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ENV GLOBAL FORUM OCT 2016 - Session 2 - Bernd MEYER


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ENV GLOBAL FORUM OCT 2016 - Session 2 - Bernd MEYER
"Macroeconomic impacts of Circular Economy"

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ENV GLOBAL FORUM OCT 2016 - Session 2 - Bernd MEYER

  1. 1. Münster, Mai 2015WWW.GWS-OS.COM / © GWS 2016 What do we know about the macro-economic impacts of the circular economy? Bernd Meyer OECD Global Forum on Environment Towards quantifying the links between environment and economic growth 24 – 25 October 2016, Paris
  2. 2.  2016 GWS mbH Page 2 Place, Month 2016 ► POLFREE FP7 project: ► Partners: UCL (coordinator: Paul Ekins), ICIS, TNO, SERI, WI, PIK, GWS Central questions for the modeling work package: ► How will the economy evolve in the business-as-usual case till 2050 and what does it mean for the environment? ► How will it be possible to meet the following ambitious environmental targets till 2050 and what does it mean for the economy? Environmental targets for 2050: • CO2 emissions: EU: - 80% compared with 1990, other countries: consistent with 2 °C or 4 °C pathway, • cropland footprint: - 30 % compared with 2005, • raw material consumption (RMC): reduction to 5 tons per capita, • water exploitation index: below 20%. © GWS mbH 2 Paris, October 2016
  3. 3.  2016 GWS mbH Page 3 Place, Month 2016 Main scenarios: ► Business-as-usual: • EU: climate policy following the EU reference scenario, no resource policy. • Other countries: no environmental policy at all. ► Global Cooperation: All countries cooperate implementing a common policy mix with incrementally rising intensities • to reach the global 2 degree emission path, • and to meet the above resource targets in 2050 per country. ► EU Goes Ahead: Only the EU implements these policies, other countries: • Follow only a moderate climate policy reaching the 4 degrees emission path. • No action in resource policy. © GWS mbH 3 Paris, October 2016
  4. 4.  2016 GWS mbH Page 4 Place, Month 2016© GWS mbH 4 Paris, October 2016 Global Cooperation EU Goes Ahead Climate policy upstream carbon tax, regulation of the share of renewables, regulations and economic instruments favoring e- mobility & investment in energy efficiency of buildings Difference to Global Cooperation: In EU: - ETS with elastic supply. - Taxes are designed, so that they do not endanger international competitiveness • e.g. taxes on final demand instead of upstream taxes • or direct compensation of taxes In Non-EU: • Moderate climate policy that allows to stay at 4 degree warming pathway • No resource policy action use of minerals regulation for recycling, upstream tax for mineral inputs, public innovation fund for material efficiency agricultural land and water use regulation for water abstraction of agriculture, information programs to avoid food waste & to reduce yield gaps, tax on meat consumption ETR tax revenues are used for a reduction of taxes on goods and services with low carbon and resource contents Main Policy Mixes: Regulations, economic and information instruments
  5. 5.  2016 GWS mbH Page 5 Place, Month 2016 Models ► GINFORS (GWS) and EXIOMOD (TNO): Environmentally Extended Global Multi Regional Input-Output (EE-GMRIO) models. • Interconnections between the environment and economy (energy use & emissions, resources in deep detail). • Ability to analyze impacts on economic sub-sectors and product groups in deep detail. ► Two key differences between GINFORS and EXIOMOD: • Main source of historical data − GINFORS: WIOD database, global multiregional time-series of Input-Output tables with accompanying socio-economic and environmental data. − EXIOMOD: EXIOBASE more sectoral detail but reports only for one year. • Theoretical foundation − GINFORS: Keynesian, econometric estimation of parameters. − EXIOMOD: Neoclassical, parameterization by assumption. © GWS mbH 5 Paris, October 2016
  6. 6.  2016 GWS mbH Page 6 Place, Month 2016 ► Results of GINFORS (Meyer et al. 2015): • Environmental targets will be met, • Strong positive effects on employment and GDP. ► Results of EXIOMOD (Hu et al. 2015): • Environmental targets could not be reached. Strong rebound effects. • No significant positive economic effects. Two Reasons for divergence: 1. Critical parameter assumptions of EXIOMOD: • Price elasticity of intermediate demand zero: taxes on resource intensive intermediate demand have no direct effect on resource use. • Price elasticity of consumption -1 and of imports -5 are relatively high in absolute terms: Danger of strong rebound effects. Conclusion 1: Different modelling approaches may produce very different results © GWS mbH 6 Paris, October 2016
