Not so Green Recovery

In response to the Covid-19 pandemic governments and Central Banks have put together an $11 trillion global fiscal stimulus package but less than 1% of this is “green” according to the Institute of Fiscal Studies (IFS).  The chart below from a recent IFS report shows the amount of fiscal stimulus (relative to GDP) for various countries as well as the EU.  “Green” spending is shaded in (well…) green and in most cases this is barely noticeable. 

Lots of fiscal stimulus, but it’s not very green

Source: IIF Green Weekly Insight 25 June 2020

The European Commission’s €750bn recovery fund proposal sets aside 25% of all funding for climate action, and is highlighted as being greener than any individual country’s fiscal package.  Germany is to direct €50bn to electric and hybrid vehicles, renewable energy, public transport and to reducing green surcharges on consumers’ power bills.  While €50bn is sizable enough to grab headlines, it represents a small fraction of Germany’s overall stimulus package.  The UK’s recently announced £3bn ‘green jobs’ recovery package is miniscule in comparison.

Significantly higher levels of green-related spending would make good economic sense – and it would have a positive environmental impact.

Last month the International Energy Agency (IEA) in collaboration with the International Monetary Fund (IMF), published a “Sustainable Recovery Plan” that considers long-term growth, future-proofed jobs and sustainable development goals (SDGs).  It identifies cost-effective actions in six key sectors:

  • Electricity
  • Transport
  • Industry
  • Buildings
  • Fuels
  • Emerging low‐carbon technologies

The authors suggest that by 2023 their plan would lead to annual energy‐related greenhouse gas emissions being 4.5 billion tonnes lower than they would be otherwise, as well as GDP being 3.5% higher and 9 million jobs added.  The largest amount of new jobs would be in retrofitting buildings and other measures to improve their energy efficiency, and in the electricity sector, particularly in grids and renewables.  A table from this report (shown below) highlights that spending on energy efficiency measures – particularly building efficiency – is highly cost effective in terms of both CO2 reduction and job creation.

Global average jobs created and cost effectiveness of emissions reductions for selected energy sectors measures


Note: Dollars per tCOis the net present value of the costs and savings divided by the CO2 emissions avoided over the lifetime of each measure.

There is historical precedent for policy makers being much more ambitious in terms of green stimulus.  In 2008 South Korea dedicated 80% of its fiscal stimulus towards green projects.

The economic consequences of Covid-19 will see government spending surge to unprecedented levels. There’s no shortage of suggested feasible sustainable initiatives, and therefore no excuse to target anything but a more “sustainable recovery”.

About the author

Colin Dryburgh is an investment manager in our Multi-asset team. He joined us in 2012 and previously worked for Aviva Investors, where he was a European equity analyst. Prior to that, Colin worked for Brewin Dolphin and Abbey National Asset Managers in investment management and analysis roles. Colin has 22 years’ industry experience*. He has a degree in Mathematics with Economics from the University of Strathclyde.

*As at 30 November 2019.


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