The sustainability transition in Europe in an age of demographic and technological change. An exploration of implications for fiscal and financial strategies

In 2020, EU policy clearly recognises that achieving long-term sustainability will require fundamental transformation of the core socio-economic systems driving environmental problems, such as those meeting society’s demand for food, energy and mobility. This understanding comes through forcefully in the new European Green Deal, as well as in the growing body of complementary goals, strategies and tools, including the Energy Union, the New Industrial Strategy for Europe, the just transition mechanism and the proposal for a European Climate Law. In their different ways, these instruments all aim to enable society to meet its material and socio-economic needs while protecting and enhancing the environment in Europe and globally. As detailed in the European Environment Agency’s recent five-yearly assessment, SOER 2020, transforming societal systems represents a major governance challenge, characterised by widespread lock-ins, feedbacks, trade-offs and uncertainties. Achieving sustainability transitions will require that all areas and levels of government work together to enable the emergence and diffusion of new ways of living and working. Fiscal and financial policy tools have a critical role to play in each phase –from enabling experimentation and innovation, and correcting market incentives, to ensuring a fair sharing of the costs and benefits across society. Yet Europe’s financial and fiscal systems themselves face significant disruption and change over coming decades, resulting from the transformation of production-consumption systems, and closely intertwined macro-level processes, such as demographic and technological megatrends (Figure 2). Given the foundational role of the fiscal and financial systems in the functioning and governance of European societies, it is essential to understand how they will be impacted by ongoing social and economic change processes. A forthcoming EEA report, Sustainability transition in Europe in the age of demographic and technological change, provides an initial response to these knowledge needs.