Economic Risk, Resources and Environment Model, 2016-2021

Economic Risk, Resources and Environment (ERRE) is a system dynamics model whose purpose is to analyse the financial pressures emerging from global economic growth while coping with natural limits in both energy and agricultural systems. A major feature of the model is to integrate in the same framework both the dynamic evolution of long term phenomena (e.g. energy transition, climate effects) and the short to medium term structures that are more relevant to decision making in the real world (e.g. extreme weather effects, irrational behaviours of markets). Building on the World3-03 Limits to Growth model, 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. Developed within the the CUSP System Dynamics theme, 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.