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V4 countries must seize the opportunity of green recovery

A recently published analysis of Cambridge Econometrics argues that a green recovery in the Visegrad Group countries – Poland, Hungary, Czech Republic and Slovakia – is not only important to move into the direction of climate goals, but also could provide an important push towards pre-Covid levels of employment and economic activity.

One of the biggest questions governments face today is how to build back their economies. However, opinions about the best policy response diverge. The EU is a firm supporter of an economic recovery that has a two-fold goal: to restore employment and economic activity but also to support the overarching policy goal of reaching climate-neutrality by 2050 and limiting CO2 emissions.

In the coming years, regardless of the impacts of COVID-19, V4 countries have to make serious progress towards agreed environmental goals such as energy efficiency, cutting dependency on fossil fuels and the electrification of road transport.

They can build on previous experience. Visegrad countries – especially the Czech Republic and Slovakia – already included green elements in their recovery programmes after the 2008-09 crisis with quite satisfying results.

There are also other reasons why V4 countries should consider to step on the road of green recovery. These countries are all embedded in global value chains.

“With these disrupted, it is important to increase investment in jobs that are producing for domestic demand,” reads the analysis. “Creating a domestic market for renewable energy which is anyway expected to grow considerably in coming years might serve this purpose.”

The employment benefits of investing in RES technologies are equally significant. Most of the jobs lost due to the pandemic are largely in low-skilled sectors. (In Hungary losses in low-skilled service, sales and elementary occupations amount to 117 per cent of net losses; in Slovakia 76 per cent of the net loss is in these occupations). Renewable energy technologies could step in here and provide stable jobs, as they have higher labour needs than conventional technologies do, both in installation and operation and maintenance.

Source: Cambridge Econometrics

Historically, energy security and dependency on fossil fuels are two central issues in the region. According to the analysis, building renewable capacities is an evident solution to address both of these issues. Poland and the Czech Republic are still some of the most coal-intensive electricity producers but all four Visegrad countries have existing coal and lignite plants that do not meet the environmental standards coming into force in 2021.

“Now there is a choice either to invest in retrofitting those plants, potentially creating stranded assets as both regulations and the market moves away from financing coal, or to start building new capacities, for which the current recovery provides a potential opportunity,” the study concludes.

The results of macro-econometric modelling indicate somewhat differing impacts for the program across countries but in all four countries, significant positive impacts can be observed. In terms of employment both in the Slovak Republic and the Czech Republic, as well as in Poland the green recovery programme induces a return in employment and economic activity to pre-Covid baseline within three years.

The initial period also induces large-scale RES employment, which in turn drives further take up of RES even after the subsidies have been phased out.

An important outcome of the study is that in Poland emissions increase by the end of the period (for example 2030 compared to 2025). Once the RES subsidies end, coal returns to near cost parity and path dependency means that investment in coal resumes, unless other measures are put into place.

However, the study highlights that even considering this, the green recovery programme, next to a relatively impactful economic recovery, can contribute in these countries to achieve CO2 emission reductions amounting to 4-8 months of their current total emissions.

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