How to achieve a green and sustainable recovery from the Covid-19 crisis?

Abstract

Since the beginning of 2020, the world has been facing two global crises simultaneously: the acute Covid-19 pandemic and the climate crisis that is gradually expanding. The recovery from the pandemic crisis gives an opportunity for governments to contribute to climate goals and avoid going back to fossil fuel-based systems that are dependent on exhaustible sources of energy. Climate change increases even further the risk of infectious diseases in the future due to rising temperatures. This literature review analyses the effect of the pandemic on the economy and the environment. The focus is especially on how the recovery measures from this economic and social crisis can be designed to be green and sustainable. The effectiveness of such policies can be analysed by the fiscal multiplier model. Growing unemployment and exceptional stimulus measures by governments increase the public debt burdens which creates challenges to recover economies. These key policy challenges can be overcome if green recovery measures could support employment, increase governments’ fiscal space and have high fiscal multipliers while supporting the shift towards carbon neutrality. The analysis suggests a broad set of policy measures, carbon pricing, green infrastructure investments and conditional bailouts, that could help achieving an environmentally friendly and sustainable recovery from the Covid-19 crisis.