 From Climate to Nature Macro-Criticality: Exploring New Scenarios and Modeling FrameworksJeffrey Althouse, Bastien Bedossa, Etienne Espagne, Faucher, Léna, Morgane Gonon, Katie Kedward, Angela Modica Scala, Adam Poupard and Romain Svartzman No 19987, CEPR Discussion Papers from Centre for Economic Policy Research Abstract: While the macroeconomic and financial implications of climate change have long been debated by researchers as well as economic and financial decision-makers, the potential macro-critical impacts posed by biodiversity loss and the structural shift towards an economy that protects - rather than degrades - nature remain underexplored. In fact, recent studies struggle to explain why even major ecosystem disruptions show only minor macroeconomic and financial impacts in their models. Against this backdrop, this paper reviews existing biodiversity-economy scenarios and modeling approaches to assess their ability to capture the macro-criticality of nature-related transition impacts. We highlight two key gaps: (i) The prevailing tendency to adopt a narrow approach to nature-related impacts, predominantly focusing on the agricultural sector, fails to account for the multiple sectors that could also be affected—either directly or through value chain linkages. Moreover, this approach overlooks the broader socioeconomic transformations that may be necessary to facilitate a meaningful transition toward sustainability; and (ii) The limits of equilibrium-based models, which systematically underestimate the economic impact of nature-related impacts due to their focus on optimization under constraints, their assumptions about substitutability, and their limited representation of both the financial sector and propagations of shocks throughout value chains. We then make three contributions to start addressing these shortcomings: First, we provide a thematic summary of a broad range of nature-related transition scenarios, to support future economic assessments of nature loss or transition pathways through a more comprehensive approach. Second, we explore the potential of diverse non-equilibrium ecological macroeconomic models to reflect the interdependencies between biodiversity, economic activity, and financial stability. Rather than forcing automatic convergence towards an optimal state, these models track the dynamic evolution of simulated trajectories, thereby better capturing how nature loss can become macro-critical. Third, we apply these insights through four case studies to illustrate how nature-related impacts can propagate through production and financial networks, with potentially large positive or negative impacts at the macro level. We do so by using both: relatively simple tools (based on input-output tables) to assess short-term economic and financial exposures to specific scenarios; and two of the ecological macroeconomic models mentioned above for medium-term assessments. Our findings underscore the need to consider both a broad range of scenarios and alternative modeling approaches to identify the potential macro-criticality of nature. Doing so will be essential to begin to meaningfully integrate nature into economic and financial policymaking, and support efforts to halt and reverse biodiversity loss. Keywords: Biodiversity; Macro-financial stability; Input-output linkages; Disequilibrium models (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19987 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK. |
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