Financing the energy transition: a biophysical, stock-flow consistent approach at a global scale
Pierre Jacques, Antoine Godin, Devrim Yilmaz, Hervé Jeanmart
The abundance of cheap energy, in the form of fossil fuels, has been a key driver of the economic development of modern societies. Hence, the transition towards renewable energies at a global scale – mainly solar and wind – will be one of the most powerful forces that will shape the globalized economy of the 21st century. In order to understand the dynamics at hand, we construct a Stock-Flow Consistent model combining the insights from (i) EROI curves for global wind and solar potential , (ii) a simple energy-economy model assessing the feasibility and implications of the energy transition  and (iii) a global model incorporating the interactions between the economy, finance and climate dynamics . The model is a system dynamics model of the global economy treating explicitly the interactions between sectors (energy, banking, households, public and rest of the economy) and the feedback loops between flow dynamics and accumulation or depletion of stocks. This stock and flow consistency, similar to conservation laws from the natural sciences, ensures that unsustainable financial developments are accounted for in the overall dynamics. This is fundamental given the recent importance given to green finance. Our new model shares a certain number of similarities with the one of Jackson and Jackson  but differs in several aspects. First, our model is not UK- specific but at world level and is based on very different EROI curves. Most importantly, it explicitly includes the major role which the State has to play in the energy transition and its financing. Thanks to this, we can discuss the feasibility of the energy transition, together with several financing strategies and their impacts on debt, inflation, employment, and income distribution.