Will Changing Post-COVID Consumer Preferences Lead to a Greener Future?

July 29, 2020 – While COVID-19 has led to the worst economic shock in living memory, the structural changes it brings have the potential to benefit the environment. Importantly, from a consumer perspective, the changes reducing carbon emissions will be behavioral and do not require new investment. But, how much of a near-term environmental benefit can we see from a decline in leisure travel? Realistically, a persistent fear of being infected by COVID-19 may change consumer preferences more broadly, and this has a bigger potential for reducing damage to the environment.  But these broader changes also bring economic costs.

Countries across the globe with the lowest fear of catching COVID-19 still have 25% of their population ‘very’ or ‘somewhat’ scared about contacting the virus. At the same time, surveys show only 45% of people would be interested in flying within one to two months of restrictions being lifted. That number looks big, but the impact on the environment from a decline in leisure travel is limited given air travel only makes up 2% of global carbon dioxide emissions. However, we find a decline in international leisure travel — even with some substitution into domestic tourism — has a negative impact on the global economy.  The persistent fear of infection is likely to keep people closer to home and bias individuals towards increasing domestic travel and day trips while decreasing international travel.

On a global level, changes in consumer confidence are also negatively-related to the fear of catching COVID-19. The behavioral changes related to the fear of catching COVID-19 extend beyond travel and these changes are more supportive of the environment. Domestic contact-intensive sectors, like hospitality activities, are at a high risk  from behavioral changes related to the infection fear factor, continued forced social distancing including requirements for fewer tables in restaurants, and sanitation obligations that increase economic inefficiency. In the U.S., restaurant reservations across the country are negatively related to new COVID-19 outbreaks.  Our analysis shows a reduction in consumer spending within contact-intensive services and a partial substitution into other goods and services could help the environment more than the shift from international to domestic tourism with a broadly similar economic impact.

If the fear factor persists into 2021 and consumer spending within contact-intensive sectors is negatively affected, this drags down global economic growth. The aggregate economic effect is broadly similar to the reduction in international travel, but the contact-intensive shock helps the environment somewhat more.