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Criticizing green stimulus

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  • The views expressed in this article are those of the author and do not necessarily represent the views of the World Bank, or of the Executive Directors of the World Bank or the governments they represent.

Abstract

The outbreak of the global economic crisis in 2008 led to a revival of interest in fiscal policy as an instrument for counter-cyclical stimulus. A feature of this revival was a focus on undertaking ‘Green Stimulus’ as a way to stimulate short-run economic activity while also advancing long-term environmental goals, such as tackling climate change. The thesis of this paper is that, while some elements of Green Stimulus may have met the stated dual objectives, many are likely to have been relatively ineffective as fiscal stimulus, or as green instruments, or as both. We note some general reasons to qualify the case for Green Stimulus before taking a look at the limited empirical evidence on the effectiveness of Green Stimulus, as well as at some flaws of specific Green Stimulus policy instruments adopted in many countries, for example Renewable Energy and ‘Green Infrastructure’. Finally why, if green stimulus is likely to be relatively ineffective, has it garnered so much support? The answer perhaps lies in the realm of politics rather than economics, in particular the famous ‘Rahm Emmanuel Doctrine’ that ‘you never want a serious crisis to go to waste’. WIREs Clim Change 2014, 5:15–21. doi: 10.1002/wcc.257

Conflict of interest: The author has declared no conflicts of interest for this article.

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