Economic stimulus package for the climate

Economic policy must be examined in terms of its impact on the climate. Otherwise, economic stimulus packages will greatly impede the future achievement of climate targets.

11.06.2020 · Economics, Social Sciences, Spatial Research · ifo Institute - Leibniz Institute for Economic Research at the University of Munich · News · Research result

Europe should continue to pursue its climate targets, even during the coronavirus crisis, write ifo researcher Karen Pittel and Andreas Loeschel from the University of Muenster. “Current investments are making emissions an unavoidable part of many sectors for decades to come,” they write in their article published in the new ifo Schnelldienst. Prof. Pittel is Director of the ifo Center for Energy, Climate, and Resources; Prof. Loeschel is teaching at the University of Muenster.

Pittel and Loeschel added that it is essential to avoid having to replace plants built today with lower-emission ones a few years down the line. “Decommissioning a plant before the end of its economic lifespan would be the equivalent of destroying assets on a grand scale and would further compound existing stranded investment problems.”

They went on to say that economic policy must be examined in terms of its impact on the climate. Otherwise, economic stimulus packages will encourage and bring forward investments for which the relevant EU Green Deal regulatory framework has not been fully implemented. This might lead to the continuation of business models that would prove unprofitable in the long term and greatly impede the future achievement of climate targets.

The authors highlighted the particular importance of expanding infrastructure for electricity, hydrogen, and synthetic fuels. This would also include investment in alternative forms of mobility (cycle paths, public transport) and in helping bring green technologies to market. “If we want European industry to be largely climate-neutral and internationally competitive, we need radical process and product innovation, for instance with respect to the stripping, storage, or use of CO2 and the creation of synthetic fuels,” Loeschel said.

Original publication

Briefly on the Climate: The Coronavirus Crisis and its Effects on European Emissions Trading
Pittel, Karen / Cordt, Helena / Gschnaller, Sandra / Mier, Mathias / Azarova, Valeriya
ifo Institut, München, 2020
ifo Schnelldienst, 2020, 73, Nr. 06, 67-71

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