Green fiscal policy in an empirical UK E-SFC model

A Notable Contribution

• First empirical E-SFC model for country-specific climate policy analysis
• Laudable calibration effort on UK national accounting data
• SFC methodology well-suited for environmental macroeconomics:
  • Stock-flow consistency for ecological flows
  • Avoids Walrasian equilibrium constraints
  • Integrates finance and endogenous money
  • Captures macroeconomic diffusion between institutional sectors

The Fundamental Epistemological Paradox

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Critical Blind Spots

• Distributional effects absent:
  • No agent-based modeling → no fine-grained distributive impacts
  • Homogeneous households → regressive effects of carbon tax invisible
  • No social classes → inequality dynamics ignored
• Political acceptability ignored:
  • Popular resistance to green policies (Yellow Vests)
  • Electoral cycles vs. transition temporalities
  • Coalition building and territorial conflicts

Environmental Modeling: Cost vs. Thresholds

Critical question: Does the model reproduce weak sustainability assumptions despite claiming heterodox methodology?

Market Limits & Structural Blindness

• Cannibalization effect identified but not questioned:
  • "Lower marginal-cost electricity production reduces power sector income"
  • Model captures market failure but treats it as technical constraint
  • No questioning of market framework creating the problem
• Degrowth disclaimer problematic:
  • "Carbon pricing is not a degrowth policy, lower activity is a side effect"
  • Artificial distinction in ecological constraint context
  • Why not embrace activity reduction as objective?
• Expectation structure inconsistency:
  • Claims non-rational expectations (SFC strength)
  • But behavioral equations don't reflect this specificity

Methodological Questions

• Calibration bias: OBR/NESO baseline reproduces current policy limitations
• Conservative legitimization: Model presents insufficient policies as "realistic"
• Behavioral parameters: How are green investment equations estimated when "past doesn't predict future"?
• Robustness: Sensitivity tests for key environmental parameters?

Key Questions for Discussion

• Market framework contradictions:
  • Model identifies cannibalization effect but doesn't question market logic
  • Why treat systemic market failure as technical constraint?
  • Alternative institutional frameworks for renewable transition?
• Methodological coherence:
  • How to reconcile SFC non-rational expectations with behavioral equations?
  • Why avoid degrowth framing when activity reduction may be necessary?
• Building on existing SFC literature:
  • Addressing "climate Minsky moments" (Dafermos & Nikolaidi 2019)
  • Integration of political variables (Van Eynde et al. 2024)
  • Beyond OBR baseline conservatism toward transformative scenarios

Toward Integrated Environmental Modeling

• Valuable E-SFC technical progress, but environmental challenges require integrated approach
• Methodological pathway forward:
  • SFC-environmental + ABM (social/political heterogeneity) + I-O matrices
  • Model policy acceptability alongside economic impacts
  • Enable non-market coordination mechanisms (planning, constraints)
• Fundamental perspective shift needed:
  • From policy optimization to transformation pathways
  • Start with planetary boundaries, work backwards to compatible scenarios
  • Question growth paradigm rather than optimize within it

Thank you for your attention

Proposed Modular Architecture

Modular approach: Each block feeds into and receives feedback from the SFC core, within planetary boundary constraints

Key References: E-SFC Environmental Modeling

• Foundations:
  • Godley, W. & Lavoie, M. (2007). Monetary Economics. Palgrave Macmillan.
  • Dafermos, Y. & Nikolaidi, M. (2019). Fiscal Policy and Ecological Sustainability. Ecological Economics, 178.
  • Dafermos, Y., Nikolaidi, M. & Galanis, G. (2017). A stock-flow-fund ecological macroeconomic model. Ecological Economics, 131.
• Intersectoral Integration:
  • Berg, M., Hartley, B. & Richters, O. (2015). A stock-flow consistent input–output model. New Journal of Physics, 17.
  • Carnevali, E. et al. (2021). Cross-border financial flows and global warming in a two-area ecological SFC model. Socio-Economic Planning Sciences, 75.

Key References: Political Economy & Acceptability

• Political Acceptability:
  • Gatti, D. & Vauday, J. (2024). AI Diffusion, Disasters, Environmental and Social Change. FAERE Conference.
  • Gatti, D. & Vauday, J. (2023). Environmental transition through social change and lobbying by citizens. FAERE Conference.
  • Gatti, D., Del Lo, G. & Serranito, F. (2023). Determinants of environmental policy stringency in European countries. INFER Conference.
• Sustainability Paradigms:
  • Parrique, T. et al. (2019). Decoupling debunked: Evidence against green growth. European Environmental Bureau.
  • Raworth, K. (2017). Doughnut Economics. Random House.
  • Clévenot, M. & Funalot, P. (2025). Environmental Sustainability, Macroeconomic Stabilization and Climate Finance. Chapter 23.

Key References: Planetary Boundaries & Backcasting

• Planetary Boundaries Framework:
  • Rockström, J. et al. (2015). Planetary boundaries: Guiding human development on a changing planet. Science, 347(6223).
  • Rockström, J. et al. (2025). Earth beyond six of nine planetary boundaries. Science Advances.
• Backcasting Methodology:
  • Svenfelt, Å. et al. (2014). Low-carbon futures and sustainable lifestyles: A backcasting scenario approach. Futures, 58.
  • Carabias, V. et al. (2012). Backcasting scenarios for Finland 2050 of low emissions. Foresight, 14(4).
• Critical Perspectives:
  • Weitzman, M.L. (2009). On Modeling and Interpreting the Economics of Catastrophic Climate Change. Review of Economics and Statistics, 91(1).