  7. 7.  2016 GWS mbH Page 7 Place, Month 2016 2. Fundamental differences between the mainstream neoclassical and the Keynesian paradigm. • Behavioral Equations: Abstract theoretical assumption of optimization on perfect markets versus econometrically estimated equations based on bounded rationality on imperfect markets. • Prices: equilibrium prices versus price setting behavior of suppliers (goods markets) or result of bargaining process (labor market). • Production: supply side dominance versus demand dependency (production clearing the market). • Investment: Top down modelling (closure rule) versus bottom up modelling of sectoral investment (accelerator hypothesis) without constraints. • Circular flow of income: no multiplier (supply side dominance) versus interdependency of production and demand in a multiplier/accelerator process. Arguments favoring the Keynesian paradigm: Neoclassical models are theoretical models without an empirical basis. Keynesian models are based on a theory which has been tested econometrically. They are at least able to explain the past. © GWS mbH 7 Paris, October 2016
  8. 8.  2016 GWS mbH Page 8 Place, Month 2016© GWS mbH 8 Paris, October 2016 Conclusion 2: Business-as-usual paints a gloomy picture for the global environment and prosperity Key results with the model GINFORS ► By assumption: • Rise of resource prices (IEA, 6 degree scenario) . • World population : 2050: + 30% against 2015 (UN, medium variant). ► Strong rise of crop prices. • Social problems, • Rising shares for food in consumption reducing demand for other products. ► Reduction of the average growth rate of real global GDP from 2.6% (1995- 2015) to 2.2% (2015-2050), which will happen mainly after 2030. ► Rising public debt ratios in many countries. ► CO2 emissions rise till 2050 by 50% (compared with 2015). ► Extractions of abiotic resources rise by 70% till 2050 (comp. with 2015).
  9. 9.  2016 GWS mbH Page 9 Place, Month 2016© GWS mbH 9 Paris, October 2016 Key results with the model GINFORS Conclusion 3: Global Cooperation would allow environmental targets to be achieved whilst raising GDP and employment ► By assumption: lower resource prices (IEA, 2 degree scenario). ► Environmental targets globally achieved. ► Lower food prices. ► Policy mix induces higher investment and a multiplier/accelerator interaction: higher world GDP (+5.2%) and employment in spite of losses in resource extracting countries. ► Reduction of public debt in many countries compared with business-as- usual (bau).
  10. 10.  2016 GWS mbH Page 10 Place, Month 2016 ► By assumption: Resource prices (IEA: 4 degree scenario). ► Environmental targets will be met only in the EU, no substantial reduction of global resource demand and prices. ► “First Mover Advantage”: Dematerialization in the EU reduces production costs and raises the trade surplus of the EU against Non EU countries. ► Policy mix induces higher investment and a multiplier/accelerator interaction. ► First Mover Advantage and the multiplier/accelerator interaction create in the EU a rise of real GDP (+ 12% in 2050 compared with bau) and of employment (+ 3.4 million jobs in 2050 compared with bau). ► Reduction of public debt. © GWS mbH 10 Paris, October 2016 Key results with the model GINFORS Conclusion 4: EU Goes Ahead: If the EU pursues resource efficiency unilaterally, substantial benefits remain
  11. 11.  2016 GWS mbH Page 11 Place, Month 2016 Key results with the model GINFORS ► The business-as-usual will strongly endanger the services of nature and induce lower growth and employment than in the past. ► A global cooperation on a broad mix of policy measurements to keep global warming below 2°C and to boost resource efficiency would allow • staying within planetary boundaries, • and would also be beneficiary for green growth and jobs globally and in the EU. ► If a global consensus can not be achieved in the near future the EU should go ahead. A first mover advantage will create an economic success in the EU stronger than in the case of global cooperation. This may cause others to follow. © GWS mbH 11 Paris, October 2016 Concluding Remarks 1: Key POLFREE Findings
  12. 12.  2016 GWS mbH Page 12 Place, Month 2016 ► Short-term options: • Complementary model applications for comprehensive assessments of varied policy mixes. • Self-contained country analyses facilitating national policy recommendations. ► Medium to long-term issues: • Continous extension and quality improvement of harmonised global environmentally extended Multi Region Input-Output (EE-MRIO) database(s). • Continous advancement (e.g. with regard to SDG implementation) and application of dynamic EE-MRIO models that are able to assess the interactions between the economy and environment. © GWS mbH 12 Paris, October 2016 Concluding Remarks 2: Ongoing research needs
  13. 13. WWW.GWS-OS.COM / © GWS 2016 Thank you for your attention. For contact details see: resources/team.html Bernd Meyer Martin Distelkamp Mark Meyer