Towards a Net Zero recovery: A stimulus plan

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As economies around the world face record-breaking economic recessions from coronavirus-induced lockdowns, a growing chorus of voices is calling for governments to respond with an era defining injection of investment that not only reboots the economy but also transforms it to address the other great crisis of our time – climate change. 

It is striking that it is leading private sector voices calling for this, from the Confederation of British Industry in the UK to the editorial pages of The Economist, and not just the usual suspects in the environmental movement. 

More importantly, we are starting to see major commitments to actually pursue a climate-friendly stimulus, such as the European Commission’s €1 trillion green recovery plan, as well as signs from business that they think governments will follow through and deliver on such plans. BP, for example, recently announced that it will revise down the value of its assets by up to £13.8bn, because it says there is "a growing expectation that the aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy and energy system, as countries seek to 'build back better'". 

The case for Net Zero recovery

Hardly a week goes by without a new study being published demonstrating the value of such an approach. McKinsey, for example, has carried out an analysis of a European country showing how a low carbon stimulus portfolio mobilising €75-150 billion of capital can produce one to three million jobs, create gross value added (GVA) to the economy of €180-350 billion, while reducing carbon dioxide emissions by 15-20% by 2030. 1

Leading economists, including Nick Stern and Joseph Stiglitz, from the universities of Oxford, LSE, Cambridge and Columbia, meanwhile, have published a paper highlighting how labour-intensive clean energy infrastructure projects are compared to fossil fuel ones. They cite modelling showing that every US$1 million spent generates 7.5 full time jobs in renewables infrastructure, 7.7 in energy efficiency, but only 2.6 full time jobs in fossil fuels. 2

The case for a Net Zero recovery is strong and the timing right. 

Governments have so far pledged to devote over US$10 trillion to economic stimulus measures globally. As they decide how to structure their response, there needs to be an urgent focus on how to ensure this unprecedented level of investment puts us on the path to a Net Zero recovery and not a business as usual, high-emissions recovery, vulnerable to climate risks. 

A framework for decision-makers

At its most basic, government decision-makers need to be guided by a simple framework, which prioritises stimulus measures on the basis of the following, critical criteria: 

  • Economic benefit – how many jobs will the measure create per $ invested and what will be the economic value generated (as measured by Gross Value Added)?
  • Climate benefit – how many tons of greenhouse gas emissions will the measure prevent or remove per $ invested and is it critical to the transition to Net Zero?
  • Co-benefits – does the measure have any additional public benefit, for example for public health, energy access, or reduced social inequality in line with Sustainable Development Goals?
  • Market failure – does the measure tackle barriers that the government can best address? 

In prioritising stimulus measures, governments should also consider timeframes, feasibility and priority populations. 

On timeframes, they should strike the right balance between:

  • interventions that will generate short term impact – creating jobs and reducing emissions and other co-benefits e.g. one to three years; and
  • interventions that may take longer to deliver impact but which will sustain jobs for longer, deliver productive assets for the future, and reduce the cost of the transition to Net Zero. 

Closely linked is the issue of feasibility. This is in part about looking for ‘shovel-ready’ projects or existing initiatives that can be scaled up quickly and easily. But, it is also about being proactive in ensuring that enabling conditions are in place for businesses to act and private investment to flow. Economies will struggle to recover unless businesses can easily access finance and are enabled to become more resilient.

Prioritising the right sectors 

Every county has its own unique set of conditions and governments taking this approach will come to their own specific set of conclusions. But, clear evidence is emerging of the sectors, programmes and policies that are more likely to meet several of the criteria listed above and which therefore should be prioritised in the design of economic packages. 

Energy efficiency

The sector that probably scores highest against all the criteria listed above is energy efficiency. The climate and job creation potential of energy efficiency is well documented, but what really distinguishes its appeal is that it is fast-acting and highly feasible, especially when delivered through existing programmes that can be scaled up. It can also have important co-benefits when targeted at, for example, lower income households, such as decreased social and health inequalities from reduced electricity costs and warmer homes in winter. 

Energy efficiency is also a good option to prioritise as an enabler for the rest of the energy system: reducing demand optimises or reduces the amount of generation required and dampens demand peaks. It also increases the compatibility of building stock with heat pumps or heat networks, which are critical to the effort to decarbonise heat, without which we will not reach Net Zero. 

While there is still huge scope to improve residential energy efficiency, the non-domestic sector is often overlooked when it comes to energy efficiency even though it represents about 35% of energy use in developed economies3 and provides a greater CO2 saving/£ invested than domestic energy efficiency. It is likely that Covid-19 will prompt significant office refurbishment and retrofit providing a valuable opportunity for improving energy efficiency. Governments, meanwhile, can lead by example with their own public sector buildings.


The deployment of renewables to produce power and heat should be another priority in any Net Zero recovery plan. Renewable energy generates more jobs in the short-term when jobs are scarce in the middle of a recession, boosting spending and increasing short-term GDP multipliers.

Renewables also have important co-benefits – from reduced air pollution (especially where coal continues to play a significant role in power generation) to increased rural electrification for those living off grid. 

Priority technologies will depend on their potential in any given country and barriers that remain to be addressed. In many developing economies, including among the largest such as India, Mexico and South Africa, onshore wind and solar photovoltaics still have huge untapped potential, which tried and tested policy mechanisms and incentives for investment could unlock.

For economies like the UK, it may be tempting to view recent low offshore wind prices as meaning that government should focus on other generation technologies. But, there is a strong case that government should instead double down on offshore wind and address the outstanding barriers for achieving its potential for 40GW by 2030 in the UK, as well as realising its export potential. 

