https://orcid.org/0000-0002-4745-5980
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ABSTRACT
Only twelve years after the global financial crisis, in 2020 the world was again in economic crisis. This time around, the source of the crisis was the COVID-19 global pandemic, which has affected the economy differently than the global financial crisis. However, as they were in 2008–2009, conventional macroeconomic theory and models have once again been found wanting, and economists have again turned for insights to the work of Keynes and more recent post-Keynesian scholars. This paper explores a simulation of the macroeconomic impacts of COVID-19 using the E3ME macro-econometric model. It describes two potential recovery packages, one of which could be described as ‘green’. The modelling shows that the green recovery package could support the global economy and national labour markets through the recovery period, outperforming an equivalent conventional stimulus package while simultaneously reducing global CO2 emissions by 12%.
Key policy insights
A green recovery plan is assessed against a reference scenario with COVID-19. It outperforms a non-green recovery plan of comparable value, while also reducing CO2 emissions by up to 12% below the reference scenario (15% below no-COVID baseline).
The policies in the green recovery plan provide different relative impacts. Car scrappage schemes that promote the uptake of electric vehicles have the largest impact on GDP and jobs. Renewables, energy efficiency and electric vehicle promotion all have large impacts on emissions.
The green recovery plan boosts production levels in all sectors of the economy except for energy and utilities. It boosts the consumer services sector that has been most affected initially by the pandemic but also the investment sectors that could suffer longer-term damage.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 Which may have led to an increased spread of COVID-19 according to published analysis (Fetzer, Citation2020).
2 These models are derived from complexity-based approaches, see Arthur (Citation1999) and Miller and Page (Citation2007).
3 It is also worth noting the accounting-based approach used by Guan et al. (Citation2020). The approach is broadly consistent with the post-Keynesian school but holds many parameters fixed that would vary in a full modelling approach.
4 Previous simulations with the E3ME model have shown that changes in VAT and income tax rates have similar sized impacts, and that both are more effective at boosting GDP than reductions in labour or profit taxes (Park et al., Citation2016).
5 Different rates were tested by introducing a higher (75%) and lower (25%) subsidy sensitivity. The 75% subsidy leads to high levels of early scrapping of coal and gas-fired capacity. The 25% subsidy rate was more cost-effective for government (i.e. higher multiplier effect) but the overall rate of uptake was much lower, making the measure less effective as an economic stimulus (see Section 4.5). We therefore selected the 50% rate for the main analysis.
6 In the IEA Sustainable Recovery (IEA, Citation2020a, pp. 108, 123) scenario, annual grid investment is assumed to be US$110 bn; at the same time additional RES deployment is assumed to be about 130–150 GW.
7 These results do not include any longer-term potential benefits from improved air quality and better health in the GRP.
8 Even though the investment in the GRP is in the energy sector, there is additional production in sectors like construction and engineering that make and install the equipment.
9 It is not possible to separate grid improvements from renewables in this context; both are required for the additional renewables to be viable.
10 See discussion here: https://www.ineteconomics.org/perspectives/collections/is-green-growth-possible-a-debate.