Author: Rebecca Shutt
Editor: Maja Bronowska
Artist: Mei-Ann Sim
2020 was meant to be the year of COP26, an update to nationally determined commitments (NDCs) from the Paris Agreement. However, the conference and the following positive climate action was delayed due to COVID-19. The economic effects of the pandemic are described widely as the severest economic downturn of a generation, to which governments across the world had to respond immediately with emergency financial relief. In long term recovery plans, the phrases “build back better” and “green recovery” are often used to signal that governments plan to rebuild our economies keeping the environment, climate, and sustainability goals in mind.
What are some of these plans and is there hope for global cooperation?
Firstly, what is the economic fallout of COVID-19, and how has it slowed everything down?
Gross Domestic Product (GDP) calculates the value of products and services created by a country over a period and is one metric used to understand the health of a nation’s economy. GDP includes consumption, government spending, investment, and exports. The global growth in GDP took a hit of -4.4% in 2020, compared to 2.9% growth in 2019. However, some countries experienced a prompt bounce back after the first wave of lockdowns. This includes the US, whose recession lasted only two months, the shortest on their records. Similarly, the UK economy grew sharply as lockdown eased, and the UK GDP is expected to recover to pre-pandemic levels In early 2022.
Confusingly, for someone who is not an economics graduate, GDP is not necessarily the best metric to capture the economic impacts on individuals and their standards of living. Other aspects of growth and decline in economies include income, debts, and rates of unemployment, which aim to provide a better picture of the economic fallout.
Considering unemployment rates, the International Labour Organisation (ILO) reported that more working hours were lost in 2020 compared to the global financial crash in 2009, and was equivalent to 225 million full time jobs. Furthermore, the losses in working hours were higher in Latin America, the Caribbean, Southern Europe, and Southern Asia. The labour losses are also experienced unequally between different groups of workers as well, with women and youth workers being disproportionately affected.
In terms of income, the income per capita for many of the world’s richest countries fell more sharply in 2020 than for the world’s poorest countries. China was one of the least perturbed countries by the pandemic, with the fewest deaths per capita and one of the few countries with net growth in income in 2020.
Even though the drop in income per capita may have been less for poorer countries compared to richer countries, poorer countries aren’t recovering as fast and the outlook for these countries in terms of debts is worse. Debts and debt-to-income ratios have been increasing for low- and middle-income countries and have been further exacerbated by the pandemic. Additionally, the poorest 20% of countries are expected to lose a further 5% of income by the end of 2021. The World Bank predicts that inequality in income between nations will increase for the first time in a generation, observing that, “The evidence so far thus suggests that while the pandemic has affected everyone relatively evenly, the recovery has been less uniform.”
Therefore, although COVID-19 touched every country, the impact was and will continue to worsen for the world’s poorest.
After that rather depressing outlook, let’s get back to the green mushy stuff…
The onset of the COVID-19 recession required plans to mitigate the worst impacts, which included propping up businesses, and emergency fiscal measures like quantitative easing. Within two months of the pandemic, at least $10 trillion of financial relief was announced globally. Now, we are further removed in time from the initial economic impact and governments can focus on more long term economic planning. So, what approaches are different countries taking to target environmentally sustainable “green” recovery?
Many of the announced packages provide a combination of funding in the form of grants which are not paid back, and low interest loans. The EU committed their Next Generation EU package, worth €750 billion, which includes the Just Transition Fund to assist member states to achieve net-zero, invest in green projects, and develop agriculture and rural areas in line with the European Green Deal. Britain’s commitment to “Build Back Better” earmarks £12 billion of funding for projects that support the transition to net-zero (by 2050) through the Ten Point Plan for a green Industrial Revolution with a focus on technologies such as hydrogen and expansion of off-shore wind.
Government bonds underwrite loans with low interest rates to projects, alleviating the associated risk that makes such projects unattractive investments. Targeting sustainable finance, the UK government started the issuance of Green Gilt in September 2021. And no, this isn’t where Rishi Sunak makes you feel bad for eating that tub of chicken wings last week. Green gilt bonds finance projects with both environmental and social benefits. A greater acknowledgement of the intersection of the climate crisis with other social issues such as health and inequality has meant that bonds for green recovery have shifted to require both environmental and social impact.
Ascertaining the seriousness of a government’s commitment to Green Recovery through reading their budgets is difficult because the link between the resource promised and the total resource available to a nation is often missed. It would be great to see governments doing more to bridge the gulf between public knowledge of the national budgets and the flashy price tags of their grants and bonds packages. Then we, the electorate, can understand if these budgets are sufficient to safeguard our future.
Is there hope for greater global cooperation to combat climate change?
Unfortunately, there is evidence to suggest world leaders are not willing to work together to achieve a better future. According to the BBC, leaked documents revealed a number of comments criticising the 2009 agreement to raise $100 billion annually in climate finance for developing countries, which, 12 years later, has not been achieved.
However, there is also a reason to believe that the world will cooperate to mitigate climate change and its impacts. Just prior to the start of the pandemic, in October 2019, the International Platform on Sustainable Finance was launched with 17 global member states representing 50% of the world’s population. This provides a forum for dialogue between policymakers aiming to plough more money into environmentally sustainable investments.
To date, only 13 of the 194 signatories to the Paris Climate Agreement have submitted their second Nationally Determined Commitments (NDCs). But even so, are these pledges and policies sufficient to quote “build back better” and is “green recovery” supporting actions that are drastic enough to safeguard our futures, or just more buzzwords to keep us voters happy? Greta Thunberg has already declared COP26 a failure, calling for greater honesty, transparency, and less green-washing. If we can clearly see the problems at hand and what plans are being proposed to tackle them, including the limitations of these plans, we can lobby governments more effectively and make our votes and voices count.