Costly green deals are no pandemic panacea

Greens leader Adam Bandt introduces the Green New Deal Bill into the House of Representatives earlier this month. Picture: AAP

After the ravages of the coronavirus pandemic, the world will be spending trillions of dollars to get us back on track. Increasingly, campaigners and policymakers demand this spending be tied to climate goals.

International Monetary Fund chairwoman Kristalina Georgieva urges “we must do everything in our power to make it a green recovery”. The Australian Greens, US Democrats, the European Com­mission and many countries are pushing “green new deals”. These could cost us tens of trillions and, unfortunately, will be one of the worst ways to help us recover.

The pandemic has resulted in the loss of hundreds of thousands of lives and led to widespread disruption. According to the IMF, the loss could easily top $US20 trillion ($29 trillion) this and next year. That is $US20 trillion of food, healthcare and opportunities for people around the world that we can no longer afford.

Similarly, school closures have had little effect on COVID-19, according to medical journal The Lancet, but they have left the next generation less educated. Because better-schooled children are more productive and help advance their countries, this will hamper the world’s growth for decades.

Norway estimates that every day a pupil is out of school steals $US160 from each child’s future. The World Bank estimates that school lockdowns for 1.5 billion children have taken $US13 trillion from these children’s future.

Now, nations will borrow trillions to help alleviate the current suffering. And we are told that a green recovery can quickly create plenty of jobs and economic growth, along with fixing the even bigger problem of climate change. This is mostly incorrect.

Climate change is a major problem and we must tackle it smartly. But climate policies also have enormous costs. Unfortunately, most current climate policies cost more than the benefit they deliver.

The Paris Agreement is wasteful, as it will cost $US1 trillion to $US2 trillion a year but reduce climate damages by only 10 per cent of its cost. It will not fix climate but reduce temperatures at century’s end by an almost immeasurable 0.2C. Moreover, studies show it will increase poverty and quadruple European power prices.

The biggest studies of the 2050 European Green Deal show enormous costs of €1 trillion ($1.6 trillion) to €2 trillion a year by 2050 just for Europe. This cost exceeds what governments across the EU today spend on health, education and environment, yet it will reduce global climate damages by only less than 10 per cent of its cost.

But surely green spending will produce more jobs, right? In the US, it takes 39 solar workers to produce the same amount of electricity as produced by one worker in natural gas. Hence, generating more solar power will create many more jobs.

But this is wasteful. Choosing to employ 39 people to do what one person can do means 38 people can’t help elsewhere in the economy, providing elderly care, education, better infrastructure and the thousands of other needs for society’s future. Moreover, green spending works slowly and creates almost no jobs in the short run, when jobs are needed most. It also doesn’t help those who most affected. It generates green jobs in construction and manufacturing, whereas most of the job losses due to COVID-19 occurred in services.

Finally, subsidised jobs from green deals will have to be financed by higher taxes, leading to fewer jobs elsewhere.

As the US National Bureau of Economic Research concludes in a new study, overall employment effects from environmental policies “are likely to be small, especially in the long run”.

Sometimes it is suggested that going green will make us richer. This not only fails the giggle test, it also is contradicted by the climate economic literature: energy is the main driver of economic growth, so making it less effective, less reliable and more expensive has real costs. Campaigners often misquote one OECD report to suggest climate policies can increase growth. The report actually shows that climate policies drag down growth, whereas smart non-climate policies such as investments in infrastructure and education, along with a more flexible labour market, increase growth.

Maybe we should pick the growth-enhancing policies first? To tackle climate, we need to spend less resources better on ramping up green investment to innovate the price of green energy down below fossil fuels.

But today we need to spend most of our scarce resources on the urgent needs: investments in healthcare to tackle the huge backlog and increase resilience to future epidemics; getting children back on track and in school; and helping the billions worldwide who have less food, less income and more insecurity.

As we begin our global climb out of the coronavirus depression, we shouldn’t start by letting bad green deals make us poorer, help climate little and ignore the many other urgent needs of the world.

Bjorn Lomborg is president of the Copenhagen Consensus and visiting fellow at the Hoover Institution, Stanford University. His new book is False Alarm: How Climate Change Panic Costs Us Trillions, Hurts the Poor, and Fails to Fix the Planet.