Multi-disciplinarity enables impact assessments of climate change and climate policies that leverage energy, economy, and land-use models, yet assessing short-term impacts remains challenging.
Further challenges include building and maintaining relevant modeling expertise, especially in the context of limited mandates for Ministries of Finance in the climate domain. Next steps include improving governance structures, enhancing national and international collaboration, and rethinking economic modeling to better integrate climate and biodiversity.
Key Messages
- Deploying system-level energy, economy, and land use, land-use change, and forestry (LULUCF) models and complementing their results with sector-specific modeling can yield insights into the impact of medium- to longterm climate policies and the impact of climate change. Estimating short-term impacts remains difficult.
- Climate change-related impacts on ecosystems are not sufficiently captured by current tools, though ideally climate change and biodiversity loss would be jointly considered.
- As previous economic models were not built to include climate-related shocks and struggle to do so, modeling approaches may need to be reconsidered.
A key modeling challenge is that a detailed sector-level structure is usually needed to introduce climate shocks, yet current sectoral models do not cover transition frictions, forward-looking expectations, short-term market disturbances, or public income and spending details sufficiently. Macroeconomic models do include forwardlooking expectations, yet do not have the required level of sectoral detail.
There is a risk of losing know-how without a new generation of modelers. Hence, Finland’s MoF needs to widen and further strengthen competence and local modeling expertise. Challenges relating to governance structure affecting many MoFs are the lack of an explicit mandate and, relatedly, a lack of engagement with developing national climate strategies and Nationally Determined Contributions (NDCs), resulting in a lack of expertise and ownership over climate assessment frameworks and macroeconomic modeling practices. Developing expertise and scaling up analytical approaches would require collaboration between MoF departments and with regional and international partners.
At the national level, strategies to overcome these challenges include raising awareness of best practice and developing modeling expertise, including via academia; identifying policy questions and the tools needed to address them; and defining governance, cooperation, and coordination structures. At the international level, strategies include engaging in discussion at the highest political level, sharing expertise, driving joint technical efforts, and, more generally, communicating the importance of economic assessment in achieving climate objectives.