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Modeling Results: macroeconomic findings

An alternative future which recognises the value of natural capital is feasible; it reduces poverty, increases growth, builds local economies and supports climate change mitigation and adaptation strategies.

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The assessment finds that investing in natural capital will:

  • decrease future costs to businesses, households and government;
  • increase future revenue from biodiversity-based and green industries;
  • raise crop yields and lower domestic energy consumption, and;
  • support a transformation to a more just and equitable economy. 

Positive impacts on growth in GE scenario

In the BAU scenario, economic growth and short-term private profits are linked to public losses of natural capital and loss of profit from sectors which depend on biodiversity and functioning ecosystems. Depletion of natural capital imposes costs on society; natural capital’s ability to support economic growth decreases each year.

In the GE scenario, sustainable management of natural capital leads to increases in its value, with net benefits accruing to present and future generations. Maintaining forest cover and improved management of standing forests enhances biodiversity, carbon storage and soil functions, resulting in higher revenue from forest products and ecotourism.

Costs are avoided by maintaining hydrological services (water availability, water quality, sediment retention, flood prevention and maintaining ecological infrastructure as in river transport), reduced road disruption, reduced frequency of floods and enhanced soil services.

In a BAU scenario, by 2020 the environmental costs of economic growth are estimated to outweigh revenues from natural capital. In a GE scenario, an investment of 0.6% of GDP per year is necessary to ensure economic growth and environmental quality beyond 2020. Investment needs will decline over time as progress is made.

In contrast to a BAU scenario, in the long term, growth will increase more rapidly under a GE scenario where natural capital is sustained. Growth, under the GE scenario was assessed based on a conventional and a green calculation for GDP. Under the GE scenario, both conventional and green GDP would grow as fast as, or faster (and more sustainably) than under BAU.

Gains steadily increase under the GE scenario, while in the BAU scenario the rate of growth in GDP slows down more quickly in the medium and longer term (for scenario description see page 15).

Growth comparisons - green GDP and conventional GDP

When measured according to conventional GDP, GE investments will generate US$ 1.7 for each $ invested by 2030. The break-even point (considering all investments) is achieved by 2024. When measured according to green GDP—which includes the contribution of natural stocks and welfare and takes into account the effects of production practices and GDP on natural capital—GE investments by 2030 will generate US$ 4.2 for each $ invested.

When investments are introduced, a key difference can be noticed between the net return on investment using a conventional GDP calculation or the green GDP approach. Using green GDP, the return on investment is immediately positive. Green GDP in the simulations grows faster and more sustainably than conventional GDP.

The added benefit from nature and avoided costs from damaged ecosystem services, facilitated by GE investments, is 161% higher than the investment itself. This is driven in part by two key changes arising out of successfully sustaining HoB’s natural capital:

  • avoided costs: reduced risk and damage from floods and drought s, resulting also in lower road and infrastructure disruption, higher river transport capacity and reduced siltation;
  • added benefits: higher production of non-timber forest products, ecotourism, higher biodiversity, more carbon stored and enhanced ecosystem services.

Using conventional GDP, at the outset there are only costs, which is why the return on investment starts at -100%. Over time, as GDP grows, the net return on investment increases.

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Improving economic performance through the green economy

Whether measured according to conventional or green GDP, the GE scenario indicates a potential slight reduction in profitability of the palm oil sector due to lower yields on degraded land, offset by improved ecosystems (leading to reduced costs for businesses, households and the government), larger revenues from non timber forest products and tourism, higher crop yields and lower domestic energy (especially fossil fuel) consumption, allowing energy costs to decline below BAU and exports to increase beyond the base case.

The development of biodiversity based businesses and the expansion of innovative green sectors also contribute to improved economic performance.