Opinion - 22/April/2020

Covid-19: Fear of debt should convince governments to go green

The best way to persuade treasuries and heads of state to put the environment and clean energy at the heart of packages aimed at stimulating economies after the coronavirus is to focus on debt-related risks, argues Brook Riley from Rockwool Group

Climate action measures like building renovation, renewables and green transport are safe investments


Sometimes great improvements come out of great tragedies, like health care, the universal vote and state pensions after the two world wars. Covid-19 could have a similar effect on climate action. The European Commission is campaigning for its Green Deal to be at the heart of the economic recovery package and 13 EU environment ministers have taken the same line. The next step is to win over treasuries and heads of state. Fear of high debt levels could convince them.

Many countries across the EU are already deeply in the red. Public debt is at least 100% of GDP in some cases, according to The Economist, and governments will need to borrow much more to finance stimulus packages to get back on their feet after the devastating impacts of the coronavirus.

Governments’ main insurance against default is the European Central Bank, which is currently creating over €100 billion a month — more than it ever did in response to the subprime and eurozone crises. The ECB is using these funds to buy up new government and corporate debt, reassuring investors (public and private banks, pension funds, insurance companies and others) that they will get their money back.

The goal is to keep interest rates affordable and borrowing possible. But how far can the ECB go and how sustainable is the debt? Over the past five years, the Bank has already bought up more than €2.6 trillion of loans, all of which must be repaid.

It follows that the safer the new debt, the better. This is why calls to green the Covid-19 recovery measures have such a good chance of going mainstream. Back in 2016, the ECB spent over 60% of its corporate purchase programme (buying company debt) on carbon-intensive assets. But that sort of policy is deeply irresponsible. It means saddling future generations of taxpayers, who must finance bailouts if debts go bad, with a crushing burden of high-risk loans.



By contrast, climate action measures like building renovation, renewables and green transport are safe investments. Adding 10% to a home mortgage for insulation and other retrofits reduces the risk of default: the home is worth more, energy bills are lower, people are healthier and it is good for jobs. Bundle a thousand of these mortgages together and you have a green bond for the ECB to buy.

So far so good. But there is one key challenge to overcome: figuring out how to rapidly increase the number of green investment opportunities. There must be projects for governments and businesses to fund if there is to be debt for the ECB and central banks to buy. Last year €100 billion worth of green bonds were issued in Europe. That is a spectacular increase compared to just a few years ago, but not yet enough to make a big impression on the ECB’s ‘debtometer’.

Make no mistake, this is a race. In the short term, EU leaders are prioritising all-important health, wage and cash supply emergencies. But at the same time, they are discussing and developing the economic recovery measures which must follow. This is where climate action will flounder or triumph. So much money is being created or borrowed that there are bound to be spending cuts later to repay the debt, as happened after the 2008 crisis. Put simply, green investment opportunities must be identified and prioritised now, to avoid being locked out later.


The views expressed in this opinion are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy

Do you have a thoughtful response to the opinion expressed here? Do you have an opinion regarding an aspect of the global energy transition you would like to share with other FORESIGHT readers? If so, please send a short pitch of 200 words and a sentence explaining why you are the right person to deliver this opinion to opinion@foresightdk.com.


Leave a Reply

Your email address will not be published. Required fields are marked *

Related articles

A just transition can help end energy poverty

The clean energy transition needs to be fair to everyone, with laws and financing to ensure the poorest households are not penalised by the switch from fossil fuels to renewables and benefit from the change, argues Marilyn Smith, Founder & Executive Director of The Energy Action Project

Read more

Building energy efficient, sustainable homes for all

As governments across Europe attempt to deal with the economic and social impacts of coronavirus and how and when to end strict confinement measures, the time is right to invest to ensure every person can live in a healthy, connected and sustainable home, argues Davide Cannarozzi, CEO and Founder of GNE Finance

Read more

Stimulus funds can transition economies away from climate wrecking activity

The coronavirus is a deadly human tragedy, causing untold grief and pain. It is also rocking the world’s economies as people lose income and businesses struggle to stay afloat. Yet there are lessons to be learned for the climate crisis

Read more

Climate justice is the heart of climate action

The idea the transition to a clean energy economy should also be as fair as possible to everyone has, until now, been seen by many as a nice to have. Andrzej Blachowicz and Julie-Anne Hogbin from Climate Strategies argue developing countries in particular can achieve greater and more inclusive climate action by placing the just transition at the heart of their climate plans

Read more

What will it take to start — and sustain — a renovation wave?

With the European Commission planning to announce details of a building “renovation wave” in the autumn of 2020, Susanne Dyrboel, vice-chair in Renovate Europe explains what the EU executive should be considering to make its vision reality

Read more

European development bank money at work in Macedonia

The EBRD is increasingly active across the whole of Southeast Europe, which remains highly reliant on coal, to move it to cleaner energy sources

Read more

Biodiversity must not be sacrificed to the energy transition

With the world facing an energy and a biodiversity emergency, realisation is growing that solutions need to be made compatible with sustainability in both areas

Read more