Green Stimulus," Economic Recovery, and Long-Term Sustainable Development

This paper discusses short-run and
long-run effects of "green stimulus" efforts, and
compares these effects with "non-green" fiscal
stimuli. Green stimulus is defined here as short-run fiscal
stimuli that also serve a "green" or environmental
purpose in a situation of "crisis" characterized
by temporary under-employment. A number of recently enacted
national stimulus packages contain sizeable
"green" components. The authors categorize effects
according to their a) short-run employment effects, b)
long-run growth effects, c) effects on carbon emissions, and
d) "co-benefit" effects (on the environment,
natural resources, and for other externalities). The most
beneficial "green" programs in times of crisis are
those that can stimulate employment in the short run, and
lead to large "learning curve" effects via lower
production costs in the longer term. The overall assessment
is that most "green stimulus" programs that have
large short-run employment and environmental effects are
likely to have less significant positive effects for
long-run growth, and vice versa, implying a trade-off in
many cases between short-run and long-run impacts. There are
also trade-offs for employment generation in that programs
that yield larger (smaller) employment effects tend to lead
to more employment gains for largely lower-skilled
(higher-skilled) workers, so that the long-term growth
effects are relatively small (large). Ultimately, the
results reinforce the point that different instruments are
needed for addressing different problems.