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Modelling the transition to sustainable economic structures

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Better accounting for climate policies

Research undertaken at the International Centre for Research of Environment and Development looked into the way climate policies are measured. The study examined the way in which climate policies are conceptualised and how this impacts the results.

Climate Change and Environment icon Climate Change and Environment

Almost everything has an economic cost attached to it including the environment around us. By attaching a cost to the environment and ecosystem, policy-makers are better able to determine the impact that certain policies have on the environment. In this manner society can come to a better decision on how sustainable development can be achieved. The EESD project TRANSUST aimed to contribute to sustainable development by focusing on key activities crucial for social well-being and economic competitiveness in Europe. To achieve this aim one team of project partners looked into how economic costs are determined, used and interpreted in various economic models. Until this study, there existed a discrepancy in how the environmental costs were measured between the pessimists who over estimate and optimists who underestimate the costs. As a result negotiations and discussions that were held were usually conducted with diplomatic rhetoric which was not linked to grounded scholarly economic analysis of either side. The way in which the costs of carbon policies are reported can be skewed as a result of two common biases. The first bias stems from the model from which the cost estimate is initially made. The three common modeling paradigms offer three different costs. The models are the disaggregated technology-rich bottom-up model, the multi-sector top-down model (be it based on micro-economics or econometrics) and the single-agent optimal control model. The differences exist as a result of the way in which production and end-use technologies are accounted. Another bias occurs in the choice of the manner in which modelling results are eventually presented. The results can be open to 'massaging' to present a message which the researcher wishes to present, be it pessimistic or optimistic. As a result, the method of communicating the true costs of climate policies is fraught with difficulties. This project aimed to bring these difficulties into the light in a manner that encourages more debate and with the minimum of confusion.

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