After the Coronavirus: Rebuilding as a Green Economy

The past few weeks, we have watched with shock the toll the Coronavirus has taken on both our health and our economies. It is hard to comprehend the number of businesses closed, workers unemployed and unpaid rents. I personally worry about my aging mother’s vulnerability to this disease and the impact the impending recession may have on my children as they make their way into a radically changed job market.

At the end of March, the U.S. passed a $2 trillion recovery package – the biggest in its history – to help its citizens survive until the economy can open again. The US isn’t alone, as nations around the world are preparing similar rescue packages to save their economies. So far, countries have pledged $8 trillion of fiscal spending to reduce the virus’ spread and ameliorate its damage. 

The hope is that worldwide stimulus packages may be the safety net we need to survive the immediate crisis and the boost that will launch a high-growth, low-carbon global economy.

In the climate news, much is being written about rebuilding the economic system in a greener and more sustainable way. But how do we get there from here? Everyone’s immediate worry is to reopen businesses and get people back to work. The imperative of building a green economy does not feel immediate. Of all the things we need to do, is combating climate change still one of our priorities?  

Over the next few months, stabilizing the economy through the Coronavirus shut down is paramount. Governments need to be focused on shoring up healthcare systems, addressing widespread unemployment, getting aid to businesses to stave off widespread bankruptcies, and providing fiscal relief to cities and states who are on the frontlines of this pandemic.  

We must assure that short-term liquidity shortages do not push businesses and governments into long-term insolvency. The US stimulus package is providing direct grants to individuals and families and extension of unemployment benefits. The UK is covering 80% of workers' salaries for at least the next three months, and Italy and Spain, who have been hardest hit by the Coronavirus in Europe, have pledged billions in stimulus funds (Italy €750 billion and Spain €219 billion) to shore up their healthcare systems and support their workers and businesses through wage subsidies and working capital loans, while India’s $23 billion relief package includes healthcare and food assistance. focused on helping companies pay their workers (like France) and offering tax breaks, reduced power charges, and fee reductions. 

But countries aren’t the only ones pitching in. Central banks are acting too, using monetary policy and regulatory relief to ease the stress on the financial system. Emerging markets are particularly vulnerable as foreign capital flees at an alarming rate. Multi-lateral institutions are devising funding packages aimed at the poorest and most vulnerable people and countries. The World Bank Group has pledged $160 billion over the next 15 months to bolster economic recovery in emerging markets. The IMF stands ready to use its $1 trillion of lending capacity to help countries around the world. 

However painful this period of contraction and uncertainty may be, we will gradually recover.  

Businesses will reopen and workers will find employment. To accelerate that day, Governments must be ready to pivot toward broader solutions to stimulate recovery and grow the economy. Where and how these investments are made will determine whether we create the type of jobs and businesses that will support a greener, more resilient economy or go down a path of continued vulnerability to global shocks that affect both our lives and our livelihoods.  

Governments encourage financial liquidity and economic expansion through tax incentives, loan guarantees and direct lending to targeted businesses and industries. Loans are usually given to the hardest hit industries in order to retain jobs in the short-term, but often without a view to the long-term sustainability of this job growth or the impact on external costs such as healthcare or climate change.

Towards a green recovery

In a green recovery, a new mindset is required where government lending would be prioritized toward the fastest growing, low-carbon sectors of the economy and those which will provide diversity and resilience against future shocks. Financial support of hard-hit, carbon intensive or slow growing industries should occur only for the purpose of short-term job retention and be tied to reductions in health and environmental impacts.

Clean energy industries, particularly those with distributed technologies, provide both high job growth and economic resiliency. Support of businesses in these “new economy” jobs provide longer term growth prospects than in carbon intensive industries such as air and road travel, that will likely experience a structural contraction in demand due to our new-found experience with the cost and environmental benefits of telecommuting and videoconferencing.  

The current oversupply of oil and the subsequent fall in prices provides an opportunity to accelerate the transition towards cleaner alternatives based on market forces. Investors can move capital out of high cost, less profitable fossil fuel production to increasingly economic renewables. Given the low oil prices, governments can partially fund stimulus investments through the removal of fossil fuel subsidies or imposition of gasoline taxes without penalizing consumers with higher prices.

Over the medium and longer term, as stimulus spending moves from liquidity funding to investment in infrastructure, governments can create sustainable jobs through investment in green infrastructure. Unlike in the 2009 financial crisis, there is a broader array of “shovel ready” low carbon projects in which to invest.

In the energy sector, upgrading of the electricity sector with smart grid systems including advanced battery deployment will create much needed opportunities for workers displaced from contractions in the fossil fuel and service industries. Incentivizing the expansion of electric vehicles can be rapidly supported by investment in charging station infrastructure. 

Across urban and rural communities, creation of jobs to support natural infrastructure including reforestation, water shed restoration and storm protection provides the foundation for a more resilient economy. Cash strapped state and city governments can direct existing resources toward zoning changes that incentivize the private sector to invest in more mixed-use complexes that create more walkable cities.  Stronger building regulations release innovative financing solutions for energy efficient building retrofits and low-cost investments in no-build options such as bike lanes and congestion management attract more pedestrian life to retail shops and small businesses.

As consumer spending rebounds, we must think out of the box

How can we direct that spending toward goods and services which pay higher living wages and provide a circular benefit to the economy? While it is difficult to speak of carbon taxes while businesses are currently so vulnerable, creating new revenue sources that can put money back in the pockets of those most impacted by the economic downturn can both help our communities and pave the way for a sustainable future.

In my last blog, the 5 lessons that the Coronavirus can teach us about managing climate change, I wrote that our overall ability to adapt is real, but that we must learn from both our mistakes and successes in handling this pandemic. 

Prevention is worth its weight in pain and tears. 

There are tremendous costs in not being prepared for shocks from health or environmental events that quickly reverberate across our economic lives. With strength and determination, we will recover from this tragedy. In rebuilding, we must not lose the opportunity to come back stronger with a more resilient and greener economy.