Economic Evaluation Framework and Macroeconomic Modelling

Abstract

The first step in an economic assessment of climate change impacts at the country level is the identification of so-called “impact fields”. These fields can be either single economic sectors, parts of sectors or aggregates of sectors. For the case of Austria that is explored in this book, 12 impact fields are identified and investigated regarding climate change impacts and the resulting economic costs and benefits. As impact fields are often of very different character, the mechanisms of climate change impacts are different and, therefore, also the costing methods to obtain costs and benefits of climate change are diverse. Hence, depending on the impact field, one or several of the following costing methods are applied: Changes in production technology and subsequent production cost structure, changes in productivity, changes in final demand, changes in investment, changes in public expenditures, and, finally, level of replacement cost. By applying these methods we obtain the direct costs by impact field.

As a modern economy is characterised by a strong specialisation across activities and sectors, there are strong interdependencies between different economic sectors (e.g. the food sector relies heavily on agriculture). For that reason, indirect effects on other sectors may contribute to total costs (or benefits) for the economy as well. A framework is needed which is able to capture these interactions between economic sectors. For that reason we here employ a computable general equilibrium (CGE) model as it depicts linkages between economic sectors as well as agents and is therefore able to cover interaction between different climate impacts occurring in different sectors. Relevant model outputs are changes in welfare, changes in sectoral activity (output), changes in value added and GDP, as well as in public budgets.