An OECD Environment Focus published on the website on 29 October 2020 looked at the use of a combination of green budgeting and environmental tax policy to bring about an improved economic recovery after the pandemic.

The OECD note referred to a study on the policy response to the COVID-19 crisis published by the OECD on 9 October 2020. This noted that carbon pricing and other environmental policy tools can be used together with a green stimulus to arrive at clean investment and spending. These measures can support a long-term economic recovery after the crisis. Helping to quickly implement a low-carbon transition and make economies more resilient to future shocks.

Governments are attempting to achieve a whole range of social and economic objectives and it is therefore not realistic to expect that all public funds could be directly channelled towards green projects. Most government expenditure is neither harmful nor positive to the environment.

Economic instruments such as carbon taxes or carbon emission trading aim to encourage cleaner investment and to promote cleaner consumption choices for public and private spending with the outcome of limiting carbon emissions and reducing local pollution. Increases in carbon prices will encourage households and businesses to look for low carbon solutions.

A green recovery from the pandemic would require a reform to carbon taxes and emissions trading. Currently around 70% of energy related carbon emissions are not taxed. The prices for electricity and industry are significantly affected by emissions trading systems but in general the carbon price signals are not enough to achieve the planned targets for decarbonisation.

By implementing green tax and spending policies together governments could make them more acceptable to the public. An example of this strategy is the Irish budget of 2020 which combined support for individuals and businesses affected by the pandemic with an increase in carbon tax and measures to increase tax on cars with higher carbon emissions. There was also support for vulnerable groups and investments in energy efficiency and social protection.

Government spending could also support green technology by supporting subsidies for research and development or increases in energy efficiency, promoting clean technology later and thereby preparing the way for the introduction of environmental taxes later. The revenue from carbon pricing or environmental taxes could be used to raise further revenue to fund environmental or social measures.