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WPS5163 Policy Research Working Paper 5163 “Green Stimulus,” Economic Recovery, and Long-Term Sustainable Development Jon Strand Michael Toman The World Bank Development Research Group Environment and Energy Team January 2010 Policy Research Working Paper 5163 Abstract This paper discusses short-run and long-run effects of in the short run, and lead to large “learning curve” effects “green stimulus” efforts, and compares these effects via lower production costs in the longer term. The overall with “non-green” fiscal stimuli. Green stimulus is assessment is that most “green stimulus” programs that defined here as short-run fiscal stimuli that also serve have large short-run employment and environmental a “green” or environmental purpose in a situation of effects are likely to have less significant positive effects “crisis” characterized by temporary under-employment. for long-run growth, and vice versa, implying a trade-off A number of recently enacted national stimulus in many cases between short-run and long-run impacts. packages contain sizeable “green” components. The There are also trade-offs for employment generation in authors categorize effects according to their a) short- that programs that yield larger (smaller) employment run employment effects, b) long-run growth effects, c) effects tend to lead to more employment gains for largely effects on carbon emissions, and d) “co-benefit” effects lower-skilled (higher-skilled) workers, so that the long-