Measuring Sustainable Development: The Use of Computable General Equilibrium Models

Abstract

Sustainability Impact Assessment (SIA) of economic, environmental, and societal effects triggered by governmental policies has become a central requirement for policy design. The three dimensions of SIA are inherently intertwined and subject to trade-offs. Quantification of trade-offs for policy decision support requires numerical models in order to assess systematically the interference of complex interacting forces that affect economic performance, environmental quality, and societal conditions. This paper investigates the use of computable general equilibrium (CGE) models for measuring the impacts of policy interference on policy-relevant economic, environmental, and social (institutional) indicators.

We find that operational CGE models used for energy-economy-environment (E3) analyses have a good coverage of central economic indicators. Environmental indicators such as energy-related emissions with direct links to economic activities are widely covered, whereas indicators with complex natural science background such as water stress or biodiversity loss are hardly represented. Societal indicators stand out for very weak coverage, not at last because they are vaguely defined or incommensurable. Our analysis identifies prospects for future modeling in the field of integrated assessment that link standard E3-CGE-models to theme-specific complementary models with environmental and societal focus.

Keywords: Computable general equilibrium modeling (CGE), sustainability impact assessment (SIA), sustainable development (SD)

JEL Classification: D58