Fondazione Eni Enrico Mattei (FEEM)
  • Date submitted: 1 Nov 2011
  • Stakeholder type: Major Group
  • Name: Fondazione Eni Enrico Mattei (FEEM)
  • Submission Document: Download
Keywords: Research (12 hits),

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FEEM contribution to the Rio+20 Compilation Document

An economic Research perspective on the green economy in the context of sustainable development and poverty eradication

Key global challenges

According to the UNEP definition (2010), a green economy is ?one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities??.

Existing threats to the environment - directly and indirectly related to human activities - can seriously affect socio-economic systems. These threats often intensify environmental and socio-economic vulnerability, particularly in the poorest regions of the world, thus impairing sustainable development and a balanced path towards a world green economy.
The relationship between growth, poverty eradication, the society, and the environment shows complex dynamics and multifaceted dimensions, involving different systems and sectors of production, and varied models of consumption, carrying out different economic, environmental, and distributional impacts worldwide.
Even if it is often difficult to disentangle them, the following key challenges can be identified, providing scope and guidance for Research and policymaking.
· Climate change - Climate change is probably the most urgent and debated global challenge, affecting many domains and cutting across other challenging issues. To reach the ambitious 2° target accepted by the inter national community in Cancłn, it is necessary to implement massive and timely mitigation policies globally, stabilising GHGs emissions at the levels deemed consistent with the target by the scientific community. Adaptation actions must also be planned and implemented, particularly in the most vulnerable world regions that are already suffering from the effects of climate change. From an economic perspective, key issues to tackle the climate challenge are:

- The design of a more effective system for climate governance, possibly leading to an international agreement on climate policies.

- A better understanding of the economic dimension of existing and new mitigation instruments and technologies for climate stabilisation and the overall economic valuation of alternative international climate strategies, including the assessment of current governments? pledges.

- The assessment of the full costs of climate change impacts and adaptation, aiming to provide a comprehensive and integrated assessment of climate impacts and policies, accounting for landuse, forestry cover, atmosphere, biosphere modules, and other complex feedback dimensions.

- The inclusion of uncertainty in the mutual responses of climate and socio-economic systems.

- A clearer understanding of climate finance, investigating the nature, (i.e. public vs. private), and the amount of financial efforts needed to support the technological transformation towards a low-carbon economy and to adapt to the impacts of climate change. The design of an international carbon market, as well as the additionally of climate funds, are two priority issues, which call for a strategic partnership and cooperation between private and public finance.

· Energy - Energy is clearly intertwined with climate change, due to the fundamental role played by energy in generating greenhouse gas emissions. In a world where more than one billion people still live in energy poverty without access to clean cooking facilities, access to energy is key to pursue poverty eradication and sustainable development. While energy is crucial to feed the developing world and the rapid economic growth of emerging economies, as well as to maintain the high consumption standards in the developed world, a real technological ?revolution? in the energy sector is needed to meet the climate challenge. Energy systems vary widely across countries, given their level of development and their endowments of primary energy sources. Crucial issues to be addressed in this area are:

- Energy poverty

- The affordability and security of energy supply

- The development of a reliable system for international energy governance

- A better understanding of the drivers of energy demand, globally as well as regionally

- A better understanding of the dynamics of innovation, diffusion, and adoption of energy technologies

- A detailed representation of the energy systems at the country level

- The environmental impacts of energy production and consumption, including global warming and impacts on local air pollution, land-use, and water utilisation
· Biodiversity - Biodiversity is a measure of the health of ecosystems and is in part a function of climate, being thus directly affected by climate change. Biodiversity loss potentially poses high damages to human health and well-being. Our well-being is totally dependent upon the continued flow of ecosystem services such as: food, fibres, clean water, healthy soil and carbon capture. These services are predominantly public goods with no markets and no prices, and are rarely detected by our current economic compass. Valuation efforts on ecosystem services are often undertaken and available at the micro level. The key challenge is to scale up from the micro to the macro dimension, to help policy makers understand the economic value of ecosystems and assess the full benefits of alternative policies, both at the global and local level.

