Gross Ecosystem Product in macroeconomic modelling

The benefits provided by ecosystem services, such as crop pollination and water purification, are of great importance to any economy, both directly and indirectly. Therefore, nature-inclusive decision-making requires that such benefits are taken into account in the economic decision-making process. However, in most assessments, the Gross Domestic Product (GDP), which shows the total value of output/income generated in a country, is used as the main economic development indicator, not cap-turing fully the contributions of nature to economic activity and human well-being. The concept of Gross Ecosystem Product (GEP) (see Ouyang et al. 2013 and 2020), which summarizes the value that ecosystem services provide to the economy in monetary terms is a way to overcome these short-comings in policy assessments. This technical report introduces and showcases the new GEP module in the macroeconomic model MAGNET. MAGNET is a GTAP-based global CGE model used to assess policy impacts on the economy. MAGNET’s endogenous land supply and forestry representation makes this model particularly suitable for this task. Built upon the Integrated Natural Capital Accounting (INCA) database on monetary value of ecosystem services, the new GEP module allows for comparison of the impact of different policies on both GDP and GEP in the European Union. The report provides an example of a practical applica-tion of the GEP module. In particular, we apply a forward-looking policy scenario that assumes a sig-nificant change in consumption patterns. The results of preliminary simulations show that such an impact can significantly differ both between GDP and GEP and across particular ecosystem services.