Distributive impact of green recovery packages

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Currently, the world is in an extraordinary situation and is responding to an unprecedented social emergency caused by the covid pandemic and climate change. On one hand, governments have a task of reviving the economy in the short term, while on the other hand they also have to think and plan how to reduce the impacts of climate change in the medium to long term. While the current situation remains a challenge, and as countries take steps for revival, this is also an opportunity for nations to actively pursue the goals based on the sustainable development paths. For an equitable recovery, countries have an opportunity to promote social, economic and political inclusion, equality and justice while, building resiliency to climate related hazards.

Till now over 5 million lives have been lost due to the pandemic. There has been a severe impact on societies in terms of health and the pandemic-induced economy slowdown. In its ‘World Economic Outlook Report’ in April 2020, IMF had projected a contraction of global output by 3% which was far worse than the global financial crisis of 2008. Further, the World Bank (WB) has estimated that the covid pandemic will push up to 150 million people into extreme poverty by 2021. On the other hand, billionaires’ wealth has  increased drastically in the same period. The pandemic has increased the existing wealth inequality aka ‘the great divergence’ among and within the nations, and there is a clear indication that the catastrophes caused by climate change will do the same. This kind of recovery is certainly on the contrary to the principals of sustainable development and will be inequitable. When inequality is high, it can lead to social and economic unrest.

Countries around the world are attempting to tackle the dual issue by providing fiscal stimulus packages. Comparing the covid crisis with the financial crisis of 2008, countries have increased the total fiscal spending. Developed countries have spent on an average 9.73% of GDP as compared to 2.63% during the global financial crisis of 2008. On the other hand,  developing countries spent an average of 5.46% of GDP as compared to 4.62% in 2008. Unfortunately, countries have failed to properly account for social and environmental equity in the recovery packages.

There is overwhelming evidence to prove that investments in clean energy, sustainable infrastructure is fundamental to boost employment while sustaining long-term socio-economic activities. Studies have shown that investing in renewables can create 1.2 – 1.5  times as many jobs as the same amount spent on fossil fuel production. Recent estimates have shown that the renewable energy sector has created a rising number of jobs in recent years. On the other hand, recovery funds directed towards carbon emission based businesses and fossil fuels risk locking in harmful emissions. Thus, it is only logical, that countries seeking to boost their economies do so by investing in green recovery packages.

However, even though many countries have committed to a ‘green recovery’ through stimulus packages, the overall magnitude of  ‘green’ measures taken up by countries are  relatively small as compared to the total. The countries provided a total of USD 336 billion for environmentally positive measures as of April 2021. This may appear to be a sizeable  investment but  the amount represents only 17% of the total recovery spending. This small percentage highlights that ‘build back batter’ measures as committed by governments at the beginning are not going to have any significant effects on the environment. Further, the stimulus packages lack equity and social inclusion which underpins societies’ ability to achieve sustainable development. While this seems like a strong statement to make, it is proven by multiple records and accounts that are coming through since then. 

Looking at the recovery measures in detail, most countries have adopted fiscal packages to deal with the health emergencies, support vulnerable households through cash-transfers, and provide support to affected businesses through a variety of measures. Despite this, we see glaring disparities on multiple fronts such as jobs and business losses, access to vaccines, increased economic inequality among the various sections of society. To further illustrate, during the pandemic, labour force which includes essential workers and the group which  continued to be employed while working from home, did not face much adversity. However, the group that got either laid off or comprised of  informal workers were affected the most. An estimate the by the International Labour Organization (ILO) projects that globally around two billion people are dependent on the informal economy for their livelihoods, majority of whom  are located in emerging and developing countries. These informal workers had lost around 60% of their wages in the first month of the pandemic. Although, governments have provided some kind of support through their ‘new social protection programs’, workers in the informal sector did not get an equitable support as informality often means a lack of social protection including unemployment insurance, rights at work, decent working conditions, and lack of access to finance. This is critical for countries such as India where the majority of workers are engaged in informal activities and 90% of the women work in the informal sector. Covid recovery also led to unequal covid saving and wealth surge.  Household savings for the people who are at the top of the wealth distribution have increased sharply during the pandemic in many developed countries because of lower consumer spending on account of lockdowns or precautions, combined with an increase in disposable income from government transfers. While for the people who lost their jobs, there have been significant cases of loss of savings. Since the overall increase in net wealth during crisis was unevenly distributed, with much of it accruing to people at the top of the chain, it has resulted in the widening divide between the haves and haves-not. Additionally, government support in the form of direct stimulus benefitted the savings of wealthier households as compared to poorer households.

Green investments is a critical part of recovery packages as it can result in positive economic outcomes, while also addressing climate change. According to a study conducted by the World Bank, it was shown that for Cyprus, integrating green interventions in the recovery efforts can create twice as many jobs per million euros invested than a business-as-usual approach. In another example, electric-vehicle (EV) manufacturing sector in China has attracted more people due to higher pay, and Pakistan has invested USD 135 million in tree planting and forest protection which has resulted in the creation of 85,000 daily wage jobs in the last year alone. In India, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has resulted in capture of 102 million tonnes carbon dioxide (MtCO2) in 2017-18 due to increased plantations and improvements in the soil quality. The  scheme has provided social security to the rural communities in the times of uncertainty while also contributing to helping India achieve its climate goal of creating carbon sink of 2.5 to 3 billion tonnes through additional forest and tree cover by 2030. Learning from MGNREGS, the government should further identify more such schemes that can achieve multiple goals simultaneously. As stimulus packages could play a fundamental role in making the recovery more resilient, sustainable, and set in place pathways to decarbonization, the governments should identify and invest in low carbon pathways, should promote the renewables deployment, build resiliency across communities while encouraging just transition.

Although fiscal policies are focused on fighting the covid-19 induced economic crisis, governments need to address the approaches to tackle the climate change crisis in a just and equitable manner. The lack of proper alignment of financial resources may lead to marginalization of millions of people. The disproportionate impacts of recovery highlight the need to integrate the principles of equity and justice in recovery planning. For developing nations, it is further important to adopt an approach that takes into account wealth inequality and an inclusive low-carbon future. In the short term, recovery policies should focus on supporting health care and also targeting support to affected households, while in the long term, it is imperative that policy focus should be on delivering greater justice and social equity while adopting low carbon pathways.

Views expressed are the author’s own and don’t necessarily reflect those of ICRIER.

Published by Kumar Gaurav

Kumar Gaurav is a Research Assistant in the Climate Change and Sustainable Development team at Indian Council for Research on International Economic Relations (ICRIER). His current research at ICRIER focuses primarily on climate finance, climate negotiations, and technological aspects of EV battery recycling. He is currently contributing to projects related to G20 Energy Sustainability Working Group (ESWG) and E-mobility project “Understanding Battery Waste Management Linkages for a Globally Competitive EV Manufacturing Sector”. He holds a B.Tech. & M.Tech. degree in Metallurgical Engineering & Material Science from Indian Institute of Technology, Bombay and has about 3 years of work experience. His research interests include Climate finance, Renewable energy, Macroeconomics, Public policy and Mathematical modelling.

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