About the author:

Edward B. Barbier is a University Distinguished Professor in the Department of Economics, Colorado State University and a Senior Scholar in the School of Global Environmental Sustainability. He is a leading expert on international environmental policy and a highly cited scholar on global environmental and sustainability issues. He is the author of many books on environmental policy, including A Global Green New Deal and  Natural Resources and Economic Development.

 One of the surprise policy developments globally has been the revival of the concept of the “Green New Deal”. Just over a year ago, Representative Alexandria Ocasio-Cortez and Senator Ed Markey proposed a “Green New Deal” for the United States.  It calls for massive government spending over the next 10 years to shift the U.S. to 100% reliance on renewable energy. Since then, similar Green New Deal plans have been put forward for other economies, such as the European Union, the UK and Australia.

To be successful, any Green New Deal needs to learn from past efforts to go “green”. During the 2008-9 Great Recession, I was asked by the UN Environment Programme to construct a Global Green New Deal, a plan to rethink the world economic recovery. My UNEP report was published by Cambridge University Press.  It included a comprehensive review of green stimulus plans, examining what worked and what did not in terms of lasting impacts. This review offers several important lessons for any decarbonizing strategy.

To begin with, it is important to be realistic. Rather than setting an arbitrary target such as going 100% renewable – which would take decades – a Green New Deal should be built on four critical objectives:

• How much public spending is needed to kick-start the transition to a low-carbon economy?
• What public investments are important?
• How much would such a plan cost?
• And finally, how do we pay for it?

For example, during the Great Recession, major economies spent typically less than 1% of their gross domestic product (GDP) on green stimulus – and for only a couple of years. More than 60% of the stimulus went to improving energy efficiency, with an aim to create much needed jobs in hard-hit sectors such as construction. Clean energy did receive a boost, especially in Asian economies and the United States, but there was no lasting impact on reducing greenhouse gas emissions globally.

In contrast, to be effective in promoting low-carbon and green growth, a Green New Deal requires a 5 to 10-year plan of public spending. As I argued in my UNEP plan, at a minimum, major economies should commit to spending 1-2% of their gross domestic product (GDP) per year on this package.

Two types of spending are key. First, there needs to be more public support for green innovation by the private sector. Such support includes research and development (R&D) subsidies, research grants and partnerships, public investments in research facilities, protecting intellectual property, and other initiatives. Second, public support and investments may also be critical for other bottlenecks to green growth. These include developing “smart” electrical grid transmission to integrate renewables, combining municipal planning and transport policies to foster more sustainable cities, and investing in mass transit systems, both within urban areas and creating major transport networks.

However, spending alone will not de-carbonize the economy. There is a need for complementary pricing reforms to transition to clean energy, such as phasing out fossil fuel subsidies and taxing carbon. Implementing these reforms will provide the incentives for long-term investments in low-carbon energy and for reducing dependence on fossil fuels. The drop in emissions accompanying a tax on carbon would also reduce the price tag of any Green New Deal, as it would speed up the transition to a greener economy. Pricing other pollutants and excessive resource use through taxes, charges, tradable permits, payments for environmental services and other market mechanisms can also generate additional health and environmental benefits, boost green sectors and stimulate economy-wide green growth.

Because such policies will save or raise revenues, these funds can help finance key government-led investments for the green transition. This could go a long way towards paying for a Green New Deal. The revenues raised could also be used to raise the minimum wage, provide payments or retraining for displaced workers, and reduce burdens for vulnerable households.

But there is good news, too, on costs. The high costs today of reducing carbon emissions through some low-carbon technologies could fall quickly if the right policy is adopted. In particular, expenditures targeted at clean energy research and development will lead to lower costs and wider adoption, as the technology becomes more familiar, innovation spreads, and production scales up. The rapid fall in solar panel costs and their widespread installation is one example of this effect. Another is how investing in more charging stations lowers the costs of operating electrical vehicles, which in turn increases the need for additional stations.

Urgent action on climate change may require a “green push”. If designed correctly, and if accompanied by the right price reforms and incentives, the Green New Deal could be that impetus. The type of policies and investments adopted, and how we pay for them, could ultimately determine the success of any Green New Deal.

You can also listen to Edward’s interview on the Green New Deal  by Radio National of the ABC for their Drive Time national program in Australia.