Legal briefing | Environment & Regulatory, Environment & Climate Change |

COVID-19 economic stimulus packages - can we build back better?

Overview

The economic impact of COVID-19 is expected to be unprecedented, but so are government promises to help economies recover from that impact.

The speed and scale of the response to the pandemic has led to inevitable, unflattering comparisons with responses (or lack thereof) to the climate emergency. The global shutdown caused by COVID-19 has had immediate positive effects on global emissions and local air pollution levels, but these are expected to be largely short term. Longer term, there is scientific evidence that pandemics will increase in frequency on account of climate change, as habitat loss and higher temperatures result in animals and insects coming into closer contact with each other and humans. These factors in combination have led to a growing sense that national and international economic stimulus packages should focus not just on any recovery but on an environmentally sustainable recovery.

What has been promised so far?

In responding to the coronavirus pandemic, the UK Government has made available GBP 100 billion through measures such as the job retention scheme, small business grants, and additional NHS funding. A further GBP 330 billion is available through the coronavirus business interruption loan scheme and the Covid Corporate Financing Facility.

The US has pledged USD 2 trillion in its largest ever emergency aid measure, which includes USD 25 billion in grants for airlines.

The European Union has yet to fully finalise a recovery package, but it will include a bailout fund of more than EUR 500 billion available from June/July 2020, via the European Stability Mechanism, the European Investment Bank and the new SURE instrument (Support to Mitigate Unemployment Risks in an Emergency). There remains a possibility – though not all Member States are bought in – that the EU may raise EUR 1.5 trillion in bonds to finance recovery, backed by Member State governments. The Government of the Netherlands has proposed a detailed methodology for ensuring that EU funds contribute to a "Green Recovery"; this would include adopting a key theme of the (still draft) Taxonomy Regulation, that expenditure should do no harm to the EU's climate and environmental principles based on the criteria outlined in that draft Regulation.

European State Aid rules, which normally constrain a government's right to give financial support to businesses, have been suspended. Individual EU Member States have thus also made significant financial pledges to industry and individuals. Germany is the biggest of the spenders, with an immediate fiscal impulse of EUR 236 billion, including EUR 100 billion to recapitalise and buy stakes in companies affected by coronavirus. The state of Bavaria, alone and in addition, has committed a fund of EUR 20 billion to buy stakes in companies negatively affected by the pandemic. Additionally, the Federal Government has committed a staggering EUR 1.32 trillion (38% of its 2019 GDP) in liquidity and guarantee measures.

Support for green stimulus packages

Though no concrete steps have been taken to date, there is support from various sources for the idea that the future economy being rebuilt by these vast sums should be a green economy, furthering climate goals and preventing a return to business-as-usual, which is not aligned with the goals of the Paris Agreement.

UK

The UK Committee on Climate Change has changed its 2020 work programme and will now deliver its advice on the level of the Sixth Carbon Budget (2033-2037) in December rather than September 2020. It is expected to include advice on a "resilient recovery" and how "climate priorities can help shape these efforts". 

The Mayors of Greater Manchester and Liverpool city region used a press conference on Northern England's recovery to call for "a new normality where we improve things… [W]e're going to build back better." This, they suggested, could include building cycle-friendly infrastructure, better internet connectivity and even a national programme to retrofit homes with renewable energy. Though the "build back better" phrase has not been coined specifically in light of the recovery from COVID-19, it does seem particularly fitting for the current circumstances. It includes not only environmental improvements but also societal improvements often with incidental environmental benefits; for example, more working-from-home flexibility would reduce transport use thereby reducing air pollution, as well as potentially facilitating individuals taking more exercise and spending more time with their families.

EU and International

The WHO suggests that "support to resuscitate the economy after the pandemic should promote health, equity and environmental protection".

To mark the 50th Earth Day on 22 April, UN Secretary-General Antonio Guterres urged governments to treat the pandemic as an "unprecedented wake-up call" and ensure that any fiscal stimulus measures support the transition to a green economy, green jobs and sustainable growth.

The European Commission's Frans Timmermans, who has responsibility for the expansive European Green Deal programme which aims to achieve net zero emissions in the EU by 2050, said that recovery investments must be linked to green and digital transitions, and that "the Green Deal is not a luxury that we drop when we hit another crisis".

Some European countries take the same view, with (at the time of writing) 17 Member State governments putting their name to an opinion piece on the Climate Home News website, which calls on the European Commission to keep the Green Deal at the heart of the recovery package. Support for this position comes not only from the, "climate-forward" Member States like Denmark and the Netherlands, but from those worst affected by COVID-19 (France, Spain and Italy) and those who may struggle more with the climate transition, such as Slovakia, Latvia and Greece.

Despite this, there are inevitable delays to the green legislative and policy agenda while governments are understandably focused on the immediate impacts of the pandemic. The UNFCCC Conference of the Parties (COP26) scheduled to take place in Glasgow in November has been postponed until next year. It is expected that many planned actions under the Green Deal will now be delayed, though these are not expected to include the Sustainable Finance Plan nor the work around 2030 emissions targets based on the draft Climate Action law.

What could green conditions look like?

There have, so far, been few pledges conditional upon meeting green criteria, but some have been mooted. For example, aviation industry bailouts could be linked to a commitment to act more swiftly to reduce the industry's emissions, by advancing the use of non-fossil fuels or reducing short haul flights. In Europe, several airlines have secured or requested government financial assistance but none except Austria have made its grant subject to climate-based conditions. The general view is that failure to tie the aviation industry into improvements like this in the US stimulus package, where the industry was singled out for a significant payment, was a missed opportunity to quickly achieve binding legal commitments. In the EU, it has been suggested that support for the vehicle industry could be limited to those investing in ultra-low emission vehicles or combined with support for public transport infrastructure to discourage private transport usage.

The International Energy Agency has called for governments to include renewable energy in their fiscal packages, and states that it is already helping governments around the world to cost-effectively align their stimulus packages with energy security and climate goals. Focusing on energy at this time makes good sense: though consumption of transport fuel (diesel, petrol and aviation fuel) is dramatically decreased, overall energy usage is somewhat, but not so dramatically, decreased. Power demand patterns are, however, changing. Energy peaks occur less frequently, as homeworkers and school children spread out their activities through the day, which increases energy security and some of the highest energy consumers now are made up of data centres (often co-located/co-locatable with renewable energy generation) which facilitate online meetings, rather than factories and traditional industry.

What next?

It is not yet known exactly how all of the vast sums being prepared for the COVID-19 recovery phase will be apportioned and distributed, nor whether public investments will be conditional on satisfying some green criteria. Equally, it will be interesting to see whether private investment, which has largely been on hold, puts an increased emphasis on climate resilience and business continuity when it is ready to come back to the table.

For now, we must wait and see whether there is enough momentum in both the public and private spheres to "Build Back Better", or whether the desire to recover quickly leads to this aspiration sliding down the global agenda.

 

Information on financial stimulus packages taken from Breugel report, The fiscal response to the economic fallout from the coronavirus, 17 April 2020

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