Letter: The Three Horizons of Economic Stimulus

When looking at the reactions and implementations of the governments in different countries concerning the ongoing economic crisis, the actions differentiate from previous such crises in two ways: 1) the immediate political response won’t be built around the idea of austerity, i.e. public spending is not to undergo significant cuts; instead, the economic stimulus will be implemented through public spending and public investments right from the start of the economic depression; 2) due to EU-level, national, and city-level carbon neutrality goals, governments already have long-term horizons of expectations regarding the direction toward which to steer the society as well as the issues that need to undergo change.

The latter means that we know something about the future with a great certainty: for example, that maintaining the greenhouse gases even close to the current level will not lead to a desired future. Having this knowledge is exceptional compared to the past where such a strong direction did not exist.

Now, we should have an excellent opportunity to steer the society towards carbon neutrality along with the economic stimulus efforts. In other words, investments and stimuli should only be directed towards operations that can still be viable in the carbon neutral society of 2035.

However, it is unclear how the economic stimulus fits together with moving toward the carbon neutrality goals. It is unlikely that a crisis such as the current ongoing pandemic was discussed when the current government parties drafted shared guidelines and a government policy.

Businesses and jobs are now compromised throughout different sectors: saving them is the number one priority for not only companies and employees, but also for a great number of politicians, interest groups, cities, and provinces as well as banks who have granted the companies loans.  

Now, we should have an excellent opportunity to steer the society towards carbon neutrality along with the economic stimulus actions.

In recent years, the elimination of environmentally harmful business subsidies has been high on the international sustainable development agenda as well as on a national level in many countries. Currently, we find ourselves in a situation where, as a result of the crisis, the state will go back to extending subsidies to businesses. In a worst case scenario, the economic stimuli will be granted to a large number of businesses and infrastructure projects which will create significant hindrances to containing climate change, which is unavoidable, as well as meeting carbon neutrality goals. This phenomenon happened during the financial crisis of 2008-2009 when, as a part of their stimulus packages, both China and the United States kick-started tens of billions worth of funding programmes for renewable energy while, at the same time, the significantly more substantial stimulus programmes for construction and fossil fuel production increased emissions unprecedentedly.

However, let’s go back to the option where the post-pandemic reconstruction after the biggest economic collapse of all time is also the beginning for moving toward a carbon neutral, post-fossil society. Many have already stated that there is no going back, that a new page in history has been turned, and, thus, it is wise to bravely look into the future. At the same time, it is now important to prevent the next crisis from happening: one that is likely caused by climate change and the use of fossil fuels.

This option would mean that investments and subsidies should be directed towards those actions that replace operations with high emissions; for example, building the infrastructure for renewable energy, implementing carbon neutral and circular economy -based processes in manufacturing, creating incentives for acquiring zero- or low-emission vehicles, improving the energy efficiency of building, raising the levels of carbon capture in farming and forestry, and enhancing the infrastructure of railways, bike routes, and pedestrian walkways.

These services and processes are implemented by a large number of businesses employing a large number of people. Cleantech businesses have been in steady growth, employing well over 10 million people globally; yet, they could employ many more. For this reason, the question revolves around directing the stimulus efforts towards sensible candidates for funding as well as creating new opportunities.

The three horizons for looking at the situation

1. Carbon neutrality horizon 2035-2050. Many governments are preparing their roadmaps towards carbon neutrality, aiming for the goal to be reached by 2035-2050 (in Finland the target year is 2035). This should now function as the starting point to: a) what kinds of stimulus efforts are to be preferred and where the stimuli cannot be extended now; b) what new ways need to be created in order for us to have an affluent fossil-free society, for instance, by 2035; and, c) what actions producing emissions can no longer be pursued by the time we should have reached carbon neutrality.

2. Rebuilding horizon 2022. The stimulus efforts now about to take place can significantly boost building a carbon neutral society. Considering this horizon, most subsidies should be extended according to its principles in order for action to take place already this year. This plan of action would not save all current jobs, but it would create new types of work as well as growth potential for businesses that have great significance to building a carbon neutral society. Examples of potential projects to receive funding could be wind and solar power as well as supporting the investments of affiliated businesses; subsidising the acquisition of emission-free vehicles; or sponsoring construction projects that improve buildings’ energy efficiency or transform the ways they can be used.

3. Crisis-funding horizon 2020. Now, the need is evident to salvage a large number of businesses and jobs amid the acute crisis. Nonetheless, a sieve of sorts as well as a set of criteria need to be implemented even in this crisis situation: their job is to prevent us from locking down on solutions that make it impossible to steer the society towards carbon neutrality. In other words, the economic stimulus should not be extended to investments that create emission-heavy infrastructure nor to enforcing consumer behaviour that contributes to maintaining high levels of carbon emissions. Now is not the time to encourage industrial manufacture or consumers to spend money on fossil fuel-based products and services, whether it’s vehicles, industrial investments, or air services. Instead, funding should be granted to a vast number of businesses in the service industry and in the field of culture where they do not directly promote carbon neutral societies but, on the other hand, do not obstruct them being established, either.

Carbon neutrality should steer the direction of the entire stimulus effort. It is crucial that the crisis funding does not extend to investments creating carbon lock-ins.

In China, as a part of the post-coronavirus stimulus efforts, citizens have received government issued coupons that can be used to buy a new car – the effort aims at boosting consumer demand and industrial manufacturing. This action is a good example of a carbon lock-in created by the economic stimulus: these lock-ins have been credited already in environmental, consumer, and transition research respectively. The decision to purchase a new car now may be good in the sense that a high-emission vehicle is being replaced with a low-emission one. However, the government issued coupons may also encourage people without cars to purchase one now, or someone considering not owning a car anymore may be enticed to get one with a combustion engine instead. As a result, this lifestyle is locked in for several years, causing considerable emissions.

According to the theory of social practices, people’s behaviour is largely shaped by other factors besides individual attitudes: if a car is available, it will be used. This premise creates a practice that is often difficult and laborious to undergo changes. The practice is also enforced by such factors as having purchased a parking spot, hobbies and activities enabled by owning a car, a working road infrastructure, and, of course, the example set by peers, that is, other car owners.

The economic stimulus should not extend to investments that contribute to maintaining high levels of carbon emissions.

Respectively, both the infrastructure and other built environments create long-term lock-ins for the society. New solutions arise typically through crises and discontinuity when politicians and modes of operation have to be vigorously renewed. Now would be the perfect time to promote these solutions. In addition, when it comes to granting funding, we must ask: “Would it be viable in a carbon neutral society in 2035-2050?” If the answer is negative and the lifespan should extend over 15 years, the operation should not currently receive public funding.

It is crucial that this ongoing and deep economic crisis will be wisely exploited. We have committed to significantly transform our society, guided by the carbon neutrality goal due to which several elements will in any case change in the coming years. Amid the crisis, people adapt their behaviour, and businesses die but are also born at a fast pace. These phenomena create opportunities for us to together move towards new things and a commonly agreed-upon, vital goal.

During the coming weeks and months, significant political decisions will be made on how quickly revitalisation can take place in order for us to become carbon neutral. Hopefully, politicians have both the ideas, the courage, and the ability right now to cooperate and co-create.

We publish weekly letters to imagine progressive, fair and sustainable societies after the coronavirus crisis. Follow Demos Helsinki also on Facebook, Twitter and LinkedIn 

Topical reading concerning the pandemic crisis’ stimulus efforts and their relation to climate change 

Article photo: Aaron Burden