3 AUG 2020
The significance of climate change related policies to ‘build back better’ from the COVID-19 crisis was highlighted in London Climate Action Week, a series of digital events that I attended in July.
Comments from two leading Economists in the debate, Joseph Stiglitz and Nicholas Stern, emphasised that government policy packages need to timely, labour intensive and impactful.
Arguably, green policy packages could satisfy all of these conditions. One such measure is improving the energy efficiency of buildings; this is considered to be essential and something that could be rapidly deployed. For the UK specifically, reaching the (legally binding) net zero target by 2050 means that the majority of the country’s housing stock will have be retrofitted, echoing a crucial argument noted in a RICS policy position paper published earlier this year.
A report by the Energy Efficiency Infrastructure Group suggests that decarbonising the UK’s housing stock will create around 100,000 jobs annually over the next decade. A valuable insight to consider as policymakers grapple with soaring unemployment numbers.
Recent announcements by the government to commit £3 billion to retrofitting both public and private owned properties would be welcome though the discussion highlighted that any such policy cannot be successful without greater investment in skills and training.
Accelerating capital flows towards retrofitting and financing net-zero carbon and carbon-resilient buildings is also crucial. This is something that the Coalition for the Energy Efficiency of Buildings (CEEB), for which RICS is a founding member, aims to tackle.
Commentators also reiterated the importance of further investment in research and development and digital infrastructure in driving clean innovation. Even if targeted at specific sectors, any advances could generate network effects and positive spillovers into other areas of the economy. But in the real world, the scale of the investment and finance will have to be huge, a particular challenge in an era where government balance sheets are already tremendously stretched. That said, it was noted that judging by the fiscal response to the COVID-19 crisis, this may not as much of a problem for advanced economies than it is for emerging and developing countries. The solution could be to grow multilateral development finance institutions.
At the same time, the role of private investors its crucial. The popularity of sustainable investing is only likely to grow with a greater focus expected to be on clean energy. Panellists stressed that it is up to policymakers to clarify the direction of travel and provide clear signals to investors about where the returns are going to be. One recent example of this is the ECB’s announcement to use its asset purchase programme to acquire green bonds (the first major central bank to do so). It is likely that the Bank of England will follow suit. Furthermore, the EU Taxonomy and the forthcoming Climate Stress Tests by the Bank of England should help to provide more guidance.
Perhaps the greater challenge for policymakers however is managing the distributional effects of the transition to a low carbon future. The discussion highlighted that COVID-19 has had a disproportionate on society across the globe, so would Climate Change. Taking this into account, the government’s policy of “levelling up” UK regions may prove to be critical.