From ‘black recession’ towards green growth

Employment & Income,Inclusive Economy17 Apr 2014Béla Galgóczi

More green investment can stimulate growth and employment in a crisis-ridden Europe, and reverse recent negative trends in the climate change mitigation progress.

In the sixth year of the crisis there is an emerging consensus in Europe that, in the absence of a powerful kick to revive its anaemic efforts at investment both public and private, the European economy is not going to make the turnaround for sustainable growth. With 26 million unemployed, the EU faces its hardest employment challenge in recent history and a number of its member states are suffering from a true labour market catastrophe.

At the same time Europe is losing momentum in greening its economy and its former leadership is quickly eroding. With a 60% drop in clean energy investments in 2013, compared to the 2011 peak, Europe has become the global laggard in this regard.

Our claim is to argue for a significantly higher degree of green investment in order to stimulate growth and employment in a crisis-ridden Europe, while also reversing recent negative trends in the climate change mitigation progress. The rationale of the argument builds up as follows. Clean energy investments collapsed as a result of austerity and policy uncertainty, while progress in energy efficiency – one of the key elements of a decarbonisation path – is extremely modest. Between 1990 and 2010 EU27 final energy consumption grew by 7%, while for the household sector it was 12%. Where are then the effects of energy-saving investments, one priority of the EU2020 Strategy, above all into insulation and retrofitting of buildings? There is no need for a lengthy search for reasonable investment projects on which a sensible EU investment plan can rely. It only takes a look at the mid-term EU climate policy objectives, the EU2020 Strategy and Commission documents like the Energy Roadmap 2050, to see that the need for green investment had already been established. Calculations by the European Investment Bank illustrate that Europe’s own climate policy objectives already determine the need for additional annual investment of between 1.2 and 2.1% of EU27 GDP (or between €220 and €380 billion) compared to the 2011 investment level. A major part of this investment should be devoted to energy-saving measures.

This additional investment would help to give a kick to the anaemic European economy and set it on a sustainable growth trajectory. The employment-creation effect of such investment would also be crucial. It is precisely the construction industry, which suffered the highest employment losses during the crisis (up to 38%), that would benefit from a dynamic investment programme in energy saving. This form of investment also has a guaranteed return and, given the low interest rate environment, the requisite financing background is also present. Investment into energy efficiency would also address fuel poverty that reached alarming levels in certain member states.

There is nothing really new in all this: the need for investment is a clear consequence of policy targets identified and defined several years ago. The dividend, were these policies to be seriously promoted, would be higher growth and employment creation, a higher probability of fulfilling long-term climate policy commitments and a greater degree of social justice. The only question is why this is not happening, why such vitally necessary policies are not being wholeheartedly pursued.

For more details and references, see ETUC/ETUI (2014) Benchmarking Working Europe 2014, Brussels: ETUI, p. 113-121.