This book presents a new System Dynamics model (the ERRE model), a novel stock and flow consistent global impact assessment model designed by the authors to address the financial risks emerging from the interaction between economic growth and environmental limits under the presence of shocks.
Building on the World3-03 Limits to Growth model, the ERRE links the financial system with the energy, agriculture and climate systems through the real economy, by means of feedback loops, time lags and non-linear rationally bounded decision making. Prices and their interaction with growth, inflation and interest rates are assumed to be the main driver of economic failure while reaching planetary limits. The model allows for the stress-testing of fat tail extreme risk scenarios, such as climate shocks, energy transition, monetary policies and carbon taxes. Risks are addressed via scenario analyses, compared to real available data, and assessed in terms of the economic theory that lies behind. The book outlines the case for a government led system change within this decade, where the market alone cannot lead to sustainable prosperity.
This book will be of great interest to scholars of climate change, behavioural, ecological and evolutionary economics, green finance, and sustainable development.
"As the impact of climate change progresses, relatively likely and foreseeable events, such as production shocks in the food systems as a result of disease, weather-related yield loss, infrastructure failures due to physical or digital issues, need to be better modelled and understood. This new understanding of risk, as a dynamic topography where sub-acute and acute trends and events may come together rapidly and at large scales requires new analytical foundations. The model, ERRE, presented in this book offers the foundation to simulate and query how these shocks may occur, and may cascade through the global social and financial systems. These insights are key to building the physical, community, and financial resilience that must be at the heart of humanity's efforts in the 21st century." -- Molly Jahn, Professor at University of Wisconsin-Madison, USA
"Nearly 50 years have passed since the publication of the first world model, the famous report to the Club of Rome titled 'The Limits to Growth'. Today, we see a remarkable return of interest in this subject and one result is this book by Pasqualino and Jones that extensively reviews the earlier work and includes the description an improved world model called ERRE. We badly need formal models to understand a world that’s becoming way too complex for our intuition to grasp. This book is a considerable step forward in the right direction." – Ugo Bardi, Professor at University of Florence, Italy
"Roberto Pasqualino and Aled Jones have produced a hugely ambitious and timely piece of work. In its time, the original 'Limits to Growth' was hugely influential, and as we lurch towards a climate emergency, this thoughtful and thorough approach to modelling the world deserves to have as much impact, not least in its challenge to the dominant reductive economic thought." – Nick Silver, Chairman, Climate Bonds Initiative, UK
"The Anthropocene demands a fresh approach to analysing the real risks to humanity of a destabilising Earth System. This book is a big step towards meeting that challenge, exploring the shocks, feedbacks, tipping points and other disruptive surprises that might lie ahead." -- Will Steffen, Emeritus Professor at the Australian National University, Australia
Part 1: World Models and Limits
1. The First Formal World Models
2. Comparison Between World3 Scenarios and Historical Data
3. Welcome to the Real World!
Part 2:Economic Risk, Resources and Environment (Erre) Model
4. The Evolution of Economic Thinking and System Modelling Techniques
5. The ERRE Model
6. ERRE Database, Statistical Validation and Stress test Scenarios