Review of macroeconomic approaches to modelling Wellbeing, Inclusion, and Sustainability

In response to the urgent global challenges of climate change and rising inequality, the need to re-evaluate our traditional economic models and adopt new approaches focused on sustainability, wellbeing, and inclusion has become evident. The current economic paradigms, based on equilibrium thinking and GDP-centric measurements, have proven inadequate in addressing the intricate interplay between economic, social, and environmental dimensions. As we embark on a transformative journey towards a sustainable and equitable future, it is crucial to adopt diverse modelling approaches to provide policymakers and stakeholders with informed decision-making tools. This report delves into the analysis of five different macroeconomic model types (general equilibrium models, macro-econometric & input-output models, stockflow-consistent models, integrated assessment models, and system dynamics models), evaluating their respective strengths and weaknesses to propose an integrated framework that encompasses the multifaceted nature of our world. A key recommendation is to improve existing models by enhancing their dynamics and feedback loops between dimensions and systems, thus better reflecting the interactions and effects of different social and economic policies. Striking a balance between complexity and transparency is essential, ensuring that models remain flexible and capable of linking with models with greater detail but narrower focus. The report emphasizes the incorporation of WISE accounts (detailed data on Wellbeing, Inclusion, Sustainability, and Economy that will be collected and harmonized during the project) into macroeconomic models as an opportunity to overcome the challenge of data availability, which poses a significant obstacle in modelling endeavours. Robust and reliable data sources are crucial to the success of any model and require continual improvement in data collection processes. To broaden our understanding of the dynamics of WISE dimensions and the potential impacts of policies, integrating alternative perspectives, such as heterodox economics, can offer valuable insights. Co-creating quantitative analysis with stakeholders enhances ownership and uptake of the models and may help with bridging the gap between research and policy implementation. Furthermore, an integrated modelling framework that accounts for the non-linear interactions between human and earth systems is necessary to properly assess policies tackling 21st century challenges in the context of WISE dimensions. This integrated model should draw upon the data of WISE accounts and synergize elements of Input-Output models, System-Dynamics, and Stock-Flow consistent models to provide a structured tool for policymakers and researchers in shaping a sustainable and inclusive future

Green change: renewable energies, policy mix and innovation

A far-reaching transformation to green, CO2–free solutions is needed to achieve the ambitious climate policy target of limiting the global temperature rise to not more than 2°C. With this in mind, the GRETCHEN project explored the impacts of the policy mix on innovation in renewable power generation technologies in Germany at three levels: the micro level, focusing on the perspective of individual companies, the meso level, examining industry structures and the innovation system, and the macro level, modelling macroeconomic effects and CO2 emissions. The impact of the policy mix was analysed at these three levels for the following aspects: political targets to expand power generation from renewable energy sources, technology push, demand pull and systemic instruments as well as their interaction within the instrument mix, and the consistency and credibility of the policy mix and the coherence of political processes. The policy mix needed for a green transformation of the energy system can be considered holistically and valuated with regard to its innovation impact based on the policy mix concept developed in the GRETCHEN project. The corresponding findings are synthesized in this report on the results of the GRETCHEN project concerning the influence of the policy mix on technological and structural change in renewable power generation technologies in Germany

Policies and Consumption-Based Carbon Emissions from a Top-Down and a Bottom-Up Perspective

Abstract Two major approaches for calculating consumption-based carbon emissions can be distinguished: top-down approaches, in the form of multi-regional input-output (MRIO) models, and bottom-up approaches, in the form of life cycle assessment (LCA). Both approaches have pros and cons and are very data-intensive. Several MRIO databases have been developed and published over the past years. These databases, which have been refined and validated, will be used for policy analysis. As LCA is usually only applied to very specific products and product groups, analysis is limited and many products have not yet been looked at. This paper makes use of both a top-down and bottomup approach to calculate the impacts of different policy measures on the development of consumption-based carbon emissions in the EU28 and on emissions elsewhere in the world. The policy examples used are the EU's CO2 in Cars Regulations and the South African renewable energy initiative. The results from the top-down approach are then compared with those from the bottomup approach. Both bottom-up and top-down approaches use the same underlying assumptions regarding the impacts, but due to the very different nature of the methodologies, differences in the results are observed, though sign and scope of the results are the same for the two cases. Part of the deviations can be explained by differences in methodology and scenario design due to these differences. It can be concluded that bottom-up and top-down approaches can and need to be applied to different policies and are generally complementary

Future changes in consumption: The income effect on greenhouse gas emissions

The scale and patterns of household consumption are important determinants of environmental impacts. Whilst affluence has been shown to have a strong correlation with environmental impact, they do not necessarily grow at the same rate. Given the apparent contradiction between the sustainable development goals of economic growth and environmental protection, it is important to understand the effect of rising affluence and concurrent changing consumption patterns on future environmental impacts. Here we develop an econometric demand model based on the data available from a global multiregional input-output dataset. We model future household consumption following scenarios of population and GDP growth for 49 individual regions. The greenhouse gas (GHG) emissions resulting from the future household demand is then explored both with and without consideration of the change in expenditure over time on different consumption categories. Compared to a baseline scenario where final demand grows in line with the 2011 average consumption pattern up until 2030, we find that changing consumer preferences with increasing affluence has a small negative effect on global cumulative GHG emissions. The differences are more profound on both a regional and a product level. For the demand model scenario, we find the largest decrease in GHG emissions for the BRICS and other developing countries, while emissions in North America and the EU remain unchanged. Decreased spending and resulting emissions on food are cancelled out by increased spending and emissions on transportation. Despite relatively small global differences between the scenarios, the regional and sectoral wedges indicate that there is a large untapped potential in environmental policies and lifestyle changes that can complement the technological transition towards a low-emitting society