Why the post-pandemic recovery must be green
The economic shock from the COVID-19 pandemic has spurred interest in finding ways to stimulate economies and create jobs while addressing social priorities such as climate change. In Credit Suisse's latest podcast on its long-term investment themes known as Supertrends, Brian Blackstone talks to Eugène Klerk, Head of ESG Research at Credit Suisse, about why the global economy needs green stimulus, which sectors will benefit from it, and why – after years of talking about green-focused stimulus without much follow-up – this time things may actually be different.
The COVID-19 pandemic and climate change have much in common. Neither the pandemic, nor climate change, know geographic boundaries. They affect everyone, particularly lower-income people. And they both have a damaging impact on the global economy by triggering numerous shocks.
What is green stimulus and why do we need it now?
The global economy is likely to have rebounded sharply in the third quarter from the lows of the second quarter, but the outlook is unclear given uncertainty over both the virus and the extent to which governments will enact further measures to lift economic activity.
Green stimulus applies policies and measures to kick-start short-run economic activities, while addressing environmental and carbon-reduction goals that have a longer-term focus. These efforts could in turn speed up endeavors to reach climate change targets defined by the Paris Agreement. At Credit Suisse's salon on climate change, Christiana Figueres, former Executive Secretary of the United Nations Framework Convention on Climate Change, noted that countries are not progressing fast enough in this regard.
"I think a number of governments across a range of countries have realized that by directing additional money toward green-related recovery programs, they could help both economies to recover as well as the Green agenda by meeting longer-term climate targets," Klerk said in the podcast.
Green Deal by the EU and Joe Biden's recovery plan
In January 2020, the European Commission announced The European Green Deal Investment Plan to make the EU carbon neutral by 2050. To finance the plan, the EU aims to mobilize at least EUR 1 trillion of sustainable investments over the next decade. Later in the year, in response to the COVID crisis, the Commission defined the Next Generation EU recovery package worth EUR 750 billion.
Former US Vice President Joe Biden has echoed the EU's ideas and proposed a green recovery plan for the US. It would include a federal investment of USD 2 trillion over four years. Biden calls for clean vehicles, clean energy and energy efficiency. His plan also includes tax incentives for renewables and energy efficiency. The ultimate goal of Biden's plan is to make the US carbon-neutral by 2050.
Which industries will benefit from green transition?
- Energy transition would help to electrify the world anew and generate more energy with less carbon. Solar, wind, and hydrogen are key sectors in providing the energy needed to meet demand.
- Transport and infrastructure account for 55% of oil consumption and 22% of global CO2 emissions. The green transition has the potential to create jobs and reduce carbon emissions long term.
- Energy efficiency is the cheapest and easiest way to reduce energy demand and CO2 emissions. Energy efficiency improvements can be applied across sectors: in buildings, transportation, industry, and energy generation.
- The circular economy would help to redesign the production cycle and move us away from the linear approach of "take-make-dispose". The circular economy will allow us to reduce waste and recycle more.
I think that in order to meet long-term climate change targets you really have to do it all. Which is why the energy efficiency will need to be addressed.
Eugène Klerk, Head of ESG Research at Credit Suisse
Is green recovery possible?
The pandemic, climate change and the recession are a shared experience of all humans worldwide. It is a very rare event and may be powerful enough to mobilize the global community in its efforts to create a more sustainable future.
The engagement of governments and the level of green financing will provide opportunities for new industries and companies. This, in turn, will open up new avenues for economic growth and make our economies more resilient to future shocks.