The world should invest an additional $3 trillion each year to drive economic recovery and transformation
LONDON 7 JUNE 2021
The world should invest at least $3 trillion more every year in sustainable infrastructure and nature to drive the recovery from the COVID-19 pandemic and the transition to a zero-emissions and climate-resilient global economy over the next decade, according to a new report that was requested by the UK Prime Minister ahead of the G7 Leaders’ Summit in Carbis Bay, Cornwall.
The independent report, published today (7 June 2021), on ‘G7 leadership for sustainable, resilient and inclusive economic recovery and growth’ has been led by Professor Lord Nicholas Stern, I.G. Patel Professor of Economics and Government at the London School of Economics and Political Science (LSE), with a team from the LSE. A summary of the full report was published on 10 May 2021.
The report highlights the potential for investments in zero-emissions energy and transport to create new jobs and economic growth. It recommends that these should be a central part of the recovery packages of the G7 countries, which together should increase their annual investment by 2 per cent of GDP, or $1 trillion, compared to pre-pandemic levels.
The report indicates that “the G7 will need to assist emerging market and developing countries in tackling their greater debt and finance constraints that have resulted from the pandemic, and embark on programmes of green recovery and transformation”.
It also calls on the G7 to “make a collective commitment to double climate finance” and to lead on ensuring that the rich countries “deliver on and go beyond” their commitment to mobilise $100 billion per year by 2020 from public and private sources to support developing countries in tackling climate change.
The report points out that $1.5-1.7 trillion more each year should be invested globally in low-carbon energy, including renewables, and the electrification of economies over the coming decade, while annual expenditure on fossil fuel energy should decrease by $350-600 billion.
The report identifies investment priorities in electricity storage and networks, energy efficiency in buildings and industry, charging infrastructure for electric vehicles, the deployment of green hydrogen manufactured with renewables, and decarbonisation of industry and heavy transport, including aviation and shipping.
It suggests that $1.4 trillion more each year should be invested worldwide in improving transport, particularly mass transit systems and the extension of railway networks.
Increases of $100-250 billion a year are required for investments in protecting and restoring nature on land and in the sea. Additional investments of $150 billion per year are needed in “productive, sustainable and efficient agricultural systems”.
The report lists 30 specific actions that could drive investments in G7 countries, including generating 80 per cent of electricity from net-zero sources by 2030, applying standards for 100 per cent net-zero buildings by 2024, and ensuring there are 100 public electric vehicle chargers per 100,000 population by 2023.
The report states: “A focus on quality investments across a range of vital physical, natural and intangible assets can drive both recovery and transformation to a sustainable, resilient and inclusive economy. Many of the investments necessary for sustainable recovery and growth can be quickly implemented, can mobilise significant private sector involvement, are labour-intensive in the short run, can promote greater equality of opportunity, and can drive productivity growth through their strong innovation potential in the medium to long run.”
It adds: “These investments have large net economic and social benefits and strong potential to improve well-being across its many dimensions. The high economic multipliers of these investments will also be a key driver of economic recovery, job opportunities and enhanced future revenues.”
The report notes that “if countries act together, these investments can deliver quadruple wins” through recovery, growth, innovation and “tackling the immense threats from climate change, biodiversity loss and environmental degradation”.
It also concludes that “the G7 has the opportunity to call for a coordinated, large-scale, medium-term boost to public investment aimed at creating the high-return assets”.
The report states: “While eventually the private sector would be the main source of investment, public investment must play a key role, especially in the early phase – private investors are cautious given the uncertainties, and corporate balance sheets are highly leveraged.”
It recommends “frontloading a public investment push, on the order of 1–2% of GDP, initially financed by public borrowing and declining in the outer years of the 2020s”, and adds: “Public investment should replace rescue-related consumption spending and be financed by public borrowing in order to avoid premature withdrawal of macroeconomic stimulus”.
To receive an embargoed copy of the full report on ‘G7 leadership for sustainable, resilient and inclusive economic recovery and growth’, and to arrange interviews with the authors, please contact Bob Ward on +44 (0)7811 320346 or email email@example.com
Notes to Editors:
Professor Lord Stern of Brentford is I.G. Patel Professor of Economics and Government, Chair of the Grantham Research Institute on Climate Change and the Environment, Chair of the ESRC Centre for Climate Change Economics and Policy, and Chair of the India Observatory at the London School of Economics and Political Science. He has been a member of the UK House of Lords since 2007, where he sits on the crossbenches. He was previously Head of the UK Government Economic Service at Her Majesty’s Treasury between 2003 and 2007, where he led ‘The Economics of Climate Change: The Stern Review’, which was published in 2006. He was also Senior Vice-President and Chief Economist of the World Bank between 2000 and 2003. Further details about Lord Brentford can be found here: https://www.lse.ac.uk/granthaminstitute/profile/nicholas-stern/