Climate and the Economy: Way Forward?

By Matthew St. Lawrence

The past six months has seen a shake-up of the global economy the like nobody could have expected. We are currently at a point where most developed economies are seeing contractions in output at a scale never seen in many years, our city centres are ghost towns and many millions of jobs are currently being supported by a form of universal basic income that many were against less than a year ago. On top of this, many people noticed how, during the harsh days of lockdown their air was cleaner, the noise pollution that plagued many urban and suburban neighbourhoods was eradicated and wildlife started to venture into areas previously solely populated by people and their cars. The city life many were accustomed to vanished in the space of a few days.

One of the biggest climate changes recorded during lockdown was the sudden and severe drop in air pollutants in major cities across the world. It is predicted that with the restrictions, up to 11,000 deaths related to complications due to pollutions were avoided in Europe alone. Whilst this is small and insignificant in comparison to the number of deaths faced due to coronavirus, it is a big win for those who have been campaigning for climate justice for many years. In fact, it has led many to believe that this is substantial, real world evidence that a drastic change in the way in which our economies function and grow is desperately needed. This, of course, is in the context of a severe contraction in output, which in the long term is not sustainable without leading to significant and irreversible job losses. At the time this data was recorded; UK GDP had shrunk by 20.4% and by September over 1.2 million people were on the job retention scheme as sectors such as transport and tourism had all but collapsed. The struggle that policy makers now face is how to implement these drastic changes without causing the same level of disruption.

Policies to curb pollution have been put forward for many years. Countries like the Netherlands have been successful in creating a significant zero emissions transport network from as early as the 1970s (albeit for reasons other than air pollution to begin with) by building extensive cycling networks and investing in public transport in its biggest cities. As it happens, many cities have been busy trying to recreate these networks in their own neighbourhoods as a way to lock in the gains made back in April and May. Paris alone proposed 650kms of extra cycle lanes in the city. The UK government has also promised £2 billion towards active travel measures across the country with aims to retain the high levels of cycling seen during lockdown.

What’s more, extensive polices have also been put forward on a national level. The most famous and recent of them being the “Green New Deal” resolution tabled in the US House of Representatives, most notably by Senator Edward Markey and Representative Alexandria Ocasio-Cortez. Whilst this did not go as far as to put policies to the floor, it started a discussion about environmental economics not seen before at such a national and global level. The main contents of the resolution were a move to a net zero carbon future, investment in jobs in the green sector, investment in infrastructure as well as retraining of workers in carbon polluting industries. Whilst these particular policy ideas were put forward before the Covid economic crisis, its contents and calls to action could not be more prominent.

The argument can be made, even, that the new Covid regulations and investments in major cities and countries across the world are just measures that were inevitable in the medium term. Pre-Covid, Paris already had extensive congestion rules to combat the issue of air pollution, including banning certain types of vehicles entering the city centre on certain days. London also had implemented congestion charges and low emission zones across swathes of the city. Perhaps, what we are seeing in city halls and governments across the world is the implementation of legislation and infrastructure changes in a period of 6 months that previously would have taken 6 years or more. Citizens have had a taste of what their cities could look like and do not wish to return to the days of old. Policy makers know this.  

As policy makers move their attention to the economic recovery, the potential of these policies is immense. To start with, those living in urban and heavily industrial areas can expect cleaner air, less noise and fewer illnesses related to poor air quality. It is currently estimated by the World Health Organisation that nearly seven million people a year die due to complications caused by pollution. On top of that, the OECD states that almost 1.2 billion work days are lost due to air pollution. These are significant inefficiencies which will, if left unchanged, severely impact the output level of economies in the years to come. A change in air quality, like that seen earlier this year, would provide a large boost not only to health, saving governments and insurance companies billions on healthcare costs related to air quality, but also to the productivity of the workforce. The resulting fewer sick days not only benefits the firm owners, who are able to produce more at the same cost level, but also to the households who are healthier, earn more income and save money on healthcare related costs. This encourages increased personal consumption that will, eventually, lead to an economic boost.

Another area that often attracts less attention by policy makers is the issue of the externalities imposed on society. It can be argued that the free market currently produces at an output level that emits more air pollution that is socially optimal. Standard Keynesian theory, which the original New Deal and Green New Deal is based off, states that government involvement in the markets is needed to correct potential free market failings. Examples of this in action is the previously stated congestion charges and the EU Emissions Trading system which is a form of a ‘cap and trade’ scheme. Successfully internalising these negative costs to society into the cost of production and eventually prices will artificially force producers to move less environmentally degrading forms of production.

Moreover, the ‘Green New Deal’ resolution calls for infrastructure spending at levels not seen since the New Deals enacted by President Roosevelt, much of which is still extensively used today. The idea of increased government spending during periods of economic contraction is not new. Many major economies use this fiscal policy tool as a means of generating jobs in the public and private sector during spells of increased unemployment. The main difference here, however, is the scale of work that has been recommended. It is no easy task to “upgrad(e) all existing buildings in the United States and building new buildings to achieve maximum energy efficiency, water efficiency, safety, affordability, comfort, and durability, including through electrification”. This is on top of moving the US energy production to 100% renewables.

Whilst many of the Green New Deals objectors say that this will cost for too much and crowd out private sector investment, those who support it say without this level of investment now, it will be too late to meet decarbonisation targets set into law by governments and the Paris Climate Accord.

Environmentally and economically, the time to carry out these significant interventions is during the Covid recovery. The issue many economies face now is mass unemployment and drastic falls in economic growth. Investments in all sectors of the economy to allow for a zero-carbon future would allow for increased job retention, new industries forming or growing (noticeably in renewable energy) and new opportunities to provide training for workers looking to engage in these new industries. This all is not even including the immense health and welfare benefits gained by removing air pollution from our cities. The big winner for this policy, however, is the levels of economic growth and technological development that can be achieved over a relatively short space of time.

In the end, many millions of citizens have had a trial of what a cleaner and greener future could look like. It did not take long, however, for the usual congestion, noise and pollution to creep back into daily life. If this proves anything, it’s that environmental change can be revolutionary but without thorough and encompassing policy implementations, this can all be lost in the blink of an eye.

“The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.”

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