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Governments missing their chance with green stimulus funding: study

10 March 2021 Keiron Greenhalgh

Governments around the globe are missing their chance to reduce greenhouse gas (GHG) emissions at the same time as fighting the impact of the COVID-19 pandemic and righting inequity with unprecedented stimulus funding, according to a study released 10 March.

The study, Are We Building Back Better? Evidence from 2020 and Pathways for Inclusive Green Recovery Spending, calls for more sustainability in government investment and a greater focus on inequality in efforts to stimulate growth following the damage caused by the pandemic. The report is based on data collected by Oxford University's Economic Recovery Project and the UN Environment Programme (UNEP).

Overall rescue and recovery spending to combat the health crisis totaled $14.6 trillion, but only 18.1% or $341 billion was green recovery spending that could help reduce GHG emissions, according to the report's lead author, Brian O'Callaghan, lead researcher at the Economic Recovery Project.

Not only that, most of the green spending came from a small number of European countries, so the percentage figure was even worse for much of the world.

The per person spending showed a substantial divide between developed and developing economies, according to the report, with the former coming in at $20,800 and the latter $680.

The data, collated by the Global Recovery Observatory, tracked the fiscal rescue and recovery spending of the world's 50 largest economies.

Breaking down the $14.6 trillion figure further, some $11.1 trillion went toward rescue spending, $1.9 trillion to recovery spending, and $1.6 trillion was termed "unclear spending."

Of the $341 billion in green spending, $86.1 billion was allocated to transportation through electric vehicle transfers and subsidies, investments in public transport, cycling, and walking infrastructure. Some $66.1 billion was invested in low carbon energy, much of that Spanish and German subsidies for renewable energy projects plus hydrogen and infrastructure investments.

A further $56.3 billion went toward natural capital or nature-based solutions ­such as ecosystem regeneration initiatives and reforestation, much of it in the US and China, while $35.2 billion was committed to green building upgrades to increase energy efficiency, mostly through retrofits, with France and the UK at the forefront in this arena.

Unconditional support disappoints

One of the most disappointing surprises of assessing the spending data, was how much funding had been directed toward airlines, with handouts totaling tens of billions of dollars, and yet very little came with environmental conditions, O'Callaghan said during a press briefing on the report.

That criticism found support from an unlikely source in a separate UNEP-sponsored briefing — Nobel Prize-winning economist Joseph Stiglitz. The Columbia University professor said he was typically a strident critic of funding conditions, but, in the case of the pandemic and the need for green spending, was waving his objections. Especially, he said, as governments have never handed out such massive sums as the $14.6 trillion the observatory tracked.

There were other disappointments too beyond that and how little funding was allocated to the overall green economy, observers said. Joy Aeree Kim, UNEP economic research unit programme officer, said a major disappointment for her was countries failing to spend enough on training workers for the future, specifically for jobs in the green economy.

Still, there is no one right number that applies to every country given the differences in the money that is available and where countries are on what O'Callaghan termed "the green curve."

But, what is clear, said Cameron Hepburn, professor of environmental economics at Oxford University, is that there should be no "brown spending," and if money was spent in this area, then the data made available through the observatory would allow citizens to "go to town naming and shaming."

A choice

Governments have a choice, according to O'Callaghan and Hepburn, offering plaudits to some countries' efforts, including those of Germany.

The German government looked closely at its choice, according to Svenja Schulze, the country's environment, nature conservation and nuclear safety minister, who took part in the UNEP briefing. Germany could have chosen a traditional stimulus or a sustainable spending plan that would speed up societal and environmental transformation in line with the country's Paris Agreement promises. She pointed to backing for green hydrogen and the electric battery industry as examples of the path the government chose.

Her fellow speaker at the virtual briefing, Stiglitz, said the pandemic was an interlude that highlighted global economic, climate, and societal fragility. It focused attention on what had been needed previously and was needed now, he said.

"If we don't have a green recovery, we are depriving future generations of their entitlement," he added.

And if funds were spent on connecting poor people with jobs, then economies would be stronger, he said, adding that the distributive consequences of the spending must be "front and center."

"It doesn't matter if you believe in climate change or not, the economic argument is sufficient," O'Callaghan, who was present for both briefings, said.

"Green spending can bring big economic returns," O'Callaghan said.

The intent of the observatory was to keep governments accountable and to bring transparency to their spending, which O'Callaghan said would maximize prosperity. It would, he said, allow governments an opportunity to see what their neighbors were doing and what strategies they themselves might institute.

Existing budgets must be revisited too, said UNEP's Kim, with efforts made to investigate what opportunities are being missed. This was especially true because recovery spending accounted for such a small proportion of overall budgets, she added.

The world has missed opportunities, Hepburn added, but it is not too late.

The world is at a very important point in its history, an opportunity to lift humanity's ambitions, with a window open for transformative spending as a result of a "once in a lifetime opportunity," said Steven Stone, UNEP economic research unit programme officer, adding that "every dollar counts, every euro counts, every yen counts."

Build forward

Stone's stance was backed up by the woman who controls the purse strings for much of the funding that developing nations might access to play catch up on their green recovery funding: International Monetary Fund Managing Director Kristalina Georgieva.

And on the day that President Joe Biden's mammoth $1.9 trillion pandemic recovery package received the last green light it needed from the US House of Representatives, Georgieva had a different take to Biden's well-known "Build Back Better" motto. Her maxim, she said, was "Build Forward."

It was, however, Georgieva said, a path that could not walked along without a carbon tax.

Carbon prices are part of a triumvirate of requirements as humanity responds to the devastation caused by the pandemic, she said, with the remaining duo being green spending and a just energy transition. If carbon prices are introduced incorrectly, she added, then the poor of the world will bear the brunt of such inadequate planning. Carbon prices and a just transition have to be linked, she said.

Carbon prices should have been introduced decades ago, said Georgieva, but now is a better time than a later alternative. The carbon price, she said, is currently around the $2/mt mark (though higher in some countries), but it should be in the region of $75/mt and should rise from that point.

Posted 10 March 2021 by Keiron Greenhalgh, Editor, Energy and Natural Resources Group, IHS Markit

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