5 minute read 20 Jun 2022
Father and child hiking together in a forest stream

How Europe’s post-COVID-19 economy and environment can both prosper

By EY Global

Ernst & Young Global Ltd.

5 minute read 20 Jun 2022

Amid the upheaval, there might be a silver lining – an opportunity for Europe to come closer to achieving global sustainability goals.

Since the emergence of the COVID-19 pandemic, good news has been in short supply. The enormous social and economic consequences of the pandemic are becoming clearer by the day, and we’ll be feeling the effects on our lives and livelihoods for decades to come.

Yet amid the immense human and economic toll, something else is also becoming clearer: our skies. Life without car or air travel has allowed nature to reassert itself, leaving cities typically shrouded in smog suddenly crystal clear amid plunging emissions. Industrial energy consumption is down. People are rediscovering life on foot, strolling through parks and nature preserves. COVID-19 may present a window of opportunity – perhaps a once-in-a-lifetime chance – to dramatically accelerate progress toward achieving global sustainability targets, such as the UN’s Sustainable Development Goals (SDGs).

We hope so. But we also know these environmental gains could prove fleeting, for two basic reasons. First, they result from dramatic changes in personal behavior, such as shelter-at-home orders reducing travel, which have in turn drastically cut economic activity. And second, once those enforced restrictions are lifted, some return to “normalcy” is assured. The big question is just how much personal and economic activity will rebound and, in turn, what that means for the planet. We believe there’s an opportunity to accelerate the achievement of climate goals, but it’s no time to relax existing policies or objectives.

Risks and opportunities

Due to declining power demand and reduced manufacturing, CO2 emissions within the EU Emission Trading System (ETS) scheme are expected to fall by nearly 400 million metric tons in 2020, according to a preliminary forecast issued by ICIS. Yet as earlier crises have shown, these temporary environmental improvements tend to be short-lived without wider structural changes to our societies and economies. Indeed, while the EU has kept emissions on a generally downward trajectory since the 2008 financial crisis, global emissions only dipped temporarily during that period before quickly returning to record highs1.

If the economic incentives and legal requirements around consumption and production remain the same, businesses and citizens will adopt the (over)consumption practices that brought us to unsustainable levels of pollution and resource depletion in the first place.

EU Emissions Trading System data

Furthermore, the current urgency to deal with health and related economic issues poses the threat of “lock-ins”: short-term economic fixes that risk promoting traditional industries and technologies that may delay progress in the fight against climate change for several decades. As public leaders are reviewing priorities in light of the current crisis, it’s critical that sustainability targets remain embedded into the strategic agenda.

Europe has succeeded in bringing down its CO2 emissions structurally in the past decade, due to a combination of policies, technological progress and changing consumer preferences. Although progress is not as rapid as we had hoped for, this steady decline shows emission reductions can be achieved by setting up large-scale programs, and through bold political decisions.

Clearly, policy makers need to deal with the current health crisis in the short term. However, the long-term priority for a sustainable and livable Europe remains paramount. Ursula von der Leyen’s Commission has put the EU Green Deal at the center of its future vision for Europe. Before COVID-19, the ambition of the Commission was to make Europe a carbon-neutral continent by 2050. Should this ambition now be set aside? No. In fact, there’s an opportunity to expedite this EU strategy.

Businesses and citizens are being forced into new ways of working. There is a political window of opportunity to leverage the disruption brought by COVID-19 to foster innovation and embed sustainable practices. Achieving this will require a combination of policy measures including:

  • Financial stimuli for a more resilient and sustainable economy. 
    This could include far-reaching green conditions embedded in rescue packages for sectors heavily impacted by the crisis, such as airlines, car manufacturing, and the textile sector; credit lines for renewable energy projects and sustainable mobility solutions; and venture capital for early-stage companies developing innovative green technologies.
  • Fiscal incentives that mitigate environmental degradation and climate change.
    Governments can shift taxation from what can be seen as “positive” areas (labor, income, innovation) to “negative” areas (environmental pollution, fossil fuel energy, material resource depletion and waste). We can also reward companies and citizens for virtuous behavior with incentives including fiscal measures that encourage sustainable behavior among people, employees and firms, such as avoiding unnecessary travel, re-use of materials and products, and greening supply chains.
  • Working towards a circular economy. 
    We need a fully circular economy to preserve our natural environment, strengthen our economic competitiveness and achieve climate-neutrality by 2050. For example, the EU Circular Economy Action Plan presents initiatives along the entire lifecycle of products, promoting circular economy production processes, fostering sustainable consumption and closing loops. These actions can be accelerated with the support of the COVID-19 rescue plan.

Governments in Europe and across the world are preparing economic recovery plans. If the priorities of the EU Green Deal are implemented in full, these plans can accelerate, rather than delay, the transition to a climate-neutral Europe.

Sustainable recovery policies

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In the short term, Europe needs to deal with the health crisis at hand. But the economic slowdown has given Europeans a chance to see for themselves the environmental benefits of reduced emissions. Now is the time to turn that glimpse into a long-term vision through large-scale programs and bold political action.

About this article

By EY Global

Ernst & Young Global Ltd.