They're all at it. Governments across the world are responding to economic and financial problems by throwing money at them in the form of stimulus packages – short term spending boosts for 2009-2010 designed to get economic activity motoring again, writes Stephen Gardner.This money is meant to represent a "green new deal" that will pave the way to the low-carbon economy. Priorities should be energy efficiency, less carbon-intensive technologies, and research and development to produce the green products of tomorrow. The European Commission, for example, will subsidise carbon capture and storage (CCS), and €180 million of European money will be dedicated to piloting this experimental technology at the controversial Kingsnorth coal-fired power station, and three other UK sites.
Governments have also helped carmakers, after vehicle registrations fell off a cliff in 2008. The British government has directed grants for research into more fuel efficient and electric vehicles to Jaguar Land Rover and Nissan, while car scrapping schemes have been put in place in at least 11 EU countries, including the biggest economies: Britain, France, Germany, Italy and Spain.
Achim Steiner, Executive Director of the United Nations Environment Programme, recently emphasised the need for a green new deal ahead of a major chemicals conference in Helsinki (May 2009). Because of the scale of the environmental problems that lay ahead, it would be a "tragic missed opportunity" if stimulus spending was not directed towards investments in energy efficiency, renewable power, cleaner transport, improved water resources, biodiversity and sustainable agriculture, Steiner said. He added that the right investments and regulatory changes could create "millions of [green] jobs within twelve to sixteen months."
But is green stimulus spending going in right direction? Evidence so far shows that governments have tended to favour short-term tax breaks or subsidies for struggling industries, and traditional infrastructure projects such as roads and bridges, rather than longer-term programmes for energy efficiency or new, cleaner power sources.
First assessments
The first thorough assessment of the green stimulus was carried out by HSBC Global Research in a February 2009 report. This found that stimulus spending was approaching US$3 trillion worldwide, but only 15.6 percent of this could be considered green.
The greenest spender, according to HSBC, is South Korea, which is dedicating 80.5 percent of its US$38.1 billion boost to river and forest restoration, energy efficiency (for example retrofitting of public buildings to cut down on wasted power), and low-carbon rail networks and other public transport infrastructure.
Other stimulus packages are less green-tinted. HSBC assessed China as dedicating around 38 percent of its US$586 billion fund to green causes, in particular to renewables and improving the power grid. But in the United States only around 11.5 percent of the huge US$1 trillion package can be said to be green, with a focus on renewables and energy efficiency of buildings. The European Union is managing slightly better, with its "green fund" equalling 16.7 percent of its US$325.5 billion stimulus, according to the HSBC research.
Coordinated stimulus
The EU's economic crisis response is divided into two parts: national spending by EU member states, and EU-wide spending by the European Commission. The Commission wanted EU stimulus spending should be coordinated, to avoid overlaps, or spending in one country that might harm another. The spending plans would also be boosted by €15 billion in extra lending over two years from the European Investment Bank.
Commission president José Manuel Barroso said in late May to the World Business Summit on Climate Change in Copenhagen that stimulus spends should be in line with the EU's goal of building a low-carbon society. "We will not miss this chance," Barroso said.
But his words do not seem to be matched by deeds. The Commission published an assessment of member states' stimulus spending ahead of a summit of EU leaders, 18-19 June in Brussels. According to this "only a few measures" in member states deal with environmental infrastructure, such as water supply networks or energy grids, and "more is needed" to promote energy efficiency and to encourage the take-up of cleaner technologies.
One problem, the Commission notes, is that green research money in the short term has a "rather small" impact, whereas EU countries are looking for a quick fix. The Commission is particularly concerned about the EU's smaller economies, who for green R&D "have announced no measures – some of them even scaling back their R&D budgets in the face of balance-of-payment problems."
HSBC's research findings back up the Commission's assessment. According to HSBC, 21 percent of the French stimulus is green, while in Germany it is 13 percent, in the UK seven percent and in Italy a measly 1.3 percent, where the main green spend will be on rail infrastructure. The Commission's own package – centralised EU spending – is a more respectable 60 percent green. It is the combination of these figures that led HSBC to rate EU stimulus spending at 16.7 percent green overall.
Reinhilde Veugelers, a Fellow specialising in environmental innovation at Brussels think tank Bruegel, said that EU member state stimulus spending was uncoordinated and not notably supportive of green goals. "Analysis doesn't seem to suggest there is any real strategic vision," she said, suggesting that the Commission has failed to coordinate a comprehensive round of green spending on the continent.
Energy focus
The Commission's centralised stimulus is all about energy. It will direct €1.6 billion to CCS and large-scale wind power projects, with a further €2.4 billion spent on making the gas and electricity supply infrastructure more efficient.
