Greenness of Stimulus Index
The world’s leading economies have announced economic stimulus packages that will pump approximately US$3.7 trillion directly into sectors that have a large and lasting impact on carbon emissions and nature, namely agriculture, industry, waste, energy and transport. These flows compare with a total stimulus to date of US$12.7 trillion, and present an opportunity to support these sectors through the COVID-19 crisis, while also boosting global resilience to mounting climate and biodiversity risks. The Greenness of Stimulus Index (GSI) produced as part of the Finance for Biodiversity Initiative (F4B) shows that governments to date have largely failed to harness this opportunity.
Announced stimulus to date will have a net negative environmental impact in 16 of the G20 countries and economies, and in two of the three other analysed countries. Among more developed countries, the US stimulus package stands out as the most damaging. Australia, Italy and Japan join them on the net negative side, owing largely to the existing negative impacts of their environmentally-intensive sectors, and their lack of decisive action to use the stimulus to take specific actions to restore nature and mitigate climate change. The economies analysed comprised the G20 plus Spain, the Philippines and Singapore
Emerging economies most dependent on environmentally-intensive sectors and without strong regulatory oversight have the biggest task to turn their stimulus green, and have so far failed to step up. China, India and Mexico have announced stimulus measures that will damage the environment, while stimulus funding announced by South Africa and Russia largely reinforces the existing damaging impacts of their environmentally-intensive sectors. Indonesia and Brazil are pushing environmentally damaging outcomes, by supporting high-carbon industry and energy, and unsustainable agriculture that destroys biodiverse habitats. To manage the COVID-19 crisis while protecting and rebuilding nature at the same time, these countries must instead hardwire environmental actions into their stimulus measures.
Argentina, Saudi Arabia and Turkey have made little attempt to divert stimulus towards green initiatives. Generally, their stimulus packages have underpinned existing poor environmental performance. Targeted measures have supported polluters in the Turkish transport sector, and non-renewable energy in both Argentina and Saudi Arabia.
The most recently added countries to the GSI – Singapore and the Philippines – follow this negative trend. Singapore has historically supported carbon-intensive energy and transport sectors, leading to continuing poor environmental performance and a low GSI score. Although the Philippines has allocated some stimulus towards a green recovery, this fails to offset the poor underlying environmental performance of the economy, as well as negative stimulus measures.
In the green stimulus to date, 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. Of the total quantified green stimulus to date, worth US$502 billion, only US$93 billion was related to improving biodiversity or preserving ecosystems, while some US$195 billion was associated with pollution or direct habitat destruction with negative expected impacts on biodiversity. Given the risks associated with degraded natural capital – including the virus spillover risk driving the current pandemic – it is impossible to justify this scant attention paid to nature protection.
To date, the G20 economic response to the COVID-19 crisis is thus set to reinforce negative environmental trends. In other words, it will fail to build back better: most governments have chosen not to use economic stimulus to enhance nature or tackle climate change. However, there is an opportunity to learn from countries that have taken the lead and act decisively now to prevent irreversible damage to nature and dramatically lower future costs of protecting the planet. In solving one crisis, we cannot ignore another.
The stimulus in Western Europe, South Korea and Canada offers promise, with at least a portion of spending likely to be nature-friendly, coupled with green infrastructure investments in energy and transport. Germany’s ‘Package for the Future’ was the first to include widespread green measures, including funding for green infrastructure and R&D, particularly in the energy and transport sectors. South Korea has announced significant support for its ‘Green New Deal’ over the next five years. France and the UK benefit from less environmentally intensive economies to start with, plus their decisions to retain green rules and policies. However, specific funding for green projects announced in the UK is relatively small compared with Germany and South Korea. The UK’s positive score is largely driven by good underlying environmental performance. France has attached significant green conditions to financial support, while Canada has announced green measures that go some way to counteracting the country’s negative underlying environmental performance.
