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Green Investments Pay off, IMF Working Paper Finds

After five years, the cumulative increase in real GDP associated with investments in green energy infrastructure is nearly twice as high as that on spending on non-ecofriendly energy. Findings like these highlight the importance of a post-COVID-19 sustainable recovery not only from an environmental but also an economic perspective.

After five years, the cumulative increase in real GDP associated with investments in green energy infrastructure is nearly twice as high as that on spending on non-ecofriendly energy. Findings like these highlight the importance of a post-COVID-19 sustainable recovery not only from an environmental but also an economic perspective.

Using data of  20 countries from 1995 – 2016, the IMF-working paper discovers that multipliers associated with green expenditures on clean energy are about 2 to even 7 times larger than those associated with “brown” spending on oil, gas or coal – depending on various factors, like sectors and technologies.

For instance, each dollar invested in industrial agriculture generates less than $1 in increased economic activity after five years, while the same spending on sustainable land use generates nearly $7 in GDP within the same time period.

The reasons lie in the higher labour intensity of green activities – a greater share of the investment is spent on hiring people compared to non-eco-friendly spendings used to acquire land and machines. Subsequently, far more (local) jobs at all pay levels are produced.

These findings favoring a green recovery may even underestimate the long-term benefits of green energy and land use. Neither future negative impact of climate change on the GDP nor the increasing public health costs due to environmental pollution were taken into account.

In its conclusion, the working paper suggests “that ‘building back better’ could be a win-win for economies and the planet.”

Read the whole report “Building Back Better: How Big Are Green Spending Multipliers?” here.

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