Predicting Sustainable Economic Welfare – Analysis and perspectives for Luxembourg based on energy policy scenarios

Abstract

Ambitious energy policies have been established in Luxembourg, which has one of the highest Gross Domestic Products (GDP) per capita in the world but still much depends on imported fuels and electricity. Born as an alternative to GDP, the Index of Sustainable Economic Welfare (ISEW) is applied in this study as a framework to predict socio-economic and environmental performances of Luxembourg in relation to energy policy scenarios. The ISEW for the 1960–2010 timeframe is firstly calculated and compared with GDP in order to disclose the impact of factors differently considered by the two indices, e.g. consumption trends, equity, air pollution, carbon emissions, consumer durables expenditures, investments, etc. A forecasting model to predict the ISEW trend until 2030 is then proposed to assess the relevance of national energy policies. The analysis of historical time-series shows that the ISEW grows over time at much slower pace than GDP, mostly due to increases in defensive expenditures. This gap may decline in the future by implementing those energy policies, providing a slight but tangible recovery of the economic welfare over the next 10–15 years. Several insights are ultimately given on the benefits and drawbacks of using the ISEW framework to assess long-term sustainability issues.