ABN AMRO Bank N : Measures to protect both jobs and the climate

The economy is gradually going into reopening mode, and carbon and nitrogen emissions are starting to rise again as a result. However, many businesses have more immediate concerns than investing in emission reductions.

Such an abrupt transition could take the shape of a nitrogen lockdownSandra PhlippenChief Economist ABN AMRO

To a certain extent, so do governments. Despite the ambitious plans announced by various European countries, the Netherlands and the rest of the European Union are still slow to implement stimulus packages that help to reduce carbon dioxide.

In June, according to press office Bloomberg, only around 0.2 percent of the USD 12,000 billion in stimulus packages worldwide was actually sustainable. The remaining 99.8 percent was aimed at kickstarting economies and saving jobs: whatever it takes.

This painfully slow evolution contrasts starkly with warnings from economists. The press, both in the Netherlands and abroad, are citing hundreds of calls not to help the old industry get back on its feet, but instead to support the industry of the future. These warnings are not based on a particular moral conviction on the part of these economists. Rather, we see how the global risk of an abrupt transition to sustainability is becoming more real with every day that passes: an abrupt transition that could shut down an entire economy.

Flood

Such an abrupt transition could take the shape of a nitrogen lockdown - as witnessed by the harsh but realistic announcements coming from the Dutch Nitrogen Advisory Committee, which is chaired by prominent conservative liberal Johan Remkes.

Another very real possibility is that a new Dutch lockdown could be triggered in response to the Urgenda Climate Case, where the Dutch Supreme Court confirmed that the state has a legal obligation to reduce carbon emissions, as agreed in Paris.

In Germany, where the actual results so far fall short of the targets by a much wider margin, Greenpeace has brought similar proceedings, and the court is expected to rule along the same lines as the Urgenda judgment.

Even if neither of these scenarios materialises, another possibility for the more distant future is a lockdown triggered by a major flood. Based on a rough calculation of the harm to the economy, a major flood that shuts down public life would also depress economic growth by around 2 percent per month.

So why do governments and companies have their heads so stubbornly in the sand? The entire reason is of course that what is happening here and now is more immediate. Right now, this crisis calls for measures that help to minimise any further job losses.

Companies that were in good shape when the crisis began are now wondering what revenue model they should pursue for the future. Buffers that once perhaps were earmarked for sustainability improvements are now needed for survival.

The government too is navigating between the short-term need to prevent job losses and the long-term desire to avoid zombie companies whose revenue models are not future-proof.

Nevertheless, it is possible to conceive of measures that overcome the contradictions between short-term and long-term benefits: interventions that improve sustainability as well as preventing job losses.

What we need first of all is an exit strategy to escape from the old economy. The government could consider basing this on a scheme to buy out old, high-pollution industries.

The renewable energy sector is already struggling to fill job vacancies. Only recently, ABN AMRO's labour shortage indicator (in Dutch only) showed that around 20 percent of job openings for technicians to work on electrical engineering installations are impossible to fill, through a lack of suitable candidates. Professionals from the old industry could be retrained to fill these positions.

A double dividend

The second measure is a much more fundamental one: introduce a carbon tax, and link it to a carbon dividend for households. Companies will pass on the carbon tax in the prices for their consumer goods, so households will pay more for products that require high-pollution processes to manufacture.

To compensate those households for the extra cost, a carbon dividend will need to be introduced. So households will not be 'punished' for their polluting expenditure, and sustainable purchasing patterns will yield double rewards: avoiding the carbon tax while still being paid the dividend.

While the idea of combining a carbon tax with a carbon dividend is not a new one, its impact would offer households a much-wanted tax stimulus during this crisis. For example, insulating a home becomes profitable immediately, with the insulation being financed largely from the dividend. The insulation work creates jobs, and the lower energy bill frees up room for more spending.

Reopening

Time is running out. Every week we review PIN transactions to analyse patterns of consumer spending in the Netherlands. What we are seeing is that consumers are hesitantly joining the economy's reopening. If consumer spending bounces back, production - and of course emissions - will rise along with it.

Industry is the fastest sector to reopen, as is most apparent in China's Hubei province, the world's car manufacturing powerhouse. Car manufacturing, which plummeted by 83 percent in February, was up 11 percent in May. Unfortunately, the carbon emission figures are swiftly following suit.

If we want to avoid a climate lockdown, we need to act now.

This op-ed was previously published (in Dutch) in Het Financieele Dagblad and on ABN AMRO's Insights.