The way in which policies are designed will make a key contribution to the success of the recovery plans in reconciling economic reconstruction with both SDGs and climate goals
Policies responding to the pandemic must address multiple crises: in the coming months we will have to find the way out of the health crisis, the worst economic crisis since 1929 according to the IMF and, last but not least, the climate and environmental crisis. But the UK and the rest of the European continent have an opportunity to respond to the COVID-19 crisis in a strategic way and to foster an effective and sustainable economic recovery after the first wave of this pandemic.
The COVID-19 lockdowns on activity have temporarily led to cleaner air in many places, mostly in cities, as a consequence of a reduction in industrial activity, and the extreme decrease in road and air travel (See Fig. 1 for NO2 pollution in UK cities). While scientists in the World Meteorological Organisation estimate a global fall in CO2 emissions between 5.5 and 5.7%, in comparison to 2019 levels, without any structural change in the economy, the emissions decline will be just temporary and will have a tiny impact on the long-run CO2 concentrations in the atmosphere.
Fig. 1. NO2 emissions comparison by city in UK
Source: Own elaboration with data from Defra for Monday 1st April 2019 and Monday 30th March 2020
The economic crisis experienced more than a decade ago overshadowed global environmental and resource issues. According to one study Strand and Toman from the World Bank, in the UK only 6.9% of the total stimulus budget as of March 2009 was dedicated to green stimulus, in comparison to 13.2% in Germany. Now there is an opportunity to avoid the mistakes committed during the 2008 financial crisis, and design a cleaner and sustainable future recovery.
With the discussions about stimulus plans becoming more pressing, the Economics of Energy Innovation and System Transition (EEIST) project for which I am a researcher[1] can contribute to the debate on which policies can foster a green recovery. This project aims at identifying the policies encouraging both economic opportunities and more effective transitions to clean energy systems. In the current context, there is no doubt that both these features will be needed. Building on previous work INNOPATHS project funded by the EU, the University of Cambridge team leading the empirical part in EEIST is currently exploring which policy instruments are more likely to induce positive economic effects in terms of innovation and competitiveness at an industry, sectoral and/or country level in addition to environmental co-benefits.
The policy instruments available can take the form of regulations such as: building codes, standards or mandates; or financial and economic instruments such as direct investment or financial incentives. Understanding the extent to which these different policy types can balance trade-offs among the short-term economic goals and the long-term sustainable and decarbonisation societal goals is crucial for bringing about an effective and sustainable economic recovery. Policy instruments for the low–carbon transition could jointly foster positive environmental, technological, competitiveness and social outcomes, all of which should be the goals of any stimulus plan for the coming months. A green stimulus package can focus on measures and policies able to increase aggregate demand and employment while also taking into account their compatibility with the national and supranational climate targets and with the Sustainable Development Goals (SDGs).
Public spending components of stimulus packages, in the form of green public procurement, are one of the instruments with the greatest but largely unexplored potential to contribute to a green economic recovery. Public procurement accounted for approximately 15% of OECD GDP in 2017. This represents 30.45% of the total public expenditure in the OECD on average, and almost 32% in the UK (See Fig. 2). According to the OECD, when used strategically, public procurement can improve countries’ productivity and support other policy objectives compatible with the 2030 agenda, such as fostering innovation, promoting the circular economy or supporting SMEs.
Fig. 2. Public Procurement expenditure in OECD countries
Source: Own elaboration with data from OECD database (Data from 2018 except from Australia, Mexico, US, Switzerland, Turkey, Israel, New Zealand, Japan, Korea and the OECD average with data from 2017)
Note: General government procurement definition[2]
Green public procurement as part of the Covid19 recovery is therefore a cross-cutting tool that can transform and stimulate cleaner industrial production and create incentives to invest in an innovative and sustainable future. While empirical evidence is scarce, these qualitative results and case studies lead us to suggest that government procurement can be an important piece of the policy repertoire needed to boost economies out of the coming crisis. The available empirical evidence demonstrates that it may be able to incentivise demand for green products in a wide range of sectors: transport, construction, and potentially others. Because procurement is used at local and regional levels too, if it is well designed, it can foster local economies and create market opportunities, particularly for small and medium firms (See here). Government procurement programmes should include the adaptation of contracts and bids (in size or costs) to facilitate the involvement of small firms (See here, for a review of good practices).
Our conclusion is that the way in which we design all the policies adopted, including regulation and subsidies, will make a key contribution to the success of the recovery plans in reconciling economic reconstruction with both SDGs and climate goals.
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References
[1] EEIST is funded by the UK Department of Business, Energy and Industrial Strategy (BEIS) in collaboration with the Foreign and Commonwealth Office (FCO), and led by the University of Exeter, in partnership with several top institutions in the UK, China, India and Brazil,
[2] General government procurement is defined as the sum of intermediate consumption (goods and services purchased by governments for their own use, such as accounting or It services), gross fixed capital formation (acquisition of capital excluding sales of fixed assets, such as building new roads) and social transfers in kind via market producers (purchases by general government of goods and services produced by market producers and supplied to households). Public corporations were excluded in the estimation of procurement spending. Public procurement expenditures can be disaggregated according to the classification of the Functions of Government in general public services, defence, public order and safety, economic affairs, environment protection, housing and community amenities, health, recreation, culture and religion, education and social protection. See here.
The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.
