Economics, climate, and COVID: what works?

30 June 2020

Interview with 

Hector Pollitt, Cambridge Econometrics

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What ideas for a green recovery might be effective, and what are less promising? Hector Pollitt is head of modelling at Cambridge Econometrics, and has been figuring out the economic and climate impact of some of these policies. He spoke to Chris Smith...

Hector - Yes, we've considered two different scenarios. The first of which was a reduction in VAT, very similar to what's happened after the 2008/2009 financial crisis. Now, as we heard from Corinne Le Quéré, that didn't really lead to any environmental improvements along the way. So our thinking was, can we do a bit better? And on that basis, we designed a more green scenario that's designed to reduce carbon dioxide emissions at the same time, while still promoting employment growth.

Chris - So the whole point about slashing VAT is that that makes us put our hands in our pockets and we're more likely to go and spend money. Therefore, you inject your resources into other sectors of the economy. That gets the economic engine running. How does the environment factor in this though? What can you do to both get the economy going, but also be sympathetic to environment?

Hector - VAT rate reductions depend on households, consumers, spending more money exactly, as you said. But the government can also spend money directly and inject into the economy that way. And that can create additional demand and jobs. The really interesting thing we found from our analysis was that in fact, the economic effects can be better in the green scenario than just from the VAT reductions.

Chris - Oh, right. So as well as stimulating the economy with a VAT reduction, you put some of the resources - rather than just spend money cutting VAT - you spend some money on green initiatives and you end up with both a benefit to the environment and some of these things that we were hearing from Chris and from Corrine, that that will be good, as well as a stimulated economy.

Hector - Exactly. Yeah. These measures can be very powerful, both economically and environmentally. The sorts of policies that we're talking about here, there's nothing particularly new: wind and solar power, support for energy efficiency, car scrappage scheme which we tried after 2008/2009. But this time around to promote the use of electric vehicles. And some very simple things like planting trees that can create local employment. There are lots of potential benefits here. If we can get the message to the politicians.

Chris - And how much benefit are your proposals going to return?

Hector - It's about 10% of total UK CO2 emissions over a three year period. And that's on top of anything caused by COVID-19 itself.

Chris - To what extent is this a societal problem though? Because to quote Kevin Anderson, professor of climate change, he points out in a recent article in The Guardian that the wealthiest 10% both in the UK and globally account for 50% of the world's emissions. And so he's saying, if you could just bring the top line down to what the average EU citizen emits, you'd end up in a position where actually we would gain a 30% drop in our CO2 output literally overnight.

Hector - Yes! Literally overnight might be making it sound a bit easier than it would be! I fully agree that this is a societal problem, and we have to address it as a society. And the question of how to make that come around, I think, is a really difficult one for our leaders.

Chris - Hector, thank you. That's Hector. Pollitt from Cambridge Econometrics. I mentioned the work earlier of Kevin Anderson, the climate change scientist. This is a good time to bring back in Chris Stark from the committee on climate change. Now, Chris, in a recent article in The Guardian climate scientist Kevin Anderson, whom I mentioned earlier has been quoted as saying that what we're using Chris as our reference frame for where we need to be in 2050, we're already way over the mark and emitting far more than our fair share. And maybe you need to rethink your figures.

Chris Stark - Yes. I'm a great respecter of Kevin's work actually, although we have a fundamentally different outlook on the challenge. Last year, we offered in a major report we published our advice to the government to say that we felt that it was necessary to get to net zero and that it was possible to do that by 2050. And that 2050 was the appropriate date for the UK in terms of its Paris commitments. Kevin takes a different view and I fully respect it, but it's based ultimately on his view of what an equitable share of the remaining carbon budget across the world would look like. Our view is different only in the sense that we see a global need for every country to get to net zero. And by going at maximum possible ambition here in the UK, we think it's possible to get there by 2050 at the latest, and for that to be entirely compatible with the Paris agreement, the goals that were set in Paris in 2015.

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