The ‘Next Generation EU’ recovery package is the most environmentally friendly stimulus package. Of the €750 billion (US$830bn) package, 37% will be directed towards green initiatives, including targeted measures to reduce dependence on fossil fuels, enhance energy efficiency and invest in preserving and restoring natural capital. Furthermore, all recovery loans and grants to member states will have attached ‘do no harm’ environmental safeguards.
Regardless of the economic structure or past environmental performance, each country has the opportunity to steer its stimulus package to support nature and the climate. Looking across announcements to date, a clear set of tools is emerging to boost the economy in the short and long term while also accelerating the transition to a more sustainable future. These fall into the following broad categories:
- Corporate bailouts with green strings attached
- Investment in nature-based solutions, such as tropical rainforest conservation and sustainable agriculture
- Loans and grants for green investments
- Subsidies or tax reductions for green products, and the removal of subsidies for polluters
- Green R&D subsidies
- Reinforcing environmental regulation, and avoiding deregulation
 The $502 billion quantified green stimulus to date appears large in comparison with the $212 billion for negative quantified stimulus associated with pollution or direct habitat destruction as much of the negative measures are coming in the form of deregulation or other unquantified measures, which have large impacts but do not have a $ value attached to them.
New to this release
This update of the index incorporates significant new information that has become available since the previous release in December 2020, including the latest announcements on stimulus flows, deregulation and environmental policies. It also contains two features that spotlight the United States, including an analysis of the potential impact of President Joe Biden’s proposed $1.7 trillion Climate Plan, and a review of the effect on nature and climate of the US Federal Reserve’s activities to stabilise the economy. Altogether, this release includes the following highlights:
- Addition of the Nordic countries Denmark, Finland, Iceland, Norway and Sweden to the index.
- An increase in the total quantity of measured stimulus to US$14.9 trillion, from US$13.0 trillion. This increase is driven by the United States’ US$900 billion bipartisan stimulus bill signed into law in December, Japan’s December US$606 billion stimulus, and the United Kingdom’s US$71 billion new stimulus package. There were also increases in stimulus packages in France (US$587 billion to US$612 billion), Australia (US$176 billion to US$188 billion), Russia (US$117 billion to USS$129 billion), Italy (US$564 billion to US$574 billion), Canada (from US$391 billion to US$ 400 billion), Germany (by US$5 billion), India (by US$2 billion), and Turkey (by US$1 billion), plus the addition of the five new Nordic countries (US$176 billion total).
- Improvements to some index scores. Notably, the United States and Canada have dramatically improved, with China and India also leveraging new packages and policies into increased scores. Overall, 17 countries improved their GSI scores in this edition, while only four countries’ scores decreased. This reflects momentum towards greener stimulus as countries move from rescue to recovery, but it is also a function of the more positive underlying baselines of countries that released new stimulus since the December edition.
- Major new analysis of the United States. The country passed a US$900 billion stimulus package in December and a sweeping set of Executive Orders since President Biden’s inauguration. Currently, a US$1.9 trillion package is making its way through Congress. Biden has also pledged to implement a US$1.7 trillion Climate Plan. This report considers all of these developments. The legislation and directives already passed raise the GSI score from -53 to -17. Should the $1.9 trillion Biden American Rescue Plan be signed into law in its form as of 8 February 2021, the GSI score would improve slightly to -15. Implementing the Biden Climate Plan would vault the United States’ score to +58, launching the country from 15th to 2nd in our ranking (behind only Denmark and ahead of the EU) and serving as a model for how investment-driven growth and regulatory change can create jobs, improve productivity, reduce emissions and protect nature.
- Investigation of the United States Federal Reserve’s corporate asset purchase programme reveals over US$587 million being directed towards companies at high risk of adversely affecting nature and climate, including through greenhouse gas (GHG) emissions, deforestation and plastic pollution – nearly 10% of its overall corporate bond purchases to December 2020. This underscores the need to hold central banks accountable in the same way as governments, and the importance of examining the neutrality of monetary and regulatory policy through a nature and climate lens.