To make sure their sustainable recovery plans succeed, governments should focus on four things.
1. Incentivize reform
There’s a danger that the financial support governments give to carbon-intensive industries, such as airlines and automotive manufacturers, could cancel out their green investments. And many countries are still making significant investments in fossil fuel industries as part of their economic rescue packages. To avoid jeopardizing efforts to tackle climate change, governments should make such support conditional on the recipient implementing climate-neutral policies and practices.
Government spending isn’t the principal driver of emissions reduction. In the energy sector, for example, its investment will only represent a fraction of the total needed. The International Energy Agency estimates the sector would need to spend US$1 trillion per year over the next three years to achieve a sustainable recovery and meet the Paris climate agreement goals.⁹ Mobilizing and incentivizing private sector investment will be crucial to the transition.
The other major driver of carbon emissions is how the world’s businesses and consumers decide to produce and consume energy. As a result, governments must match any spending on green technologies with comprehensive policies to mandate or incentivize more sustainable consumption.
2. Have a joined-up approach
Governments risk hindering their own efforts to achieve a sustainable recovery if they invest without considering possible dependencies and knock-on effects. For example, after the GFC, Germany’s scrappage scheme for fuel-inefficient vehicles had an unintended consequence: citizens swapped smaller cars for larger ones, then drove their new cars more.
There are also lessons to learn from the post-GFC green stimulus about selecting projects. Funding for large, complex engineering projects tended to produce disappointing results, particularly if the technology or the market weren’t as mature as first thought. Scalable, modular technologies proved to be the most effective programs, along with increased funding for existing, tried-and-tested initiatives. Fortunately, more than 10 years on, technologies are more mature, affordable and scalable.
Effective policy implementation is crucial too. After the GFC, the Australian Government had to abruptly stop a Home Insulation Program it had introduced. The reason – poor insulation practices and serious health and safety issues, meaning it failed to achieve target energy efficiencies. Meanwhile, the high-profile bankruptcies of stimulus-recipient green technology companies Solyndra and Abound Solar in the US serve as a reminder of the importance of adequate oversight and monitoring of green stimulus investments.
3. Make the green recovery fair
Governments should focus on investing in green infrastructure projects, chosen for their potential to quickly create large numbers of jobs across the country. This need for an immediate boost to economic activity and jobs must be balanced with the need for good quality, sustainable employment. That means employment that’ll build both skills and future resilience.
The investments must create jobs where they’re most needed, and not exacerbate existing regional disadvantages. Crucially, there must be a plan to replace or otherwise compensate for jobs lost in carbon-intensive industries and regions during the transition.
To that end, the EU will boost its Just Transition Fund with €10b. This fresh funding will mobilize extra public and private investment to help retrain, upskill and redeploy workers in those industries. On top of that, any projects the EU funds under the national RRPs must show they make a positive, inclusive impact on employment.
India provides another example, with its only significant green stimulus measure to date. The US$839m it is spending on afforestation and forest management aims to provide large numbers of rural jobs, as well as improving the natural environment.
4. Forge lasting partnerships
Economies can only make an environmentally sustainable recovery through the combined actions of governments, business and citizens. And it’s a task best tackled in partnership.
Governments need to collaborate effectively across all their constituent parts, as well as mobilizing a coordinated response across the whole of society. New coalitions must form between key players – governments, regulators, investors and companies. These coalitions must work together to achieve the twin aims of rapid economic growth and a fair, sustainable transition to a low-carbon economy.
The #EUvsVirus hackathon orchestrated by the European Commission in April is a great example of this. In it, thousands of citizens, organizations (including EY) and administrators collaborated to find creative solutions to COVID-19-related challenges.
Business is already backing the sustainable growth agenda. Investor groups with trillions of dollars under management are calling on governments to work with investors, companies and workers to deliver a just and sustainable recovery. Governments will need to capitalize on their support.
In the aftermath of the 2008 global financial crisis, the focus was on investing for economic growth. And the failure to invest effectively to tackle climate change meant the world missed a significant opportunity.
Now, it’s incumbent on all of us to make sure we don’t squander the even greater opportunity this crisis presents. Let’s use it to create a future fit for generations to come.