Using inclusive wealth for policy evaluation: Application to electricity infrastructure planning in oil-exporting countries
Decision-makers often seek to design policies that support sustainable development. Prospective evaluations of how effectively such policies are likely to meet sustainability goals have nonetheless remained challenging. Evaluating policies against sustainability goals can be facilitated through the inclusive wealth framework, which characterizes development in terms of the value to society of its underlying capital assets, and defines development to be potentially sustainable if that value does not decline over time. The inclusive wealth approach has been developed at a theoretical level and applied to retrospective evaluations. Here, we apply inclusive wealth theory to prospective policy evaluation coupled with dynamic simulation modeling, using a case of electricity infrastructure policies in oil-exporting countries. To demonstrate the prospective evaluation, we analyze investment policies in non-fossil electricity capacity in terms of their forecast impact on several dimensions of inclusive wealth. Illustrative results show that investing in non-fossil capacity in Saudi Arabia and Kuwait can increase components of the countries' inclusive wealth, though the impacts depend on future uncertainties. In contrast, comparable components of the UAE's net inclusive wealth decline under similar investment policies. Finally, including human capital improvements in estimates of inclusive wealth substantially increases its value, though the amount varies across the countries.
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