Greening Global Growth?
Climate and growth impacts of the worldwide stimulus packages

Worldwide, approximately 3 trillion dollars have been earmarked by governments for stimulus packages aimed at remedying the global economic downturn. This sum, which amounts to 4.7 percent of world income, is intended primarily to stop the downward spiral of cancelled investment plans and cuts in production and employ­ment, as well the shrinking income and demand caused by such cancellations and cuts, but it is also intended to put the world economy on a new and sustainable growth path.

Achieving long-term, sustainable economic growth will, however, only be possible if the energy and climate measures agreed to at past world economic summits, and which were also on the agenda of the recent G20 summit in London, are included in the stimulus packages. The large scope of the stimulus packages provides an opportunity to invest heavily in emission-saving measures and structural adjustments, and thus to initiate climate friendly growth. The extent to which this opportunity is actually being taken advantage of is the subject of a new study by Gernot Klepper, Sonja Petersen, Sebastian Petrick, and Wilfried Rickels, all of the Kiel Institute.

The size and the nature of the stimulus packages vary considerably from country to country. In monetary terms, China and the United States have the largest stimulus packages. Stimulus packages in the EU countries amount to only 15 percent of the packages worldwide (Figure 1). In economic terms also, the EU countries are spending only 1.6 percent of EU GDP on stimulus packages, whereas the United States is spending approximately 7 percent and China is spending approximately 14 percent. The United States and China are, however, also the largest emitters of CO2. Consequently, especially the “green” focus of their stimulus packages is very important for the sustainability of the new growth path.

The stimulus packages will be able to leverage and steer demand, which means they can be used to affect energy use and climate change. For example, subsidizing the purchase of automobiles or building new roads will cause emissions to rise, whereas subsidizing better building insulation would save energy and reduce emissions. Further, government investments will have greater leverage than tax cuts.

Altogether, 13 percent of the stimulus packages will be used directly or indirectly for climate protection purposes and approximately another 2.5 percent will be used for other types of environmental protection. This will save an estimated 111 million tonnes of CO2 annually, or less than 0.5 percent of the actual annual world emissions. The savings could be higher, but many of the stimulus programs have little potential to save more. In China, for example, almost 180 billion dollars are being spent on improving and expanding the railroad networks and electrical grids. Nonetheless, it is to be expected that this will increase capacities at the expense of efficiency, thus causing emissions to rise rather than fall.

The stimulus packages in the EU are expected save an estimated 22 million tonnes of CO2, which amounts to approximately 2.5 percent of the EU’s reduction target for 2020. The reduction in current emissions is expected to amount to about 0.44 percent, which is about the same reduction that stimulus packages elsewhere will bring about. Almost half of the reduction in the EU (9.5 million tonnes) is expected to be brought about by the EU Commission’s stimulus packages. Another 35 percent of the reduction (7.6 million tonnes) is expected to be brought about by the German stimulus packages.

The expected emission reductions are, however, subject to a great deal of uncertainty. In many cases, the stimulus packages are not yet very well defined. Consequently, it is difficult to estimate the effect the stimulus packages will have on energy use and emissions. Additionally, the estimated range of the “green” share in the stimulus packages varies considerably between the most important stimulus packages in the EU (Figure 2). However, the expected “green component” of the EU stimulus packages amounts to only approximately 13 percent overall, which is only about half of the 25 percent stipulated by the UNEP for its “Global Green New Deal” initiative.

Due to the large estimated range of the “green” share in stimulus packages (Figure 2), the authors of the study emphasize that it should be possible to make them “greener.” The measures financed by the stimulus packages are still in the process of being formulated in detail and thus it would be possible to increase the “green component” of the packages in the EU that have already been approved to 35 percent. If all of the stimulus packages in Germany were to be designed to be “green,” 32 percent of the appropriated funds could be used for climate protection purposes this year. If, on the other hand, climate protection were not to be given priority, the amount available for climate protection purposes could fall to 5 percent. The authors call for the German government, as well as the state and city governments in Germany, to design the stimulus package measures as green as possible so that when growth returns, it will be economically and ecologically sustainable in the long term.

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