AUTHOR: Antoine Oger

Global economy relies fundamentally on the use of material resources – biomass, fossil fuels, metals, and minerals – for everything from food, agriculture and buildings to mobility. The extraction, use and discarding of materials cause critical environmental pressures, since they are responsible for over 90% of biodiversity loss and water stress, and around 50% of greenhouse gas emissions. There is therefore a profound link between circular economy initiatives and climate, notably with regards to reducing greenhouse gas emissions and reaching climate neutrality with circular economy solutions.  

The Communication from the European Commission on Europe’s 2040 climate target published on 6 February 2024  is the opportunity to reflect on recent progress and future challenges on the path to climate neutrality for Europe. 

Calling for an EU resource law  

In 2022, EU economy was only 11.5% circular highlighting the circular economy’s underutilised potential. For the circular economy to effectively contribute to the climate targets, it needs to replace the linear economy rather than adding on top of it. The level of material consumption in the EU (14.5 tonnes per person in 2022) is around double the estimated sustainable level. Addressing consumption is therefore necessary to support the successful implementation of the EU’s Green Deal, climate change targets and circular economy goals. Linking the existing decarbonisation agenda and new dematerialisation efforts will make for more coherent policy approaches, help to avoid unintended negative consequences of the green transition, and contribute to EU resilience and strategic autonomy. successful implementation of the EU’s Green Deal, climate change targets and circular economy goals. Linking the existing decarbonisation agenda and new dematerialisation efforts will make for more coherent policy approaches, help to avoid unintended negative consequences of the green transition, and contribute to EU resilience and strategic autonomy.  

IEEP hoped to see the communication mentioning the need for a new EU Resources Law – similar to the EU Climate Law – to explicitly tackle the excessive use and consumption of material resources demand and associated climate impact in the EU. Yet, and although the Communication acknowledges the role that circular economy can play in contributing to climate targets, it focuses on access to materials and material efficiency rather than inviting action to pursue an absolute reduction in material use. Taking this extra step would make a significant contribution to the EU’s Green Deal, climate change and circular economy objectives while supporting the EU’s ambitions to move towards keeping resource consumption within planetary boundaries. 

Applying the polluter pay principle to climate policy addressing socio-economic impacts 

We are already seeing the impacts of climate change and their adverse socio-economic impacts. Decarbonising the EU economy while counteracting potential social impacts among households, transport users and SMEs is crucial to contributing to the necessary emission reductions. Climate targets can still represent a broader commitment to adequately putting a price on carbon and climate-harmful externalities whilst counteracting the social impacts of related measures. IEEP welcomes the emphasis put in the communication on the costs of inaction with the difference in terms of GDP cost between a business-as-usual scenario and a 1.5° pathway amounting to 2.4 trillion Euros in the EU between 2030 and 2050. These costs are expected to eventually “lower GDP by about 7% by the end of the century”. We therefore need carefully designed climate mitigation policies that underscore this costs of inaction and apply the polluter pays principle to foster the transition in a socially acceptable manner.  

It is positive that the Communication mentions the continuation of the ETS funded Social Climate Fund after 2030 to achieve that objective. The inclusion of the efficient use of energy taxation and phasing out of fossil fuel subsidies in the building blocks for achieving the targets is also a step in the right direction. Yet, with a significant loophole as only FF subsidies that “do not address energy poverty or just transition” are to be phased out and the Communication does not specify what that entails exactly. The Communication recalls the agreement to assess in 2026 an extension of the carbon pricing system for the aviation and maritime sectors but abstains from providing early recommendations, thus leaving the door open for these sectors to be left out eventually. Their considerations in the EU climate targets remain so far limited to the unproven potential of technologies such as Carbon Capture and Storage (CCS) or alternative fuels (e-fuels and biofuels). This is largely insufficient for these two sectors as they will be most energy-related uses of fossil fuels by 2040. 

There is clearly scope to apply the polluter pays principle more rigorously through environmental taxation and extended carbon pricing frameworks in the EU as they provide financial incentives for stakeholders to adopt more climate-friendly practices, including in sectors fraught with social and economic challenges like agriculture.

A new economic thinking 

The Communication continues to rely on the notion of decoupling economic growth from environmental impact as it states that “climate action and sustainable economic growth can go hand in hand”. However, what constitutes “sustainable economic growth” is not specified. Such statements should i) be put in a larger context of planetary boundaries also looking at e.g., material footprint, ii) specify whether the numbers refer to territorial or consumption-based emissions, and iii) relate to the level of decoupling as relative or even absolute decoupling does not suffice.  

The economy is a sub-system of the planet. The latest assessments of the planetary boundaries states that failure to respect the land system change planetary boundary can potentially jeopardise efforts to achieve the global climate goals adopted in the Paris Agreement. A prerequisite for continued econo must, therefore, be that it is accompanied by sufficient absolute decoupling to get within all planetary boundaries. In the context of climate change, this means getting the atmospheric concentration of GHG back to at least 350 ppm from the current 422. A goal we are not yet on a trajectory to reach.  The Commission should take stock and prepare for post-growth scenarios including – but not limited to – investigating in what ways the EU economy is structurally dependent on growth, how distributional effects can be handled in such a case, how to tackle specific impact such as consumption-based emissions, and how to promote the sectors compatible with planetary boundaries. 

The costs of inaction 

While additional efforts must be placed on adaptation at the EU level as we already experience the impact of climate change, we must also scale up mitigation measures if we want to avoid associated costs skyrocketing beyond the capacities of public (states and local authorities) and private (insurances) actors. These costs imposed by climate change greatly exceed the revenues generated from taxes and other economic instruments addressing environmentally harmful activities – for all pollutants, in all Member States and across all sectors of the economy. The European Environmental Agency will soon publish the first-ever European Climate Risk Assessment (EUCRA) to further document this cost of inaction which is currently estimated as one hundred times higher than mitigation measures.  

In short, and as many leading figures put it recently: it is now clearly cheaper to save the planet than to ruin it.  

Photo by Chanchai on Adobe