In June and July 2020, the LEDS Energy Working Group hosted a three-part online discussion series on assisting developing countries in their efforts to recover from the global Corona pandemic, and the resulting economic crisis. The key objective was to understand how short-term recovery efforts, particularly in the energy and transport sectors, can support long-term transitions towards climate objectives and the Sustainable Development Goals (SDGs). This blog summarizes the discussions of the second session, which focused on the underlying mechanisms of sustainable stimuli and the economic and environmental potential of alternate government responses to the economic fallout of the pandemic.

Part 2: Understanding the ideas behind stimulus proposals

Key messages:

• Stimulus packages must be large in volumes, immediate, targeted, long-lasting, and forward-looking.
• Structural reform is desperately needed if we want to follow a green recovery path instead of business-as-usual.

• Stimulus packages should put transport in a pathway towards decarbonization and sustainability.

• The EU can show leadership in global policies for a climate-neutral future and work closely with developing countries.

In the wake of the pandemic-induced lockdowns that wreaked havoc on the global economy, there is a growing impulse among policymakers to embrace sustainable stimuli. Indicating the need for a proactive and sustainable recovery which keeps the 2030 SDGs within reach is one thing, so is designing stimulus packages, establishing priorities and determining which sectors and businesses will be supported . What are (or should be) the rationales behind stimulus packages? Which mechanisms can make economic stimuli SDG-proof? What potential do sustainable public investments hold in the economic recovery of developing countries? These were some of the questions addressed in the second session of the LEDS Energy Working Group online series.

The LEDS EWG chair Alexander Ochs kicked off the session with an economic comparison: The economic impact of the pandemic and the resulting lockdown has been estimated at around USD 12 trillion. The global economy will contract by about 5% this year. For comparison, the estimate of investments necessary to keep us below 1.5° Celsius global warming has been estimated at 1-2% of global GDP. Most importantly, this number is not economic losses but investments, and it does not account for the positive economic effects and pay-back of these investments.

According to Michael Schäfer, senior advisor at the Berlin-based think tank Agora Energiewende, one must distinguish between relief, recovery, and reform when designing post-crisis stimuli. Indeed, recovery programs must be structured in a way that will deliver a- dual benefit, in terms of both long-term macroeconomic and environmental effects. In addition, they must also be large in investment volumes, forward-looking, long-lasting, immediate, and targeted.

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“Stimulus packages cannot be neutral – they always have long-term macroeconomic and environmental effects”.

Michael Schäfer, Agora Energiewende

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Developing countries should maintain existing incentive schemes for renewables, e-mobility, and energy efficiency. Moving forward, they must advance large-scale investments for tomorrow’s integrated infrastructure, namely renewables, e-mobility, and electricity grids. In this regard, the European Green Deal can be a good starting point of what is relevant to consider in recovery programs; developing countries can pick up the conversation and benefit from the ground covered.

The EU intends to align the goals of the Green Deal with its recovery package and its multiannual budget. European Commission’s Martin Kaspar says that the EU intends to work closely with emerging economies to facilitate the transfer of policymaking know-how and create new, much-needed investment opportunities. As the bloc is set to throw its financial weight behind emerging clean technologies, such as green hydrogen and batteries. This opens the door for developing countriesto substantially benefit from increasing the scale and cost-competitiveness of these technologies.

India, by virtue of its size and population, could also serve as a role model for other emerging economies. Recently, India instated its largest stimulus package in history. The package is – understandably – dedicated to providing relief to the workers and businesses of the pandemic-stricken country. Rajat Kathuria, director of the Indian Council for International Economic Relations (ICRIER), a think tank based in New Delhi, believes that India must abandon its pre-COVID economic growth model, which worked against, not towards, sustainability and a clean environment. A truly ambitious post-pandemic response should prioritize the distribution of electricity and decentralized energy, with a focus on the local manufacturing of renewables. He also highlights the hidden potential of sustainable transport to be take a front seat in driving economic growth. The transport sector must shift, he says, from conventional and personalized modes to sustainable and communal modes.

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“Transport is a public good. This is why it has to be protected by public policy and has to be co-financed by public budgets.”

Maruxa Cardama, SLOCAT

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The importance of sustainable transport as a key component of SDG-proof stimuli is also put forward by Maruxa Cardama, the Secretary-General of the Partnership on Sustainable, Low Carbon Transport (SLOCAT). She stands behind a big push in ambition to accelerate the transition to sustainable transport patterns. Transport, as an essential public good, must be protected by public policy and co-financed by public budgets. For stimulus packages to lead to structural reform and improve the efficacy of transportation systems, there will need to be substantial funding allocated to resilient mobility infrastructure, and a strong community-centered approach. The Avoid-Shift-Improve approach offers a holistic framework for designing sustainable transport systems that can also be used to guide policymakers when constructing stimuli packages.  

Learn more about the three-part online discussion series here.

Learn more about this session by checking out the recording on YouTube:

Authors:

Apostolis Valassas, SD Strategies, for the LEDS GP Energy Working Group. Launched in 2011, the EWG is the LEDS GP’s longest standing work stream. By providing opportunities for learning, information exchange, and greater cooperation, the EWG assists countries around the world in designing and implementing successful climate-compatible energy-sector development strategies.

Disclaimer: The information and opinions expressed on this blog post does not necessarily reflect the views of the LEDS GP Global Secretariat or of the LEDS regional platforms, working groups, communities of practice, and membership.