Nicoletta Batini, Mario di Serio, Matteo Fragetta, and Mr. Giovanni Melina
This paper estimates multipliers for spending in clean energy and biodiversity conservation to help inform stimulus measures for a post-COVID-19 sustainable recovery. Using a new international dataset, part of which was especially assembled for this analysis, we find that every dollar spent on key carbon-neutral or carbon-sink activities—from zero-emission power plants to the protection of wildlife and ecosystems—can generate more than a dollar’s worth of economic activity. The estimated multipliers associated with green spending are about 2 to 7 times larger than those associated with non-eco-friendly expenditure, depending on sectors, technologies and horizons. These findings survive several robustness checks and suggest that ‘building back better’ could be a win-win for economies and the planet.
This paper notes that market failure, policy failures, and population pressures are major sources of environmental degradation and that linkages between economic activities and the environment exist at the levels of macroeconomic objectives, macroeconomic policy instruments, implementation of environmental policies, and measurement of economic activity. This paper also points out that fiscal instruments can, and indeed do, play a significant role in resolving environmental problems. In addition, market-based solutions, including pollution permits, also have merit. This paper further points out that implementing environmental policies poses considerable challenges for public policymakers and concludes by suggesting areas for further research.