Wednesday 18 Jul 2018 | 20:39 | SYDNEY
Wednesday 18 Jul 2018 | 20:39 | SYDNEY

Green stimulus


Sam Roggeveen


11 November 2008 13:20

I read The Economist's leader on the train last night, about whether the US should kill two birds with one stone by focusing its economic stimulus on green projects. I couldn't quite put my finger on it at the time, but I thought there was something a little off about this piece of reasoning:

There is a historical parallel to this synergy between two worthy aims. Just as military spending at the end of the 1930s defeated both fascism and the Depression, so spending on fighting climate change should both wean mankind off fossil fuels and avert what might otherwise turn into the most serious downturn since the 1930s. Isn’t that neat?

No. Mr Obama’s commitment to solving climate change is devoutly to be welcomed. There is also a case for giving the economy a boost through government spending. But combining the two by subsidising renewable energy is, like many easy answers, the wrong solution.

How nice to see that one of The Economist's very own blogs has chosen to disagree:

Whoa! Now wait a second. Is this really as open and shut as all that? Hardly. The Leader suggests, quite correctly, that the first, best means to deal with climate change is a carbon pricing regime. But beyond that there are plenty of economically acceptable investments that might make up part of the stimulus, and which might also be considered green.

Take transport, for instance. Infrastructure investment is widely accepted as an appropriate stimulus ingredient, providing a boost to GDP on a par with unemployment benefit extensions and increases in food stamps (and performing much better than tax rebates). America might enjoy a particularly high return to investment in its underdeveloped transit and rail networks. But of course, such investments would facilitate a move away from the country's dependence on energy-hungry automobiles. They would, in fact, be green.

Or consider investments in a smart electrical grid. A more robust grid would increase the efficiency of transmission of electricity from many sources, and it might also allow green power generators in wind- or sun-rich regions to sell power to other parts of the country, where generation is monopolised by dirtier sources. This kind of infrastructure investment is easily defensible on economics grounds but would also, without a doubt, be considered green.

So a two-for-one deal could work after all. Now, how about a three-fer? What I mean is, a smart electricity grid might also improve local resilience against terrorism and natural disasters. The more Americans contribute power to the grid and the less dependent they are on big, centralised power networks, the less vulnerable they will be to outages and the quicker they can recover.