As EU leaders continue to thrash out the details of the bloc’s recovery measures, there is growing evidence a green recovery is the best way of tackling the mounting economic and jobs crisis—both in the short and long terms.
COVID-19 is going to result in a substantial economic cost, both in gross domestic product (GDP) and lost jobs. The economic recovery will not be immediate and much of the lost output will never be made up. It is therefore imperative for policymakers to head off the worst economic impacts of the crisis with stimulus spending.
However, simply boosting consumer spending is only a short-term fix. The experience of the pandemic has shown us what a systemic shock looks like, and it is in the hands of policymakers to do their utmost to avoid future shocks. It is critical that they ensure economic recovery spending helps by not only boosting the economy in the short term but also creating long-term employment opportunities, increasing growth, reducing social inequalities and addressing the climate change challenge.
This would make the difference between failing and achieving global climate objectives set out in the Paris Agreement. Supporting activities that lock us into a high emission pathway for the next 20 to 30 years could push the Paris objectives out of reach forever. Moreover, it could result in countries and regions failing to meet their self-imposed climate commitments, including the growing number of net-zero targets like the EU’s 2050 goal.
This is a decisive moment in EU history where the bloc could make a choice that positions it globally at the forefront of the transition to a net-zero carbon future. As one of the world’s largest economies, such a move would also be enormously influential on the rest of the world as all governments consider their stimulus spending packages.
A recent report produced by the European Corporate Leaders Group (CLG Europe) found that, both at the EU level and at the member state level, green measures resulted in significantly greater jobs and GDP growth both in the long and short terms. This report is based on an original analysis commissioned by the We Mean Business coalition, which modelled government recovery spending options in the EU, US, Japan and several EU countries.
The modelling assesses two recovery plans with the same cost to governments. The first plan follows a ‘return to normal’ approach by reducing value-added tax (VAT) rates to encourage households to resume spending. The second green recovery plan includes a smaller reduction in VAT, in addition to public investment in energy efficiency and upgrading electricity grids, support for wind and solar power, a tree-planting programme, and a car scrappage scheme in which subsidies are only provided to electric vehicles (EVs). The report results clearly show the green recovery plan is consistently more favourable than other options—boosting GDP and employment, as well as contributing to additional reduction in CO2 emissions.
The VAT recovery scenario increases consumer spending while the green recovery plan is more effective at increasing production and jobs across the whole economy.
Overall, the car scrappage scheme has the largest impact on GDP. The contribution of each green policy to job growth is similar to that for GDP, but tree planting has a larger impact on jobs. This is because the jobs generated by tree planting are lower skilled than those related to electric vehicles, so the same amount of funding creates more jobs. The car scrappage scheme only creates emission reductions when combined with renewable energy and grid investments. The largest contribution to emission reductions comes from renewables support since this accelerates investment decisions on renewable technologies which boosts uptake. This impact is particularly significant in countries that use coal in electricity generation, like Poland and Germany.
By 2023 an EU green recovery plan would create 2.3 million jobs across the whole bloc (1.3 times more than the return to normal stimulus plan). Breaking that down by member state, in 2023, a green recovery plan would create: 626,000 jobs in the German economy (1.1 x times more than the VAT scenario); 131,000 jobs in Poland (nearly 2 x times more); and 400,000 jobs in Spain (1.5 x times more).
The report is one of a growing number that evidence how green stimulus boosts job creation. For example, the International Renewable Energy Agency (IRENA) estimates that renewable energy could employ more than 40 million people by 2050 and that total energy sector employment could reach 100 million by 2050, up from around 58 million today.
While the benefits of a package including various types of green policies are clear, the results demonstrate that some tailoring of policies and policy packages may be needed at the national level to maximise the economic, employment, and environmental benefits from green recovery spending.
Certain industries, like renewables are at a point where they’re ripe for rapid growth and scaling. Current projections are that renewables will grow exponentially anyway, but with additional investment from government now, we can push them up the ‘s-curve’ of growth to ensure even more rapid growth. Governments and businesses take a huge risk if they don’t fully support the rapid transition to renewable power.
Aside from increasing competitiveness, green recovery brings the added benefits of emission reductions, better air quality and therefore health. It would deliver a 13% reduction in CO2 emissions by 2030 for the EU as opposed to a VAT cut, which delivers no emission reductions. It would be an act of economic suicide not to seize this opportunity.
We have an extremely challenging economic situation in Europe and an opportunity for the green recovery to respond to the economic and environmental crisis. By the end of the year, the EU must commit to at least a 55% emissions reduction target by 2030 and agree on an ambitious Nationally Determined Contribution (NDC). We can reduce emissions at this level in this time frame and create economic prosperity. Business leaders are supporting this. It’s time for the EU to put everything into achieving it. We urge leaders to enable a green recovery as it is clearly the best approach for people, for the economy, and for our planet.
This article written by Maria Mendiluce and Eliot Whittington was published by the We Mean Business Coalition on November 17, 2020. The text first appeared on Business Green. Maria Mendiluce is the CEO of the We Mean Business coalition, and Eliot Whittington is the Director of CLG Europe.