Drivers of GDP change

GDP impacts are determined by changes in its components: private consumption, investments and trade (public consumption is treated as exogenous in most models). Depending on the scenario specifications (e.g.) channels may differ. For example, policies that promote the deployment of renewables provide a demand boost in the economy through investments, while carbon border adjustment measures aim to provide a competitiveness boost in domestically produced goods and hence change trade balance. The overall effect on GDP will be determined both direct (first order) and indirect (second order) impacts.

The main economic indicators that can be used to explain economic performance in a clean energy transition context are: GHG and fossil fuel intensity, production potentials in clean energy goods and fuels, import dependance (in fossil fuels and clean energy goods), labor and capital intensities. It should be noted that changes in general equilibrium context changes are not univocal and cannot be completely captured by sequence diagrams. Agents interact simultaneously and markets clear at each point in time. This section on drivers aims to give the reader a general overview of interactions that lead to equilibrium.

GDP drivers #1

A general overview of the loops between different determinants of GDP can be found in the next diagram. The following diagram attempts to depict the main characteristic of the CGE model and part of its complexity (simultaneity) which is that markets clear at each point in time (demand equal supply in equilibrium).

GDP drivers #1