Déjà vu all over again …. Or is it? Learning from the past to green the COVID-19 recovery

By Shardul Agrawala, Head of the Environment and Economy Integration Division, OECD Environment

Image Credit: Shutterstock / Aleksandar Mijatovic

As governments rush to commit vast sums of money to respond to the unprecedented COVID-19 crisis, there are growing calls to “green” these recovery packages.

In a way, it’s like déjà vu all over again, to borrow a phrase from baseball legend Yogi Berra, reminiscent of similar calls in the wake of the global financial crisis of 2007-08.

At that time, over half a trillion US dollars [1] were committed worldwide to the green stimulus. These investments were directed at activities such as the deployment of renewables, improving energy efficiency of buildings, removing inefficient cars from the road, investing in clean technology R&D, and improving infrastructure for mass transit. Many of the same investments are now being called for as part of the COVID-19 fiscal response.

What can we learn about the impact of green stimulus packages from over a decade ago? A great deal in fact [2].

Green packages can deliver on near term stimulus priorities

The Korean Green New Deal of 2009 is a prime example of a large stimulus that contributed to strong economic growth within a year. The American Recovery and Reinvestment Act of 2009 created quality jobs and mobilised significant financing towards renewable-energy deployment. In the European Union, green stimulus packages contributed positively to GDP growth, especially when co-ordinated spending occurred at the European level.

Trade-offs need to be carefully managed

At the same time, the experience during the global financial crisis also reveals trade-offs between competing economic, environmental and social objectives. For example, the Korean Green New Deal had a positive impact on the economic recovery but unclear environmental benefits. Meanwhile, the US “Cash-for-Clunkers” programme reduced CO2 emissions but had limited impact on economic growth and a cost per job created that was significantly higher than alternate stimulus measures.

Size isn’t everything: Design and impact evaluations are critical

As important as the size of any green fiscal stimulus is the design of such measures to limit any “rebound” effects, ensure that public funding does not simply displace investments that would have occurred anyway and limit market distortions. Regular and transparent evaluation of the impact of such measures is also critical. A remarkable finding of our research is that twelve years after the global financial crisis there have been very few evaluations of the impact of green stimulus packages. Governments can do better this time around.

Still, this time is different

So while there is a lot we can learn from the last crisis, there is still a lot that is different this time. The public health priority to prevent the COVID-19 crisis from worsening is to severely restrict many economic activities that could escalate virus transmission. In this context, green measures should initially have a “do no harm” orientation by maintaining vigilance against environmental rollbacks and ensuring that any measures taken to address the crisis do not inadvertently exacerbate environmental impacts.

Green stimulus would become more relevant as the recovery begins, but these measures would need to be tailored to current social priorities. Given the unprecedented human toll of the current crisis, social and distributional consequences, as well as the nexus between public health and the environment, should feature more prominently this time around than they did in the wake of the global financial crisis. Investments in mass transit, for example, might face a more concerned public due to concerns around virus transmission, while investments in “soft mobility” infrastructure may have greater resonance this time around.

COVID-19 is also unfolding in a policy context that is very different from 2007-08. Renewable energy costs have witnessed dramatic declines in the last decade, while new environmental issues like resource efficiency and the transition to a circular economy have risen on the policy agenda. These developments also offer new impetus and opportunities for greening the COVID-19 recovery.

Green stimulus is not only about the money spent. We need to look at the past and learn from it, while charting a greener course for society within the context of a new post-COVID normal.

Otherwise, to paraphrase Yogi Berra again, “if we don’t know where we are going, we will end up some place else”.

Further reading

Agrawala, S., D. Dussaux and N. Monti (2020), “What policies for greening the crisis response and economic recovery?: Lessons learned from past green stimulus measures and implications for the COVID-19 crisis“, OECD Environment Working Papers, No. 164, OECD Publishing, Paris

OECD Policy Responses to Coronavirus (COVID-19), “From containment to recovery: Environmental responses to the COVID-19 pandemic

OECD Tackling the Coronavirus (COVID-19) Hub

[1] ILO (2010), “Green stimulus measures”, EC-IILS Joing Discussion Paper Series No. 15.

[2] Agrawala, S., D. Dussaux and N. Monti (2020), “What policies for greening the crisis response and economic recovery?: Lessons learned from past green stimulus measures and implications for the COVID-19 crisis”, OECD Environment Working Papers, No. 164, OECD Publishing, Paris, https://doi.org/10.1787/c50f186f-en.

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