Growth Sustained – Rebuilding economies in a greener way

The COVID-19 pandemic led to one of the deepest recessions in living memory, but as with many historical crises, the darkest days often precede some of the brightest and most prosperous ones.

Sustainable Development Goals

Sustainable Development Goals (SDGs) are criteria set by the UN General Assembly to monitor various aspects of human progress on climate change. With 17 SDGs to count, the UN intends for them to be met by 2030 to “achieve a better and more sustainable future for all.”

SDG #8 states the aim to “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”, a pertinent issue as countries seek to revive their economies after the deepest recession in recent history.

A dash for growth

Before the pandemic, the United States was the world’s largest economy as measured by GDP, with China coming second, catching up with faster growth from a lower level. Countries such as the US and the UK were reported as being close to “full employment”, a theorised level of employment at which most of those who are looking for work have fulfilling jobs. The economies of such countries were seen to be close to full capacity, but not necessarily in a green sense.

The pandemic saw the forced shutting down of a large chunk of the world economy: shops closed, cinemas and other large venues sat empty. The UN estimates that the equivalent of 255 million jobs were lost during the pandemic worldwide, four times higher than the losses seen during the 2007-09 financial crisis. One of the resources the world has been hungry for to fuel growth historically has been coal, one of the most polluting of the hydrocarbons. Coal represented 27 per cent of the world’s energy mix in 2020, just behind oil.

Countries with large populations such as China and India are especially significant consumers of coal, and the absence of President Xi Jinping at COP26 led to concerns that little progress would be possible with regards to coal. There was dismay when an agreement to “phase out” coal usage was amended to “phase down”, as well as India pledging to go net-zero on carbon emissions by 2070, several years later than some would have liked. However, changes are afoot, with 23 countries pledging to phase out coal usage, including five of the top 20 consumers of it.

The official line coming out of COP26, despite the criticism, is that the coal era is ending, and there are tangible signs of this already. Since the adoption of the Paris Agreement, COP26 reported that the number of planned coal plants dropped 76 per cent over the past six years. It was claimed this was the equivalent of cancelling 1,000gw of new coal plant capacity. Coal was once seen as effective life blood for industrialised economies in their dash for growth, but the 2020s could see a waning influence for coal overall, as countries diversify towards cheaper, cleaner, more reliable sources of power. 

The recent hydrocarbon spike is perhaps a good argument for economies to decarbonise even further, owing to the great financial cost and the need to find clear alternatives: why keep remaining reliant on an unsustainable energy mix vulnerable to such price spikes?

Building back greener

Over in the US, lawmakers have been wrangling to pass a sweeping package worth trillions of US dollars. The Biden administration is angling to ensure that by 2035, the power sector is carbon-free, as part of sweeping plans intended to create millions of jobs. Infrastructure is to be upgraded, as part of a ‘Build Back Better’ plan, meaning consumer energy costs could be reduced, alongside more government expenditure going towards investments to help “advance environmental justice” in the White House’s own words. 

Such expenditure from the government is likely to help push the US further down the path of achieving a halving of emissions in 2030 as compared to 2005 levels. The US target of reaching net-zero on carbon emissions is pencilled in for closer to 2050, with the US’s actions putting the ball very firmly in the court of India and China. The question is, will they play ball or just play for time?

Over in the UK, the government is making it easier than ever before for the financial markets to directly help fuel a green recovery, through the offering of green bonds. These issuances of sovereign (government-issued) green debt allow for the financing of green infrastructure projects to the tune of billions of pounds already. At a time when money is tight for the average Brit, amid soaring oil and gas prices, green bonds allow for the financing of additional government spending through the financial markets rather than imposing fresh taxes on the population at large. 

According to one report, an estimated £95 billion worth of orders have been made for green bonds issued under the government’s scheme already, thanks to bonds are expected to mature by the early 2030s. In the meantime, the money spent on projects will stimulate growth, and allow the UK to follow the US in seeking a greener recovery from COVID-19. Where the government goes, corporations are expected to follow; now that government-led sovereign green bonds are seen to be a success and investors are showing a great appetite for green investment opportunities, businesses with deep enough pockets could get in on the act themselves, and look to begin issuing private green bonds too.

Money is often given the nickname ‘green’, most likely referring to the green tinge of US dollar bills. However, based on what governments and financial markets are planning for the 2020s, the bank notes might not be the only thing that’s green, but also the way people plan to spend those precious dollars, pounds and other currencies.

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