Offshore wind has been a success story for the UK, showing what can be achieved through a combination of government support and industry action, however it can achieve far more with further support.

For many economies, decarbonising heat is also vital to achieving Net Zero. Here again important choices have to be made if economic value is to be maximised. Hydrogen could be a key technology in the long term, but for early action and rapid job creation, governments might focus on more mature technologies, such as heat networks and heat pumps via existing programmes. 

Sustainable mobility and natural capital programmes

Two other sectors stand out for their potential to deliver both rapid economic and climate related outcomes, as well as valuable co-benefits. The creation of more sustainable mobility options, particularly through the creation of new networks of urban cycle lanes and measures to scale up the manufacture and sale of electric vehicles could be achieved quickly. It could also bring huge added benefits in terms of reduced air pollution and respiratory illness in dense urban areas. 

Similarly, investment in enhancing our natural capital – including through planting new woodland, expanding existing parkland and initiatives to enhance rural ecosystems – could be fast acting as it would not require lengthy worker training or complicated planning approval. It would also deliver significant co-benefits in terms of expanded green space for leisure and wildlife. 

Smart grids and greenhouse gas removal

While governments will understandably want to focus the lion’s share of stimulus investment on sectors that will have short-term impact, they should also invest in sectors which will take longer to produce jobs and lower emissions, but which are essential to achieving Net Zero cost effectively. 

This includes investment in essential clean energy infrastructure, such as grid modernisation and energy storage. But it should also include the development and demonstration of key technologies, particularly those related to greenhouse gas removal, including hydrogen, bioenergy with carbon capture and storage and potentially direct air capture.

The right interventions

The place for any government to turn to first in seeking to achieve swift impact is existing programmes and initiatives, with a view to scaling them up, replicating them and repurposing them to deliver jobs and economic prosperity. To achieve the greatest efficiency and impact, the key is to design once and apply many times: experiment, pilot, learn, refine, and roll out. 

This might sound obvious, but the Carbon Trust’s 20 years' experience of delivering programmes globally on behalf of corporates and governments suggests that effective delivery needs to be dynamic, constantly adapting to changing markets and context. In practice, this can be challenging, particularly where success depends on the alignment of the public and private sectors. 

The design of financial support for a Net Zero recovery is also crucial. Governments should put all possible options on the table, including: 

  • subsidies and tax breaks (e.g. for the purchase of electric vehicles or scrappage schemes); 
  • direct investment (e.g. through taking equity in key technology or infrastructure companies); 
  • low interest loans for companies and households (e.g. for the installation of energy efficient equipment with rapid paybacks); and
  • grants (e.g. for the development and demonstration of key technologies as well as for training and skill development). 

Ultimately, however, public investment will never be sufficient to fund the scale of the transition to Net Zero so action to leverage private sector investment is essential. Now is the time for governments to take steps to ’green’ finance by mainstreaming climate and environmental factors and embedding them into core financial frameworks and regulation. 

A first step is to make disclosure of companies’ climate-related financial risks and opportunities to investors mandatory. This would accelerate the alignment of investment with Net Zero ambitions and position those industry sectors, cities and regions that take a lead at the forefront of global green finance. 

Governments also have a unique opportunity to re-align financial incentives for the private sector by taking advantage of the record low cost of fossil fuels to phase out fossil fuel subsidies and introduce, or scale up, carbon pricing – whether through carbon taxes or cap and trade schemes. Done well, this could also provide governments with a much-needed source of revenue for investment to accelerate progress to Net Zero, or to pay for increased borrowing and compensate for reduced revenue from business and income taxes. 

Enabling action

Achieving a Net Zero recovery does not depend on finance alone. Fast tracking changes to regulation to create the right drivers or pushes for businesses and consumers to act will also be essential. Examples of the regulatory changes needed include minimum energy efficiency standards for properties at the point of sale, zero carbon targets for new build, clean air zones in cities restricting more polluting vehicles and bringing forward bans on sales of new diesel and petrol cars. All of these would also reduce investment risk and therefore the cost of stimulus.

Making changes to planning to make it possible for business and others to act is also crucial. Achieving Net Zero requires new infrastructure across energy, transport, buildings and industry, deployed at an unparalleled rate. Most countries’ planning processes are not designed for this. Offshore wind power and associated grid/storage infrastructure are an example where optimising the consenting process with industry is critical.

Lastly, governments should also take steps to support business to become more resilient in the face of major trends which have accelerated during the pandemic – notably the move to digitalisation and the increased vulnerability of global supply chains. 

Governments can help by providing more support for the expansion of broadband connectivity and introducing incentives to promote more local supply chains within the context of a more circular economy. This would have the co-benefit of significantly reducing emissions associated with travel. To that end, it may even be time to consider seriously the radical option, long discussed, of introducing carbon-based border tariffs. 

Jobs, prosperity and climate

An unprecedented re-alignment is underway in the relationship between government and business. Combined with governments’ record low borrowing costs, this provides an unparalleled opportunity to reshape the economy – larger even in scale than the US-led recovery programme which re-built the shattered war-torn economies of Europe – to ensure it is climate-proofed for the future.

Amid the tragedy of the coronavirus pandemic, a better world can be built if governments act now and follow the evidence on what works – not just for jobs and the economy, but also for the climate.


1.   ‘How a post-pandemic stimulus can both create jobs and help the climate’, McKinsey, May 2020
2.  ‘Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?’, Cameron Hepburn, Brian O’Callaghan, Nicholas Stern, Joseph Stiglitz and Dimitri Zenghelis, May 2020
3. IEA, Energy Transitions Indicators, Share of total final consumption (TFC) by sector, OECD Total 1990-2017