The Commission has also re-jigged its research and development budget, channelling cash to three initiatives: energy-efficient buildings, factories of the future, and green cars. In each case, Commission grants totalling €500-600 million will be handed out if EU member states and the private sector commit to similar levels of investment, once calls for proposals are published in July. The green cars initiative is also being supported by €4 billion in extra loans from the European Investment Bank.
The Commission has its critics. Claude Turmes, a Luxembourg Green member of the European Parliament, speaking when the Commission's stimulus was finalized, dismissed it as "turgid, old-fashioned state aid" providing funds to large energy companies. The benefits of the spending could have been spread much wider and more effectively by investing in renovation of public buildings or upgrading of public transport, Turmes said.
However, Folker Franz from industry federation BusinessEurope said it was unrealistic to expect the Commission to manage from Brussels a host of smaller projects, although "stimulating energy efficiency should always be the priority." As the Commission's stimulus is a one-off, "it was not the worst idea to use this money for bigger projects," Franz said.
Carbon capture controversy
One of the most controversial uses of the Commission's money is CCS. Paul de Clerck of Friends of the Earth Europe called this an "unproven technology," and EU funds to test it would be given to companies that "continue to make billions of euros of profits each year and invest their own capital in dirty projects like oil sands that produce three times more emissions than conventional oil."
The CCS subsidy of just over €1 billion will be shared among 13 projects, including the four in the UK – Hatfield, Kingsnorth, Longannet and Tilbury (see box for details). These sites are run by different firms – Powerfuel, E.On, Scottish Power and RWE – that have prospered in the recession. E.On and RWE reported profits of €2.5 billion and €1.7 billion respectively for the first quarter 2009. Nevertheless, as well as the up-front CCS subsidy for the UK of €180 million, these companies also stand to benefit from a carbon allowance fund granting them up to 300 million credits that can be sold on the carbon market for safely sequestered CO2.
Chris Boothby of power industry federation Eurelectric said CCS involved "a very significant financial risk. It is unlikely that any one company would bear the risks of the pre-competitive work that needs to be done" to get sequestration up and running. Commission support was part of the "normal process of supporting research and development," Boothby added.
In any case, green technology is ultimately a question for the market, Boothby said. Eurelectric president and CEO of Swedish energy firm Vattenfall Lars Joseffson wrote in a May article for trade journal The Energy Industry Times that Europe's entire network of power plants and grids is due for replacement by 2030, and this will mean investment of "around €1.8 trillion" from energy firms. "We believe that an international carbon price is the best way forward" to drive this private investment, Boothby said.
Back to the market
This is a view reflected across industry. Folker Franz of BusinessEurope said "we need massive investment in all kinds of low-carbon technologies," and while the EU stimulus and other packages were an "important signal," in relative terms their green components are small and it is the carbon market that will really drive the low-carbon economy.
In particular, up-front auctioning of carbon credits to firms participating in the EU's emissions trading system will raise an estimated €20 billion annually after 2012. "This money needs to be employed in a wise way," Franz said. EU countries will organise the auctions and will keep the proceeds, with no legally-binding obligation to spend them on economic greening. Ensuring environmental spending of the money "will be a constant battle," Franz said. "There is maybe a case for industry lining up with NGOs to keep up the pressure."
Peter Löscher, chief executive of Siemens, recently told the Financial Times that the move towards a low-carbon economy could lead to the re-industrialisation of Europe. The need for leaner, greener products, from cars and trains to industrial machinery, could mean "more and not less industrialisation as a result of the current economic crisis," Löscher said.
Siemens is one of a number of big firms already claiming to be driving this. It expects annual sales of US$35 billion by 2011 from its "environmental portfolio," which ranges from power plants and wind turbines to trams and trains to lighting and computing systems. GE, which provides similar products through its Ecomagination portfolio, has a target of US$25 billion "green" revenue in 2010.
It's a start, but is it enough?
So the stage is set for money to pour into all things green, especially in support of new technologies. Stimulus spends may be short-lived but other cash will come from carbon markets, grants for green research and development, and private investment. But experts remain unconvinced that this will be enough to address global warming, or for the EU to meet its climate targets of a 20 percent emissions cut by 2020 compared to 1990, and for renewables to meet 20 percent of the EU's power needs, also by 2020.
The relatively limited part of the stimulus spending that is green is largely directed either to improving the efficiency of current production and consumption processes and models, or to experiments with technological "quick-fixes" such as CCS. But experts are starting to question if these approaches can have an impact in time to deal with the main environmental threats.
The specialist from Bruegel, Reinhilde Veugelers, said "There should be much more of a paradigm shift but it is clear that there is not yet a consensus over what the paradigm shift could be. Policy need to intervene. We need policies to buy us time."
A version of this article was published in Ethical Corporation magazine.