COVID-19, Climate Change and Stimulus Packages

WIFO Research Brief from Angela Köppl, Stefan Schleicher, Margit Schratzenstaller and Karl Steininger
In a recently published WIFO Research Brief, prepared in cooperation with the Wegener Center (University of Graz), Angela Köppl, Stefan Schleicher, Margit Schratzenstaller and Karl Steininger present climate policy options during and after the corona crisis.

The coronavirus pandemic makes the vulnerability and systemic risks of complex, interconnected and global economic structures visible. Systemic risks and vulnerability of existing structures are not only present for pandemic events, but also apply to other possible disturbances, such as the foreseeable climate crisis.

In this respect, the experience gained from the coronavirus pandemic on the vulnerability of our economic system strongly suggests be used to avoid climate risks. Beyond the government measures to cope with the corona crisis are to be set in such a way that they also contribute to mitigating climate change and make our economic system less vulnerable.

The corona crisis does not improve the climate situation

It is often pointed out that measures to curb the speed at which the coronavirus spreads will reduce pollutant and greenhouse gas emissions, thus making the corona crisis a contribution to climate protection. However, greenhouse gases remain in the atmosphere for a very long time, and the climate-changing effect is determined solely by the concentration of greenhouse gases. Therefore, although the immediate greenhouse gas balance will improve during the lockdown, such only short-term emission reductions will have virtually no impact on global warming. In order to achieve a real trend reversal, greenhouse gas emissions in Austria and worldwide must be permanently reduced with structurally effective measures. The extent to which the corona crisis will be reflected in the emission balances also depends on whether, as a result of an economic recovery, catch-up effects will arise that compensate for or even exceed the short-term decline. Finally, the net effect will also be influenced by support measures taken by states to stimulate economic recovery and whether emission reduction measures that have already been initiated or agreed will be delayed or put into question due to economic pressure.

For the Austrian economy, Figure 1 shows that the one-time decline in emissions during the financial crisis and following stimulus policies could not be used for structural reforms that would have reinforced the – at that time – slightly declining emissions trend or prevented the increase in emissions in later years. Instead, emissions had already returned to the level of the medium-term trend by 2010.

Economic policy options in the Corona crisis

With a focus on economic policy and the specific Austrian situation, a response to the corona crisis, which strengthens the robustness of an economy or society, can be divided into the following four areas:

   1.  Immediate support measures to maintain the liquidity of companies and to support
        employment, as well as health policy measures.

From a sustainability perspective, these immediate support measures basically offer only limited scope of action. Nevertheless, it is important to ensure that these immediate support measures do not counteract long-term goals, such as climate protection.

   2.  Economic stabilisation measures to cushion the economic downturn following
        the lockdown or to support the "re-start" of the economy after the partial or
        complete abolishment of corona-related restrictions in economic and social life.

Such stimulus packages, which may include additional expenditure as well as tax cuts, in principle offer a number of starting points for strengthening the resilience of economies. On the one hand, the aim is to move towards a carbon-neutral economy and society; on the other hand, the aim is to strengthen the innovative capacity of domestic companies and reduce the vulnerability of the economy against the dependence on global supply chains. The need to strengthen innovation and the sustainability of the economy applies in particular to all infrastructure decisions in the fields of buildings, mobility and energy supply, but also to industry. Here, it is crucial to ensure that the short-term use of funds to generate economic impulses takes into account that these decisions determine to a large extent the long-term effects on climate change and the resilience of the economy and society to crises.

   3.  Measures required to strengthen the resilience of an economy or society, some of
        which were already planned before the outbreak of the crisis, particularly with
        regard to climate protection.

In Austria, from a climate point of view, this concerns on the one hand the additional expenditure foreseen in the government programme to achieve the climate targets (e.g. investments in public transport). On the other hand, it concerns the planned greening of the tax system from 2021. Here, it would be important on the one hand to integrate measures already planned as far as possible into any economic stimulus package. From a climate perspective, the planned investments in local public transport, measures to increase energy efficiency and the use of renewable energies are particularly appropriate. On the other hand, it would be important to continue to adhere to the measures adopted for greening the tax system, even if they place a particular burden on certain sectors that are particularly affected by the corona crisis (such as air carriers with regard to the flight levy or the automotive industry with regard to NoVA). Similarly, the plan to green the commuter allowance in 2021 and to introduce a CO2 price effective by the beginning of 2022 should be maintained. A CO2 price can provide additional impulses to accompany an economic stimulus package that aims to contribute to sustainable development towards a more climate-friendly economy.

   4.  Consolidation measures to reduce the significant increase in government debt
        expected as a result of the corona crisis.

Compared to other categories of taxes, environmental taxes are considered to be relatively growth-friendly and can trigger considerable environmental steering effects. There is therefore a strong case for including increases in environmental taxes if additional revenues are to be generated to consolidate the budget. However, increases in eco-taxes should be integrated in an overall ecological tax reform and the additional revenues should only be used temporarily for budget consolidation, with a binding commitment by the government to integrate the revenues in a comprehensive tax reform concept in the longer term, which also provides for recycling of revenues for households and businesses. Here, at any rate, the obvious link to projects already planned before the crisis should be used: measures already planned to green the tax system (greening NoVA and the commuter allowance, increasing the flight tax, introducing a CO2 pricing system) ca be integrated into a consolidation package in the short term.

The EU level

The EU level can also make a significant contribution to strengthening the resilience of European societies. Several reform processes are currently underway at EU level and can be used accordingly. In particular, the European Green Deal, the reform of fiscal rules and the Medium-Term Budgetary Framework for the period 2021 to 2027 could support measures to promote crisis resilience at the national level. The European Green Deal could also make an important contribution to the recovery process of the European economies after the corona crisis has been overcome. Finally, green finance aspects could make a contribution at EU level, e.g. through the promotion of further green bonds by the European Investment Bank (EIB). The European Central Bank (ECB) could give greater importance to climate change prevention in its purchasing strategies, for example by giving preference to green bonds.


Environment Agency Austria, Austria National Inventory Report, Wien, 2019.

Meyer, L., Steininger, K. W., "Das Treibhausgas-Budget für Österreich", Scientific Report, Graz, 2017, (72).