If the 2008 U.S. green stimulus is any indicator, the signs are not encouraging
Central bankers and policy makers in the Western world are including some version of green stimulus in the large stimulus packages aimed to boost their COVID-19 stricken economies. For instance, Christine Lagarde, President of the European Central Bank (ECB), has pledged to devote a portion of the ECB’s 2.8 trillion Euro asset purchase program to pursue green objectives in a bid to fight climate change. Joe Biden, the Democratic presidential nominee, has announced a plan to spend $2 trillion on climate change as a way to stimulate the economy.
But how does one ensure that it is money well spent? What does “well spent” even mean? Most economists would argue that as long as the “social rate of return” on the investment is higher than the interest rate paid on the debt taken to finance the investment, the extra debt is well spent. How does one measure the “social rate of return” on green stimulus? The benefits could be financial: lower fuel and maintenance costs and non-financial: lower carbon emissions, improved health outcomes of citizenry, incremental new jobs that otherwise might not be created and environmental benefits.
The financial part, by definition, is easier to measure. The non-financial portion involves a whole host of assumptions including estimates of new jobs created, the price per ton of carbon emissions