Costs of Inaction and Resource scarcity: Consequences for Long-term Economic growth (CIRCLE)
Several major long-term trends shape the potential for economic growth around the world. The continued depletion of natural capital features prominently among these trends, manifesting itself through environmental pollution, the emission of greenhouse gases (GHGs) that contribute to climate change and continued dependence on increasingly scarce natural resources. It is clear that further degradation of the environment and natural capital can compromise prospects for future economic growth and human well-being.
the circle project
The OECD CIRCLE project aims to identify how feedback from poor environmental quality, climatic change and resource scarcity affect economic growth, and how policies may alter this.
The Land-Water-Energy Nexus: Biophysical and Economic Consequences – This report contributes to the discussion of interconnections between scarce resources by highlighting the nexus between land, water and energy (the LWE nexus). It focuses on a dynamic, integrated, and disaggregated analysis of how land, water and energy interact in the biophysical and economic systems. The report provides projections for the biophysical and economic consequences of nexus bottlenecks until 2060, highlighting that while the LWE nexus is essentially local, there can be significant large-scale repercussions in vulnerable regions, notably on forest cover and in terms of food and water security.
The Economic Consequences of Outdoor Air Pollution – Unless more stringent policies are adopted, findings point to a significant increase in global emissions and concentrations of air pollutants, with severe impacts on human health and the environment. The impacts of outdoor air pollution are projected to lead to significant economic costs, which are illustrated at the regional and sectoral levels, and to substantial annual global welfare costs.
The Economic Consequences of Climate Change – This report provides a new detailed quantitative assessment of the consequences of climate change on economic growth through to 2060 and beyond. It focuses on how climate change affects different drivers of growth, including labour productivity and capital supply, in different sectors across the world. The sectoral and regional analysis shows that while the impacts of climate change spread across all sectors and all regions, the largest negative consequences are projected to be found in the health and agricultural sectors, with damages especially strong in Africa and Asia.
The International Trade Consequences of Climate Change – This report provides an analysis of how climate change damages may affect international trade in the coming decades and how international trade can help limit the costs of climate change. It analyses the impacts of climate change on trade considering both direct effects on infrastructure and transport routes and the indirect economic impacts resulting from changes in endowments and production. The modelling analysis of indirect impacts builds on the analysis in the OECD (2015) report "The Economic Consequences of Climate Change".
4th Ad-hoc Technical Workshop of the CIRCLE project on air pollution (2016 - Stockholm) | Agenda
3rd Ad-hoc Technical Workshop of the CIRCLE project (2015 - OECD, Paris) | Agenda
MORE CIRCLE publications
International trade consequences of climate change–This report provides an analysis of how climate change damages may affect international trade in the coming decades and how international trade can help limit the costs of climate change. It analyses the impacts of climate change on trade considering both direct effects on infrastructure and transport routes and the indirect economic impacts resulting from changes in endowments and production.
Implications of water scarcity for economic growth – This report provides a detailed review of the literature on water, water scarcity, sectoral activity and economic growth, and identifies the possibilities and bottlenecks in incorporating water use into a Computable General Equilibrium (CGE) framework.
The Economic Feedbacks of Loss of Biodiversity and Ecosystems Services – This report contributes to an effort to identify environmental pressures under different structural and environmental policy assumptions and the associated damages that will result under different economic scenarios to 2050; and aims to examine how the environmental pressures may affect economic growth paths.
World population is projected to reach over 9 bn and the world economy is projected to nearly quadruple.
Global energy demand would be 80% higher in the absence of a radical policy shift, with 85% still based on fossil energy. This would increase GHG emissions by 50%, putting the world on a path 3-6 degrees C warmer by the end of the century.
Urban air pollution would worsen, with the number of premature deaths linked to particulate matter doubling to 3.6 mn per year.
In the coming decade, the competition for scarce land is projected to intensify severely, threatening global food supply and increasing pressure to continue deforestation.
Global biodiversity loss is projected to continue, with a further 10% loss by 2050 and climate change becoming the fastest growing driver for this loss.
With global water demand projected to increase by 55%, water resources would become scarcer, leaving over 40% of the world’s population in severely water stressed river basins.
In order to address these environmental challenges, governments need a better understanding of the net benefits of action.
Source: Environmental Outlook to 2050, OECD, 2012.
The OECD Environmental Outlook to 2050
The Environmental Outlook to 2050 presented a one-way analysis of the impacts of socio-economic develop-ments on the environment, but the available tools did not allow for a two-way analysis that included the feedbacks of environmental pollution, climate damages and resource bottlenecks to the economy.
If quantification of such feedbacks becomes possible, the quadrupling of the world GDP to 2050 projected by the Outlook under a “business-as-usual” scenario would be revised to provide a sense of how environmental degradation and resource bottlenecks could dampen economic growth prospects.
The OECD’s Environment Policy Committee launched a multi-year follow up project to the Environmental Outlook: Cost of Inaction and Resource Scarcity; Consequences for Long-term Economic Growth (CIRCLE).
A broad global assessment that encompasses the economic growth implications of several environmental challenges as well as resource scarcity and that explicitly look at trade-offs and synergies between them can shed new light on the scale of global environmental challenges for the economy. It also paves the way to assess the benefits of policy action.
Policy CIRCLE could give us
The Environmental Outlook to 2050 estimated the costs of selected policy actions. However, these costs of action did not take into account the benefits of these policies. If we are able to quantify and have a better understanding of the costs of inaction, or the economic benefits of policy action, it could help governments to better understand the net benefits of “greening” policies and provide a critical evidence base to help to gain support for such measures.
Unless more ambitious policies are implemented to reconcile economic growth with conservation and sustainable use of the environment and natural resources, the costs of inaction could be significant.
A two-track approach around six thematic areas
Better understanDing inter-linkages
When devising new policies, it is essential to take a systems approach, and to stress the inter-linkages among different environmental challenges. These inter-linkages occur not least through the shared enabling environmental media. These media provide critical economic and environmental services. For instance, freshwater is important for irrigation in agriculture, cooling in industry and energy production and as drinking water. These different demands compete for the scarce water that is available. Simultaneously, water pollution threatens the quality of available water resources and can affect human and ecosystem health. CIRCLE is therefore designed to eventually look at the interactions (trade-offs and synergies) between the different environmental issues, the policy responses to them, and the economy.
Quantifying costs and benefits
Over a series of model developments during this and next biennium, CIRCLE could provide assessments of the economic impacts of a selected number of major environmental and resource scarcity issues. The environmental challenges being examined quantitatively include climate change, air pollution and the land-water-energy nexus. The possibilities to assess water scarcity and pollution, biodiversity and ecosystem services loss and natural resource scarcity will also be scoped. CIRCLE will generate reference projections for economic growth which reflect the costs of policy inaction in these areas insofar as these are adequately measurable. Such reference projections would be more appropriate starting points for future projections of economic growth, as well as for assessments of the economics of environmental policies, as they are able to include not only costs but also benefits of policy action. This would allow a more informative evaluation of policies, and a comparison of the costs and benefits involved.
The CIRCLE work is led by the Environment and Economy Integration Division in the OECD Environment Directorate. For more information, contact: