For the European Commision's major foresight analysis project FLAGSHIP, TNO is modelling trends in climate change to 2050 and their economic consequences. The focus is on the greenhouse-gas emissions and the availability of scarce natural resources. The results of this EU project will serve as a basis for European policy to respond effectively to important societal challenges such as deomograhic ageing and climate change.
FLAGSHIP brings together the expertise of fifteen leading European research institutes, including TNO. The economic models developed by TNO are based on years of experience and pioneering theoretical insights. After helping to develop the Dutch guideline for cost-benefit analysis, we have applied our specialist knowledge in an international context. The most recent TNO models include all EU Member States and the world's leading economies. For all these countries, and by region, we can analyse in detail at sector level what the effects will be of investment and external developments such as demographic ageing and climate change. Our models are not limited to the economy alone; they also analyse the consequences for people and the environment. Within FLAGSHIP, TNO is focusing on modelling the 'sustainability' component. In long-term scenarios (to 2050) we are analysing expected developments in greenhouse emissions and the availability of natural resources.
Modelling is an art. Economics is about people. The current Great Recession that began in 2008 has shown that certain economic theories need to be revisited. Clearly we have not yet succeeded in creating a market economy that functions perfectly. One of the main lessons is that we need to adjust our view that human beings are rational individuals who always weigh up costs and benefits before making choices. TNO therefore bases its models on actual trading patterns between branches of industry. The models also include elements of multi-agent modelling, based on the individual behaviour of households and businesses in the economy. This makes the models considerably more realistic. All models are, of course, an abstraction of reality. The added value of TNO's state-of-the-art modelling lies in the significant gain in the reliability of the results.
The major issues confronting the world make scenario-building a highly challenging exercise. The European Commission rightly refers to these issues as 'grand societal challenges'. How long will demographic ageing continue, and what is its impact on incomes and social security in a Europe that has a tradition of generous collective welfare systems? If Asia becomes as prosperous as the West, will we still be importing clothing from China in ten years' time, or will the West be sending full container ships eastwards? Will it be possible to reduce greenhouse emissions by 80% by 2025 - the expected minimum reduction needed to limit global warming to two degrees by 2100? And how will the shale-gas revolution affect this? Will we still be able to use mobile phones if we run out of the metals we need to make them? TNO's models can put developments such as these in the right perspective and aid the development of robust policy.