Sustainability transition and the European Green Deal: A macro-dynamic perspective

The report presents the results of the work carried out at ETC/WMGE on Green economy transition: Macroeconomic analytical framework in 2020 and 2021. The main aim was to provide the arguments for adopting a macro-level perspective to the green economy transition and to the European Green Deal (EGD). Some analytical results presented in this report provided inputs to the process leading to the EEA report Reflecting on green growth. Creating a resilient economy (EEA 2021). Section 2 of the report summarises the tradition of sustainability analysis in economics from a macroeconomic perspective. While the sustainability principle was born from the micro-management of natural resources, the present sustainability discourse is strongly framed into the socio-economic system-level dimension. The role of capital and investment (and consumption) for sustainability is highlighted through the weak Vs strong sustainability conceptualisation. Recent developments in the debate on degrowth and its possible link with macro-sustainability are considered, together with issues of inequality and the role of the international dimension. Evidence on human development and convergence indicators is elaborated to highlight the many open issues on the social side of the sustainability transition. Section 3 addresses the European Green Deal (EGD), highlights how it can be seen as a new growth strategy and identifies the very key elements that link the EGD to the macro-analytical framework of Part 1: investment, industrial and innovation policy, the just transition, and exporting the EGD. The possible impact of the COVID-19 crisis and post-crisis recovery strategy in relation to the EGD is examined, with specific reference to the Next Generation EU (NGEU) and macro-economic policy developments in 2021. A specific focus on the implications of the Fit-for-55 package (proposed in July 2021) and the green features of national recovery plans connected to the NGEU is presented. The other analyses are aimed at: (i) a deeper understanding of the just transition (JT) policy, also in connection with Part 1; (ii) an exploration of the massive consequences of the EGD for a large set EU environmental legislations and policies that are relevant to almost all sectors of the EU economy. In Sections 4, an application of causal loop diagram (CLD) modelling to the EGD is proposed, including the possible implications of the COVID-19 crisis and the recovery strategies being put in place at the EU level. Similarly, the application of a computable general equilibrium (CGE) model to the impact of the EGD, including the possible effects of the COVID-19 crisis, is presented. A parallel detailed report on the modelling approach has been published in 2021