As Europe fights coronavirus and climate, is ‘green stimulus’ the way?

Some economies face heavy spending to meet carbon reduction targets. (AFP)
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Updated 26 March 2020

As Europe fights coronavirus and climate, is ‘green stimulus’ the way?

  • Coronavirus has taken some focus away from environmental issues but pressure is now mounting to design spending around climate change

LONDON: For European governments battling to brace economies pummelled by the coronavirus, there might be no better time to
go green.

Normally thrifty countries, such as Germany, accept they will have to spend heavily to weather the economic shock of the coronavirus. Many also face the challenge of plowing billions of euros into climate schemes to keep carbon reduction pledges.

Could “green stimulus” be the answer?

For budget hawks preparing to throw out the traditional fiscal rule book to fight the pandemic, green bonds — raising debt for funding projects such as renewable energy and public transport — might be a palatable option.

Coronavirus has taken some focus away from environmental issues but pressure is now mounting to design spending around climate change. On Tuesday, UK government adviser Chris Stark urged governments to “look to green stimulus.”

Germany is pulling out the stops, eyeing around €350 billion of new debt to finance stimulus. Europe’s biggest economy separately aims to cut greenhouse gas emissions to 55 percent of 1990 levels by 2030.

Britain, meanwhile, has promised to pay 80 percent of wages for employees facing layoffs as a result of lockdown measures, to be funded by selling more debt. It has also previously pledged to bring carbon emissions to almost zero by 2050.

Simon Bond, director of responsible investment portfolio management at London-based Columbia Threadneedle, wrote last year to the UK Treasury urging it to issue “green gilts.”

He said now was the time to roll them out given the pressing need for stimulus due to the virus outbreak.

“The rationale for green gilts is to target projects which actively contribute to the aspiration to bring greenhouse gas emissions to net zero by 2050,” Bond told Reuters. “Those projects should be part of green infrastructure spending and associated with fiscal stimulus.”

So far governments have been relatively slow to embrace green debt; there are just 12 sovereign green bond issuers worldwide, amounting to less than a tenth of the green bond market, which also includes debt from companies and other entities and saw $250 billion in new issuances last year.

But debt agencies say change is on its way.

Germany plans to issue a green bond in the second half of 2020 as does Italy; other candidates are Spain, Sweden, Denmark and Britain.

Germany’s debt agency told Reuters its green bond plans would go ahead despite the coronavirus outbreak. It has just published an update, announcing Germany would “substantially strengthen and decisively develop” the green and sustainable investment market.

It also hopes to establish a green yield curve for the euro area, as its chart below shows.

Green bonds currently comprise less than 0.1 percent of total sovereign debt, according to S&P Global. Given governments have some $9 trillion of outstanding debt worldwide, going green on even a small portion of that would give the market a huge boost.

What’s held them back so far is fear that green bonds will damage mainstream issuance programs by stealing trading volumes from those markets, eventually raising overall borrowing costs, officials from five European debt agencies told Reuters.

It could also further fragment a market already thinned out by the European Central Bank’s asset purchase program.

Even in Britain, home to a $2 trillion gilt market, debt agency chief, Robert Stheeman, has expressed doubts that issuing green gilts would be cost effective.

But debt agencies have come up with strategies that could allow green borrowing without the associated risks.

Denmark is considering an issue whose proceeds may not be earmarked directly for environmental projects but would come with a pledge for equivalent green spending, said Thorsten Meyer Larsen, head of monetary policy operations and government debt at Denmark’s central bank.

Under this idea, it would attach a green certificate to a standard government bond.

“Everyone can see that the green agenda is growing and we want to be part of that, but not in a way that’s detrimental to our existing bonds and bondholders,” Meyer Larsen said.

“So if you buy that (equivalent spending) idea then that’s a bit more straightforward.”

Germany is, meanwhile, exploring an option to sell twin bonds: So a green issue with the same maturity and coupon as its conventional peer and replacing part of the conventional bond’s auction volume, according to a market participant with knowledge of the country’s plans.

The person said that during a crisis, perhaps like the ongoing volatility, investors could switch from the green bond to the conventional issue, which would have better trading volumes.


Dubai counts on pent-up demand for tourism return

Updated 11 July 2020

Dubai counts on pent-up demand for tourism return

DUBAI: After a painful four-month tourism shutdown that ended this week, Dubai is betting pent-up demand will see the industry quickly bounce back, billing itself as a safe destination with the resources to ward off coronavirus.

The emirate, which had more than 16.7 million visitors last year, opened its doors to tourists despite global travel restrictions and the onset of the scorching Gulf summer in the hopes the sector will reboot before high season begins in the last quarter of 2020.

Embarking from Emirates flights, where cabin crew work in gowns and face shields, the first visitors arrived on Tuesday to be greeted by temperature checks and nasal swabs, in a city better known for skyscrapers, luxury resorts and over-the-top attractions.

Tourism chief Helal Al-Marri said that people may still be reluctant to travel right now, but that data shows they are already looking at destinations and preparing to come out of their shells.

“When you look at the indicators, and who is trying to buy travel, 10 weeks ago, six weeks ago and today look extremely different,” he said in an interview.

“People were worried (but) people today are really searching heavily for their next holiday and that is a very positive sign and I see a very strong comeback.”

The crisis crushed Dubai’s goal to push arrivals to 20 million this year and forced flag carrier Emirates, the largest airline in the Middle East, to cut its sprawling network and lay off an undisclosed number of staff.

But Al-Marri, director-general of Dubai’s Department of Tourism and Commerce Marketing, said that unlike the gloom after the 2008 global financial crisis, the downturn is a one-off “shock event.”

“Once we do get to the other side, as we start to talk about next year and later on, we see very much a quick uptick. Because once things normalize, people will go back to travel again,” he said.

The reopening comes as the UAE battles stubbornly high coronavirus infection rates that have climbed to more than 53,500 with 328 deaths.

And as swathes of the world emerge from lockdown, for many travelers their holiday wish lists have shifted from free breakfasts and room upgrades to more pressing issues like hotel sanitation and hospital capacity.

With its advanced medical facilities and infrastructure, Dubai is betting it will be an attractive option for tourists.

“The first thing I’m thinking is — how is the health-care system, do they have it under control? Do I trust the government there?” Al-Marri said. “Yes they expect the airline to have precautionary measures, they expect it at the airport. But are they going to a city where everything from the taxi, to the restaurant, to the mall, to the beach has these measures in place?”

Tourists arriving in Dubai are required to present a negative test result taken within four days of the flight. If not, they can take the test on arrival, but must self-isolate until they receive the all-clear.

While social distancing and face masks are widely enforced, many restaurants and attractions have reopened with business as usual, even if wait staff wear protective gear and menus have been replaced with QR codes.

“When it comes to Dubai, I think it’s really great to see the fun returning to the city. As you’ve seen, everything’s opened up,” Al-Marri said.