Assessing Integrated Assessment Models for Building Global Nature-Economy Scenarios

Biodiversity, natural ecosystems, and the ecosystem services they provide (henceforth, ‘nature’) are declining at an alarming rate (IPBES, 2019). What consequences could this trend have for our economies, which are embedded in nature and depend upon it? In response, economies will have to undertake major “transformative” changes to halt and reverse nature loss by 2050 (IPBES, 2019; CBD, 2022). What will be the economic impacts of such transformations? Policymakers are increasingly calling for the development of scenarios to explore these questions, particularly at a global scale. Scenarios describe quantitative and/or qualitative representations of possible futures relating to trajectories of environmental change; based on a set of informed assumptions. This paper reviews and analyses the models that could help in the development of such nature-related scenarios. 

Initially built to explore climate-economy interactions, some global integrated assessment models (IAMs) are now being adapted or developed to consider broader dimensions of nature. Whilst some are ‘stylised’ models – aggregated, with few equations and analytical solutions –, others are what we call ‘applied’– large-scale, multi-module models that are typically solved numerically, representing multiple technologies and various detailed climate and other environmental impacts. This paper reviews those two types of emerging global IAMs and analyses their suitability to explore the macroeconomic impacts of nature loss and the transition in scenario analysis at the global level. 

We propose an analytical framework for assessing how models represent the complex interactions between nature and the economy (Figure 1). We sequentially explore how they represent (i) different aspects of nature, including feedbacks between natural elements, (ii) dependencies of the economy upon nature, (iii) impacts of the economy on nature, and (iv) policy interventions to mitigate nature loss (Figure 1). More precisely, we apply this framework to a set of recently published ‘stylised’ nature IAMs, and to six ‘applied’ IAMs model used initially to build scenarios linking the macroeconomy with climate (e.g., NGFS, 2020), but recently extended to broader dimensions of nature (e.g., Leclère et al., 2020; Johnson et al., 2021; 2023; DNB, 2023). 

We find that applied IAMs are generally skewed toward capturing the dependency of the economy to selected provisioning ecosystem services, like food, water provision and bioenergy, while the economic dependency to regulating and maintenance services (like soil quality, pest and disease control, or flood protection) are less often represented, with the notable exception of pollination and climate regulation, accounted for more frequently. Regarding transition policies, the models only capture those aiming to mitigate the land-use and climate drivers of biodiversity loss, and overlook policies to mitigate other drivers of nature loss, such as pollution (e.g., plastics, pesticides, nutrient runoffs) or invasive alien species. We also find that some theoretical assumptions in the core macroeconomic part of applied models (e.g., on the possibilities for substitution between inputs and rapid technological change) may potentially minimise the macroeconomic consequences of nature loss and nature transition policies. This contrasts with the results of the ‘stylised’ models we review, which tend to represent the loss of natural capital and biodiversity as having significant impacts on the macroeconomy, notably because they tend to endogenise the impact of nature loss on economic growth. However, the aggregated nature of stylised models precludes the representation of specific ecosystem services or specific policies to protect nature. Building on this analysis, we explore the challenges and identify future avenues for the use of IAMs in scenarios that account for the importance of nature and biodiversity for economic activity. 

We contribute to the fields of macroeconomics and environmental economics by elucidating how emerging stylised and applied global models conceive of “nature”, and its relationships with the macroeconomy. Our analysis also informs emerging policy applications of applied IAMs for understanding the economic impacts of nature loss and nature policies. Finally, we describe several avenues to continue the development of emerging ‘nature-economy’ models, in light of the theoretical literature. 
 

Keywords: Integrated Assessment Modelling; Biodiversity; Natural Capital; Nature Scenarios; Macroeconomic Impacts; Sustainable Development
JEL classification: C6, Q56, Q57, Q01, O11, O44