The opportunity beyond the crisis

  • Alexandra Leitão
  • 9 May 2020

In a few months, the recovery time will come, the second phase of the economic response. The beginning of the rebuilding of the economy will probably start in summer or autumn this year.

The pandemic the World is currently experiencing requires different economic responses in the very short term and in the months following the ongoing public health crisis. For now, we are still in the very midst of the crisis. This is the rescue time, the time for protecting workers and helping businesses to survive the crisis. In a few months, the moment to recover will come, the second phase of the economic response. The beginning of the rebuilding of the economy will probably start in summer or autumn this year. Strong economic recovery programmes will be necessary as a response to the economic crisis and they will have the dimension and capacity to shape societies and economies in the future.

At the same time, we must continue to plan and to reinforce ongoing efforts to promote the deep decarbonisation of the economy and environmental sustainability, aligned with the Paris Agreement and the 2030 United Nations Sustainable Development Goals (SDGs). The economic crisis (brought by the pandemic) and the climate crisis (which did not disappear with the pandemic) should be tackled together and environmental concerns should not be neglected in the economic recovery plans.

Governments will have a major role in the response to the crisis. Public policies and investment decisions should be in line with medium and long term development and climate objectives.  Expansionary budget policies have the potential to put the world on a more sustainable and inclusive path. The guiding principle should be not to go back to the old world, but to move towards more resilient and climate-friendly economies and, at the same time, address the social dimension of the crisis promoting quality green jobs. Governments should look at the activities and jobs of the future.

The energy sector is crucial in the desired transition. Energy-related CO2 emissions have risen by 1% per year over the past decade (International Renewable Energy Agency – IRENA, Global Renewables Outlook, 2020). Although the health shock and oil slump may decrease carbon emissions in 2020, the rebound in emissions may be larger than the decline and may restore the long-term trend, unless the wave of investment to restart the economy is dedicated to cleaner energy infrastructures.

Unlike the coronavirus, we already know the medicine against the climate crisis and greenhouse gas emissions. Investments in renewable energy installation and storage, energy efficiency, smart grids and digitization, electrification, green mobility and climate-friendly and green industrial processes could form the key pillars of a recovery investment plan. They would be, at the same time, supporting economic growth, innovation, jobs and climate action. They avoid the traditional choice between growing the economy or reducing emissions.

According to IRENA estimates, scenarios of the energy transition aligned with a climate safe path, sufficient to keep global warming this century well below 2ºC in line with the Paris Agreement, can drive broad socio-economic development.

Such transformation of the energy system indicates higher GDP growth, achieving 2.4% more by mid-century than current plans would achieve. The cumulative global GDP gains between now and 2050 amounts to USD 98 trillion, greatly exceeding the additional investments needed for transforming the energy system. The transformation would effectively pay for itself, with every dollar spent bringing returns between three and eight dollars. Moreover, renewable energy jobs would quadruple to 42 million globally by 2050 (IRENA, Global Renewables Outlook, 2020).

The transition would also help reduce air pollution that kills millions of people every year. Huge environmental and health benefits, along with broad improvements in people’s welfare, would be felt.

At least in theory, there seems to be some consensus around the rising opportunities beyond the crisis we are currently facing. This was the main focus of this year’s 11th edition of the Petersberg Climate Dialogue (27 and 28 April 2020), named after the venue of the first meeting in 2010 and, since then, a firmly established annual event in international climate policy and negotiations, always co-hosted by the German Environment Minister and the country due to host the next annual United Nations Climate Change Conference (this year, the UK, where the Conference of the Parties (COP26) will take place). This meeting is of particular importance this year, as COP26, originally scheduled for November, has been postponed to an unknown date in 2021. Over 30 climate ministers and high-level government officials from all over the globe participated in the meeting (virtual for the first time, given the current restrictions on face-to-face meetings) and discussed ways to enable a clean and green recovery following the coronavirus-induced economic slowdown, with job creation and climate protection at its core. They underscored it would be a mistake to pause action on climate change and the enormous fiscal stimulus and emergency loans about to be deployed should be directed to green sectors, and not to subsidise fossil fuels.

It’s the imperative of our time to ensure we build a more resilient future. Stimulus funds, regulatory tweaks and other incentives must be used to accelerate the so much desired and discussed climate neutrality.

  • Alexandra Leitão
  • Assistant Professor at Católica Porto Business School