Deforestation in Bolivia, clearing land for agriculture © Marcelo Perez del Carpio / Climate Visuals Countdown
The global integrated-assessment models (IAMs) used to estimate the impact of nature loss have numerous shortcomings, a review by France’s central bank has found, urging modellers to stay up-to-date with the latest scientific research in order to allow for better scenario development.
IAMs combine information from different fields of study – from climate science to economics, agriculture and energy – to help assess the potential costs of different scenarios, such as what would happen if the world’s governments took no action to limit climate change.
Models have long provided the backbone for the climate scenario analysis used by policymakers, banks and many other actors to plan for the future. However, they are increasingly being adapted to consider broader aspects of nature that affect the economy, such as declining biodiversity. The Network for Greening the Financial System (NGFS) released recommendations in December for the development of scenarios that assess wider nature-related economic and financial risks beyond the climate.
However, a new working paper from the Banque de France (BdF) warns that the two main types of IAM currently in use have significant shortcomings when it comes to determining how both shocks to the natural world and the application of transition policies could affect the macroeconomy.
The BdF found that the more complex IAMs, which it refers to as “applied”, tend to emphasise the role of elements of the ecosystem that fuel the economy, such as food and water, while under-representing many of the elements that maintain its stability, such as soil quality or flood protection. However, there are a couple of notable exceptions, including pollination, which the report does consider.
“As these models tend to focus on the land-use and climate drivers of biodiversity loss, the transition policies they capture only aim to mitigate those drivers and overlook other drivers of nature loss such as pollution or invasive alien species,” the authors noted.
“Some theoretical assumptions in the core macroeconomic part of applied models may tend to mitigate the potential macroeconomic consequences of nature loss and nature transition policies,” they added.
In contrast, the simpler “stylised” models do represent the loss of natural capital and biodiversity as having major impacts on the economy, but they “make it hard to represent the impact of the loss of specific ecosystem services or specific policies to protect nature”.
The paper analysed the stylised nature IAMs used in eight academic publications since 2014, as well as six applied IAMs that were initially used to build climate scenarios and have since been expanded to include broader aspects of nature.
The extent to which IAMs can set the groundwork for accurate planning of different environmental scenarios has been hotly debated for years, with activists arguing that the most widely-used models deliver wildly complacent predictions that minimise the impact of climate change.
The BdF paper acknowledges that the task of capturing the interactions between nature and the economy becomes even more complex once factors beyond the climate are incorporated into IAMs.
“More detailed investigation of the economic consequences of the multiple biodiversity policies needed to halt and reverse nature loss is also crucial to advancing policymaker-relevant scenarios,” it concludes.
This page was last updated September 5, 2024
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Katy Lee has been a writer for Green Central Banking since early 2024, focused on our Asia coverage. A Paris-based journalist who has written for major international titles for more than a decade, she is the co-host of The Europeans, an award-winning podcast about Europe which often covers environmental issues.
