Avenues for Exploring Nature Scenarios in Ecological Macroeconomic Models

Abstract

Efforts are underway to develop nature scenarios to explore the economic and financial implications of nature loss, and interventions required to reverse nature loss. Integrated assessment models (IAMs) are an important tool to quantify scenario narratives, yet their inclusion of different aspects of nature is still quite a recent endeavour. We review 8 ecological macroeconomic models (EMMs) that represent (or are developing) aspects of the environment and related policies beyond climate change. Unlike many IAMs, EMMs do not assume convergence towards optimisation and instead focus on tracing the dynamics of simulated trajectories. We first assess how each EMM represents different aspects of nature and biodiversity, including nature's contributions to people (NCP), and different economic pressures upon nature. Next, we evaluate the nature transition scenarios that could be explored in the models, considering (i) conservation policies, (ii) strategies for sustainable land management, and (iii) 'transformative changes'-i.e., fundamental reorganization across development paradigms and socio-ecological dynamics, including technological, economic, and social factors (IPBES, 2019). Finally, we consider how the models could explore scenarios relating to financial dynamics, including both strategies to mobilise financial resources for the nature transition, as well as the financial risks posed by nature loss and transition policies. We find that EMMs already capture a number of economic dependencies and impacts upon the environment beyond climate change, with near-term model developments expanding nature-related aspects further. We also find that focusing on dynamic evolution instead of optimisation is a key advantage as it enables the evaluation of non-marginal effects of policy shocks, the interactions of simultaneously implemented policies, and the identification of trade-offs resulting from their social, environmental, and economic impacts. This capability likely makes ecological macroeconomic models well-suited to explore the 'transformative' structural changes required to halt and reverse nature loss. Whilst the representation of many nature-related aspects in ecological macroeconomic models is still under near-term development, we identify several promising avenues for how nature scenarios could be explored in these forthcoming versions.

Keywords: integrated assessment models, biodiversity, natural capital, nature scenarios, ecological macroeconomics, nature transition

JEL Classification: C6, Q56, Q57, Q01, O11, O44