· Land-use - Land is a scarce resource and competition in the use of land places land-use at the centre of the climate-energy debate. The use of land indeed fulfils basic needs, namely food security, feeds the growing appetite for cleaner energy and supports forestry and sustainable forests practices. Bio-fuels and their expansion contribute to cleaner energy production and compete with land-use for food production. This competition is deemed responsible for the increased volatility of food prices, with perverse economic effects particularly on developing economies. Regarding forestry, reducing and/or preventing deforestation is one of the mitigation options with the largest and most immediate carbon stock impacts in the short-term at the global level. Proponents of bio-carbon sequestration activities stress that land-use, land-use changes, and forestry (LULUCF) initiatives, if properly designed can bring important multiple benefits to climate change mitigation, biodiversity conservation, rural development, and poverty eradication in developing countries. There are several important methodological issues regarding the design of these initiatives including baselines, monitoring, permanence, and insurance, which are still at the centre of the policy debate. Synergies and trade- offs between these competing land-uses must be further studied and analysed in an integrated way.

· Water - Water is also a scarce resource, precious to agriculture, forestry, biodiversity, and more broadly, to the ecological balance, although rarely priced in the market. Water will be directly affected by climate change since climate extremes will lead to a higher frequency of droughts and flooding in various regions of the world, and sea-level rise will severely damage coastal areas and small island states. A more efficient and effective management of water resources and coastal zones is needed. Furthermore, water should be included in the integrated assessment of policies towards a green economy.

· Migration - Human migration induced by climate change is a potentially relevant and massive phenomenon, affecting the socio-economic systems of both sending and receiving regions. Direct effects of climate extremes in rural and coastal areas, or indirect effects of climate change, such as diminished opportunities in agriculture due to productivity losses, may trigger out migration of labour, inducing rural-urban as well as international migration. A better understanding of the socio-economic and environmental dynamics at play is crucial to design effective policy answers.

Key methodological challenges

· Integrated assessment - Given the strong interdependencies described above, socio-economic science must be able to provide an integrated assessment of the key dynamics at play between the economy-energy-climate systems. The integrated assessment should aim at capturing all the interactions across issues and sectors, identifying potential synergies and trade-offs in order to guide effective policies. Integrated assessment should account for land-use, forestry, water and biodiversity, atmosphere and biosphere modules, human health and labour migration.

· Full life cycle assessment - On the path to a green economy, the full life cycle of economic activities should be assessed, accounting for external costs throughout the whole production chain, to be able to compare the real net benefits of alternative environmental policies.

· Welfare indicators - The quantitative measurement of a green economy should move beyond GDP, capturing the three fundamental dimensions of sustainable development, namely the economy, the society, and the environment, as well as their potential trade-offs. Welfare indicators that move beyond the pure economic dimension should become the benchmarking instruments for policy assessment, bringing the equity perspective into the framework.

· Data consistency - Monitoring, reporting, verification, and consistency of data across world countries and regions should be enhanced in many sectors key to green growth. Often data are not reliable and not comparable.

· Dealing with uncertainty - Uncertainty is a central feature of climate science, which inevitably, in the interaction between the climate and economic systems, pervades several dimensions of future economic and development scenarios. Uncertainty should be incorporated in the economic assessment of development policies. More emphasis on the study of the probability of extreme events and natural disasters may help to address climate uncertainty, outlining emergency plans and doing contingency planning should worst-case scenarios occur.

Research input and policy insights for a world green economy from selected ongoing FEEM Research projects

Research inputs

· Over the years FEEM has developed and refined robust modelling tools addressing both mitigation and adaptation policies to advance knowledge in the economics and policy of climate change. These modelling tools aim to fill the existing gaps and address the key challenges previously identified in this area of Research. On the mitigation side, FEEM has built the energy-economy-climate WITCH model (World Induced Technical Change Hybrid Model). WITCH is specifically designed to assist in the study of the socio-economic dimensions of climate change and to help policy makers understand the economic consequences of climate policies. On the impact side, FEEM investigates climate change impacts on the world economy through the use of ICES (Intertemporal Computable Equilibrium System), a model designed to assess the final welfare implication of climate change impacts, capturing the production and consumption substitution processes at play in the social-economic system as a response to climate shocks. Essentially focused on modelling and policy analysis, the following selected projects aim at assessing the full costs of climate change impacts and adaptation, and of existing and new mitigation instruments and technologies for climate stabilisation, in order to provide a comprehensive integrated assessment of climate polices. Within the same modelling frameworks some of the projects highlighted also investigate the issues of climate and energy policy governance and climate and energy-related innovation and technological change:

- Impacts Quantification of global changes - Global-IQ

- Vectors of Change in Oceans and Seas Marine Life, Impact on Economic Sectors - VECTORS

- Low climate IMpact scenarios and the Implications of required Tight emission control Strategies - LIMITS

- Innovation for Climate chAnge mitigation: a study of energy R&d, its Uncertain effectiveness and Spillovers - ICARUS

