Climate and Environmental Impacts of Green Recovery: Evidence from the Financial Crisis

Abstract

The main aim of stimulus packages is to boost economic activity after a crisis. However, their design could impact countries’ trajectories towards a sustainable low-carbon economy. This paper investigates the impacts of green recovery packages on the climate, i.e., mitigation investments and GHG emissions, and the earth’s biocapacity using a panel dataset covering 27 OECD countries. The analysis is based on green recovery packages launched in the aftermath of the 2008 financial crisis to investigate long-term effects in the years after the stimulus period. We find that higher shares of green recovery spending induce lower CO2 emissions and a smaller ecological footprint of production. Employing a difference-in-difference framework, we provide evidence for a causal effect of recovery programmes dedicated to renewable energy on renewable investments. All these effects persist in the post-recovery periods. These finding stress that policy makers should consider long-term effects of post-crisis recovery programmes to ensure their consistency with the transition towards a sustainable climate-neutral economy.

Keywords: CO2 emissions, COVID-19, ecological footprint, green recovery, renewable energy

JEL Classification: E62, E65, Q42, Q54, Q57