suit by prioritising short-term economic gains as they emerge from lockdown.
The decision of many countries to channel stimulus to carbon intensive sectors goes against the advice of leading experts, including from pioneering economists Nicholas Stern (LSE), Cameron Hepburn (Oxford University) and Joseph Stiglitz (Columbia University). For example, Nicholas Stern has stated that fossil fuel investments will lead to both stranded assets and stranded labour.
There is broad public support for green recovery, demonstrated by an IPSOS survey in 14 countries showing that 65% of people support a green recovery, and 71% believe that climate change is equally as threatening as COVID-19. Global leading voices have also made explicit calls for green recoveries along with the public, including United Nations Secretary General, Antonio Guterres; Executive Director of the International Energy Agency, Fatih Birol; Micheal Bloomberg; Vice President of the World Resources Institute, Helen Mountford; and European Central Bank President, Christine Lagarde.