Work

Modelling energy transition risk: The impact of declining energy return on investment (EROI)

Year: 2021

Type: article

Abstract: A number of papers in the field of net energy analysis have argued that declines in energy return on investment (EROI) could lead to increasing energy prices and a fall in economic growth. This paper develops a model (TranSim) which can simulate the economic and financial implications of an energy technology transition involving a reduction in EROI, by combining the stock-flow consistent (SFC) approach with an input-output (IO) model. The TranSim model has the following key features. First, it includes three firm sectors, that produce energy, capital, and other (non-energy, non-capital) goods. Second, an IO model and an Almost Ideal Demand System are integrated into the SFC model. Third, capital vintages have embedded levels of labour productivity and intermediate good requirements that depend on the economic conditions in the period the vintage was produced. Simulations are characterised by an initial increase in output (due to higher investment), followed by periods of recession and below trend growth (due to price inflation and changes to the functional income distribution). The negative effects associated with the transition – recession, stagnation, stagflation, increasing inequality and asset stranding – are positively related to the capital intensity of green energy production and reductions in EROI.

Source: Ecological Economics

DOI: 10.1016/j.ecolecon.2021.107023

Authors: Andrew Jackson, Tim Jackson

Institution: University of Surrey

Language: English

Topic: Global Energy and Sustainability Research

Subfield: Renewable Energy, Sustainability and the Environment

Field: Energy

Domain: Physical Sciences

SDGs: Affordable and clean energy, Industry, innovation and infrastructure, Climate action, Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $3,580