Back in 2008, the global financial crisis drove many governments to implement stimulus packages to revive their crumbling economies. At that time, the stimulus plans were quickly touted as the Global Green New Deal and cornerstones for the transition to a green economy, in which low-carbon energy technologies would play a pivotal role.
Now that the global economic fallout from the coronavirus pandemic is evident, many governments, including the European Union, are designing economic rescue packages that should enable societies to cope with the economic effects of a major crisis. Like in the past, many international organizations (e.g. IEA, UNIDO, UNEP) have called for governments to take this new crisis as an opportunity to accelerate the transition towards a more resilient, green economy.
At the European level, 13 climate and environment ministers have already joined forces in asking the EU Commission to use the EU Green Deal as a framework for COVID-19 economic recovery efforts. And in the U.S., a group of economists, academics and policymakers have asked Congress to set up a green stimulus package of $2 trillion.
But what worked and didn’t work in the recovery efforts of the global financial crisis in 2008 and what can we learn from these experiences? In a recent research project at Lund University in Sweden, we assessed policy initiatives that promoted a green economy via low-carbon energy technologies in a variety of countries, including the U.S., Republic of Korea, Sweden, Germany, Chile, New Zealand, and the UK, as well as different world regions (e.g. OECD and Europe).
In light of ongoing rescue package discussions, we have revisited our findings and asked: what policy lessons can be drawn from this research for COVID-19 stimulus packages that aim for a green economy? This is what we learned:
Aim for ambitious policy interventions. Progress after the global financial crisis was either insufficient or ineffective, or both. Some stimulus packages were not part of a wider, ambitious climate-energy policy mix and the economic recovery quickly led to increases in energy use and CO2 emissions. In addition, some stimulus packages were originally planned to work in combination with emission pricing mechanisms that were not implemented, like a “cap-and-trade” scheme in the U.S. In addition to national energy and climate policy frameworks, Nationally Determined Contributions under the Paris Climate Agreement provide an immediate opportunity to strengthen green economy ambitions.
Develop and synchronize the green job market. The deployment of renewable energy and energy efficiency investments are labour-intensive and require targeted education and training initiatives for workers to develop the needed skills. Retraining from shrinking economic sectors to growing green energy sectors should start as soon as possible, so workers are ready to be employed when those sectors are stimulated. Building human capacity is essential for both the development and implementation of new energy technologies.
Line up the financial system and resources. There is still an urgent need for transparent assessment and re-allocation of green economy investments. From a public perspective, this should also include high-risk (long-term) innovative investments, where the private sector is unlikely to take the risks. The EU is already planning to mobilise €1 trillion under the Green Deal, but stronger policy efforts are needed to re-direct financial resources currently supporting carbon-intensive industry. Besides, investments in early markets of new energy technologies are key pillars for learning opportunities and cost reductions, as we have experienced for solar energy markets. Fortunately, the COVID-19 situation is showing that fiscal deficit concerns dissipate and trillions of dollars are available when the threat is very concrete. This approach needs to extend to threats from climate change.
Strengthen bottom-up institutions. The majority of post-financial crisis stimulus were implemented following a traditional top-down, national approach. However, policy makers should not overlook knowledge contributions, learning capabilities and network synergies across regional and local actors. We learned that there are different levels of green economy institutional development, for instance in terms of capacity building, governance structures, technology transfer, finance and regional cooperation. To exploit synergies, policy makers have to reduce complexities and inefficiencies across these levels.
Integrate behavioural insights in supportive policies. We noted that behaviour change was completely missed in past stimulus policies, which had a very strong manufacturing, technology and infrastructure orientation. Fortunately, there has been growing policy experimentation with behavioural-oriented policy interventions (e.g. green energy defaults, commitment devices, social norms) that offer an opportunity to enrich policy portfolios.
Don’t forget about aviation and active mobility. Many sectors were targeted in the 2008-2009 crisis, including transport. However, we noted that investments in railway systems and efficient (electric) vehicles were the main focus. Aviation and active mobility (i.e. walking and cycling) were largely missing. There is an opportunity to define more progressive policies for the aviation sector, as current tax exemptions are unsustainable even from a pure economic perspective. Active mobility should be promoted through low-carbon infrastructure investments (and has an important co-benefit of boosting our immune systems). In addition to the inclusion of other important sectors (e.g. buildings), policymakers should be consistent with the sustainable transport hierarchy.
Focus also on social inclusiveness. Unfortunately, this was something outside the scope of most technology and market-based dominated efforts fostering a green economy back in 2008. If policy makers are serious about the opportunities given by the coronavirus emergency, policies that aim to drive the transition towards a green economy need to fight hunger, unemployment and inequalities, particularly in the least-developed countries. If not, many will be left behind and highly vulnerable during this and the next crisis.
Integrate rigorous policy evaluation in the policymaking cycle. To our surprise, we observed that it was mostly the academic community —and not governments— that pursued policy evaluation efforts post-global financial crisis. Clauses that explicitly ask for periodical data and evidence-based assessments must be integrated in rescue package legislation. It should include principles like transparency, measurability, reliability and accountability. We know that comprehensive policy evaluation is both resource-intensive and complex. However, it generates valuable data and learning opportunities for both policymakers and stakeholders.
In sum, these policy lessons indicate that pouring money into our economies does not automatically lead to a green economy. The transition to a sustainable low-carbon society needs to be founded on a societal transformation and coherent, stringent policies – not only on technologies or financial aid. Overall, the experience calls for strong leadership and vision. Otherwise, the pandemic will likely deepen sustainability challenges, notably climate change and poverty alleviation. The challenge is unprecedented, but so are the opportunities. The greatest lockdown in history would be to continue with an unsustainable economic system.
This blog is based on the key findings of the research project titled Policy Intervention for a Competitive Green Energy Economy carried out at the International Institute for Industrial Environmental Economics at Lund University, Sweden.
Luis Mundaca and Lena Neij are Professors at Lund University, Sweden.
Jessika Luth Richter and Lars Strupeit are post-doctoral fellows at Lund University, Sweden.