Modelling sustainability transitions under Covid-19

We propose a model of dynamic discrete choice between sustainable and unsustainable technologies, and we study the combined impact of Covid-19 and environmental policies such as subsidies and taxes with rebates. The model shows that environmental policies tailored on Covid-19 impact can induce sustainability transitions. However, different scenarios are possible. Covid-19 can have a destabilising effect on repeated choices, as a result of minority game mechanisms induced either by carbon taxes with rebates or by the behavioural effect of diminished attention for the environment. While taxes can be designed to avoid this, the diminished attention for the environment can undermine any gain in terms of reduced pollution due to Covid-19. However, scenarios with multiple equilibria are also present, where the challenge is represented by a behavioural tipping point to un-clock societies from an undesirable equilibrium. If environmental policies are correctly designed, the economic impact of Covid-19 can trigger a transition to sustainable societies where green adoptions are self-reinforcing.