Climate change is a global threat that provides an obvious area for public investment to define a long-term and durable economic recovery. Today, the clean economy sector has all the characteristics that Keynes saw in working class housing in the 1930s.
Decarbonizing our energy systems presents large and continuing scale of potential demand for decades to come. Consider the need to retrofit almost every building to reach the 2050 net-zero emissions target. This is not something that will take one or two years. Meeting this challenge requires more than tripling the current annual rate of retrofits by finding new approaches to logistics, marketing, financing, and manufacturing. This is a public purpose mission that needs to be led by governments, with significant potential to benefit from entrepreneurial business models and investors capable of earning returns from energy savings.
Retrofitting our homes, building a clean energy grid, electrifying transport, and restoring nature are activities that increase economic activity across a wide geographical distribution. A clean economy transition can create jobs and local investment opportunities across the country, mitigating the squabbles that have traditionally occurred because of regionally specific natural resource endowments.
Finally, the clean economy sector requires patient, long-term capital focused on earning returns from productivity improvements and environmental benefits. For a real recovery, capital needs to be funnelled towards building things instead of short-term speculation.
Our experience with COVID-19 could create the right social conditions for tackling climate change. The health crisis has increased awareness of the need to anticipate vulnerabilities, and climate change presents clear threats from extreme weather and infectious disease. The response to COVID-19 is also demonstrating the important role of a strong public sector.
The response to COVID-19 should also put to rest the idea that we can't afford to respond to large societal challenges. Financial constraints are a bogus excuse for failing to tackle climate change when we see zero interest rates and the Bank of Canada is supporting government deficit spending through money creation. What truly matters is the economy's capacity to produce useful things and whether there is enough demand to buy what is produced. It is the government's responsibility to take on what Keynes called productive debt when the private sector fails to invest.