How Do We Achieve a Sustainable Economy?
 Research Project

Timescales and Investment Dynamics in the Economy

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Principal Investigator: Jean-Francois Mercure

Dr Jean-Francois Mercure is a senior Lecturer in Global Systems at the University of Exeter. He is an innovation scholar, macroeconomist and complexity scientist focussing on modelling innovation, the macroeconomic impacts of low-carbon innovation and technological change policy, the diffusion of innovations, and the global energy-economy-environment system. He analysis climate policy and environmental governance from a social science viewpoint. He contributed substantially to the design of the integrated assessment model E3ME-FTT-GENIE, which is used notably for policy analysis at the European Commission and various other governments and stakeholders

Jean-Francois' theoretical focus stems from the application of complexity theory in innovation systems and macroeconomics. The energy-economy-environment system is a complex system that features many feedback interactions.

Co-Investigator: Andrew Jarvis (University of Lancaster)

Andrew Jarvis is currently a senior research fellow in the Lancaster Environment Centre and has worked on systems dynamics and control for over 25 years. He has published in the fields of systems biology, ecology, climate modelling, and ecological economics. He has been awarded £950k of research income sourced from EPSRC, NERC, DAAD.

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Project Summary

A recent special report by the Intergovernmental Panel on Climate Change (IPCC) has identified that global emissions must reach net-zero by approximately 2050 in order to keep global temperature change below 1.5°C. The transition to net-zero emissions by 2050 requires progressive and near-complete scrapping of almost all carbon intensive capital in the economy within this timeframe. Where these assets have sufficiently long lifetimes and are relatively new, a significant proportion of the investment becomes stranded before the payback time has elapsed. As a result, the expected value of these assets would be radically revised ahead of this taking place, implying immediate financial losses to their owners and lasting impacts on wider economic growth through the loss of planned returns.


Predicting the economic impact of such a transition, and hence also understanding the economic barriers to it, depends on knowing the spectrum of lifetimes, payback times, investments and returns for the assets comprising an economy. However, the inertial properties of economies are not well understood in economic theory where, traditionally, capital is not viewed as having characteristic timescales and associated amplitudes. And yet capital assets are formed from investment in elements with very broad ranges of lifetimes and returns are expected over equivalent time frames. For example, when we invest in a new building the walls and foundations might be useful for decades, whereas the paint on the walls or the carpets might be useful for years, with each providing returns on these timescales. Although we tend to think of them as expenditures rather than investments, even the electricity powering the lights, or the gas heating the rooms provide returns, albeit on timescales from hours to milliseconds. We predict that the pattern of investment and return over these timescales is a fundamental functional trait of economies, just as it is in biological systems.


In TIDE we aim to construct a macroeconomic relationship between investment, return and timescale by triangulating three different methods: life cycle analysis of specific asset classes; frequency analysis of national input-output tables; and differential growth analysis of national GDP data. This aggregate investment-return-timescale relationship will be implemented in an ecologically inspired simple integrated assessment model to explore the inertial effects of forced and unforced transitions from high to low carbon investment portfolios. Filling this gap in current knowledge is crucial in order to better inform how to formulate climate policy, harmonise it with industrial and innovation policy, and mitigate the detrimental impacts that rapid structural change may impose on various sectors and groups of stakeholders.



Results will be published here when available.

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