Covid-19 has caused shockwaves around the world, creating a combined health and economic crisis beyond anything we have seen in our lifetimes. As governments continue to piece together fiscal stimulus packages and create short-term recovery plans, there is a threat the economic recovery will come at the cost of environmental sustainability.
Under strict lockdown, the environmental impacts of our behaviours became clear to see. Fossil fuel-intensive industries, such as transport, experienced an unprecedented drop in activity. With planes grounded and fewer cars on the road, demand for fossil fuels sank while production continued. With supply vastly outweighing demand, the price of oil futures temporarily turned negative in April a historical first, from which markets are still recovering. As a result, air pollution in London, New York and multiple cities in India plunged and CO2 emissions also fell significantly. China’s lockdown saw a 25% reduction in CO2 emissions and a fall in fossil fuel consumption combined with a rise in demand for renewables saw India achieve a 1% reduction in emissions for the fiscal year ending in March – the first reduction in 40 years. Globally, annual projections expect a drop of 8% for 2020. While this may appear to be one positive from a devastating situation, it fails to make a significant dent in long term targets. In fact, to achieve the Paris Agreement ambition of limiting warming to 1.5C, the same reductions are required every year for the next decade. This is especially challenging when we consider that billions of people’s lives have been disrupted, industries essentially shut down and the global economy has come to a grinding halt. To replicate these results without imposing lockdown restrictions requires wide-reaching policy advances.
Possible Policy Changes
In May, economists at the University of Oxford, including Nobel Laureate Joseph Stiglitz, published a paper that stated “the recovery packages can either kill two birds with one stone – setting the global economy on a pathway towards net-zero emissions – or lock us into a fossil system from which it will be nearly impossible to escape.” The researchers surveyed over 200 experts in economics and finance on potential policy responses. Respondents were asked to rate each possible policy against the speed of implementation, multiplier effect, potential impact on climate targets and overall desirability. They found that liquidity for households and small businesses, capital investment into healthcare and the provision of basic needs were the thought to be best policy options. Policies that ranked highest on economic impact and positive climate implications included energy efficiency modifications in existing infrastructure, funding education and training, and investing in natural capital. These conclusions are logical. A focus on clean energy will go some way towards ensuring already stressed healthcare systems are not overwhelmed further from ailments stemming from fossil fuel use.
These potential policies were echoed by the UK’s Committee on Climate Change (CCC). In May, the CCC warned government away from a carbon-heavy economic recovery. Instead, in a letter to the Prime Minister, suggesting climate actions based upon six principles. These included: Using climate investments to support the economic recovery and provide jobs in low-carbon industries, strengthening incentives to reduce emissions when considering fiscal changes, and enhancing education and encouraging behaviour changes such as walking, cycling and remote-working. The CCC made it very clear that it views the pandemic as a “historic turning point in tackling the global climate crisis”, a sentiment that must be reinforced in the coming years. Naturally, with major economies spending trillions on recovery plans, suggesting tens or hundreds of billions more are spent to fund a green recovery may seem unrealistic. However, it can be argued that redirecting funds rather than providing new funding can be the answer. For governments, this means removing enormous subsidies that have propped up ‘dirty’ industries for many decades. As noted by Christiana Figueres, former leader of the UNFCCC Secretariat, “governments should scrap $400bn in fossil fuel subsidies and back energy efficiency, as well as clean energy and infrastructure.” In developing countries that may lack the financial resources to spend in this way, the approach will likely by different. As Edward Barbier, Distinguished Professor at Colorado State University notes, the focus should be on alleviating poverty. This can include the expansion of basic water and sanitation services, improving energy efficiency technologies, the creation of incentives to reduce forest loss and degradation and, imposing fossil fuel taxes to fund climate actions. Barbier gives the example of a ‘tropical carbon tax’ that provides funds for investing in conservation, land management and the protection of ecosystem services. While some initiatives in developing countries will require international financial assistance, “increasingly, low and middle-income economies are finding innovative ways to design, implement and fund their own efforts.“ Nonetheless, challenges in many industries remain that create room for debate.
The Dangerous Game of Bailouts
One divisive issue is that of airline bailouts. Within the aforementioned Oxford study, airline bailouts ranked dead last as an overall policy in terms of both multiplier and climate impacts. Perhaps no industry has been hit harder than aviation and many companies face mass bankruptcies. However, bailouts should be heavily scrutinised, and come with strict conditions that involve reciprocity from the industry, according to the study. Too often, companies are very happy to keep profits for themselves during good periods but turn to the public to cover the losses in bad times. The Institute for Public Policy Research (IPPR) suggest bailouts only if strict conditions are met, such as:
- Public ownership for a portion of the airline’s shares (for example, Lufthansa received £8 billion and now the German public own 20%)
- Adoption of targets in line with the Paris Agreement (climate conditions could include net-zero commitments, investing in low-emission technologies, committing to offsetting, reductions in high-carbon jet fuel use etc)
- Airlines must pay their rightful share of taxes
- There must be commitments to keep jobs and embed worker rights
Even with strict conditions, bailouts may not work as planned. Using Lufthansa as an example, two weeks after their funding, they announced jobs cuts of 22,000 staff. Similarly, in the US, a $50 billion bailout agreement required, among other conditions, airlines to not furlough staff or give involuntary pay cuts until the end of September. United Airlines finalised the deal and days later announced 30% of staff would be laid off starting October 1st.
‘Building back better’ has been talked about since the pandemic started but actual progress must be made so this doesn’t just become a catchy but ineffective slogan. Just this week, China unexpectedly announced a plan to achieve carbon neutrality by 2060. Making up nearly a third of global emissions, the world’s largest polluter committing to long-term climate goals in a step in the right direction. Analysis by Cambridge Econometrics found that this pledge could reduce global temperature rise by 0.25C. This comes after Leeds University researchers published a paper concluding that an economic recovery with a green stimulus and reductions in fossil fuel investments could avoid future warming of 0.3C by 2050. Climate devastation is not a foregone conclusion and achieving balance is imperative. Reopening and rebuilding global economies, getting kids back to school and avoiding unemployment crises must be the main priorities. However, an economic recovery that disregards the environment will cause us to “leap from the COVID frying pan into the climate fire.”