The COVID-19 pandemic has sent the global economy into a turbulent recession. Businesses are going bust, employees are being made redundant and the government is actively searching for sustainable ways to help stimulate a “V-shaped” recovery from the economic downturn experienced in the second quarter of this year. The Chancellor’s furlough scheme has ensured some damage limitation in terms of unemployment (4.5% in the UK compared to the US’s 7.9% – both October 2020). However, a recent YouGov poll suggests that this is an unviable option in the long run. It stated that last month 52% of businesses expected to let some staff go before the end of the year. After the impact of the 2008 financial crisis, the green economy contributed to a third of the GDP growth in the UK in 2011. Following another crisis, now is the time to synchronise the government’s “Build, build, build” strategy with developing our green sector. As Dimitri Zenghelis said, “Investing in a green future will help restore confidence, encourage growth and generate the tax revenue necessary to manage the government’s debt.”
October saw the Prime Minister announce a new target of making sure that by 2030, all 24 million homes in the UK are powered by wind energy. In his speech at the Conservative Party Conference, Mr Johnson said that the government is going to be investing in a green recovery plan which will create “hundreds of thousands, if not millions of jobs” by the end of the decade. According to Aurora Energy Research, a firm which analyses global energy markets, the investment would cost in the region of £50 billion. However, these prices may come down. In the last ten years, the price of offshore wind has decreased by 62%. An investment of such size, likely to come mainly from private firms who will buy contracts from the government, would provide a sizeable boost to the economy, despite it being over a number of years. For some time now, the government has been subsidising apprenticeships in the wind industry. In March, it was announced that 3,000 more apprentices will be employed this decade. The recruitment will not only be focused on young people but will also look to tackle structural unemployment in the North East by retraining those who have been made redundant in other sectors.
However, there are doubts about the reliability of these claims and how realistic the goals which the government have set are. In the past, similar promises have failed to produce the required number of jobs. Firms have been known to source their material used to build turbines from cheaper manufacturers in countries such as China and the UAE. This not only worsens the trade balance but also fails to create any jobs in the manufacturing sector. According to the Mail, in order to make sure this isn’t the case, the government will impose rules on those that win the contracts so that at least 60 per cent of offshore wind equipment being used is made in the UK.
What other policies should be implemented?
According to Vivid Economics’ “Greenness of Stimulus Index”, leading economies have announced stimulus packages which will spend a combined US$3.7 trillion on sectors which have a negative impact on the environment. Furthermore, such stimulus will have a net negative environmental impact in 16 of the G20 countries with the US’s plan being the most harmful. Other avenues need to be explored in order to deal with our global carbon footprint.
The current crisis presents an opportunity for change. Not for decades have we had such a chance to sit back and assess what needs to be different in the “new normal”. One industry which has been hit hardest by the pandemic is the travel industry – in particular airlines. Despite passenger numbers increasing constantly over the last decade, concerns have been rising over how much damage air travel does to the environment. According to the BBC, the industry is responsible for around 5% of global warming, something they are all too aware about. Airlines have been adding options to “offset your carbon footprint” when purchasing tickets and websites have been set up with a similar aim – money raised gets put towards reforestation with the intention that the extra trees will account for how much harm to the environment was caused by the passenger. Whilst this seems sensible, there have been many problems with such schemes. As John Vidal from the Guardian said, “There is no agreement on how much carbon dioxide a journey may emit [and] confusion about what actions best reduce emissions”, amongst other issues such as where to direct money and airlines doing this for their own benefit so that they seem like they are caring for the environment, all so they can grow their businesses in the long run.
When looking beyond this, there is evidence to suggest that under 10% of airlines are achieving carbon neutral growth – the ratio of their carbon footprint growth to their increase in flights. Airlines are also known to satisfice when given targets rather than surpassing them. Meeting targets may keep them in line with regulators but surpassing them, and benefitting the environment in the process, may cost too much for it to be a viable option.
To counter this, governments should be encouraging a surge in further research, development and innovation into finding more sustainable ways of flying. Scott Kirby, CEO of United Airlines, said that he doesn’t expect airlines to return to normal until the summer of 2024. Once those four years have passed, when passengers do return to the skies, there will undoubtably be concern over emissions once again. Innovation at a time of stagnation, providing there is sufficient government funding available to help support the airlines, will go a long way towards making progress in a sector which the UK government wants to be carbon neutral by 2040. Innovations don’t need to be as big as having more fully solar powered planes (after the first round the world solar powered flight was completed in 2016), but some technology which airlines such as Emirates use could be more widely utilised. For example, according to Vistair, Emirates has implemented the ability for some of its planes to use data to find the optimal routes for planes to travel, taking advantage of prevailing winds and in the process saving fuel by reducing the time in the air. Investing in new technology such as this benefits passengers, airlines and the environment, not to mention the positive multiplier effect that investment such as this has on the economy.
Governments and central banks are going to have to be able to adapt in the coming years. New policies and different measures will be introduced to combat the uncertainty ahead. In Doughnut Economics, Sophie Raworth discusses tax expert Richard Murphy’s view that “central banks could channel new money into national investment banks for green and social infrastructure projects.” Such schemes may provide community green energy and in the process help hit government and international targets, provide employment and benefit the environment.
However, last November, the Financial Times reported that the European Central Bank (ECB) are reluctant to buy any more green bonds that it already has. With some analysts saying that “Green QE” (green quantitative easing) would reshape the market negatively, the ECB, until the start of this year, was stalling buying more bonds. As Trevor Allen from BNP Paribas said, “The ECB wants to set an example, not single-handedly transform the market.”
Are either of these plans feasible?
With a bit of funding, yes. However, the aviation sector is already heavily subsidised across Europe. Subsidies for the airlines around Europe include a lack of VAT and zero tax on fuel. As the Transport and Environment NGO point out, these subsides increase the quantity of flights demanded, whilst reducing the incentives for airlines to meet emissions target. If this funding was spent elsewhere, we may see greater initiative from the industry to go beyond their targets.
Despite leading journalists from the Economist arguing that “central banks lack a democratic mandate to deter emissions” and too much greenery could risk politicising the institutions, there has been a surge in green bonds issued since April. This looks set to continue in the coming months; Bloomberg reported that “the total of all green bonds sold in the first three quarters of 2020 exceeded $200 billion, about 12% more than in the same period of 2019”. Sales are rising year on year and with that, so does the potential for these bonds. Green bond strategist Dominic Kini said such bonds “can both provide emergency funding during the pandemic and address its aftermath.”
Will there be sufficient change?
With the Chancellor’s announcement in his Spending Review, it seems that the government are committed to a green decade. As long as this money is spent on policies which focus on progress and innovation, environment change will not only be sufficient but the funding will also provide the foundations to stimulate a strong economic recovery. Only time will tell to what extent the government’s actions in the next three years will have an impact on emissions and our environment further down the line.
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(Featured Image: © Jasper Sodha)