Zero pollution: financing the investment gaps (Signal)

High levels of investment are needed to meet the 2050 goals of the EU Zero Pollution Action Plan (ZPAP) (EC, 2021), with total annual investment needs estimated at EUR 76 billion until 2030. Just 46.3% of the investment needs for pollution prevention and control across key thematic areas are currently met (EC, 2023), with an investment gap for pollution amounting to EUR 40.7 billion. In 2024, the EU Platform on Sustainable Finance also confirmed the investment gap to be EUR 40 billion (Platform on Sustainable Finance, 2024).

Considering some differences to the above-mentioned analyses, the European Environment Agency (EEA) addresses radiation separately. Therefore, radiation investment gaps of EUR 3.8 billion are excluded. Because wastewater, waste management and higher circularity measures also lead to pollution, the investments in these sub-objectives are also part of the overall evaluation of the still-needed investments. In accordance with the 2021 Common Provisions Regulation (Annex I) (EU, 2021). These elements are factored as contribution to a specific topic, here to the circular economy. As such, the usual coefficient for indirect investment or contribution is used at 40%.

The comparison in Figure 1 of investment needs per pollution prevention sub-objective (air quality, noise, chemical, soil, marine litter and microplastics, and wastewater) and the related gaps shows an almost similar distribution, but not for waste management and higher circularity measures. For chemicals, 62.5% of the targeted needs have been invested, while most of the investments are reaching the halfway target. Investment in marine litter and microplastics actions have yet to start.

As shown in Figure 2, EU Member States have invested in zero pollution at different speeds and face different investment gaps. Surprisingly, Member States with a higher GDP per capita as well as higher gross household saving rates — like Luxembourg, Ireland and the Netherlands — will need to significantly increase investments in order to deliver on the ZPAP.   

In terms of addressing the investment gap, private funds are expected to account for a significant share of investments going forward, along with increased efforts by EU Member States — partly through in-country resources and partly through EU funding, such as through NECPs. These would deliver the bulk of the necessary clean air and noise investments. High gross household saving rates in countries with the highest investment gaps provide a potential source of private investment to address the gap in funding (Eurostat, 2023).

The EU’s sustainable finance framework (EC, 2023) aims to increase private investments in sustainable economic activities, businesses and projects by fostering transparency and delivering regulatory certainty.  

According to the Platform on Sustainable Finance, ‘only a portion of private investments will be tracked, offering a good representation of capital flows for a selection of sectors. Chief among them are sectors conducting taxonomy-eligible activities’. Other initiatives to stimulate private funding include full use of the Capital Markets Union (Single market, capital markets union | European Union (europa.eu)). If public goods are partially financed via private investments, then easily understandable disclosures, well-introduced green bond standards and the incorporation of environmental, social and governance (ESG) elements into the ratings of corporates are required.

Efforts to promote sustainable finance (‘greening’ the finance) and dedicated EU funding (financing the ‘green’) need to be complemented by removing harmful subsidies. For example, fossil fuel subsidies, which remained relatively stable at about EUR 56 billion over the period 2015-2021, shot up to EUR 123 billion in 2022 in response to the high energy prices related to post-COVID recovery and Russia’s invasion of Ukraine (EEA, 2023).

Please consult the relevant indicators and signals below for a more comprehensive overview on the topic.