In Search for Sustainability Policy Pathways. Analytical Insight with Philia 1.0

Abstract

This paper contributes to the analysis of sustainability policies by introducing Philia 1.0, a new stock-flow consistent ecological macroeconomic model. It presents a set of simulation comparing and contrasting the potential socio-economic and ecological effect of two alternative sustainable policy pathways. In the ‘neoliberal’ scenario, transition is driven by higher relative returns for green investment projects, and shifting preferences affecting the cost of external finance. The ‘reformist’ scenario relies on new green prudential ratios, the evolution of the role of the state as an issuer of green bonds of last resort, and a pro-social enterprise fiscal policy. Simulations suggest that the reformist scenario yields better results in terms of real macroeconomic income, financial stability, and aligning financial and productive assets with a green taxonomy. This comes at the cost of a sharp short-run increase in material footprint, energy consumption and CO2 emissions. Its ability to mitigate climate change hinges on the robustness of the ‘green taxonomy’, and on the impact of technical progress on the economy’s material and energy intensity.

Keywords: sustainability, Finance, SFC modelling