Measures adopted to control the spread of the COVID pandemic resulted in a worldwide reduction in economic activities. This benefited the environment by reducing pollution and greenhouse gas emissions. That said, we should not lose sight of the devastating impact the measures had on poor households.
The reduction of environmental pollution has offered countries the opportunity to start from a position of reduced pollution. If sustained this should contribute to an environmentally sustainable economy in line with the United Nations Sustainable Development Goals.
The lockdown has therefore offered the chance to start rebuilding from a lower emissions base. But there’s a conundrum: a fast economic recovery requires rapidly increasing economic activities, which could cause increased emissions.
So what should countries do?
South African policy makers and researchers are discussing possible economic policy alternatives. They are keen to know their economic and environmental impacts. They also want to know what investments can deliver a balance between economic recovery and environmental protection (green recovery).
To identify a new way forward, we analysed the economic and environmental effects of COVID-19 pandemic-induced lockdown and the government’s fiscal plans to address them. We found that while the economy was harshly affected in the short term, the government fiscal package cushioned the negative economic effects on poor households.
Key to our findings was that, based on our simulation, adapting the fiscal package towards a “greener” policy would achieve the same economic outcome as well as decrease income inequality. Carbon dioxide emissions decrease in the short run due to economic slowdown.
Our model also showed that only a small fraction of this environmental improvement will remain by 2030 – the time horizon of our model – if no policy interventions are made. Our results can be used to guide policy makers on how to orient the post COVID-19 policies to be pro-poor and pro-environment.
The model we built shows how the economy-wide lockdown caused by COVID-19 pandemic reduced economic activity from 2020 to 2022 (Figure 1). At the same time, environmental pollution, represented by industrial water usage, was reduced (Figure 2).
After 2022 the economic activities and the pollution approximate the level that would have been expected without the disruptive event of COVID-19 pandemic. However, economic losses between 2020 and 2022 have created huge reductions in real income. Thus, economic activity to compensate for the income losses after the pandemic will need to become even more ambitious to recover lost economic ground.
But intensified economic activity will increase the emissions according to the modelling results. These are shown by the red line in Figure 2.
The intensified economic activity increases the emissions of greenhouse gases. Overtime, higher economic activity creates more emissions, which could potentially wipe out the reduced emissions arising from the COVID-19 lockdowns.
If economic activity increases after the lockdown, the emissions increase by 8 to 9 percentage points when compared to the COVID-19 scenario or a 5 percentage point increase compared to the baseline (the blue line).
Therefore the emissions over time could be even higher than the quantities mitigated during the lock-down.
This phenomenon of increased emission levels higher than before the COVID-19 pandemic has already been observed for certain pollutants. An example is the use of single used plastics from food packaging.
Where to invest
Investment in green technologies in economic sectors which cause significant environmental pollution can create a double dividend.
The first is that the green technologies allow increased economic activity without a corresponding increase in pollution or emissions.
The second dividend arises because the sectors causing significant pollution are normally big. Examples include the energy and water sectors. Green investments in these sectors can boost the economy by, for example, creating demand for labour and employment.
In our research, we modelled the impact of green technologies as a fiscal package directed at the water, electricity and construction sectors. The rationale for this is that investing in water and energy is informed by the fact that South Africa is water scarce and the energy sector is the biggest contributor to greenhouse gas emissions. Therefore, a policy that invests in these sectors boosts the economy given their size. But, importantly, does so targeting green investments.
Therefore, increased adoption of sustainable building methods could benefit the environment and economy while upskilling South African workers. An example would be through increasing demand for green building methods.
Our simulation of the economic effects of COVID-19 illustrates that, if the economy goes back to normal after the pandemic, South Africa will reduce the economic losses it suffered because of the lockdown. This will affect poverty and inequality.
For the environment, there could be a credit of temporarily reduced pollution, such as mitigated greenhouse gas emissions.
However, the benefit of reduced pollution can be wiped out if economic activity and pollution levels increase to levels higher than before COVID-19.
To reduce income losses suffered during COVID-19, South African policymakers must take action to address environmental emissions and economic activity simultaneously. One way would be through better choices about infrastructure investment.
There is evidence corroborating our findings that investing in green infrastructure can help improve the quality of the environment while also helping poor households through increased income and reduced income disparities.
Thus, for South Africa the challenge is to seize the moment of reduced pollution after the lock-down, to invest in green technologies and at the same time to recover from economic losses. The ambition to increase the share of renewable energies have been agreed already by government.
What is needed now is action.
South Africa urgently needs to catch up with green growth that ensures the country does not fall into the trap of increased poverty and inequality in society.
The solution for this problem lies in part with bold investments in green recovery.
Authors: Margaret Chitiga-Mabugu, Dean of the Faculty of Economic and Management Sciences, University of Pretoria; Helene Maisonnave, Professor of Economics, Université Le Havre Normandie; Martin Henseler, Research Engineer, EDEHN – Equipe d’Economie Le Havre Normandie, Université Le Havre Normandie, and Ramos Emmanuel Mabugu, Professor, Sol Plaatje University