Climate and environmental impacts of green recovery: Evidence from the financial crisis

Abstract

While main goal of stimulus packages is to boost economic activity after a crisis, they may also affect environmental outcomes. The aim of this paper is to investigate whether incorporating green components into such packages affects the environment and to identify whether any effects are only temporary or affect countries’ trajectories towards a sustainable low-carbon economy. We compile a panel dataset covering 27 OECD countries from 2000–2019 to analyse green recovery packages launched in the aftermath of the 2008 financial crisis. Based in this dataset, we can investigate both short- and long-term impacts of green recovery packages on the climate, i.e., mitigation investments and greenhouse gas emissions, and the earth’s biocapacity. Using fixed effects estimation, we find that higher shares of green recovery spending induce lower CO₂ emissions and a smaller ecological footprint of production. Employing a difference-in-differences framework, we provide evidence for a causal effect of recovery programmes dedicated to renewable energy on renewable energy investments. All these effects persist in the post-recovery periods. These findings stress that policymakers should consider the long-term impacts of post-crisis recovery programmes to ensure their consistency with the transition towards a sustainable climate-neutral economy.