Green Recovery plans more effective than return-to-normal stimulus

New analysis, commissioned by the We Mean Business coalition and conducted by Cambridge Econometrics, shows that green recovery plans boost income, employment and GDP better than return-to-normal stimulus measures, with the added benefit of reducing emissions.

In all geographies modelled (global, the EU, Germany, Poland, the UK, USA and India), green recovery plans were found to be more effective than return to normal stimulus approaches that reduce VAT rates and encourage households to resume spending

The analysis models a five point ‘green recovery plan’ and a ‘return-to-normal’ plan each at an equal cost to government. The green recovery plan includes a (smaller) reduction in VAT and:

  • Public investment in energy efficiency
  • Subsidies for wind and solar power
  • Public investment in upgrading electricity grids
  • Car scrappage schemes in which subsidies are only provided to electric vehicles
  • Tree planting programmes

Both recovery plans provide immediate boosts to output and employment, but the impact is consistently larger in the green recovery plan.

Key findings include:

The green recovery plan in the EU would result in 2 million more jobs by 2024. Whilst a green US recovery would deliver nearly 1 million more jobs than a return-to-normal plan.

Globally, there would be 7% reduction in greenhouse gas emissions reduction by 2030 if the five point green recovery plan was implemented.

While not enough to be consistent with the Paris Agreement, the reductions delivered by a green recovery plan would provide a starting point for further policy.

Of the five green stimulus measures, car scrappage schemes to boost EV sales would drive the greatest jobs and GDP growth up to 2030.

For maximum impact green recovery plans need to be tailored to specific economies. For example, in Germany,  a car scrappage scheme could boost the economy while simultaneously creating jobs. It could also reduce emissions by 12-14% if combined with measures to increase energy efficiency and the use of renewables.

Tree planting schemes are effective at creating jobs in countries with the available land, accounting for 10% of the additional GDP and 27% of the additional employment in India and half of the new jobs in Poland.

Hector Pollitt, Chief Economist, Cambridge Econometrics said: “We have known since the time of Keynes and the Great Depression that the most effective way of restarting the economy is through public investment. The near-term economic need for investment currently aligns well with the longer-term need to decarbonise our economies and meet global climate targets. This analysis shows that a set of relatively simple policies could address both issues simultaneously, protecting jobs while taking steps to reduce CO2 emissions. The impacts are potentially large and warrant further investigation at national level.”

Maria Mendiluce, CEO of the We Mean Business coalition said: “This report confirms what many companies already know – investing in the zero-carbon future is the best way to ensure business success. For governments, spending and tailoring policies in a way that boosts green technologies and innovation brings benefits to businesses, economies and people as well as cutting emissions. To invest in any other way would be to set the world on course for economic and environmental disaster at a time when we need to build resilience.”

Eliot Whittington, Director, European Corporate Leaders Group (CLG Europe) said: “Covid-19 has exposed deep flaws in how we consider systemic risk. A simple return to a pre-pandemic business-as-usual would be a failure to understand what lies ahead and would store up further problems that we would be even less well suited to face. We now have an urgent need to build resilience to shocks to our economies and societies like the pandemic – and climate change stands out as just such a threat. The evidence in this report clearly shows a green recovery, which lets us stabilise and regrow economies while working to face up to the climate change challenge is not only possible, it is essential. The only viable way forward is a resilient, inclusive and climate neutral recovery plan.”