Green Recovery Policies for the COVID-19 Crisis: Modelling the Impact on the Economy and Greenhouse Gas Emissions

B. Lahcen (), Jan Brusselaers (), K. Vrancken, Y. Dams, C. Silva Paes, J. Eyckmans and Sandra Rousseau
Additional contact information
B. Lahcen: VITO, Unit of Sustainable Materials
K. Vrancken: VITO, Unit of Sustainable Materials
Y. Dams: VITO, Unit of Sustainable Materials
C. Silva Paes: Ghent University
J. Eyckmans: Center for Economics and Corporate Sustainability (CEDON) KU Leuven

Environmental & Resource Economics, 2020, vol. 76, issue 4, No 13, 750 pages

Abstract: Abstract The COVID-19 pandemic induces the worst economic downturn since the Second World War, requiring governments to design large-scale recovery plans to overcome this crisis. This paper quantitatively assesses the potential of government investments in eco-friendly construction projects to boost the economy and simultaneously realise environmental gains through reduced energy consumption and related greenhouse gas emissions. The analysis uses a Computable General Equilibrium model that examines the macroeconomic impact of the COVID-19 crisis in a small open economy (Belgium). Subsequently, the impact of the proposed policy is assessed through comparative analysis for macroeconomic parameters as well as CO2 equivalent emissions for four scenarios. Our findings demonstrate that the COVID-19 pandemic damages economies considerably, however, the reduction in emissions is less than proportionate. Still, well-designed public policies can reverse this trend, achieving both economic growth and a disproportionally large decrease in emissions. Moreover, the positive effect of such a decoupling policy on GDP is even stronger during the pandemic than compared to the pre-COVID-19 period. This is the result of a targeted, investment-induced green transition towards low energy-intensive economic activities. Finally, this paper describes how the net effect on the government budget is positive through the indirect gains of the economic uptake.

Keywords: CGE model; Climate change; COVID-19; Economic recession; Greenhouse gas emissions; Pandemic; Policy analysis; Recovery plans; Small open economy; Sustainable investment (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (36)

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DOI: 10.1007/s10640-020-00454-9

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