How Governments Can Create a Green, Job-rich Global Recovery

IMF Blog, December 4, 2020

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Climate change and the COVID-19 crisis share characteristics: both are described as "human tragedies and economic catastrophes."
Pandemic impacts cited: "more than a million lives," "hundreds of millions out of work," and "projected to wipe out $28 trillion in output over the next five years."
Both crises disproportionately harm vulnerable people and communities and penalize under-preparation and shortsightedness.
A coordinated, green public investment push can address both crises simultaneously.

Coordinated action amplifies effectiveness: evidence from the financial crisis suggests that if G20 countries acted alone rather than together, "it would take about two-thirds more spending to achieve the same outcomes."
Investing in green projects creates jobs and reduces climate risk compared with fossil-fueled investments (e.g., coal-fired plants).
Examples of "job-rich projects" listed:
- planting forests and mangroves
- engaging in soil conservation
- retrofitting buildings to make them more energy efficient
- building climate-resilient infrastructure
- expanding green public transportation, renewable energy, and smart electricity grids
- investing in off-grid renewables to connect some of the "3.5 billion people who currently lack access to sufficient electricity"

"The world’s largest economies have already committed over $12 trillion in fiscal spending for coronavirus recovery."
The European Union pledge: "to spend more than $640 billion (€550 billion) on green projects over the next several years."
Emerging market actions: Indonesia and Egypt are issuing green bonds.
Observed concern: "the balance between green and non-green spending so far tilts too much toward the latter, risking further environmental degradation."

Synchronize stimulus and investment decisions across countries to mobilize capital efficiently and avoid duplication of spending.
Use international coordination (e.g., a G20-led effort) to mobilize new sources of capital for countries that need it, including low-income countries where much climate adaptation work must be done.
Design policies to unlock private-sector capital and ingenuity:
- Implement a steadily increasing carbon price or equivalent measures to accelerate private-sector shift to cleaner energy and greater energy efficiency.
- Use some carbon pricing revenue to ensure a "just transition" that protects people in poverty from higher energy prices and assists displaced workers.
Combine debt-financed green investment with carbon pricing as a policy package.

Claim on combined policy impact: "A debt-financed green investment plan combined with carbon pricing could actually boost economic growth for many years, creating around 12 million net new jobs through 2027."
International coordination can reduce the fiscal burden required by any single country to achieve recovery objectives.

Opportunity identified: make "smart, coordinated decisions—ones that can catalyze green investments to jump-start the recovery and decrease the likelihood and impact of climate catastrophe."
Recommendation for global leaders: replicate the 2008 G20 coordinated recovery program approach now to mobilize capital and support low-income countries (building on pandemic-era measures such as suspension of debt service payments and a common framework for resolving unsustainable debt).

Source: How Governments Can Create a Green, Job-rich Global Recovery — Kristalina Georgieva, Rajiv J. Shah; December 4, 2020.