Feb 14, 20235 min read

Recession and Climate Change

Updated: Sep 28

As a recession awaits us, how will it affect the environment and climate action?

News today is filled with rumours and speculation of an upcoming recession. A recession is a time of significant economic downturn that can last for a prolonged period and is accompanied by weak or negative economic growth and unemployment. Recession though is more commonly known to have economic and social impacts, its impacts on the environment and the ongoing climate action receive little attention. During such a time, a government's prime concern is typically to address the negative economic and social impacts of the downturn and to take steps to stimulate economic growth and recovery. Historical examples of recession have shown that the slowdown of economic activities and the shift in government priorities can have positive and negative impacts on climate change and climate mitigation and adaptation efforts in place or in planning.

(Also Read: COVID and Climate: A Tale of Two Crises)

The two roads from the recession

Every time a recession comes up, governments have two choices when rebuilding their economies. They could, in the recovery process, either build a greener economy or go to the older unsustainable layout.

There are short-term benefits to the global environment from the economic slowdown, such as a reduction in the rate of air and water pollution from reduced energy use. Past experiences of recession tell us that another benefit would be the reduced use of fossil fuels due to the halt of capital-intensive industrial activities. The Global Financial Crisis of 2008-09, for example, saw global CO2 emissions decline by –1.4% in 2009.

But these are only short-term benefits. When thinking about the global economy as a whole the long-term negative impacts largely outweigh the short-term positive ones.

For instance, R&D and innovation investments for climate change and sustainable development research are important. Investment in R&D is key to ensuring the continuous availability of renewable raw materials, which are used to produce sustainable fuels and raw materials that make a critical impact on emissions reduction targets. During times of recession, governments and other financing agencies put a halt on such funding and investments, putting the future of projects and their impacts at risk.

A UNCTAD report published in October 2022 showed that in the backdrop of an upcoming recession, food, fuel, and financial crisis in the world, the global investment to tackle climate change is falling.

Meanwhile, businesses and households become more conscious about how they spend their limited monetary resources. Tighter credit and lower prices make the investment in energy savings and environmental conservation less attractive financially, while the economic crisis encourages end users to rein in spending across the board.

Contrary to general opinion, a recession does not always mean good news for the environment. The economic slowdown would also forcefully alter land use patterns by increasing the pressure to clear forests for firewood, timber, or agricultural purposes to increase the livelihood opportunities available to the rural poor. In order to create more jobs it is also possible that governments might encourage fossil fuel-intensive industries to stimulate economic growth. As job losses mount in many countries, governments feel pressure to preserve established industries—many of which are fossil fuel intensive. At the same time, some governments and businesses push for the removal of environmental protections and climate-related regulations, under the guise of stimulating economic recovery. The October 2022 UNCTAD report warned that multinationals could drive fossil-fuel-based energy investments due to high profits and the ongoing energy crisis.

(Also Read: Investing Beyond the Concrete Jungle)

Consumer behaviour and public perception

The consumption pattern of the public can have significant impacts on the climate. Due to their inflation-run-down wallets, they are more likely to make choices that prioritize short-term cost savings over longer-term sustainability goals. Consumers buy cheaper, lower-quality products that are less durable and require more frequent replacement, leading to increased resource consumption and waste. Evidence from past recessionary cycles suggests that this lack of purchasing power leads to a surge in the sales of second-hand products, which have a decreased impact on the environment. An example is the financial crisis of 2008-2009 when second-hand stores saw a 31% rise in sales in the US. Another positive consequence is reduced energy consumption to save money because most greenhouse gas emissions are a consequence of energy consumption from fossil fuels.

The other side of this coin deals with the public perception of growth. Younger generations are more likely to be in favour of decisions that lead the country toward a greener economy albeit slowly. Those with traditionalist opinions will favour the faster approach to getting back on track. In this tug-of-war of opinions, governments might find it easier to take the traditional route rather than what might be sustainable.

Climate-centred economic recovery

The government as noted before has two choices to make: to either rebuild towards a climate-conscious or an unsustainable economy.

For the future of the planet, governments can prioritize the green economy as a way to stimulate economic growth, create jobs, and encourage innovation while also reducing carbon emissions. To do this, they can invest in projects related to clean energy, sustainable transportation, biodiversity, and sustainable food production, and create new policies and regulations to support these sectors. Local governments can also take action by building sustainable public transportation infrastructure and creating low-emission zones and traffic restrictions to reduce air pollution. The leading G20 economies have invested $3.7 trillion in sectors that have a significant impact on carbon emissions and the environment, such as agriculture, industry, waste management, energy, and transportation. Governments can also encourage private-public partnerships to develop innovative and decarbonizing solutions through incentives, tax breaks, favourable lending, and sustainable financing options such as green bonds or sustainability-linked loans.

In most societies, newer resolutions are frowned upon and governments can be apprehensive about making decisions that have no historical data to guarantee success. The decision to build a greener economy after suffering the impacts of a recession is an example. Cycles of recession and inflation will always follow a period of economic growth, and what we need are better strategies to deal with those circumstances. As times change, the way we come up with solutions must also change, and these perpetual economic cycles can have a weighing effect on how we deal with climate change and sustainability in the future. Methods of anticipatory governance like speculative futures design, forecasting, and backcasting might help us come up with unique solutions as a recession awaits us.