- PAradigm SHifts Modelling and INnovative Approaches - PASHMINA

- Diffusion of Climate-Friendly Technologies. The Role of Intellectual Property Rights, Human Capital and Environmental Policy - ClimTech

· With the aim to provide a useful tool to measure welfare beyond-GDP, FEEM has developed the FEEM Sustainability Index (FEEM SI). The FEEM SI is an aggregate index through which novel techniques summarise and merge the information derived by a selection of relevant sustainability indicators to assess welfare. Thanks to its foundation in a recursive-dynamic computable general equilibrium model, ICES-SI, the FEEM SI can provide future assessment of sustainability as well as a past one, building a dynamic and comprehensive picture of the sustainability of world countries through time. Since it is possible to compute the index under different economic, social, and environmental assumptions, the FEEM SI can be used to assess the sustainability of alternative policies of economic, social, or environmental in nature, both in a snapshot and through time. A new version of the FEEM SI will be released in December 2011, presenting several methodological advancements, among which, a novel indicators? aggregation methodology based on experts? elicitation techniques.

· Building on earlier work on the design of a methodology to assess the external costs of energy (the ExternE project series), FEEM has followed up on this stream of Research leading the EXIOPOL project - A New Environmental Accounting Framework Using Externality Data and Input-Output Tools for Policy Analysis. The main Research products of this project include: a detailed Environmentally Extended Input-Output database, covering 43 individual countries plus the aggregation of the rest of the world, to perform full cost accounting and impact assessment of different activities; policy relevant case studies; and the comparison of different methodological approaches to environmental accounting. EXIOPOL thus provides precious tools and data for a comprehensive analysis and a full life cycle assessment of a broad set of economic activities in Europe.

· To bring a more realistic view into modelling and in the design of future scenarios, FEEM has initiated a Research stream on the development and application of experts? elicitation techniques. Within the ICARUS project, aimed to provide a unique analysis of energy related innovation mechanism, expert elicitation methods will be used in order to assess the potential effectiveness of technology-specific R&D. ICARUS carries out a systematic process of collection and elaboration of qualitative and quantitative estimates from the experts, drawn from the world of business and institutions. This process characterises the uncertainty dimension of innovation in selected technologies, including Solar PV and CSP technologies, nuclear, and bio-fuels. Expert elicitations? results will be used as building blocks to shed light on a number of disguised areas relevant for the modelling community, improving the models capacity to project a more realistic image of the world. The same methodology will be used within the TEaM Project -Technology Elicitations and Modelling Project. The project aims to integrate the data sources on technology supply, with expert elicitation techniques and to share them with the Integrated Assessment Modelling community.

· To enhance communication and cooperation among the different communities involved in sustainable development issues, FEEM is involved in several Research networks. As an example, FEEM leads the dissemination activities of the Network of Excellence LIAISE- Linking Impact Assessment Instruments to Sustainability Expertise, aimed to build a bridge between science and policy in the field of impact assessment for sustainable development. Among the various activities of the network, a toolbox on available instruments for impact assessment has been designed and made freely accessible to practitioners working in the field.

Policy insights

· An integrated assessment approach in economic Research aims at enhancing harmonised and integrated policies towards a world green economy. Policies should be harmonised not only across sectors, but also around the most challenging issues, such as climate change. The system of governance of the relevant policies should allow for integration and cooperation at the regional and international levels.

· To pursue a green economy approach, the assessment of development policies should move beyond GDP, by benchmarking new measures of welfare. ?Beyond GDP? indicators should account for environmental and social externalities of economic activities, reflecting the concept of social equity.

· The modelling of the transition to a low-carbon green world, under multifaceted dimensions of uncertainty, requires a long-term perspective. Based on the outcome of Research, policy recommendations also require a long-term horizon. Policy makers should start adopting a longer-term perspective, implementing policies that may become effective beyond their political lifetime.

· Policy should communicate more effectively to science, to the business sector, and to the civil society to involve all key stakeholders in the difficult path towards a green economy. Efforts from both the demand and supply side are absolutely necessary. Only a productive cooperation between science and policy can build and provide the right incentives and motivations along that path, communicating also through the media.

· Policy should be aware that a public-private alliance is desirable to address more effectively many of the key challenges identified such as: climate finance, the support to R&D investment in new energy technologies, the implementation of full life-cycle assessment analysis in many economic sectors, and the more efficient management of natural resources such as: water, biodiversity, and ecosystem services.
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