IMPACD: Integrated macroeconomic model of pandemics, climate change, & deforestation
Final Report Abstract
The IMPACD framework integrates deforestation, pandemics, and climate change, into a global macroeconomic model and highlights their interconnected risks. IMPACD is forwardlooking, dynamic, and stochastic, implying that socially optimal decision-making considers future consequences of decisions, and the random variability associated with the dynamic evolution of the economy, the climate, and the forest mass. Forests provide critical ecosystem services, including by acting as carbon sinks and biodiversity reservoirs, and—as we show, for the first time in this strand of the economics literature—as natural barriers against emerging infectious diseases (EIDs). IMPACD introduces the concept of the “barrier service effect,” quantifying forests’ social value in reducing the occurrence of zoonotic pandemics like Ebola and COVID-19. Quite surprisingly, IMPACD estimates this barrier service effect to account for over 90% of the total social cost of deforestation (SCD), calculated at USD 11.18 per ton of CO2. This major finding underscores forests’ importance in mitigating pandemic risks. The barrier service effect of global forests extends beyond their carbon storage service and biodiversity value, positioning forests as critical shield against global health crises. Thus, retaining forests intact is not only a climate strategy but also a preventive measure against pandemics. Consequently, the true return on investment in forest conservation is much higher, as reducing deforestation also minimizes zoonotic spillovers and mitigates economic losses from pandemics, which have global macroeconomic repercussions. For example, given a 30- year return period of zoonotic pandemics coupled with a 4% global output loss, IMPACD suggests a significant economic rationale for preserving forests. A sensitivity analysis regarding post-pandemic losses to global output and the zoonotic EID hazard rate generates a surprising insight. Doubling the hazard rate or post-pandemic global output losses doubles the expected SCD. Policymakers can use these insights for regulatory purposes and price deforestation externalities effectively, aligning economic incentives with ecosystem conservation goals. IMPACD contributes to bridging knowledge gaps identified by platforms like the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) and Intergovernmental Panel on Climate Change (IPCC), which stress the need for economic models that account for ecosystem services’ role in mitigating pandemics. Future research could address the difficulty of calibrating the model’s risk structure and incorporate robust decision-making into the IMPACD framework, allowing for more appropriate analyses that consider the inherent uncertainty regarding model misspecification. Finally, IMPACD provides a foundation for future research into regional deforestation impacts on ecosystem service valuation. A regional disaggregation could study the heterogenous effects of deforestation by framing forests as global public goods with multidimensional benefits, providing further support for urgent, coordinated international action against deforestation.
Publications
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Asset Pricing with Disagreement about Climate Risks. SSRN Electronic Journal.
Lontzek, Thomas; Pohl, Walt; Schmedders, Karl; Thalhammer, Marco & Wilms, Ole
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The Social Cost of Carbon When We Wish for Full-Path Robustness. Management Science, 69(12), 7585-7606.
Zhao, Yifan; Basu, Arnab; Lontzek, Thomas S. & Schmedders, Karl
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IMPACD: An Integrated Macroeconomic Model of Pandemics, Climate Change, and Deforestation . Elsevier BV.
Lontzek, Thomas & Thalhammer, Marco
