Because of the war in Ukraine, the world is now once again in an economic crisis. If the sharp rise in fossil fuel prices is used as an opportunity to promote energy efficiency, the crisis could become a catalyst for sustainable development

After the outbreak of the COVID-19 pandemic, the German Environment Agency (UBA) conducted a meta-analysis encompassing around 130 studies and position papers on economic stimulus programmes designed to promote sustainable development. That analysis showed that there is a broad consensus on the need for such programmes and their benefits within the scientific community and at international organisations, such as the World Bank, International Monetary Fund (IMF), Organisation for Economic Cooperation and Development (OECD) and UN Environment Programme (UNEP).

Studies confirm that green programmes can be very effective drivers of economic recovery, sometimes even more effective than conventional measures. For example, investment in renewable energy pays off more in macroeconomic terms than state support for fossil fuels. Investment in nature conservation, too, can have a very high multiplier effect, meaning that it generates high impacts on demand and employment. Money spent on unsustainable land use, on the other hand, tends to have a negative impact on an economy.

There is widespread agreement in the scientific community on the criteria that green stimulus measures should meet. It is important that they: are feasible in the short run; have a high impact on demand and employment (targeted); place only a temporary strain on state budgets (temporary); and make a positive contribution to socio-ecological transformation.

Some economic areas are particularly suitable for sustainable recovery programmes. They include non-fossil energy production, energy-efficient building renovation, sustainable mobility and measures for the ecological transformation of industry. The last area mentioned encompasses, for example, the development of a hydrogen-based economy and the promotion of technologies to increase energy and material efficiency. Climate adaptation measures and nature-based solutions such as reforestation are also often rated very highly.

Evaluations of existing green recovery programmes show significant differences. In industrialised countries, the range of support areas is very broad, whereas in emerging economies and developing countries the focus is often solely on the development of renewable energy – especially solar energy – and preservation of the forests or marine sanctuaries.

Studies on green economic recovery programmes launched during the 2008/2009 financial and economic crisis show that they might only have a momentary effect. For example, although global greenhouse gas emissions declined slightly in 2009, they rose sharply again in 2010. The main reasons for the upturn were low energy prices and high government spending on fossil fuel-based activities.

Therefore, it is necessary to check all economic stimulus measures for environmentally harmful and climate-damaging effects and to embed green recovery programmes in structural reforms. This includes dismantling environmentally harmful subsidies and implementing carbon pricing. It is also important to promote green financial instruments, build green infrastructures such as charging points for electric vehicles, and expand public transport networks and power grids.

More than two years after the onset of the corona crisis, questions need to be addressed about the extent to which policy-makers heeded the recommendations of the scientific community and the scale on which green economic recovery programmes were implemented. The answer is sobering: from a global perspective, green recovery measures played a minor role to combat the corona crisis.

The Global Recovery Observatory – a platform created to promote knowledge exchange and green fiscalpolicy – tracks countries' COVID-19 recovery spending. It estimates that total spending worldwide on measures to address the crisis amounted to around US$ 18 trillion (as of August 2022), most of which went on short-term rescue efforts. Only a little over US$ 3 trillion was longer-term recovery spending and less than a third of that was used to fund green programmes.

Green recovery spending has been confined to relatively few countries, most of them in the industrialised world. In 2020, per capita spending on recovery programmes in industrial countries was 17 times higher than in developing and emerging economies. This shows how important debt relief and targeted financial support by the industrialised world is.

Moreover, green programmes' positive impacts on the environment are often counteracted by negative impacts from other stimulus measures. The IMF found that in the Group of 20 leading economic nations (G20), 1.4 per cent of corona spending in 2020 had a positive climate impact, while 1.7 per cent was harmful to the climate. Analyses by the Global Recovery Observatory conclude that only 3% of expenditures on economic recovery have a positive effect on the natural capital stock but 17% of spending has a negative impact. These are shocking findings and underline the importance of applying environmental and sustainability checks to all stimulus measures.

Whether the world as a whole will emerge from the crisis greener as a result of the corona programmes that have been implemented is impossible to say at this stage.

Because of the war in Ukraine, the world is now once again in an economic crisis. And the measures taken in response to that crisis will again be decisive. If the sharp rise in fossil fuel prices is used as an opportunity to promote energy efficiency, green energy and post-fossil production technologies, the crisis could become a catalyst for sustainable development. If, on the other hand, the response to sharply rising fossil fuel prices and gas supply shortages is to subsidise fossil fuels even more and to develop new sources of fossil fuels, the targets of the Paris Climate Agreement will hardly be achievable any more.

Development and Cooperation

A version of this article appears in the print on September 30, 2022 of The Himalayan Times.