Greening the recovery by greening the fiscal consolidation

In the wake of COVID-19, some economic recovery policies will help green the economy – for example, energy renovation of buildings.

Publishing date: 08 July 2020
Authors: Georg Zachmann Simone Tagliapietra Ben McWilliams

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The issue

The long road to economic recovery from the COVID-19 shock is just beginning. European countries are considering how best to reboot their economies, with fiscal stimulus plans at the core of the consideration. Meanwhile, the European Commission has put forward its Next Generation EU plan. These stimulus packages will amount to several percentage points of GDP, and can therefore influence the future orientation of the economic system. For this reason, policymakers aim to incorporate long-term goals into recovery packages, most fundamentally a just transition towards a climate-neutral economy.

Policy challenge

Greening the recovery is a significant policy challenge. While there clearly are recovery policies that have positive effects on greening the economy, such as promoting energy renovation of buildings, there is a limit to the proportion of stimulus that can be explicitly greened. Beyond focusing on greening explicit stimulus policies where possible, greater emphasis should thus be placed on altering expectations, so that market agents anticipate higher future pay-offs from low-carbon investment. The European Union needs to announce today a significant increase in carbon prices after 2021, to be engineered through revisions of the Emission Trading System and the Energy Taxation Directive. Such reforms could provide annual additional revenues €90 billion. This could make a major contribution to post-COVID-19 fiscal consolidation requirements, which might be in the order of one percent of GDP per year.

Recommended citation:
McWilliams, B., S. Tagliapietra and G. Zachmann (2020) ‘Greening the recovery by greening the fiscal consolidation’, Policy Brief 2020/02, Bruegel

About the authors

Georg Zachmann

Georg Zachmann is a Senior Fellow at Bruegel, where he has worked since 2009 on energy and climate policy. His work focuses on regional and distributional impacts of decarbonisation, the analysis and design of carbon, gas and electricity markets, and EU energy and climate policies. Previously, he worked at the German Ministry of Finance, the German Institute for Economic Research in Berlin, the energy think tank LARSEN in Paris, and the policy consultancy Berlin Economics.
Simone Tagliapietra

Simone Tagliapietra is a Senior Fellow at Bruegel. He specialises in EU climate, energy and industrial policy.

He covers the development of domestic and international EU climate policy; the evolution of EU energy markets and policy, especially focusing on the political economy of the Energy Union integration process; and establishing an EU industrial policy marrying decarbonisation with economic competitiveness and security.

He speaks English, Italian and French.

He is also a Part-time Professor at the Florence School of Transnational Governance of the European University Institute and an Adjunct Professor at the School of Advanced International Studies Europe of The Johns Hopkins University. He is a Member of the Italian Young Academy, a Member of the Board of Directors of the Clean Air Task Force and a Senior Associate of the Payne Institute at the Colorado School of Mines. He holds a PhD in International Political Economy from the Catholic University of Milan.
Ben McWilliams

Ben McWilliams is an Affiliate Fellow at Bruegel. He specialises in energy and climate policy.

He covers European public policy in energy, clean technologies and decarbonisation. He also researches policy tools for stimulating industrial decarbonisation and the implications of emerging energy systems – such as hydrogen – for Europe’s economic geography. He works on the European Clean Tech Tracker, compiling data and drawing insights for clean technology trends in Europe. He has also worked on the policy and industrial implications of the 2022 energy crisis.

He speaks English.

He holds a MSc in Economic Policy from Utrecht University, having completed a thesis investigating the economic effects of carbon taxation in British Colombia.