Taking Advantage of the Crisis Synergies between Environmental - PDF document

Taking Advantage of the Crisis Synergies between Environmental Policies and Social Inclusion Nils Meyer-Ohlendorf Benjamin Görlach Katharina Umpfenbach August 2009 Ecologic Institute, Berlin www.ecologic.eu

About Ecologic Institute The Ecologic Institute is a private not-for-profit think tank for applied environmental research, policy analysis and consultancy with offices in Berlin, Brussels, Vienna, and Washington DC. An independent, non-partisan body, the Ecologic Institute is dedicated to bringing fresh ideas to environmental policies and sustainable development. The Ecologic Institute's work programme focuses on obtaining practical results. It covers the entire spectrum of environmental issues, including the integration of environmental concerns into other policy fields. Founded in 1995, the Ecologic Institute is a partner in the network of Institutes for European Environmental Policy. The Ecologic Institute acts in the public interest; donations are tax-deductible. Table of Contents 1 Introduction .................................................................................................................... 2 2 Illustrating case studies: Analysis of Selected Stimulus Packages ................................. 3 2.1 Germany ................................................................................................................. 3 2.2 ..................................................................................................................... 5 France 2.3 UK ........................................................................................................................... 7 3 Conclusions and Questions for Discussion ....................................................................10 4 ....................................................................................................................15 References Page B-1

1 Introduction In the autumn of 2008, it became clear that the world had entered a deep financial and economic crisis . The IMF estimated in April 2009 that economic activity will decline by 1.3 % globally in 2009, a substantial downward revision from the January projections. 1 Many EU Member States have been hit even harder than the global average, with expected contractions of up to 6 % in Germany or even more in Ireland. Fiscal deficits are expected to rise sharply. With unemployment in Europe hitting a 10-year high of 8.6 % in April 2009 and amid forecasts predicting that job losses will hit double-digit figures by the end of the year, social exclusion is likely to exacerbate . In the current crisis, people with low skills are likely to be particularly affected. Only very recently, new reports indicate that the recession might come to an end before the end of this year but many uncertainties remain. The largest economic crisis since the Great Depression also coincides with the greatest environmental crisis in human history: the threat of catastrophic climate change, the menace of a global water crisis and an unprecedented decline in biodiversity. If measures are not taken to prevent climate change, water shortage or biodiversity loss, the resulting effects would exceed the impacts of the current economic crisis by far. In the context of the environmental crisis, time is of essence, leaving only little time to achieve the necessary turnaround. Global greenhouse gas emissions, for example, must peak in 2015 and be reduced by 25-40% within the next 10 years. 2 Loss of biodiversity is often irreversible. In response to the economic crisis, governments around the world have passed stimulus plans totalling approximately US$ 3 trillion . The public funds that have been deployed through the national stimulus plans provide – in principle – a unique opportunity to dramatically increase investment levels for the transition to a greener economy, and to help building a more inclusive society. The question is, however, to what extent existing stimulus packages have delivered on this potential, and have brought us closer to the long-term objectives of sustainable development? To what extent have they created synergies between protecting the environment and addressing social exclusion? Reflecting on these issues, this papers analyses in brief the stimulus packages of Germany, France and the UK 3 and 1 IMF World Economic Outlook, April 2009: http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/exesum.pdf 2 Intergovernmental Panel on Climate Change: Climate Change 2007 Synthesis Report, p. 50; http://www.ipcc.ch/pdf/assessment-report/ar4/syr/ar4_syr.pdf 3 Within the scope of this paper only a small number of countries could be analyzed; for a more comprehensive analysis refer to OECD: Strategies for aligning stimulus measures with long term growth, 2009 Page B-2

identifies possible lessons. The paper serves as background information for an expert workshop organized by the European Commission in September 2009. 2 Illustrating case studies: Analysis of Selected Stimulus Packages 2.1 Germany Germany passed two stimulus packages in the winter of 2008/2009. Both were financed entirely through new debt. The first package consisted of measures expected to range between € 32 and € 40 billion in value over the course of 2009 and 2010. Expenditures in the second stimulus package equal € 50 billion over the same time period. Both packages include tax breaks, publicly funded investment and direct aid to some economic sectors. In a response to the crisis, other measures worth hundreds of billions were also passed, primarily aimed at stabilising financial institutions to enable a resumption of credit lending. Table 1 provides a breakdown of the expenditures. Table 1 : Germany’s stimulus packages – breakdown of estimated expenditures Package I Package II € 21 billion (including €600 million in tax breaks on car € 10.5 billion Tax breaks for individuals and firms tax and biodiesel taxes) € 7.6 billion € 11.5 billion, including € 1.5 billion to Other relief measures for individuals and firms auto buyers who retire an old car upon new-car purchase ( Abwrackprämie ) – given the overwhelming response, the car scrapping scheme was later increased to a total of € 5 billion. Additional € 3.0 billion for CO 2 -reduction € 13.3 billion to German states and Investment subsidies (not including transport) measures in buildings communities ( Zukunftsinvestitionen ( Gebäudesanierungsprogramm ) der Kommunen und Länder ); main investments are in educational € 200 million for energy-efficient buildings infrastructure, whereby energy ( Energieeffizientes Bauen ) efficiency and renewables are important components) Total: € 2 billion Total: € 2 billion Investments in transport Page B-3

Roads: € 950 million Roads: € 850 million Rail: € 620 million Rail: € 700 million Water ways: € 430 million Waterways: € 350 million Research on innovative propulsion: € 500 million Multimodal: € 100 million Source: Estimates compiled by Ecologic Institute. From an environmental perspective , Germany‘s packages contain several positive elements that promote a sustainable economy and limit resource consumption. An increase of € 3 billion for the KfW Building Refurbishment Program makes a notable enhancement to a successful program, bringing the total volume to € 15 billion. The German federal government assumes that the investments supported by the scheme are easily refinanced through reduced energy costs. 4 In addition, retrofitting secures up to 25,000 jobs in the manufacturing and construction sector. However, there are also a number of environmentally problematic measures and missed opportunities, such as: Car scrapping scheme: The car scrapping scheme is a great success in boosting short term demand in car sales, but does not provide incentives for developing environmentally friendly vehicles; eligibility is not tied to rigorous environmental criteria, and there is no long term means for encouraging the purchase of particularly environmentally-friendly cars. In terms of social impacts, the car scrapping scheme tends to benefit those households that have the available resources to buy a new car, even with a crisis looming – i.e. households above the median income. Transportation infrastructure: Under the first economic stimulus package, nearly as much money has flowed into road construction as for rail and water transport combined. Half of the money for road transportation ( € 456 million) has been given out for new projects while only € 220 million has been allocated for maintenance projects. This includes expenditures for parking spaces primarily for trucks. The second economic stimulus package also allots more money to new projects than maintenance measures. Regarding social policies and labour market , Germany‘s packages contain a number of measures target directly on low income groups. The packages reduce income tax of the first bracket from 15 to 14 % and increases tax free income from € 7,834 in 2009 to € 8,004 in 4 BMVBW (2008): Arbeitsplatzprogramm Bau und Verkehr Page B-4