Bailouts for a Better World
A deep economic crisis is expected in the wake of the COVID-19 pandemic health crisis. We applaud the quick action of governments in supporting health workers and institutions, the business sector, and different communities. However, if taxpayer-funded bailouts are not implemented properly we can worsen another crisis: global climate change.
We cannot afford to miss a rare opportunity to enact stimulus policies that can restore economic activity and reduce the risks of climate change. Without enacting climate-friendly incentives or considering the jobs of the future, we risk accumulating financial and environmental debts that will burden our children, who will wonder why we did nothing to change these prospects when we had the chance.
It is not a radical idea.
The bailout of GM and Chrysler during the 2008 financial crisis attached rules requiring the production of more energy-efficient fleets. Turns out, it was the impetus needed to make significant changes in a sector that was already struggling to keep up with foreign competitors. US auto manufacturing emerged more innovative and more competitive, including in the field of electric cars.
Similar opportunities are lurking in many sectors now, including air transportation.
Aviation alone is responsible for 2% of global carbon emissions. There are some industry-led measures in place to reduce these emissions, including the support of biofuels and carbon credits, but they are far from enough to address the industry’s impact on global climate change.
The airline sector is being hit hard, and the shock is likely to persist. In addition to the short-term impact of travel bans and thousands of cancelled trips, conferences and events, there will be long-term changes as people adjust to virtual meetings, work from home, and other newly-found travel-reduction behavior afforded by digital technologies.
Helping the airlines and other important industries is absolutely necessary to prevent a much worse loss of jobs if nothing is done. However, financial assistance must include climate-impact measures, which will also support the industry’s long-term health and competitiveness.
Measures that would link airline bailouts to limits on carbon emissions is currently out of the US stimulus package. However, other nations can decide to bring the two objectives together when they roll out their own stimulus plans.
One measure could be a carbon tax on jet fuel earmarked to compensate the government in case of losses from loans provided by the bailout, and to retrain airline staff for jobs in new, climate-friendly sectors with strong growth potential. With just a modest impact on air tickets, this could ensure that public money will be available for forward-looking policies that help families now and in coming years.
Oil and gas is another industry to watch. Its global capitalization has been declining and is now deeply affected by the crisis. The recent crash in oil prices has anticipated what used to be just a possible scenario for 2030. Billions of dollars in fossil fuel assets are poised to be stranded. It would be foolish to just channel fiscal resources and stimulate investments in assets that will be further impacted by economic transformations we know are coming.
The overall picture of the stimulus package matters, but so does its form. For example, financial support could be linked to regulation in the form of conditional loans or equity, affecting public policy goals by taking ownership interests. Ultimately, the goal should be a better integration of public policy goals into decision-making. This can be achieved by using stimulus funds to transition to clean energy sources, which are competitive, create good jobs and further the goal of energy security. Bold regulatory change is also crucial.
The US should take this moment to create a national market for electricity, under federal regulation in line with the natural gas sector, reducing a serious handicap of renewable energies vis-a-vis fossil fuels. It would save taxpayer money and could create an economic boom. The targets in the green deal recently proposed by the EU are a perfect vehicle to sustain the continental economy. The possibilities in Asia are boundless.
The global economy will not be the same after this shock.
The world just achieved something that people thought was impossible: deep cuts in greenhouse gas emissions. China, the world’s largest carbon emitter, reduced emissions by an estimated 25% last month. Trying to revert to previous patterns when global demand comes back would be an unimaginable lost opportunity.
Joaquim Vieira Ferreira Levy, former CFO and President of the World Bank and the Brazilian Development Bank—BNDES, respectively
Tom Heller, Director, Sustainable Finance Initiative, Stanford University, and Chairman of the Board, Climate Policy Initiative
Barbara Buchner, Global Managing Director, Climate Policy Initiative