24 November 2012

How Big is your Green Stimulus?

Moving on from my earlier post about the green paradox of thrift I have been paying some attention to the discussions about green stimulus. The idea is for the government to either borrow or leverage indirectly private-sector money to be invested in sectors considered 'green'. Since how we define green industry or even the green economy is contested this has been a process subject to considerable lobbying and tendentious argument.

The world leader in terms of green stimulus is Korea, which according to a report from the UN’s Environment Programme update on the Global Green New Deal has sent 79% of its investment money in the direction of green sectors, compared with 34% for China, 18% for France, 13% for Germany and 12% for the USA. Korea plans to invest the equivalent of US$83.6 billion by 2013 including US$44 billion on building energy security and US$22 billion building up its green production sectors. In absolute terms, China’s green stimulus of US$ 218 billion is the largest of the G20 countries: China is investing massively in its railways (48%) and in energy efficient buildings (35%). The investment in Green Keynesianism from the UK is too small to feature in these comparisons.
French energy journalist Yves de Saint Jacob describes how France's traditional commitment to a state industrial policy has been redirected towards apparently green sectors. In sympathy with the tone of this paper he raises the question: 'Is economic revival compatible with sustainable development, or, to turn the problem on its head, perhaps a little cynically, is recession the only effective means of reducing CO2 emissions?' before describing the really significant investments made since Sarkozy's election in 2012. France is investing massively in its rail network and its canals with public finance of €8bn. and the hope of leveraging in more from the private sector. The aim is to emerge from the recession with significant improvements to non-road transport including a new tunnel between Turin and Lyon and a new Seine-Nord canal linking Europe's northern ports to Mediterranean markets. In addition there are significant investments across the country's already impressive TGV network and significant investments in so-called green production sectors: €500m. is being spent on incentives to encourage the development of greener cars, while consumers are being offered €1000 when they trade in their older car (at least ten years old) if they buy a lower-emission replacement. In the construction sector €850 is being spent on refurbishment to improve energy efficiency.

Amongst pro-environmental economists and lobbyists the call has been for a Green New Deal, this time explicitly echoing the largest Keynesian response to the Depression: Roosevelt's New Deal programme of infrastructure investment and job creation. This call began in the UK with the report from the Green New Deal Group that grew out of Colin Hines’s work with the New Economics Foundation. Rather than the flagship-style policies of Sarkozy and Obama, this group focused instead on the urgent need to ensure safe and warm homes for elderly people with energy prices rising rapidly. It was a form of human-scale development approach to Green Keynesianism that would have warmed the cockles of Schumacher's heart as much as the living-rooms of elderly pensioners. From an economic perspective it proposed a triple win: health for the vulnerable, jobs for the workless, and stimulus for the economy. It was almost totally ignored, with the government instead proposing its Green Investment Bank, another example of using public money to leverage private money but socialising the risks and making no attempt to ensure socially beneficial allocation.

The Green European Foundation has funded a thorough comparison of the progress of such Green New Deals across the members of the EU. The research, conducted by the Wuppertal Institute, confirms the widely differing sizes of stimulus packages as well as the proportions directed towards green transitional investment. In both cases the UK is well towards the bottom of the rankings. In Figure 5 the UK is shown to be one of only two countries whose green economy actually shrank between 1999 and 2004 (the other being Greece). While Finland’s eco-industry grew by 54% during this period that of the UK shrank by 18%. This is clear evidence of the misallocation of resources that results from an over-emphasis on finance. The country's reliance on the financial sector to gain foreign exchange also explains the UK’s apparently positive performance in terms of the efficiency of its GDP in energy terms. If your wealth is earned through invisibles such as insurance and financial products and your production has been off-shored this can mask an underlying failure to invest in green transition which can threaten long term energy security and economic viability.

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