The sustainability transition in Europe in an age of demographic and technological change

EU policy clearly recognises that achieving long-term sustainability will require fundamental transformation of the core socio-economic systems such as the food, energy and mobility systems. This understanding forms a key pillar of the new European Green Deal, as well as 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. Achieving this balance, as detailed in the European Environment Agency's recent five-yearly assessment, SOER 2020, represents a major governance challenge, characterised by widespread lock-ins, feedback loops, trade-offs and uncertainties. Achieving the sustainability transition 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. 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. This report builds on recent EEA work around the green economy and the sustainability transition. It analyses two key drivers — demographic and technological transitions — and highlights their connections to, and their influence on, the key systems of production and consumption, the fiscal and financial sectors, and the environment, stressing the need for coherent integration of related policies.