With the pandemic triggering a deep global recession, talk of a ‘green recovery’ is in danger of remaining just talk. Policy-makers are focused on saving lives and preventing a full-fledged depression. And yet, climate change ultimately poses a much greater challenge than Covid-19. At least with the virus, there is hope for a vaccine. Tackling the existential threat of climate change is a more complex, longer-term challenge.
Unless climate action is closely tied to the immediate task of protecting jobs and livelihoods, it will become yet another casualty of Covid-19. With lower-income constituencies under considerable pressure from the pandemic-induced recession, there will be intense political resistance to new carbon taxes or increased spending on climate action.
Making matters worse, the collapse in oil prices and corporate profits has weakened the incentive to invest in renewable energies.
But all is not lost for climate advocates. Before the pandemic, climate change was top of the global policy agenda. And because the crisis demands unprecedented levels of stimulus, there is a major opportunity to start implementing green investment plans that have long been in the making. The key will be to shape programmes like the green deal so that they become synonymous with the recovery effort. Here, the United Nations has already pointed the way with its disaster-relief slogan, ‘Build back better’, which is duly being repurposed for the crisis.
The US will be a crucial battleground in the global climate debate. The key question is whether President Donald Trump will be able to hold on to the White House in November’s election. Polls consistently show him trailing his Democratic challenger, Joe Biden, and he has invited even more public anger over his divisive response to widespread protests over racism and police violence. If Biden wins, the US will, at a minimum, rejoin the Paris climate agreement. If the Democrats regain control of the Senate too, some features of the green new deal could even be on the table.
At the global level, the end of the pandemic will represent a chance to mobilise popular support. Governments will have already demonstrated that they are capable of taking radical action and enforcing drastic behavioural and social changes. Many will emerge from the crisis with more credibility as agents of change. And if the international community does manage to develop and administer a universal Covid-19 vaccine, that success will lend momentum to other cross-border co-operative efforts.
The longer the pandemic persists, the more likely it is that new climate-friendly behaviours will become long-lasting habits. The broad shift toward digital interactions, telecommuting and ecommerce may prove permanent.
Beyond these contingencies, it is already clear that the appetite for climate action will be dictated largely by the economic hangover from the pandemic. Here, the fact that our more digitalised lifestyles are cheaper is encouraging. Less commuting, travel and dining out will bring welcome relief to household budgets. Likewise, many hard-pressed, debt-burdened businesses will gratefully embrace the savings associated with remote working and other digitally enabled operational changes.
However, digitalisation and corporate cost-cutting could translate into further job losses, making it even more difficult to reduce the current spike in unemployment. Given the sheer scale of the job crisis, the narrative will need to shift from ‘green recovery’ to ‘sustainable recovery’.
Amid the economic hardship that will follow from the pandemic, income and jobs will clearly be the top priority. And because the crisis is hitting lower-income groups the hardest, a labour-market recovery will also help to reduce inequality. But to be sustainable – both politically and economically – recovery policies will need the support of business and society alike.
While investor attitudes are changing, most shareholders remain focused on short-term returns – a problem that will not have been helped by large pandemic-induced losses. The businesses stressing long-term sustainability thus risk punishment in the financial markets. To circumvent this problem, governments and regulators will need to revise the rules of the game.
Having protected business during the crisis, governments are in a strong position to claim equity stakes in the potential profits that will flow from the recovery. Doing so would not only avoid overburdening businesses with debt, but would also enable governments to ensure that taxpayers and workers benefit from the returns on capital. And, in other cases, governments may be forced to nationalise failing companies, or to restructure entire sectors.
Governments can help steer investment toward sustainability goals. For example, by establishing long-term but concrete deadlines for phasing out various carbon-intensive activities, the state can encourage private investment in renewables and other low-carbon sectors. Public investment and targeted subsidies or grants can also have a catalytic effect. Low interest rates will make financing such programmes eminently affordable.
Climate action does not have to fall victim to the colossal economic damage wrought by Covid-19. If anything, there is an opportunity for a green recovery that serves both people and the planet.
Mark Cliffe is Chief Economist and Head of Global Research of the ING Group.
This is an edited version of an article that appeared on Project Syndicate.