'Green' recovery: A week of fine principles

Not one, not two, but three thought-leadership pieces have been published this week on packages of measures that governments will take post-Covid19, and the extent to which those packages should be consistent with climate change targets.

On Tuesday a group of academic economists led by Oxford University’s Cameron Hepburn published a paper pointing out that decisions governments make this year will be critical in determining whether they meet the targets they set out in the 2015 Paris Agreement. Its conclusion:

‘Recovery packages that seek synergies between climate and economic goals have better prospects for increasing national wealth, enhancing productive human, social, physical, intangible, and natural capital.’

The following day, the UK’s statutory adviser, the Committee on Climate Change (CCC), published a formal letter to Prime Minister Boris Johnson outlining principles around which it believes stimulus funding should be designed, together with some ideas on areas where money could usefully be directed.

Shortly after that, the Energy Transitions Commission (ETC), an international body including academics alongside representatives of companies such as Shell, BP and Dalmia Cement, issued ‘Seven Priorities to Help the Global Economy Recover’ – principles that would see both government and private money flow into areas such as cutting energy waste, expanding electric transportation and renewables, including proposed conditions that governments should set on uses of bailout funding.

Principles and projects

It’s worth separating out the two basic elements of this trio of reports, which you might term principles and projects.

The most basic of all the principles is, I suppose, ‘don’t throw money away’ – and insofar as much of the money being spent will inevitably be public money, that has to be a very reasonable starting point.

So, one of the ETC’s recommended principles is that if large companies are taking government money, they should be obliged to disclose their climate risk. This seems a no-brainer, really – responsible companies will have done it anyway, and if they can’t tell their government what risks they carry, how can that government be confident it’s investing our money pragmatically?

Ditto the recommendation that governments don’t put public money into keeping alive practices that are pretty clearly in decline, for straightforward economic as well as climate change reasons. Why would you, for example, give oil companies support to explore potential fields in the North Sea, given that the world is awash with fossil fuels and may already have reached peak consumption? Again, whatever your position on the urgency or not of reducing carbon emissions, it just looks like a risky investment.

Coming on to individual measures: for many governments, job creation is going to be a massive priority. And as the CCC highlights, there are areas in which the UK government can get quick returns simply by implementing what it’s already pledged, such as the £9.2bn manifesto pledge to cut energy waste from Britain’s homes, schools and hospitals. Energy efficiency is jobs-rich, can support small firms the length and breadth of the nation, and cuts energy bills and health cuts going forward.

Then there is the depleted state of government coffers to consider. This suggests that measures that can bring in revenue or liberate private capital might be regarded favourably.

On revenue, all three of this week’s publications make the case for a modest but rising carbon tax, for the age-old reason that carbon emissions are currently under-priced but also because the low oil price offers an opportunity to tax carbon without affecting growth.

As a way to liberate capital, the ETC makes the point that for investments that markets consider secure, borrowing is currently very cheap, and likely to remain so for some time.

Solar and wind are already widely seen as low-risk investments – and when investors such as pension funds may be looking at negative rates of return elsewhere, the incentive for them to invest in renewable energy projects yielding fairly small but predictable dividends has never been greater.

Without fear

Of course, however good the rationale for ‘green’ recovery packages, it doesn’t necessarily follow that governments are going to adopt them.

The Oxford study looks at measures governments have so far put forward and concluded that just 4% of response measures so far have been ‘green’ and 4% ‘brown’, with the vast majority therefore neutral in the climate change dimension.

This is of course a very early stage in the coronavirus crisis and the need so far has overwhelmingly been to keep people in jobs and businesses in existence. But still, with the huge inertia of ‘business-as-usual’ and the deep roots that high-carbon companies have into some governments, there is no guarantee how much evidence on the economic superiority of ‘green’ measures will sway decision-making around the world.

In some ways, Britain is a special case. It has a legally binding net zero target and carbon budgets, and the Johnson government was already looking for ideas on accelerating emission-cutting even before the NHS saw its first Covid19 cases.