Modelling 4 Scenario definition and challenges

The model was used to simulate two green investment scenarios – promoting resource efficiency and low-

carbon development – to be compared with BAU or baseline scenarios that favour a more conventional use of resources and fossil fuels.

The BAU case replicates history over the period 1970- 2009, and assumes no fundamental changes in policy or external conditions going forward to 2050. This scenario is set up and calibrated to reflect baseline projections of various existing sectoral models and reports on population, economy, energy, transport and water, including among others: United Nations’ World Population Prospects (WPP) (UNPD 2009), World Bank’s World Development Indicators (WDI) (WB 2010), OECD’s Environmental Outlook to 2030 (OECD 2008), FAO’s FAOSTAT (FAO 2010) and State of World’s Forests (FAO 2009), McKinsey’s Charting Our Water Future report (McKinsey 2009), IEA’s World Energy Outlook 2010 (IEA 2010), Sustainable Production of Second Generation Biofuels (IEA 2010), Transport, Energy and CO2

(IEA 2009) and Energy Technology Perspectives (IEA 2010) and Global Footprint Network (GFN) reports (GFN 2010).

The two green scenarios (G1 and G2) assume increased investments over the period 2010 to 2050, and these are contrasted with two respective business-as-usual scenarios (BAU1 and BAU2) in which the same amounts of investments are simulated, but allocated according to existing patterns.5

Green scenarios simulate additional

investments that increase resource efficiency and reduce carbon intensity while creating jobs and stimulating economic growth. Efficiency improvements driven by investments can be achieved both directly - through the

construction and adoption of of more efficient infrastructure resource-saving technologies - and

indirectly - through technological advances due to relevant research and development. Examples include investments in renewable energy (e.g. power supply) and energy-efficiency improvements. Further,

are allocated to reduce deforestation and increase reforestation, or to reduce extractive capacity in the fishery sector and support the restoration of fish stocks.

5. Two different methods were developed to simulate green economy investments and analyse them. (1) The first approach simulated additional investments, both green and following business-as-usual, across sectors. (2) The second approach shifts investments from business-as-usual to green. In this case investments are practically reallocated to green investment across sectors. The first approach is presented in this chapter. A comparison of the results obtained through the simulation of both methods is presented in section I, Technical Background Material. In brief, our analysis indicates that when using the same assumptions, results of the simulations do not significantly differ from each other for most variables.

The G1 and G2 green investment scenarios are constructed for different

investments purposes and emphases,7

but are not meant to be exhaustive in terms of the potential breadth and extent of scenarios. The 1 per

6. The BAU does already incorporate, though indirectly, current trends in investments in such sectors, but does not anticipate major changes in those trends.

7. A variety of additional investment scenarios could be easily simulated and analysed. On the other hand, for simplicity and to present a solid analysis that could be easily compared with other leading studies, the 1 per cent and 2 per cent cases were selected. Investment scenarios beyond 2 per cent of GDP were also carefully assessed, and discarded due to lack of information on (1) potential feasible reductions in energy and material consumption and (2) related costs (e.g. carbon abatement cost) beyond peer reviewed and published estimates. For instance, if carbon abatement were to be pushed beyond IEA’s estimations, assumptions on the marginal costs of doing so would need to be made by the authors. In our analysis instead, we rely on existing estimates, to be consistent and coherent with state of the art research across sectors.

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The green scenarios build on and extend the recommendation of UNEP’s Global Green New Deal Policy Brief (UNEP 2009), which called for a significant portion of the stimulus packages – at least 1 per cent of GDP – to be channelled towards investments in a range of green sectors. As a response to the multiple crises facing the world, such an investment was proposed as a means to revive the global economy, while embarking on a new low- carbon, resource-efficient growth path. At the global level, commitments fell well short of this target, although the Republic of Korea and China both stand out as countries that allocated more than 5 per cent of GDP, in the form of their stimulus packages, to investments in green sectors. The Republic of Korea also extended this programme into its medium-term “Five-Year Green Growth Plan” (2009- 2013), which devotes 2 per cent of GDP to investments in climate change and energy, sustainable transport and the development of green technologies. The green scenarios here represent a similar strategy of embedding green investments and enabling policy framework into a long- term commitment.

As stated, the BAU1 and BAU2 scenarios assume additional investments, as in the green cases, but project the continuation of the current trends for resource use and energy consumption, among others. More specifically, these scenarios assume that no additional investments – relative to BAU – will be allocated to the expansion of renewable energy, that agriculture will continue to rely on chemical fertilisers, and that deforestation will not be curbed.6

Instead, growth will be

attained through resource exploitation, including draw down of fossil fuels, fish and forest stocks.

The comparison of green and BAU scenarios for selected sectors and actions are listed in Figure 3 and Table 1.