By Professor Andy Mullineux
Lloyds Banking Group Centre for Responsible Business, Department of Finance
It’s a widely held belief that economic growth at a rate in excess of the combined rates of inflation and population growth (known as ‘real, per capita economic growth’) is imperative for social cohesion and political stability. Which is why there is so much talk of a trade-off between coming out of our current COVID-19 lockdown and the social and political risks of more economically damaging lockdowns needed in the near future.
But, could efforts to balance preventing an economic crisis with managing the spread of COVID-19 mean tackling the climate emergency takes a back seat? In these extraordinary times, are businesses and consumers still willing to make the sacrifices needed to achieve the government’s net-zero carbon emissions target by 2050? Facing a decimated future for the aviation industry, the chief executive of Air France-KLM has already asked governments to drop plans for flight taxes aimed at curbing air travel and reducing emissions.
Right now a rapid snap-back in economic activity, prompting a ‘V-shaped’ recovery in the second half of 2020, seems very unlikely in the UK. Avoiding a double-dip, ‘W-shaped’ recovery (or worse, a depression with persistent mass unemployment) will depend on the pace and nature of the easing of lockdown – but also on how behavior has been changed by the crisis. Will working from home become the new normal for some? Will there be a decline in consumption and increased precautionary saving? Both are more sustainable behaviours that would have a beneficial impact on carbon emissions.
Government infrastructural investment could also change to help stimulate the economy in a sustainable way by favouring decarbonisation as part of a ‘Green New Deal’, akin to those proposed by the Democrats in the US and the European Commission for the EU. And institutional investors (including pension funds) and asset managers could support this re-orientation by promoting responsible, ESG investment in green energy rather than fossil fuels, for example.
Furthermore, if recent low oil prices continue – in part through lower demand – oil supply capacity may fall and the producers’ assets may become ‘stranded’ in the ground. All of which could provide the push that oil producers need to pursue their greener energy strategies more aggressively and enhance their credentials as responsible businesses. Shell and BP have both recently committed to become carbon ‘net zero’ by 2050, with interim emission reduction targets.
So while there’s undoubtedly a need to stimulate the economy to prevent a depression, there are many ways of doing it without abandoning responsible business practices and exacerbating the climate emergency. The chance to reorientate the economy and distribute the proceeds of growth more equitably (with ‘essential workers’, for example) is one silver-lining of the COVID-19 crisis. But the investment and behaviour change required to deal with the climate emergency are as large and inescapable as they were before the pandemic.