Integrating natural capital into macroeconomic

Transcript:Integrating natural capital into macroeconomic:
Integrating natural capital into macroeconomic models: How may the depletion (and restoration) of natural capital affect medium-term potential output? Olga Croitorov, DG Ecfin DG ECFIN-OGWG workshop on natural capital measurement and modelling. Discussion Sustainability: Traditional models often assume constant or growing inputs of labor and physical capital, but natural capital is finite. Depletion or degradation of these resources can have long-term negative effects on production capabilities. Externalities: The standard production function often overlooks negative externalities, coming from economic activities. Overestimation of Productivity: When natural resources are not included, it may appear that the economy is more productive than it actually is. Global Interdependencies: Natural capital is not confined by national borders, and its use and depletion can have global consequences. Papers presented in this session offer insights on how to take into account these issues. Importance of measuring natural capital Build a tool that combines the earth and economy in one model to analyze how markets and policy drive ecosystem change, and in turn how changes in ecosystem services affect the economy. It is a global model that combines: computable general equilibrium (CGE) model of the economy - GTAP with a spatial model of ecosystem services - InVEST that endogenously determines the impact of Economy => Ecosystem Services => Economy Aims at providing both detailed modelling of economic regions (n = 341) and sectors (n = 17) as well as spatial/physical details of land use. Analysis of: 4 ecosystem services: crop pollination from wild pollinators, timber provision from forests, food provision from marine fisheries and carbon sequestration. 5 policy options to increase investment in natural capital. 1. IAM with natural capital depletion. Model IAM with natural capital depletion. Model Given the assumptions (population, climate, productivity growth, capital stock, elasticity, etc) run GTAP to project economic growth and land use change ignoring ecosystem services. Downscale endo change of land use into finer grid using Spatial Economic Allocations Landscape Simulator SEALS. Compute Ecosystem Services results using InVEST Feed the results of ecosystem services back into GTAP Source: Johnson et al 2023 BAU baseline = “no ES” – “ES” => 75 bln $ lower BAU eco collapse => 2 trln$ lower by 2030 BAU economic rigidities => 79 bln $ In all cases – the largest impact is on low income countries. IAM with natural capital depletion. Results Source: Johnson et al 2023 Disadvantages: The model is very complex, some scenarios do not