Modelling the impacts of megatrends

Report - December 6, 2022

The pathway towards decarbonising the global economy is often referred to as the ‘low-carbon transition’. In this transition, each sector of the economy will need to find ways to reduce its greenhouse gas emissions towards zero. This includes all greenhouse gas emissions, including those related to the use of energy but also those from industrial processes, agriculture, waste and changes in land use. There are many different potential pathways that get to net-zero emissions. These pathways vary in respect to the availability and uptake of key technologies and associated changes in human behaviour. Some of the potential pathways have been assessed using macroeconomic models, for example in the analysis by the Intergovernmental Panel on Climate Change (IPCC). One thing that is common to all the pathways is that they include a substantial shift in activities between economic sectors. For example, sectors that are involved in fossil-fuel production will see a loss of demand, while those that produce equipment that boosts energy efficiency will see an increase. These effects have also been assessed using macroeconomic models, including the models used in this report. However, the modelling exercises tend either to compare the effects of the low-carbon transition to a ‘business-as-usual’ baseline case, in which current trends in the economy persist over the period to 2050, or benchmark against one of the broad Shared Socioeconomic Pathway (SSP) scenarios (see below). While this approach is useful for identifying the potential impacts of the low-carbon transition, it implicitly assumes that economic structures largely remain otherwise unchanged. In this report we test this assumption and consider some of the other transitions that may take place simultaneously. We review the literature on ‘megatrends’ to assess what these transitions might be, and design scenarios based on a range of possible outcomes. We compare the potential impacts of these megatrends on Europe’s economies and labour markets with those from the low-carbon transition. We also assess how the macroeconomic impacts of the low-carbon transition may be affected by the consideration of megatrends and further assess how the various trends might interact with each other.

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