Transitions to sustainable development Karolina Safarzynska

Outline of the presentation Sustainability transitions Lines of current research: - the optimal diversity of energy technologies - diversity of energy sources - modelling the rebound effect Conclusions

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Sustainable development

Core Questions of Sustainability Science How the dynamic interactions between nature and society can be modeled? What are long-term trends in environment and development reshaping nature-society interactions? What systems of incentive structures can most effective guide society toward sustainability? Kates et al., (2001) Science

Sustainability policies Regulations Prices Behavioral change Technological change

Transition Network Knowledge Network for System Innovations and Transitions Sustainability Transition Research Network Environmental Innovations and Societal Transitions

Transitions Transitions are “… a gradual continuous process of societal changes in which society (or a complex subsystem of it) structurally changes its character..” They are characterized by persistent problems deeply rooted in current practices and prevailing structures. Rotmans et al. (2000)

Transitions Geels, (2005)

Managing Transitions Kemp and Loorbach, (2005)

Evolutionary modeling of sustainability transitions Methods Concepts Agent-based modeling Evolutionary game theory Evolutionary algorithms Dynamic systems Innovation-Selection- Diversity - Bounded rationality Path dependence Group selection Coevolution Safarzynska, (2010)

Open questions for modeling Multi-level Multi-phase Coevolution Learning Safarzynska, Frenken, van den Bergh (2012) Research Policy

How to support sustainability transitions? Guiding by understanding General Question How to support sustainability transitions? Guiding by understanding How to analyze the second-order effects of policies? By designing models to unravel mechanisms underlying the system development

Nuclear and renewable obligations Policies The optimal allocation of investments between different energy technologies Energy efficiency Energy taxes Nuclear and renewable obligations

The optimal diversity

An innovation-selection model shares of investments technology fitness mutation the average fitness =1 if technologies can be recombined recombination

Three-technology context

Selection environments Fitness Constant unit costs Costs decreasing steadily over time Costs decreasing along learning curves

Investment in recombinant innovations X3 X3 X1 X1 X1 Recombination alone Recombination and mutation Safarzynska, van den Bergh (2011) Journal of Economic Behavior and Organization

The average cost of energy technologies Safarzynska and van den Bergh (2013) Journal of Evolutionary Economics

Final remarks Sufficient investments in recombinant innovations ensure that a new technology emerge But too much investments in recombinant innovations can result in a lock in to a new technology, which limits possibility for future recombinant innovations

Diversity in energy systems Are changes in diversity of energy sources indicative of structural transformations? How energy diversity changes over the course of economic development?

Diversity of energy sources consumption of energy source j in country i total energy consumption in country i and if if

Diversity of energy sources Energy diversity: The similarity measure between countries i and k:

Diversity of energy sources Safarzynska (2013) in preparation

Energy space Safarzynska (2013) in preparation

Countries grow by diversifying energy sources Final remarks Countries grow by diversifying energy sources Energy diversity is indicative of structural changes

Modeling the rebound effect in two manufacturing industries Polices aimed at reducing energy use are often ineffective Improvements in energy efficiency do not bring a proportional reduction in energy use (Jevon’s paradox)

Demand and supply aspects of the rebound effect studies separately Problems Demand and supply aspects of the rebound effect studies separately A structural change towards high quality fuels is often ignored Aggregate data does not reveal specific mechanisms behind the rebound effect

Coevolution of demand and supply and electricity use Heterogeneous power plants Boundedly rational firms Two classes of consumer

Pricing and output decisions are modeled with the Cournot game. Heterogeneous plants Electricity market is composed of 11 heterogeneous power plants (gas, coal and nuclear) Pricing and output decisions are modeled with the Cournot game.

Cobb-Douglass production functions: Heterogeneous plants Cobb-Douglass production functions: Investments in a new power plant are based on the discounted value of investments:

Electricity market Safarzynska, van den Bergh (2011) Energy Policy

Producers of final products 5 firms offer differentiated product Two types of innovation processes: incremental improvements in product design and the search for radical innovation

Electricity as an input Electricity is an input in production: Changes in energy efficiency: τt= τt-1(1+στ)

Formal model – poor and rich consumers 2 classes of consumers: 11 rich and 89 poor Consumers rank products according to utility: where x is product quality p is price n is the network effect l captures the snob effect

Network effects through Market shares stj – the market share of technology j A technical characteristics

Illustrative example Safarzynska (2012) Technological Forecasting and Social Change

The indicator

Probability of the rebound effect Market share Technical Characteristics Network elasticity + Snob elasticity Substitution elasticity Share of capital in production Annual change in electricity efficiency -

Policies a tax on electricity ‘nuclear obligations’ to produce ten percent of electricity from nuclear energy.

The probability of energy backfire (out of 100 simulations)

Nuclear obligations Nuclear obligations increased significantly the share of electricity produced with nuclear energy It increases the share of nuclear energy in electricity production from 4% to 24%

The effectiveness of policies depends on the network effect Final remarks Clustering of consumer choices makes the rebound effect more likely to occur (the network effect) The effectiveness of policies depends on the network effect

Conclusions Managing transitions to sustainability requires understanding micro-mechanisms that underlie system development

Co-authors Jereon van den Bergh (ICREA, Barcelona, Spain) Keon Frenken (Eindhoven University, Netherlands) Roy Brouwer (VU, Netherlands) Marjan Hofkes (VU, Netherlands) Elefhteria Vasileiadou (VU, Netherlands)

Thank you!