A short article with my take on the chances of seeing a green recovery in the UK following the COVID-19 pandemic.
For those who can’t read on, the conclusion: Government will focus on economic growth and job creation first and foremost, meaning the green agenda will have to compete for attention alongside other political priorities. Behaviour change resulting from COVID-19 will not solve the climate puzzle on its own – proactive, concerted domestic and international action will remain critical. Businesses will need to be creative, helping Government identify solutions that meet both economic and environmental objectives.
Lockdown: short term climate gains
As the global death toll rises, unemployment soars and businesses fail, there are few silver linings to the pandemic. Plummeting greenhouse gas emissions have been one small ray of light. Emissions in China were down 25% at the peak and initial analysis suggests annual global emissions could fall by at least 8% this year – the largest annual reduction on record.
But while ongoing social distancing measures will supress emissions in the coming months, the effect is likely to be short-term. As measures are relaxed, industrial and transport energy use is already increasing and emissions are rising once again. In China, emissions are more or less back to pre-crisis levels already. Politicians who want heavy industry and manufacturing sites to reopen will place all other considerations, apart from public health, behind getting the economy motoring again.
Recovery phase: rhetoric and reality
Political focus is now switching to the recovery phase. Campaigners, politicians and businesses have identified the coming months as critical in determining the impact of the crisis on the trajectory of global emissions. Influential voices across the political spectrum are calling for a ‘green recovery’ and the Prime Minister has made clear he wants the UK to “build back better” by delivering “a fairer, greener and more resilient global economy”.
The political consensus on the need for climate action is far stronger than in 2008. Recent polling shows that nearly 60% of the public believe it is important that Government prioritises the climate in economic recovery plans. Across Europe, governments are talking up the importance of maintaining green commitments. The European Commission intends to double-down on the commitment to make Europe a carbon neutral continent by 2050 and has developed plans for a major economic stimulus linked to action on the green agenda. Financial institutions are signalling that they will still hold companies to account on climate risk. In the UK, with COP26 due to take place next November, there will be no let-up in climate ambition and the pro-green position of the Labour party will reinforce this.
But will rhetoric be backed up by action? While most of the public in theory favour climate action, they will want their politicians to focus principally on alleviating economic and social hardship. Government will no doubt talk up the need for a ‘green recovery’, but the economic response will be driven first and foremost by whatever combination of measures will best create jobs and drive growth. Given Government will be in a much weaker fiscal position, it will be difficult to prioritise green spending over other priorities, such as the NHS and social care.
As a result, the green agenda will be just one of the factors shaping the economic recovery. In the short-term, we will largely retain our carbon intensive economic model as industries and businesses re-start. While the options to avoid this are limited, Government may look to attach some conditionality to sectoral financial support, especially for fossil fuel heavy sectors. Government is also likely to uphold its current set of green commitments to avoid a political backlash, meaning dramatic changes to existing green measures, such as significant reductions in fuel duty, are unlikely.
While decisions will be seen principally through a growth lens, Government will be in the market for measures that hit both economic and environmental objectives. Given the dramatic falls in the cost of clean technologies in recent years, it may well prove possible to target aspects of future economic stimulus towards the green agenda. Government will be looking for a new economic identity, strengthening the case for investing in future technologies, such as carbon capture, use and storage, or clean hydrogen. As the political focus returns to the levelling up agenda, there will also be a premium on sectors and projects that boost growth in priority regions.
Long-term: behaviour change is not enough
The pandemic will have long-term effects on how we live and work. Some behavioural changes will be good for the climate. As we become acclimatised to video conferencing, people will do more work remotely and international business travel will decrease. International supply chains may shorten. More fundamentally, people seem likely to accept greater Government intervention in their everyday lives, perhaps making the task of cutting emissions marginally easier. Individuals may also become more supportive of government taking steps to insure society against low-probability, high-impact events, making pre-emptive action on climate change easier to justify.
But changes in consumer behaviour are unlikely to be universally positive. People may be reluctant to ditch cars given fears about public transport; initial evidence from Wuhan shows car purchases rising. Homeowners may also be more reluctant to grant people access to install energy efficiency improvements.
However this plays out, the challenge of achieving net zero emissions by 2050 remains vast. The immediate fall in emissions will be temporary, and the need for more radical policy measures becomes even more critical to capitalise on new consumer habits. As the Government struggles with a higher budget deficit, creative solutions will be needed, such as the use of carbon pricing to both cut emissions and raise tax revenue. The role of sector regulators will become more important as we seek new ways of ensuring private capital can be deployed to support the low-carbon transition.
In a deep global downturn, international coordination will be more important than ever, both to avoid economic freeriding and to achieve effective transfers of new technologies. The major climate change summits, like COP26, are now more challenging, but also more important. They will be the opportunity to use the pandemic to galvanise new international action in a very difficult geopolitical context. The roles of the EU and China and the outcome of the US presidential election will be crucial.
For business: Creativity required
Government will focus on driving economic growth, with climate change one factor to consider amongst many. But given the political and public pressure on the green agenda, it will be looking for measures that hit both economic and environmental objectives. The need for domestic action will only increase as we head towards COP26. Business will need to come up with solutions that both aid the immediate recovery and contribute to sustained climate objectives. Given the fiscal squeeze, there will be a premium on ideas that do not rely purely on public funds, and measures that make use of the wider policy and regulatory landscape to drive down emissions at least-cost.
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