Why not simply using LOD ?
Caus making characters 2D ans their animation will perhaps be a too much amount of work (even in coding) !


You can quickly made LOD models by removing vertexes, using low res textures at certain point !

You can make your own LOD for characters by code also, using 5 or more LOD steps will allow better performance and good transition between them difficult to notice if well done!

-For plants , trees, use simple billboard at some distance (Far Cry was a great example)
-Even for buildings you can use billboards like in Guild Wars game where it is oubviously used and the transition is ok caus they do a fade in , fade out transition by transparency.
-Oblivion alos use progressive fade in with transparency to make very near objects appear, and caus you play and it is very smooth , you even not notice it

If it do not speed try some other 3D engine (even free like Ogre3D or non free like C4 engine) ? (A7 is not the more powerfull for heavy scenes and effects) !