CO2 emissions in 2020 are forecast to fall by eight percent, more than any other year on record. But if the world is to achieve net zero emissions by 2050, and avoid the worst consequences of catastrophic global heating, this percentage decline will need to be repeated every year. Adopting clean technologies at speed and at scale plays a major part in addressing the climate crisis, and much can be learned from the Covid-19 pandemic to understand how governments and financial institutions are capable and willing to react and cooperate in a global emergency.
In a forthcoming paper for the Oxford Review of Economic Policy, academics from the Smith School of Enterprise and Oxford University have explored the experience of Covid-19, and the likely consequences for governments to make the necessary financial and economic decisions to accelerate progress on climate change.
The team contacted more than 230 experts from central banks, finance ministries and economists in a survey which investigated four factors of policies: speed of implementation, the economic multiplier (how much quantifiable change a policy will generate), climate impact potential, and overall desirability.
Respondents were asked to assess policies against these parameters. Those rated best for their high positive impact and long-term economic multiplier included connectivity infrastructure, research and development (R&D), education investment, clean energy infrastructure and R&D, healthcare investment and energy efficient upgrades for buildings.
The Covid-19 crisis has demonstrated that governments can intervene decisively once the scale of an emergency is clear and public support is present. Covid-19 has brought big increases in the role of the state in western democracies.
While Covid-19 policies have understandably prioritised citizens’ health and financial security, campaigners have argued for government support which improves the sustainability of their activities. Many see an opportunity from the pandemic to ‘build back better’, an idea which is taking hold worldwide. But the researchers estimate that so far the impact of governments’ rescue packages is broadly neutral in terms of ‘greenness’, with some supporting emissions-intensive activities such as airlines. The priority, understandably, has been on health measures and support for citizens’ financial security.
Following a crisis there is typically a period where investor sentiment is weak and businesses preserve cash, rein in expenditure and hold back on expansion plans. Left unchecked by policymakers, this can be exacerbated by consumers cutting back on expenditure and saving more if they are able to. Hence the Keynesian dictate that governments and central banks should stimulate the economy with spending programmes and low interest rates.
The researchers explored what spending programmes might have the greatest positive effect by looking at the aftermath of another recent global crisis, the 2008 financial crash. They analysed 196 fiscal recovery policies and identified 63 that were ‘green’ (reduced CO2 emissions), 16 ‘brown’ (carbon intensive) and 117 that were colourless (neutral in terms of CO2 emissions). The large majority being ‘green’ or ‘colourless’ supports the idea that renewable energy investment is attractive in both the short and medium term.
In current circumstances, they identified many activities that could deliver the same scale of benefit, such as insulation retrofits in housing, clean energy infrastructure, construction, and investments in natural capital like reforestation, flood management and green urban spaces. Candidates for early-stage support could include CO2 removal technologies and land-based biological processes.
Although global CO2 emissions will dip in 2020 and there has been a collapse in oil prices and production, the report also anticipates a reduction in the growth of wind and solar farms, – perhaps by as much as 50% for solar in the second quarter. Recent analysis by energy research specialist Bloomberg NEF has found that in the first half of 2020 investors gave the green light to 28 new offshore wind farms globally worth a total of $35bn (£28bn), four times more than in the first half of 2019 and well above the total for last year as a whole. However solar investment slipped 12% to $54.7bn in the same period.
EPA data states that transportation is responsible for 14% of global emissions, and changing demand for travel could cut this considerably. The Covid-19 pandemic has accelerated a switch to home working in many countries. As many as a third of the world’s workforce is now expected to adopt this mode, and its necessity looks likely to become embedded. This is going to have major impacts on transport demand and provision, perhaps relieving some of the pressure on over-stretched public transport and roads and probably reducing the volume of business air travel.
The ability of nations to cooperate has been found to be patchy in the Covid-19 response. The inward-looking responses of some nations, especially the USA, have threatened the effectiveness of multilateral organisations such as the World Health Organisation (WHO). The pandemic has delayed the multinational climate emergency meeting COP26 which should have been held in Glasgow, UK this September and was scheduled to help increase international cooperation. The impending recession, which is expected to cause bigger problems for low and medium income countries, will increase the importance of the IMF, which is reliant on the richer countries, to work effectively.
The authors view the climate emergency as being like the Covid-19 emergency, just in slow motion and much graver. State intervention on the scale of that deployed to address Covid-19 is required but unless that can happen – and with public support – we will leap from the coronavirus frying pan into the climate fire.
Whether or not humans recalibrate their sense of omnipotence as a result of the pandemic is an open question. In the 2020 lockdown many observed and enjoyed quiet roads, birdsong and cleaner air, but natural anxieties about financial security and the need to socialise provide opposing pressures to ‘return to normal’. As the threat of further lockdowns and waves of Covid-19 loom over the coming months and years, many are realising that the nature of a ‘new normal’ will depend largely upon how mankind collectively handles the transition, and whether we really can #buildbackbetter.
The interventions required face a number of external influences illustrated here. Public support, focused around the actions of Extinction Rebellion, had peaked before the pandemic. Can the idea of ‘build back better’ concept gather enough moss to add to that momentum? The team appears to suggest that with the right selection of policies that might be possible.
The challenge for policy makers and governments is to identify strategies that both deliver visible economic wins while simultaneously reducing emissions to meet the 2050 target. It is clear that this responsibility lies with governments; the private sector will not invest enough in clean technology without a supportive ecosystem that includes tax-payer contributions.
The researchers identified five high potential policies:
Hepburn, C., O’Callaghan, B., Stern, N., Stiglitz, J., and Zenghelis, D. (2020), ‘Will Covid-19 fiscal recovery packages accelerate or retard progress on climate change?’, Smith School Working Paper 20-02.
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