Relying on established industrial policy approaches for promoting new economic sectors and accelerating structural economic change, green industrial policies, and investments in green industries in support of SDG 9 can operationalize the structural change necessary for economic recovery, competitiveness, and new jobs (SDGs 1, 8, and 9), while respecting planetary boundaries.
By creating the right policy environment, incentives for innovation, and infrastructure, governments can encourage companies to seize the opportunities of new technologies and value chains linked to green sectors.
COVID-19 presents a “once-in-a-lifetime” opportunity to re-write the existing rulebook.
Over the next 6-18 months, it is estimated that countries will invest more than USD 20 trillion to recover from the fallout of COVID-19, with the global economy expected to shrink by 3% this year. The makeup of these financial decisions – and the industries and economic sectors that governments choose to support – will define the shape of our societies and economies for decades to come.
At the same time, we are still facing a climate emergency. While the impacts of COVID-19 could cause greenhouse gas (GHG) emissions to fall by 4-7% in 2020, any respite is likely to be temporary. Upon the restart of economic activity, air pollution levels in some countries have quickly returned to their pre-lockdown state, while in others existing environmental regulations have been put on hold. Countries need to remain assertive, as tackling the climate crisis – and COVID-19 – will require a proactive response.
A “green industrial revolution” could help make this a reality. Relying on established industrial policy approaches for promoting new economic sectors and accelerating structural economic change, green industrial policies, and investments in green industries in support of SDG 9 can operationalize the structural change necessary for economic recovery, competitiveness, and new jobs (SDGs 1, 8, and 9), while respecting planetary boundaries.
Call for Action
On 29 April 2020, IMF Managing Director Kristalina Georgieva asked world leaders to do everything in their power to promote a green recovery in response to COVID-19. In doing so, she joined statements from other policymakers and financiers in calling for a sustainable, greener global economy to emerge from the crisis.
By creating the right policy environment, incentives for innovation, and infrastructure, governments can encourage companies to seize the opportunities of new technologies and value chains linked to green sectors. At the same time, they can accelerate the shift of current carbon-intensive economic and industrial structures onto greener trajectories, enabling countries to meet global climate and development goals under the Paris Agreement on climate change and 2030 Agenda for Sustainable Development.
Public support for change has perhaps never been greater, and governments can now direct this transition at a lower political and financial cost – due in part to the oil price collapse and low interest rates. In this regard, COVID-19 presents a “once-in-a-lifetime” opportunity to re-write the existing rulebook. An analysis of the first wave of package announcements shows that these display some promising trends, with countries looking to clean industries and technologies to kick-start their economic recovery.
First Wave of Announcements
Germany has unveiled a EUR 130 billion (USD 145.8 billion) stimulus package, with at least EUR 40 billion in climate-related investments for the restructuring of its automotive and energy industries. Notably, the package does not include a “buyer’s premium” for combustion engine vehicles, with increased subsidies for electric vehicle (EV) purchases instead. The package includes further investments in green auto innovations and EV charging infrastructure, as well as the development of hydrogen technology. However, these measures are tempered by the decision to also support fossil-intensive industries, with a EUR 9 billion bailout provided to Lufthansa – Germany’s largest airline – without any environmental or social conditions.
The Republic of Korea, meanwhile, has outlined plans for an initial USD 10.8 billion investment to implement the first stages of its Green New Deal. Planned investments will target three pillars: green energy infrastructure, the green energy industry ecosystem, and low-carbon and decentralized energy expansion, with specific funds to support start-ups developing green technologies. The Green New Deal will also create green industrial clusters in five cities, with “clean factories” and a pilot programme of “smart” energy systems further designed to reduce industry emissions. However, the plans fail to address the government’s pledge to reach net-zero emissions by 2050, or to end its practice of coal financing.
Finally, the European Commission has proposed to put the European Green Deal at the heart of the region’s ‘Next Generation EU’ EUR 750 billion (USD 841.1 billion) recovery package, with Commission President Ursula von der Leyen noting that the European Green Deal “will boost jobs and growth, the resilience of our societies and the health of our environment.” A new Recovery and Resilience Facility will offer EUR 560 billion in grants and loans to support public investment and key structural reforms, with an increased Just Transition Fund assisting member States in the transition towards climate neutrality. A new Strategic Investment Facility will also aim to leverage private investments in strategic green sectors and regional European value chains. Critiques, however, contend that the package will also support carbon-intensive sectors and businesses, while the measures have yet to be approved by EU members.
A Step in the Right Direction, but More Needed
The announcements of these packages mark the first steps on the road towards a “green recovery.” However, while representing a significant upgrade on those that followed the financial crisis in 2008, these set a bar that other countries should now strive to achieve. In particular, there is still more room for linking state aid to stringent social and environmental conditions, and for countries to avoid financing environmentally-harmful subsidies and promoting fossil-intensive sectors.
Since the packages draw on taxpayers’ money and financing that will – most likely – have to be paid back by the next generation, investments should seek to protect their future. By putting green industrial policies and investments in green industries at the heart of their recovery plans, governments can boost their countries’ economic growth and competitiveness and create jobs while also positioning themselves to tackle the climate emergency. The window to act is now closing. There may not be another chance.
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To provide policymakers with the tools needed to enact green industrial policies to boost growth and competitiveness, the Partnership for Action on Green Economy (PAGE) has developed a new course on Green Industrial Policy: Promoting Competitiveness and Structural Transformation. The course can be taken online at unccelearn.org.
This article was written by Claudia Assmann, Programme Officer, Economy Division, UN Environment Programme (UNEP), and Colm Hastings, Consultant, Green Development and Climate Change Programme, UN Institute for Training and Research (UNITAR).
The opinions expressed herein are solely those of the authors and do not necessarily reflect the official views of UNEP, UNITAR or its Partners.