The functioning of ecosystems and the state of biodiversity are likely to change, even with 2°C of global warming, and thereby impact economies, meaning it is important to include ecosystems in economic modeling.
Ecological accounting methods and models sensitive to the state of ecosystems are being developed in Finland, e.g. by augmenting a macroeconomic model with sectoral detail in forestry and agriculture. Nonetheless, knowledge gaps and challenges around data availability remain.
- Ecosystem services have substantial value and should be included in economic modeling, including to capture how they change and impact the economy in different climate scenarios.
- Finland analyzed potential ecosystem-related economic risks via a regional dynamic computable general equilibrium (CGE) model (RegFinDyn) augmented with forest and agricultural models. The results show that cascading risks associated with ecosystems are expected to be larger than the damage from extreme weather events.
- Given the challenges of complex quantitative modeling of nature-related economic risks, there are calls for using simpler but more comprehensive methods to analyze them, such as storylines, causal networks, and participatory systems mapping.
The key challenges of including natural and ecosystem services in economic modeling are the difficulty of quantifying ecosystem service impacts, data limitations, and the inability of current modeling frameworks to consider systemic risks, as they fail to account for nature-economy feedback processes. To help scope research results and knowledge gaps, Finland conducts annual societal sustainability assessments covering five dimensions: ecological; human capital and culture; social and health; economic; and security, the rule of law, and democracy. The aim is to clarify linkages between sustainability challenges and to identify opportunities, risks, impact channels, and leverage points.
Concrete next steps for Finland identified by the high-level Working Group on Financing the Green Transition include planning an assessment, monitoring, and analysis framework to evaluate the overall economic impacts of climate and biodiversity loss and the policy measures required to address them, and allocating more resources to applied economic research studying the links between climate change, biodiversity loss, and the economy. Next steps for Ministries of Finance and economic policymakers more generally could consider include systemic risk reviews of climate change-related sudden and cascading economic risks related to ecosystem services, incorporating ecosystem-related impacts in macroeconomic risk assessments, and developing databases of the economic value of ecosystem services, e.g., UN standard–based ecosystem accounting.
Keywords
biophysical modelsecosystem servicesmodelsnaturephysical risk
