Report: Maximising the benefits: Economic, employment and emissions impacts of green recovery stimulus in Europe

19 October 2020 – Europe is now considering how best to structure its recovery from the deep health, social and economic crisis stemming from the Covid-19 pandemic. New modelling demonstrates how a Green Recovery Plan maximises benefits compared to other options, providing positive long-lasting economic benefits, a boost to employment and reducing emissions. In the EU, the green recovery plan could save 2 million jobs in the EU in the next few years and generate longer term employment gains, while reducing CO2 emissions by more than 15 per cent.

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In this technical report, we contribute to the growing evidence base of what green recovery policies can achieve in Europe by drawing on Cambridge Econometrics’ E3ME modelling results carried out for the We Mean Business Coalition publication, Assessment of Green Recovery Plans after COVID-19. Our CLG Europe technical report presents an overall view of the EU, the UK and specific EU economies including Poland, Germany and Spain. The modelling results clearly show the identified Green Recovery plan as consistently more favourable than other options - boosting GDP and employment, as well as contributing to additional reduction in CO₂ emissions. Indeed, at EU level, this effect increases over time with significantly better outcomes shown in 2030 if Green Recovery packages are pursued. The modelling in this report illustrates some of the options for how countries can achieve maximum impact at a national level, taking into consideration the contextual factors that may restrict the benefits from specific green recovery measures. Most importantly, the results show the substantial climate benefits that can be derived from channelling some of the recovery spending to actions and activities that also facilitate progress towards the 2030 and 2050 climate targets. However, it is also clear from the results that in some countries there will be a need for longer-term support beyond the two-year period that most countries have announced economic stimulus packages for and as modelled in the packages in this report.             

The modelling assesses two recovery plans that could boost both GDP and protect jobs. The first plan follows a ‘return to normal’ approach by reducing VAT rates and encouraging households to resume spending. The second plan is a Green Recovery Plan that aims to boost economic activity while simultaneously reducing CO₂ emissions. Both plans have the same cost to government. The Green Recovery Plan includes a smaller reduction in VAT than the VAT Recovery Plan, in addition to public investment in energy efficiency and in upgrading electricity grids, subsidies for wind and solar power, a tree planting programme and a car scrappage scheme in which subsidies are only provided to electric vehicles.

Key findings include;

• In every country included in the analysis, the impact of the Green Recovery Plan on CO₂ emissions is considerably better than in the VAT scenario or the Covid-19 baseline scenario. Both recovery plans provide immediate boosts to output (measured using GDP) and employment, but the impact is consistently larger in the Green Recovery Plan. In addition, the Green Recovery plan leads to greater investment.
• The car scrappage schemes tend to be the most beneficial policy in terms of GDP and employment. The long-term benefits arise from the boost that the subsidy gives to kick starting the transition to EVs. Once the uptake reaches a certain level, the transition continues at a faster pace. In practice, the increased uptake of EVs would need to be supplemented with investment in charging infrastructure, which would create additional jobs. However, these impacts are not included in the modelling here.
• The environmental benefits of electric vehicles will only be realised if the power sector fuel mix moves away from coal (and, to a lesser extent, gas). As illustrated by some national examples in this report, the CO₂ emissions reductions from EVs are less substantial in countries such as Poland and Germany, where coal is still widely used in electricity generation. However, there are still longer-term benefits of electrifying transport, and larger CO₂ emission reductions will emerge eventually as the electricity sector is decarbonised.
• Tree planting initiatives can create lots of jobs during the immediate recovery period, especially in countries where labour costs for this kind of work are low and land availability makes an ambitious tree planting scheme possible.
• Like tree planting, energy efficiency improvements can create plenty of jobs while the subsidies are available, but the positive impact on employment declines after 2023 if the subsidy programmes are not extended. However, energy efficiency improvements will contribute to permanent emissions reductions, especially in countries where heating is largely powered by fossil fuels, such as coal, oil or gas.
• Renewables subsidies are responsible for the greatest CO₂ emissions reductions, especially where the impact of the short-term subsidies is sufficient to result in permanent closure of more carbon intensive electricity generation technologies.

Eliot Whittington, Director, European Corporate Leaders Group (CLG Europe) said:

“Covid-19 has exposed deep flaws in how we consider systemic risk. A simple return to a pre-pandemic business-as-usual would be a failure to understand what lies ahead and would store up further problems that we would be even less well suited to face. We now have an urgent need to build resilience to shocks to our economies and societies like the pandemic – and climate change stands out as just such a threat. The evidence in this report clearly shows a green recovery, which lets us stabilise and regrow economies while working to face up to the climate change challenge is not only possible, it is essential. The only viable way forward is a resilient, inclusive and climate neutral recovery plan.”

Maria Mendiluce, CEO of the We Mean Business coalition said:

“This report confirms what many companies already know - investing in the zero-carbon future is the best way to ensure business success. For governments, spending in a way that boosts green technologies and innovations benefits business, economies and people as well as cutting emissions to meet our global goals. To invest in any other way would be to set the world on course for economic and environmental disaster.”

Harry Verhaar Head of Global Public & Government Affairs, Signify, and Chair of CLG Europe, said:

“I think we all know the saying ‘never to waste a good crisis’. This has never been truer in our lifetime than it is today when we are confronted with the triple corona – economic – and climate crisis. Yet, this also offers us the opportunity to make a decisive turn towards a better and brighter future, a future in which this and the next generations to prosper in a more inclusive manner in a carbon neutral world. At Signify, we have become carbon-neutral across our global operations last month, and our Polish facilities, which are responsible for more than 25 percent of our global electricity footprint, are now for 100 percent powered by clean electricity through a 10-year deal with Green Investment Group’s (GIGs) Kisielice onshore wind farm. Taking bold climate action has unlocked employee engagement, creativity and innovation, as well as new green and digital jobs. Most of all it embedded a passion to collaborate for a better future. Let’s now do this at scale for Europe and by doing so inspire the world at large to follow suit.”

Peter Simpson CEO Anglian Water Group, and Co-Chair of CLG UK, said:

“The green recovery measures set out will require urgent action and meaningful collaboration across sectors. However, I am confident that by working together and making bold choices, these actions will boost not only natural capital, through reduced emissions, but human and financial capital too. 

“At Anglian Water we are already making huge strides towards our 2030 net zero carbon goal through measures including rapid adoption of renewable energy to power our sites, such as the installation of a 42,000-panel 11.6MWp solar array at Grafham Water in Huntingdonshire.”

Citing this report

Please cite this report as: University of Cambridge Institute for Sustainability Leadership (CISL). (2020). Maximising the benefits: Economic, employment and emissions impacts of a Green Recovery Plan in Europe. Technical Report. Cambridge, UK: CLG Europe.