A green economic renewal after the COVID-19 crisis
By Martha McPherson and Mariana Mazzucato
While governments seek to reboot their economies as COVID-19 lockdowns are eased around the world, the climate emergency rages on. The economic dislocation forced by the pandemic is an opportunity to reshape our economic activity along a new sustainable trajectory. It is also a wake-up call that we must transition rapidly to a more resilient mode of capitalism more in balance with the natural world.
Governments and businesses globally must accelerate our green commitments, and investment in innovation and smarter solutions, to provide a structure and clear direction for the recovery. Green economic renewal is a new way to frame the direction required, and governments around the world should be proactive in setting this direction. Job losses must be targeted through the creation of green employment opportunities, with the focus on bringing vulnerable and under-represented voices, and human rights issues, to the table through a Just Transition. This includes creating conditionalities on carbon reductions, green innovation and stakeholder — not shareholder — capitalist approaches as part of the government assistance packages currently being drawn up around the world.
The COVID-19 crisis takes place in the context of a large green investment gap: we are $480 billion short of the sum needed per year to meet the 1.5°C temperature increase target laid down in the Paris Agreement. Biodiversity investments also need to increase by up to eight times in order to meet internationally agreed targets. This is a big gamble to be taking with our future economy: global heating entails large systemic risks, including natural catastrophes, forced climate migration and biodiversity disruptions, that must be mitigated to avoid social and economic chaos.
The crisis has revealed the inflexibility of the world’s underlying industrial systems and supply chains. COVID-19 disruption threw the oil sector into a historical crisis, with prices turning negative in April. It has also led to immense displacement in labour markets. Some countries have avoided mass unemployment temporarily through job retention schemes, while others have seen unemployment surge due to either policy choice or the informal employment in national labour markets. The Green New Deal discussions and plans being developed around the world pre-COVID, drawing the Just Transition for workers alongside industrial transformation plans, are more needed than ever before. The European Green Deal, industrial strategy, and just transition mechanism can and should be re-invigorated as green economic renewal mechanisms.
As such, the green transformation of our economies is not a luxury we cannot afford due to COVID-19, but the only way through the crisis that ensures resilience against future risks of the same size, scale and severity. There are several implications for how the public sector and private sector need to create new, mutualistic partnerships to take up climate-resilient missions, and shape markets in a green and sustainable direction.
In our new policy brief, ‘A green economic renewal after the COVID-19 crisis’, we set out five key proposals:
1. Create ambitious green public investment packages to rejuvenate the global economy with the needed directionality.
2. Shape innovation systems with patient finance and cross-sectoral collaborations for green innovation, and ambitious missions to accelerate solutions to the climate emergency.
3. Ensure that the green transition is a Just Transition for workers, including through a green jobs guarantee.
4. Green the financial system. Central banks must incorporate the net zero-transition fully into their mandates by integrating climate and environmental financial risks into monetary and supervisory policy regimes.
5. Ensure that the green transition is a global Just Transition that addresses the employment and income needs of developing and emerging economies in the Global South, and recognises that efficient green technologies and other key transition assets should be made available by the Global North.
Click here to access the full policy brief and read more about what these proposals mean in practice, and click here to read more about IIPP’s research and policy work on the green economy.
