Economic Recovery

Don’t squander this chance for transformation

Our need for transformational policies has never been greater, and neither has the opportunity. Will the Government start rolling out strategic, transformational initiatives or will we remain shackled to the status quo, asks Rod Oram

Last Monday a euro 500 billion ($890b) coronavirus recovery fund, with an explicit focus on pushing Europe’s transitions to digital and green economies, was jointly proposed by French President Emmanuel Macron and German Chancellor Angela Merkel.

Two weeks earlier, major corporates in France and Germany had urged their governments to adopt such an “ecological transition” in their Covid recovery plans. They also argued this would build on the European Green Deal the EU launched last December.

“As the rest of the world plans a green recovery, America is once again falling behind,” Time magazine notes in its latest edition

Meanwhile our Government offered nothing new on the climate crisis in its Budget last Thursday and only some $10 million to help New Zealand companies apply the number one global business lesson from the Covid crisis so far: fully digitise your business processes and, to the extent you can, the delivery of your products and services.

And our corporate sector has yet to boldly back sustainable transformation the way their European counterparts have. Worse, NGOs note companies have cut a number of sustainability roles during the drastic contraction of our economy.

We are seriously out of step with post-Covid policy development in many countries we consider our peers. They see the best recovery path is to take climate actions such as clean energy research and development and disaster preparedness, according to a recent survey of some 230 central bankers, finance ministry officials and leading economists in a paper published recently by the Oxford Review of Economic Policy.

“You can do them quickly, many of them are labour intensive, and many of them have big multipliers,” says Nick Stern, a former World Bank chief economist who led the survey and now chairs the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.

The paper on the impact of the Covid crisis on climate change was led by the Smith School of Enterprise and the Environment at Oxford University.

It notes: “Public support for action on climate change increased to a peak prior to the pandemic; government and corporate action was also gathering momentum. Covid-19 has clearly slowed this momentum, not least in delaying the international conference on climate (COP26) from 2020 to 2021. However, the momentum could find new impetus if, humbled by the ability of ‘natural’ forces to shock the global economy, humans recalibrate our sense of omnipotence. Furthermore, opinion polls in many countries show that people are noticing the clean air, uncongested roads, the return of birdsong and wildlife, and are asking whether ‘normal’ was good enough; could we not ‘build back better’? The shape of Covid-19 fiscal recovery packages put in place in the coming months, once lockdowns are eased, will have a significant impact on whether globally agreed climate goals are met.”

The paper analyses government stimulus packages to date on whether they will have a positive or negative impact on the climate crisis, and whether they have a slow or fast economic multiplier.

The study identifies a raft of positive policy actions such as: clean physical infrastructure investment in the form of renewable energy assets, storage (including hydrogen), grid modernisation and carbon capture and storage technology; building efficiency spending for renovations and retrofits including improved insulation, heating, and domestic energy storage systems; investment in education and training to address immediate unemployment from Covid-19 and structural shifts from decarbonisation; natural capital investment for ecosystem resilience and regeneration including restoration of carbon-rich habitats and climate-friendly agriculture; and clean R&D spending.

... the vast majority of the money going to business in the short term could be risking future environmental sustainability.”

Conversely, it identifies many widely adopted stimulus measures which are damaging to the environment and /or have low economic multipliers. Examples are investment in traditional transport infrastructure and bailing out of airlines.

The paper also notes a more favourable social context for bold action: “Covid-19 has already triggered major shifts in individual behaviours, social practices, beliefs, the role of the government in the economy, and relationships between nations and international institutions. These shifts have occurred on remarkably rapid timescales.”

It points out, though, that only a small proportion of Covid responses so far are in the positive category on climate metrics.

Vivid Economics of the UK has come to the same conclusions in its recent research. “Most governments are failing to use this support to secure medium-term benefits to their citizens’ welfare and the natural world around them. As a result, the vast majority of the money going to business in the short term could be risking future environmental sustainability.”

Vivid offers a coherent framework to ensure recovery programmes also deliver sustainability. It gives many examples of how to link support for companies with progress on climate and the environment.

Here in New Zealand a group of six of our leading environmental NGOs wrote to Prime Minister Jacinda Ardern in early April arguing for transformational recovery plans that would make our economy higher value and more sustainable while creating new jobs for people displaced from sectors such as tourism which have been hit very hard by the Covid crisis.

Of the dozen major projects they proposed, only one got substantial funding in the Budget. That was for weed and pest control, which is useful in itself but not transformational.

Thus, the critical question now is how will the Government respond from here?

Will it work on strategic, transformational initiatives and start rolling them out with some funding in the further recovery measures it is planning between now and the election and - if it wins re-election - into the first half of next year?

Or will it largely ignore transformation because it will be consumed by the economic turmoil still to come, and be held back by its own cautious instincts and the serious brake on environmental policies which New Zealand First exerts on the coalition?

Opinions among leaders of environment NGOs are sharply divided, judging by conversations I’ve had with many of them in recent days. Some say they are getting a positive response from some senior civil servants and some ministers. They are optimistic the Government will take some transformational initiatives and, if it wins re-election, helpfully reform environmental regulation.

.. if we fail to do so in these testing times, we might never have another chance. We will have shackled ourselves to the status quo.

But others are highly discouraged by the Government’s lack of action so far; and they worry the Government’s plans for fast-tracking infrastructure projects will come with high environmental costs.

The Government has suspended key processes in the RMA to allow for fast decision-making on these projects. The only safeguard is Environment Minster David Parker’s role in the process. But they say they are not confident he will argue strongly enough for sustainability in the decisions.

They also worry about the varying degrees of hostility New Zealand First, National and ACT have towards transformation of our economy into one which is high value, deeply sustainable and fairer to citizens.

So, if you want action on the climate crisis, a sustainable economy, a healthier environment and a fairer society, you will have to fight vigorously for them in this election.

Our need for them has never been greater and the opportunity to get them never better.

Above all, if we fail to do so in these testing times, we might never have another chance. We will have shackled ourselves to the status quo.

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