Should Corona Bailouts Be Green?

March 24, 2020


With every passing week, the pandemic-led economic crisis gets deeper and the interventions to cushion the blow get bigger.

Such upheavals in world economies are rare. With governments announcing hundreds of billions of dollars in stimulus packages, many see this as an opportunity to shape the economic interventions to be as green as possible—but don’t always agree on when to push for it.

“With this massive bailout and stimulus, which is needed right away, we could put in very strict conditions to make sure we build solid, resilient, inclusive and sustainable economies,” Mariana Mazzucato, economics professor at University College London, told the BBC. Those conditions, she said, could be for improving the treatment of workers and cutting emissions.

The sums involved are huge. The U.S. Congress is considering a package worth $1.8 trillion—a little less than 10% of the country’s GDP. It includes loans to small businesses, cash payments to individuals, and a rescue program for airlines. There’s also provision to give $425 billion to ailing firms, but without any details on what types of companies or industries qualify for it. Stimulus packages of European countries are of similar size, when adjusted for their economies.

Some see it as an historic opportunity to steer the world in a more sustainable direction. Fatih Birol, executive director of the International Energy Agency, wants clean energy to be at the “heart of the stimulus plans to counter the coronavirus crisis.” “This situation is a test of governments and companies’ commitment,” he wrote on LinkedIn. “Observers will quickly notice if their emphasis on clean energy transitions fades when market conditions become more challenging.”

Many are heeding these calls. In the U.S., for example, some environmentally minded lawmakers only want to support bailing out airlines after extracting promises to improve fuel efficiency and lower emissions. Other environmental groups are lobbying to extend tax credits for renewable energy and electric cars. Many are demanding that oil companies facing bankruptcies not be saved.

Other environmentalists say it’s important to wait. “Right now I would have no explicit climate or clean-energy angle,” says Ted Nordhaus, founder of the Breakthrough Institute, an environmental think tank. “It’s not the time to be talking about climate change or demanding climate policy.”

Nordhaus worries that the economic recession will be deep, and without a “miracle cure,” could go on for more than a year. “That’s going to cause extraordinary economic pain for a lot of people, most of whom don’t have the privilege of worrying about climate change,” he says. “It would be tone-deaf to talk about climate change now.”

Millions of people may lose their jobs over the next few weeks without any assurance of when they’ll get them back. That demands swift action, with minimal conditions. “It’s not the time for stimulus yet. We’re in disaster mode,” says Jesse Jenkins, assistant professor at Princeton University’s Andlinger Center for Energy and the Environment. “Relief now. Recovery next.”

During the financial crisis a decade ago, the U.S. government spent $700 billion bailing out banks in a bid to rescue the economy. There was nothing green about the relief package. Then months later, it injected $800 billion through a stimulus package—more than 10% of which went to measures that cut emissions, improved efficiency, and spurred energy innovation.

Mazzucato wants a different way. “All these bailouts have contracts to them. We can make sure that citizens and people benefit—not just the businesses,” she said. “That can be done in a simple way.”

Despite their differences, most agree that if companies need to be bailed out then governments should consider taking an equity stake in them. Here’s an example Mazzucato likes to share. In 2009, as part of the recovery program, the U.S. government provided about $500 million in loan guarantees to two green startups: Solyndra LLC and Tesla Inc. Within a few years, Solyndra declared bankruptcy but Tesla registered wild successes. If the government had taken equity in both companies, it would have more than made up for the loss incurred by one. It wouldn’t even be an unprecedented move: In the same recovery program, the U.S. government nationalized automaker General Motors and insurance giant AIG—then re-privatized both a few years later.

At least some people in power have similar ideas. U.S. President Donald Trump said last week that he is considering taking equity in companies that need bailouts.

Michael Brownstein in The Hill:

Today’s problems are harbingers. A warmer earth means better conditions for mosquitos, ticks, and the diseases they carry, like dengue, malaria, Zika, and Lyme. Meanwhile, oil prices just saw their biggest dropsince 1991, foreshadowing the eventual bursting of the carbon bubble, which will cost trillions. Wall Street has started to see the writing on the wall, as money managers like BlackRock divest from fossil fuels.

If we don’t want 2020 to be repeated again and again, worse and worse, we need to act in a forward-looking way. A “green” stimulus could, for example, retrain workers from the oil and gas industry to lay pipelines for carbon capture and sequestration. Research from the Rand Corporation suggests that, with minor exceptions, the skills and industrial base needed for building and maintaining oil and gas pipelines are the same as those that would be needed to build and maintain pipelines for moving and sequestering CO2.

Similar plans could be made across carbon-intensive industries. A bailout for the airline industry — which is hurting so much now that some carriers have been flying empty planes to keep their airport slots — could be tied to investments in low-carbon R&D. Taxi companies could receive help tied to incentives to purchase electric vehicles.

A little-known feature of President Obama’s 2009 stimulus bill — the American Recovery and Reinvestment Act — is that it made massively successful investments in clean energy. Its $90 billion was repaid — and fostered today’s rapidly expanding wind and solar industries. The day the stimulus was passed, for example, Abengoa Solar announced $6 billion of investments in the USA.

4 Responses to “Should Corona Bailouts Be Green?”

  1. J4Zonian Says:

    Really? Quoting a breakthrough boy like it’s serious?

  2. pendantry Says:

    … says Ted Nordhaus, founder of the Breakthrough Institute, an environmental think tank. “It’s not the time to be talking about climate change or demanding climate policy.”

    Yeah, it never, ever is…

  3. dumboldguy Says:

    “Right now I would have no explicit climate or clean-energy angle,” says Ted Nordhaus, founder of the Breakthrough Institute, an environmental think tank. “It’s not the time to be talking about climate change or demanding climate policy.”

    Nordhaus has been paying attention. It’s unfortunate, but climate change is going to go on the back burner for now—-the plus is that it will keep warm by itself.

  4. rhymeswithgoalie Says:

    A warmer earth means better conditions for mosquitos, ticks, and the diseases they carry, like dengue, malaria, Zika, and Lyme.

    Nerd note: Such diseases come from other-species vectors. While that’s bad enough, the pandemics come from novel pathogens transmitted from person to person. Novel means there’s no vaccine or base of immunity within the human population. Person to person means it can spread quickly in dense urban settings.

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