Green recovery policies are still possible

Authors: Lin Zhuo, Jacqueline Cottrell, Alice Presotto*

In theory, the pandemic created an opportunity for policymakers to recalibrate existing policies and develop new, innovative strategies to mobilize financial resources and drive a green, inclusive, low-carbon recovery.  Green fiscal policies, such as ending fossil fuel subsidies and introducing carbon pricing, have enormous potential to foster a sustainable low-carbon recovery in the Asia-Pacific region. In this vein, it is timely to reflect on the extent to which rescue and recovery packages are embracing the principles of resilience and sustainability with regard to supporting the 2030 Agenda for Sustainable Development and climate action in Asia and the Pacific. The huge climate costs faced by many countries in the region underscore the need for long-term financing strategies and investment planning to reduce risks and avoid unnecessary spending later.

In the run-up to COP26, ESCAP organized a workshop in cooperation with the Green Fiscal Policy Network entitled The Role of Fiscal Policies in a Green Covid-19 Recovery to discuss the role of fiscal policies in supporting a green recovery in Asia and the Pacific. This workshop brought together leading government experts, international organizations, think tanks, academia and experts from the private sector.

As the experts discussed the potential of green fiscal policy to align environmental, social and economic goals to pave the way for a green recovery, they agreed on a few notable issues:

o Recovery plans lack a green component. Most recovery spending has failed to sufficiently integrate climate and environmental policy concerns. There is considerable room for improvement. To this end, governments must prioritize fiscal spending that supports green recovery and invest in long-term low-carbon solutions, rather than short-term unsustainable expenditures on subsidizing fossil fuels.

o Recovery spending is highly uneven. The contrast between the average rescue and recovery spending in advanced economies (US$12,000 per person) and emerging market and developing economies ($20 per person) highlights the importance of a just transition, not only at the national level, but also internationally.

o Green public finance to boost the green recovery. Green public finance, such as the IMF’s Green Public Financial Management, can help governments prioritize and reallocate resources within their existing fiscal space and integrate environmental concerns systematically in budgetary decision-making. A green recovery can be promoted through greening public revenue and expenditure, including internalizing climate perspectives in macro-fiscal forecasting, reporting on how stimulus packages help meet green objectives, and mobilizing additional resources through green taxation.

o Statements of intent from governments are critical to enable green private investments. Unequivocal statements of intent from governments and public investments in green infrastructure encourage financial institutions to provide green credit services, and non-financial enterprises to green their operations. Governments’ commitments to net zero emissions have been the most important incentive for financial institutions and businesses to make comparable pledges. Investments in low-carbon technology and infrastructure can also be boosted by carbon pricing initiatives, such as carbon taxes and emissions trading schemes.

o Carbon pricing can effectively contribute to a green recovery.  Fossil fuel subsidy reform, carbon taxes and emissions trading schemes have important roles to play in driving low-carbon investments. Regional dialogue can facilitate the exchange of learning on the design of carbon pricing instruments, help countries identify and replicate successful strategies and create a platform for countries to explore opportunities to link carbon pricing instruments.

o Understanding the political economy of green fiscal policies is key. Committed political leadership, careful policy design, good communication and inclusivity are pivotal to implement green fiscal policies effectively. In addition, the involvement of policymakers and experts at all stages of the policy process can ensure that negative impacts on low-income groups are mitigated and secure a just transition.

In their concluding remarks, many experts outlined the importance of consultation with civil society and effective stakeholder engagement – including with representatives of youth and the poor – to facilitate consensus-building. They also stressed that the continuation of green fiscal policies is “fundamental” for an effective green recovery. Achieving the SDGs and taking effective action on climate change clearly requires the collaboration of all strata of the society.

*Jacqueline Cottrell Green fiscal policy consultant for Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Alice Presotto Intern, Macroeconomic Policy and Financing for Development Division


Lin Zhuo
Lin Zhuo
Associate Economic Affairs Officer