Aligning short-term recovery measures with longer-term climate and environmental objectives A background report prepared by the OECD for the 2021 G20 Presidency of Italy Aligning short-term recovery measures with longer-term climate and environmental objectives 2 Table of Contents Aligning short-term recovery measures with longer-term climate and environmental objectives ............................................................................................................................. 5 Acknowledgements .............................................................................................................. 6 Executive Summary ............................................................................................................. 7 1. Reaping the benefits of a green recovery ....................................................................... 9 How green is the recovery so far? ....................................................................................... 9 Learning the lessons from past crises ............................................................................... 13 Opportunities and challenges of the green recovery .......................................................... 16 2. Aligning recovery packages across different dimensions .......................................... 20 Aligning recovery packages with short and long term climate objectives ........................... 20 Aligning recovery packages to other well-being goals ....................................................... 22 Aligning financial flows to climate objectives ..................................................................... 26 3. Innovation as a key pillar of a durable green recovery ................................................ 29 A green recovery will require directing R&D and innovation towards longer-term climate and environmental objectives ............................................................................................ 29 Integrating innovation for the green transition into recovery packages .............................. 33 Creating robust innovation ecosystems to drive transformational change and a green recovery: insights from case studies from G20 countries................................................... 41 References .......................................................................................................................... 44 Tables Table 1.1. Preliminary selection of indicators for high-level dashboard to guide a strong, resilient, green and inclusive recovery ........................................................................... 16 Table 3.1. Supporting research for sustainable development: Overview of case studies ...... 41 3 Figures Figure 1.1. Total funding allocated by environmental categorisation ..................................... 10 Figure 1.2. Funding allocated to measures affecting different environmental dimensions ..... 11 Figure 3.1. Global environmental innovation efforts, 1990-2017 ........................................... 31 Figure 3.2. Government R&D budget trends, selected economies, 2007-20 ........................ 36 Figure 3.3. Worldwide low-carbon patent filings and energy prices ...................................... 39 Boxes Box 1.1. Methodology of the OECD database and other tracking tools ................................ 12 Box 2.1. Case studies of recovery packages integrating climate and well-being considerations ............................................................................................................... 22 Box 3.1. Environment-related technologies covered in patent data ...................................... 32 4 Aligning short-term recovery measures with longer-term climate and environmental objectives 5 Acknowledgements The OECD background report was prepared at the request of Italy for the G20 meetings of the Energy Transition Working Group and Climate Sustainability Working Group under the 2021 Italian Presidency. The OECD gratefully acknowledges the financial support of the Italian Ministry for Ecological Transition. The report was co-ordinated by Alexa Piccolo (OECD/ENV) and written together with Hélène Blake (OECD/ECO) and Antoine Dechezleprêtre (OECD/STI). Anthony Cox (OECD/ENV) provided strategic guidance and direction. The drafting team gratefully acknowledges the comments and inputs provided by OECD colleagues on draft versions of the report, including from Aimée Aguilar Jaber, Enrico Botta, Erika Bozzay, Mario Cervantes, Anthony Cox, Filippo Maria D’Arcangelo, Kurt van Dender, Jane Ellis, Levin Ilai, Raphaël Jachnik, Tomasz Kozluk, Tobias Kruse, Edwin Lau, Guillaume Lecaros de Cossio, Andrew Prag, Ana Maria Ruiz Rivadeneira, Camila Saffirio, Ernesto Soria Morales, Frédérique Zegel. 6 Executive Summary The COVID-19 crisis is an enormous challenge to economies and societies across the world. It has exposed our vulnerabilities to global shocks and underlined the importance of improving environmental health and societal resilience. Early in the pandemic, economic rescue measures had the priority of providing relief to workers and businesses. But the economic stimulus packages and recovery plans that governments are now putting in place have the potential to create a recovery that is both green and inclusive while achieving global climate goals. A green and inclusive recovery has the potential to create opportunities for income, growth and quality jobs, and at the same time accelerate action on medium and long- term environmental goals, both national and global. Such a recovery will also significantly enhance the resilience of economies and societies in the face of accelerating environmental challenges that may come on top of existing stressors. For example, climate impacts are likely to be non-linear due to strengthening feedback loops that amplify the effects of global warming and the increasing likelihood of cascading tipping points in the climate system that can lead to irreversible climate change. The current decade is crucial to achieve mitigation at the levels needed to reach long- term goals for climate action. In addition, the decisions made in the coming years on infrastructure, equipment and systems in which we invest will affect the climate for decades to come. Therefore the choices governments are making in shaping their recovery packages will determine countries’ capacity to reach their climate objectives and comply with the Paris Agreement. In order to meet climate goals, recovery plans made for the immediate term need to be aligned with objectives set at the international and domestic levels, for the near (2030) and long term (2050 and beyond). Innovation – the creation and diffusion of new ideas, products, processes and methods – is fundamental to the transition to a cleaner global environment and to the issue of ensuring alignment between short-term goals and actions and long-term strategies and objectives. Major innovation efforts are vital in this decade so that the technologies necessary for net‐zero emissions reach markets as soon as possible. The pandemic has underlined the importance of science in preparing for and reacting to upcoming crises. The recovery from the COVID-19 pandemic provides an opportunity to boost green innovation, but governments need to strengthen their efforts to overcome barriers limiting the development and diffusion of new cleaner technologies in order to ensure appropriate alignment. 7 This report has been prepared in support of the G20 Presidency of Italy and provides guidance to countries in designing green recovery packages, aligning recovery packages with climate objectives, establishing effective evaluation and monitoring frameworks, and strengthening innovation and R&D. 8 1 Reaping the benefits of a green recovery How green is the recovery so far? Overall, stimulus packages still lean towards a business-as-usual approach Data from the OECD Green Recovery Database1 suggests that countries covered in the database (which includes all G20 members except for Argentina and Saudi Arabia2) are pursuing climate and environmental objectives as part of their recovery plans, although on aggregate these actions are counteracted by an equivalent number of measures with a negative or mixed impact. Country-specific measures with a likely positive environmental impact total around USD 336 billion, as shown in Figure 1.1. By contrast, measures marked as having negative or mixed environmental impacts total around USD 334 billion. This result suggests that, so far, funding for environmentally positive measures is almost matched by funding allocated to negative and mixed measures. This is broadly in line with results presented in tracking tools published by other organisations (Box 1.1). It is important to see this result in the context of wider overall stimulus packages. The spending tagged in the OECD database as environmentally positive accounts for only around 17% of total recovery spending, using an estimate of the total spending from (O’Callaghan and Murdock, 2021[1]). The small percentage of measures tagged as “green” implies that total stimulus packages overall still lean heavily towards investments in business as usual type activities, rather than the transformational investments required. The picture will continue to evolve. An important additional factor is EU-wide funding announced through the Next Generation EU programme. This has not yet been included in the total of environmentally positive spending, because it was not yet allocated at the time