Investment and innovation
Increased spending on sustainable infrastructure has strong multiplier
effects. In the short term, it can help the world economy recover from the
effects of the COVID-19 pandemic by creating jobs and investment
opportunities. In the medium term, it can spur innovation, create new
sources of growth, and reduce poverty and inequality while delivering
cleaner air and water. Over the long term, stabilizing climate change is
the only path to a viable future.
To enable the shift away from carbon, governments must work with
stakeholders to encourage clean energy and transportation systems, smart
development, sustainable land use, wise water management, and a circular
industrial economy. Major investment is needed to replace aging and
polluting infrastructure, address infrastructure deficits and structural
change in emerging market and developing economies, and protect and restore
natural capital. In a report prepared for the Group of Seven (G7), we
asserted that the world must increase annual investment by 2 percent of
pre-pandemic gross domestic product for this decade and beyond.
An even greater boost is needed for emerging market and developing
economies (other than China) given their recent sharp declines in
investment and need for financing to support growth, development goals, and
structural change, including rapid urbanization. The coming two decades
will be a crucial period of transition for emerging market and developing
economies, requiring greater investment in all forms of capital—physical,
human, natural, and social.
In developed and developing economies, investment offers significant
potential to accelerate the transition to net zero through lower- and
zero-carbon solutions, from sustainable aviation fuels to electric
vehicles. The 2020 “Paris Effect” report finds that by 2030, low-carbon
solutions could be competitive in sectors accounting for 70 percent of
emissions, up from 25 percent today and none five years ago.
Greater support by governments and stronger international cooperation can
help accelerate the pace of innovation, further drive down costs, and
ensure the widespread availability of low-carbon technologies, including in
developing economies. Developed and developing economies need greater
investment and fiscal stimulus now to counter the effects of the pandemic
while responsibly managing debt and deficits over the medium term. Fiscal
policy, on both the revenue and expenditure sides, can promote the
transition to low-carbon, inclusive growth, including through green
budgeting.