The Macroeconomic and Biophysical Impacts of Decarbonization and Circular Economy Strategies. A Scenario Analysis for Austria

Ina Meyer, Mark Sommer, André Baumgart, Nina Eisenmenger, Doris Virág, Kurt Kratena and Willi Haas
Additional contact information
Mark Sommer: WIFO
André Baumgart: University of Natural Resources and Life Sciences Vienna, Institute of Social Ecology
Nina Eisenmenger: University of Natural Resources and Life Sciences Vienna, Institute of Social Ecology
Doris Virág: University of Natural Resources and Life Sciences Vienna, Institute of Social Ecology
Kurt Kratena: Centre of Economic Scenario Analysis and Research
Willi Haas: University of Natural Resources and Life Sciences Vienna, Institute of Social Ecology

No 732, WIFO Working Papers from WIFO

Abstract: Growth in resource use is a key driver of climate change and environmental degradation. In recognition of this, a few governments have set targets to reduce their countries' per capita resource use while striving to achieve the goals set out in the Paris Agreement. In this context, the concept of the circular economy (CE) has attracted mounting interest as a means of mitigating climate change, reducing resource use and waste generation, while advancing economic performance. This paper uses a mass-balanced biophysical model (CeAT) linked to a macroeconomic model (DYNK) of the Austrian economy to analyse different stock-flow scenarios, combining a decarbonization scheme with CE strategies at varying levels of ambition. The analysis examines Austria's buildings, transport, and electricity sectors, evaluating economic impacts by employment, GDP, and disposable income results. The framework incorporates two stylized indirect rebounds effects arising from CE strategies of narrowing, i.e. reduced growth in infrastructure, buildings or car fleets. These rebound effects, driven by the reallocation of financial resources, manifest through two distinct consumption pathways: service-oriented and goods-oriented expenditure patterns. Findings indicate, the strong CE scenario can achieve substantial dematerialization. At the same time, it shows potentially the highest average growth rates in disposable income when combined with a service-oriented rebound. First order CE strategies (refuse, rethink, reduce) are therefore of key importance for the triple agenda of climate mitigation, resource use reductions and economic growth. Particularly, demand-side reductions can enhance economic performance if the rebound effects are constrained by reallocating the freed-up expenditure to low-material-intensity services.

Keywords: Decarbonization; Scenario analysis; Indirect rebound effect; Resource consumption; Economic impact analysis; Circular economy (search for similar items in EconPapers)
Pages: 36 pages
Date: 2026-08-13
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