Green Recovery Policies for the COVID-19 Crisis: Modelling the Impact on the Economy and Greenhouse Gas Emissions
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Green Recovery Policies for the COVID‑19 Crisis: Modelling the Impact on the Economy and Greenhouse Gas Emissions B. Lahcen1,2 · J. Brusselaers1 · K. Vrancken1 · Y. Dams1 · C. Da Silva Paes3 · J. Eyckmans2 · S. Rousseau2 Accepted: 5 July 2020 © Springer Nature B.V. 2020
Abstract The COVID-19 pandemic induces the worst economic downturn since the Second World War, requiring governments to design large-scale recovery plans to overcome this crisis. This paper quantitatively assesses the potential of government investments in eco-friendly construction projects to boost the economy and simultaneously realise environmental gains through reduced energy consumption and related greenhouse gas emissions. The analysis uses a Computable General Equilibrium model that examines the macroeconomic impact of the COVID-19 crisis in a small open economy (Belgium). Subsequently, the impact of the proposed policy is assessed through comparative analysis for macroeconomic parameters as well as C O2 equivalent emissions for four scenarios. Our findings demonstrate that the COVID-19 pandemic damages economies considerably, however, the reduction in emissions is less than proportionate. Still, well-designed public policies can reverse this trend, achieving both economic growth and a disproportionally large decrease in emissions. Moreover, the positive effect of such a decoupling policy on GDP is even stronger during the pandemic than compared to the pre-COVID-19 period. This is the result of a targeted, investment-induced green transition towards low energy-intensive economic activities. Finally, this paper describes how the net effect on the government budget is positive through the indirect gains of the economic uptake. Keywords CGE model · Climate change · COVID-19 · Economic recession · Greenhouse gas emissions · Pandemic · Policy analysis · Recovery plans · Small open economy · Sustainable investment
* B. Lahcen [email protected] 1
VITO, Unit of Sustainable Materials, Boeretang 200, 2400 Mol, Belgium
2
Center for Economics and Corporate Sustainability (CEDON) KU Leuven, Warmoesberg 26, 1000 Brussels, Belgium
3
Faculty of Bio‑Science Engineering, Ghent University, Coupure Links 653, 9000 Ghent, Belgium
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1 Introduction While it can be expected that the COVID-19 pandemic will serve as a prominent topic in economic research and other fields alike for years to come, the body of quantitative scientific knowledge remains limited at present, particularly in terms of policy proposals aimed at mitigation of greenhouse gas emissions and economic recovery. Nevertheless, this is crucial, as swift government intervention is required to avoid an escalation of the economic damage, which can add to the already severe human tragedy. In addition, the recovery plans that are currently being designed will shape the economic future of countries around the globe. Therefore, the research question in this paper is whether sustainable investment policies, such as green deals, can play a decisive role
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