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33. Impact of COVID-19 Fiscal Recovery Packages on Climate Change

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As the urgent need for large-scale economic measures against the global economic crisis associated with COVID-19 is being discussed, the calls for "green recoveries" as an effective way for environmental protection are also gathering momentum (World Economic Forum;Pick Up 20). Major economies formulate enormous economic packages to cushion the coronavirus pandemic shock, and several stakeholders including investors, politicians and the business sectors see this move as a unique opportunity to drive a shift towards a low-carbon future. Top U.S. and British economists, including Nobel laureate Joseph Stiglitz and prominent climatologist Lord Nicholas Stern published a working paper, “Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?”. The key insights are summarized here.

The global economic crisis caused by the novel coronavirus infectious disease (COVID-19) has resulted in a record drop in globalgreenhouse gas emissions. But once the movement restrictions are lifted, emissions could increase again. On the other hand, the COVID-19 crisis was also clearly urgent, showing that with the support of the public, the government can engage in policy decisively . The climate emergency is very much similar to the COVID-19 emergency, although progressing in slow pace and with more seriousimpact. Both are characterized by market failures, externalities, international cooperation, complex science, questions of system resilience, political leadership, and action that hinges on public support. The COVID-19 crisis can be a turning point in the evolution of climate change. The paper examined economic stimulus policies that are expected to deliver large economic multipliers and that will lead to a zero greenhouse gas emission as quickly as possible. Future policy choices can dictate the direction whether the revival package can set the global economy on a pathway towards net-zero emissions, or will continue to keep the world tied to fossil fuel system.

This paper has adopted the following methods. First, the authors examined more than 700 economic stimulus policies launched since the 2008 financial crisis and develop a set of 25 policy archetypes. On top of that, a global survey of over 231 experts, including senior officials from finance ministries and central banks in 53 countries was conducted to assess the impact of the policies. As a result of expert evaluations and literature surveys, the following five policies were evaluated to be particularly effective in terms of economic multiplier effect and climate change impact.

  • Clean physical infrastructure investment in the form of renewable energy assets, storage (including hydrogen), grid modernisation and CCS technology;
  • Building efficiency spending for renovations and retrofits including improved insulation, heating, and domestic energy storage systems;
  • Investment in education and training to address immediate unemployment from COVID-19 and structural shifts from decarbonisation;
  • Natural capital investment for ecosystem resilience and regeneration including restoration of carbon-rich habitats and climate-friendly agriculture; and
  • Clean R&D spending.

In low- and middle-income countries, it was suggested that rural support spending associated with sustainable agriculture, ecosystem regeneration, or accelerating clean energy installations was more important than the policy on clean R&D.



Hepburn C, O’Callaghan B, Stern N, Stiglitz J, Zenghelis D (2020) Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?, Smith School Working Paper 20-02.

World Economic Forum. Could COVID-19 mark a ‘turning point’ in the climate crisis?  May 7 2020

Pick Up 20. New Coronavirus Pandemic ― Global Economic Crisis and Climate Change Countermeasures


Contributor: IIYAMA Miyuki (Research Strategy Office)

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