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 is also a Professor of EU Energy and Climate Policy at The Johns Hopkins University - School of Advanced International Studies (SAIS) Europe.

His research focuses on the EU climate and energy policy and on the political economy of global decarbonisation. With a record of numerous policy and scientific publications, also in leading journals such as Nature and Science, he is the author of Global Energy Fundamentals (Cambridge University Press, 2020) and co-author of The Macroeconomics of Decarbonisation (Cambridge University Press, 2024).

His columns and policy work are widely published and cited in leading international media such as the BBC, CNN, Financial Times, The New York Times, The Economist, The Guardian, The Wall Street Journal, Süddeutsche Zeitung, Frankfurter Allgemeine Zeitung, Corriere della Sera, Le Monde, El Pais, and several others.

Simone also is a Member of the Board of Directors of the Clean Air Task Force (CATF). He holds a PhD in Institutions and Policies from Università Cattolica del Sacro Cuore. Born in the Dolomites in 1988, he speaks Italian, English and French.
Ben McWilliams

Ben is working for Bruegel as an Affiliate fellow in the field of Energy and Climate Policy. His work involves data-driven analysis to critique and inform European public policy, specifically in the area of the energy sector and its decarbonisation. Recent work has focussed on the implications of the ongoing energy crisis and policy options for responding. Other topics of interest include tools for stimulating industrial decarbonisation and the implications for new economic geography from the advent of new energy systems, particularly from hydrogen.

He studied his MSc in Economic Policy at Utrecht University, completing a thesis investigating the economic effects of carbon taxation in British Colombia. Previously, he studied his BSc Economics at the University of Warwick, with one year spent studying at the University of Monash, Melbourne.

Ben is a dual British and Dutch citizen.