Greenness of Stimulus Index
Announced stimulus of $17.2 trillion will have a net negative environmental impact in 15 of the G20 countries and economies, and in five of the ten other analysed countries. To date, the economic response to the COVID-19 crisis will reinforce negative environmental trends overall. Despite many positive examples of green stimulus, most governments have not used the COVID-19 stimulus to transform their economic trajectory in a way that enhances nature or responds to climate change at the scale required. There is, however, an opportunity to learn from what countries have done to date, and to move subsequent public finance decisions toward preventing continued damage to nature and to lower dramatically the cost of protecting the planet.
The world’s three most populous countries – China, India and US – improved their GSI scores over time, but still remain in the negative overall. China’s improvements were driven by the launch of the world’s largest carbon market, 2025 and 2030 emission reduction targets, and the phase out of fossil fuel-only vehicles by 2035. India’s score is bolstered by clean energy investments though ongoing support for coal continues to hamper its score. Nevertheless, these positive trends were outweighed by larger volumes of stimulus that reinforced existing dirtier trajectories – neither country managed to find definitive stimulus measures that supported the transformation of their environmentally-intensive sectors. The United States’ $1.9 trillion American Rescue Plan does not specifically target climate change and biodiversity issues, but contains several measures that result in an increase in the United States’ index score, including $30 billion investment in public transport, upgrades to water and sewer systems, and projects to improve energy efficiency. The United States’ score remains negative, however, which shows that further, greener legislation and ambitious regulatory action needs to be coupled with an ever bigger low carbon investment package to move to a positive score.
Emerging economies most dependent on environmentally-intensive sectors and without strong regulatory oversight had the biggest task to turn their stimulus green, and have so far failed to do so. The worst-performing countries – Russia, Turkey, Saudi Arabia, Indonesia, Mexico, the Philippines and Argentina – have made little attempt to divert stimulus towards green initiatives. Their stimulus packages have exacerbated the poor underlying environmental performance of their economies, pushing environmentally damaging outcomes, by supporting high-carbon industry and energy, and unsustainable agriculture that destroys biodiverse habitats. A scattering of new climate policies, investments in sustainable cities, and support for electric vehicles had marginal positive impacts, but other actions (like cuts in tax on petrol vehicles and reduced regulation) pushed in the opposite direction. Brazil, Colombia and South Africa made somewhat greater efforts at green stimulus, but like China and India, fell short of significantly turning theirs around their previous trajectory. To manage the COVID-19 crisis while protecting and rebuilding nature at the same time, these countries would need to better hardwire environmental actions into their public spending and regulatory measures.
Overall, only Canada and parts of Europe oriented their stimulus in a way that significantly shifted their trajectory, thanks to a concerted effort from early on in the crisis. Denmark and Canada made the largest overall efforts to reorient their economies through the stimulus spending, with the European Commission spending and national-level stimulus packages in the UK, France, Germany, Finland, Spain and Sweden achieving strongly positive outcomes. Other more advanced economies – such as Japan, South Korea, Italy and Australia – made some efforts but did not manage to achieve a transformational shift through their stimulus.
Even among leading countries nature and biodiversity have been particularly neglected. Where large green stimulus measures have been introduced, these have largely focused on reducing carbon emissions, with only occasional attention to preserving and enhancing nature and natural capital. The outcome of more nature-negative than nature-positive spending was even found in the EU National Resilience ad Recovery Plans (NRRPs). Given the risks associated with degraded natural capital – including the virus spillover risk driving the current pandemic – it is hard to justify the scant attention paid to nature protection. Fewer than ten of the economies analysed have invested in so-called nature-based solutions (NBS), such as tree planting, forest protection and regenerative agriculture.
New appraisal methodologies and governance processes are needed to ensure that public spending is nature-positive. Policy practitioners have a lot of experience assessing the impact of policies on greenhouse gas emissions, but the capability to appraise impacts upon nature are significantly less developed. There is a need and an opportunity to develop a nature-focused budgeting approach that directly links public finance to nature impacts. The approach must enable government decision-makers to connect policy levers with nature impacts, and make transparent the effects upon nature of finance decisions. Climate resilience and nature resilience go hand-in-hand, and the NRRPs’ strong focus on climate change shows that without the right tools to measure the nature impacts of spending even so-called ‘green’ public finance risks missing the bigger, holistic environmental picture.
- Many countries made efforts to steer at least some of their stimulus spending toward green ends despite a very heavy focus on short-term “emergency” spending. In absolute terms, over US$1.8 trillion went to green stimulus, as compared to roughly US$650 billion (inflation-adjusted) in response to the 2008 financial crisis.
- Only Canada and parts of Europe oriented their stimulus in a way that significantly shifted their trajectory, thanks to a concerted effort from early on in the crisis.
- Other large economies like the US, China and India have not to date managed to fundamentally reorient their trajectory, despite channelling some stimulus toward a longer-term green and resilient transition.
- In many other emerging markets – such as Indonesia, Mexico, the Philippines and Russia – stimulus has not taken on a significant green orientation, and in many cases has only further reinforced high-carbon and low resilience economic activities.
- Across the board, nature and biodiversity were almost entirely ignored. Even in Europe’s National Resilience and Recovery Plans, it appears that a greater proportion of spending damages nature than enhances it. The situation is only even bleaker in the other countries examined.