Targeted Scenario Analysis, a Practical Policy Reform Tool to Advancing an Economic Green Recovery and Sustainable Sectoral Development Policy and Investment

UNDP developed Targeted Scenario Analysis (TSA) to respond to the growing demand from decision makers and stakeholders for effective policy-relevant economic analysis tools to advance national Sustainable Development Goals.

Advancing sustainable sector policy and investment in high-profile productive sectors is at the core of achieving the renewed COP-26 commitments to greening the post-COVID19 economic reconstruction, tackling climate change, and restoring nature. However, policy reform is extremely challenging for politicians who maneuver within a short-term political planning horizon, the four to five years between elections, combined with significant lobbying pressure to maintain the status quo. Meanwhile, natural capital's gradual change provides ample time to follow a "business as usual (BAU)" path of unsustainable nature degrading policies over decades. In addition, the lack of economic data to demonstrate the economic losses associated with the BAU path from the monetary and natural capital perspectives prevents accountability by governments to demonstrate sustainable use and investment in natural capital.

Understanding the reasons underlying policy's objectives and shaping economic analysis to address them is critical to improving decision-making and advancing policy reform. Thus, UNDP's Targeted Scenario Analysis (TSA) offers a practical approach to connecting policy objectives with fit-for-purpose economic analysis. UNDP developed TSA over several years based on an extensive project portfolio review and research supported by leading environmental economists. TSA enables the conversion of economic data into sustainable sector development policy.

TSA captures and presents the value of ecosystem services to target decision-making, not in a generic, abstract manner. TSA makes a direct comparison between two policy scenarios. First, a business-as-usual (BAU) scenario in which the status quo conditions, i.e., unsustainable sector management and limited investment, are projected into the future, and second, a so-called sustainable ecosystem management (SEM) scenario. SEM introduces ecosystem and natural capital management improvements into sector development policy and investment. A vital element of a TSA is that it is conducted for a particular productive sector and tailored to the specific objectives of the public or private decision-maker of the targeted sector. Policy scenarios are compared based on a wide range of carefully selected indicators in close consultation with the decision-maker (the TSA client). TSA's focus on a specific decision maker increases the likelihood that the data generated through the research is used to transition into a more effective and efficient allocation of public and private investment; therefore, it improves the sustainable management of natural capital.

At the end of a TSA, the evidence generated through research provides balanced insights into the advantages and disadvantages of keeping on track with BAU, compared to a change of direction in which the targeted sector manages ecosystems sustainably and effectively. Another critical element that sets a TSA apart from traditional economic valuation or cost-benefit analysis is that TSA shifts away from generating a policy-isolated single static value toward a long-term analysis. Thus, it shows year-to-year changes between the BAU and SEM scenarios by applying key monetary and non-monetary indicators.

As such, the main product of the TSA is a package of policy recommendations supported by the economic evidence applied to each indicator of the benefits of shifting from BAU to SEM. For each policy recommendation, a subset of indicators and graphs illustrates the development of these measurable indicators over time for both policy scenarios. Each TSA graph includes a narrative that clearly states the primary stakeholder for the analysis, an in-depth description of the methods, assumptions, and data sources used to generate the results, and confidence levels and uncertainty associated. Apart from explaining the results depicted in the graphs, there is a clear indication of what those results mean in policy decisions.

TSA's approach provides information on the results of specific decisions and management practices as a continuous, long-term analysis, showing relative change over time of key monetary and non-monetary indicators rather than a single static value. This approach is instrumental for decision making, as decisions are rarely made based on single numbers in isolation, but rather by comparing at least two policy options over time. As the name suggests, Targeted Scenario Analysis has three participatory pillars:

Targeted: TSA helps decision makers and stakeholders focus on critical decisions, which involves changing how the sector manages the ecosystem services, leading to improvements in sustainable development outcomes and profitable sustainable business. TSA targets management and investment policy, both public and private.

Scenario: It does this by developing and contrasting existing and future scenarios – Business as Usual vs. Sustainable Ecosystem Management – that link changes to biophysical and socio-economic indicators as the scenarios evolve.

Analysis: It presents an in-depth analysis of selected sustainable development indicators into the future. Decision makers select the priority and relevance of these indicators, e.g., changes in soil fertility or water availability, changes in natural capital-based productivity gains and losses, investment costs, avoided costs, net revenues, jobs, and equity and gender indicators.

Watch TSA’s Lead Author, Francisco Alpízar, Professor of Behavioral Economics at The University of Wageningen, talk about the practicality and advantages of TSA: