Green transition in a time of economic recovery

Published 7 may 2020

The Corona crisis has brought most economies around the world to a standstill. This also applies to Denmark, where the National Bank expects a drop in GDP of 3-10 per cent by 2020.This will lead to increasing unemployment, bankruptcies and the like. In order to restart the economy, it is necessary to stimulate the Danish economy when the society opens after the health crisis.  

 

The 70 per cent target in only 10 years urgently requires a new climate policy

However, we must not forget that even before the corona crisis, the world faced a very big challenge: climate change. In 2019, the political parties in Denmark agreed to reduce the greenhouse gas emissions by 70 per cent in 2030 compared to 1990 and achieve climate neutrality by 2050. The Danish Council on Climate Change has estimated that this target can be said to be reasonably in line with a fair Danish share of the effort required to keep the global temperature rise below 1.5 degrees Celsius.  

The climate crisis is not called off and it is therefore urgent that a number of climate policy actions that can move the green transition forward are adopted. In order to achieve the target in 2030, a wide range of actions must be adopted as soon as possible, if the actions are to have a sufficient effect by 2030. The development and demonstration of new technologies takes time and can hardly be put into effect in a few years. Likewise, there is a need to clarify the future policy framework conditions, so that already today companies can see the benefits of investing in the green transition. Finally, the agreement on the new climate act emphasizes the need to reduce Danish greenhouse gas emissions in the short term and before 2025, which requires action now.

Climate action and economic recovery policies should be coordinated

The forthcoming recovery should have a clear green focus so that there is no over-investment in fossil fuel technology and climate unfriendly behaviour in order to revive the economy, which will later have to be replaced by green investments. It is cost-effective to try to solve economic recovery and green transition at the same time, in order to prevent the postponement of the green transition and push the bill and greenhuse gas emissions in front of you. 

Economic stimuli should, as far as possible, be directed towards green consumption and green investments, such as heat pumps, energy efficiency improvements and wind turbines. To the extent that the government is seeking a recovery of the part of the economy that has high emissions of greenhouse gases and thus speeding up man-made climate change, it is important that cost efficiency is also taken into account so that money spent on recovery is not wasted in a number of years. The Danish Council on Climate Change therefore urges the government to incorporate a climate perspective into the assesment of recovery-oriented actions, regardless of whether the actions intend to contribute to the green transition or only create economic growth.

In this briefing note, the Danish Council on Climate Change presents a green recovery package with actions that can both stimulate Danish economy and are necessary for the transition towards the 70 per cent target in 2030. The actions are based on the analyses found in the Council’s latest report, Known Paths and New Tracks to 70 per cent Reduction, from March, 2020. In addition, the note assesses a selection of other green recovery actions proposed by business organizations and think tanks in the last weeks. These proposed actions can supplement the Council’s package.

The Corona crisis gives rise to new working habits

During the shutdown of Denmark, many Danes have had to change their daily habits. On average, passenger car traffic has decreased by approx. 40 per cent. Daily departures from Copenhagen Airport have dropped from 400-500 flights a day before the closure of Denmark to less than 10 flights a day for a period in April. At the same time, there is an increasing use of digital meeting solutions such as Skype, Zoom, Microsoft Teams and the like. Consequently, greenhouse gas emissions from transport have dropped significantly during the Corona crisis.

Climate changes are not solved by a continuation of forced social distancing. However, the new situation can open many businesses’ and citizens’ eyes to the possibilities of  using video conferencing, and it presents an effective alternative to physical meetings in some situations. Maintaining only a part of the new habits of virtual meetings, working from home and reduced transport can lead to lasting and significant reduction in emissions. This may have an impact on the need to develop and influence tomorrow’s climate policy and, not least, the internal routines in both private companies and public institutions. The Danish Council on Climate Change encourages managers and employers to continue to focus on these digital opportunities.

Denmark should urge the EU’s climate policy not to halt during the crisis

Just like the Danish climate policy should not come to a standstill during the Corona crisis, the same is true for climate policy in the EU. The European Commission is proposing that considerable amounts be spent on restoring the European economy, and it is very important that this money, together with the countries’ individual aid packages and state aid, is invested in green technologies and systems of the future. At the same time, the new Commision should continue its legislative work in the field of climate, so that the EU does not fall behind. If the climate policy is postponed, it will be more difficult to achieve an ambitious 2030 target, which the Commision is planning to set, and it will be more expensive to reach the Danish 2030 target if climate policy in the EU is not keeping pace.  

The overall assessment of the Danish Council on Climate Change

The Danish Council on Climate Change assesses that the following considerations should be taken into account in an urgent climate policy focusing on both the 70 per cent target and green recovery:

  • In the short term, in spite of the economic and health crises, there is a need to make a decision as soon as possible on a number of obvious climate policies, in order to avoid making the path towards the 70 per cent reduction in 2030 unnecessarily expensive and delayed. We must not forget the long-term task of solving the climate crisis, and a possibly broad political desire to act quickly in the current economic crisis must therefore be linked to climate action that can be taken in the very short run.
  • A recovery package that prioritises green actions that also stimulate supply and demand for green goods should be made. Such actions include focus on energy renovation, expansion of charging infrastructure for electric vehicles, reducing the tax on electric heating and the announcement of a future higher tax on greenhouse gases, so that companies prioritise green investments now. The Danish Council on Climate Change has reviewed its March report and conducted an assessment that leads to a selected set of concrete actions, all of which will have a positive impact on early economic recovery. However, it is very important to emphasise that this set of iniatives is far from bringing Denmark to 70 per cent reduction in 2030, and that many more initatives should be put into action as soon as possible.
  • Other organizations have also contributed with green recovery proposals. It is worth looking into ideas on, for example, lowering the general electricity tax and stimulating climate-friendly experience economy as a supplement to the Council’s set of actions. Many actors generally want more support for green investments, which may seem wise during the economic crisis. However, it is important that subsidies do not become the base for the green transition in a longer perspective, as it will increase the need for financing and thus increase the pressure for higher taxes and fees.  
  • European climate policy is of great importance to Danish climate policy. As Denmark pushes for a green European recovery and for a raised level of ambition in the EU climate targets, the chance of making the green transition cheaper in Denmark increases.  
 

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