Welcome to the second session of the mooc “simulation models for the design of transition
paths towards a sustainable society.”
Today, we will learn how the MEDEAS economy module works.
This topic of the course will be developed in two sessions.
In the first place, some basic aspects of the economy-environment relationship, on the
notion of sustainability and the ecological economics approach will be highlighted.
Secondly, some general and novel features of the MEDEAS economy module will be explained.
Also in the second session of this topic, the structure and examples provided by the
MEDEAS economy module will be presented.
Let us begin by considering the four traditional ways in which the economy depends upon the
environment.
First, the environment provides natural resources (energy, minerals, land) to produce goods
and services.
Second, nature allows us to consume final goods such as water, energy and amenity values.
Third, the capacity of the environment to absorb the solid, liquid and gaseous waste
from production and consumption processes.
Finally, nature provides the basic life support for human survival.
It should be noted that these relationships between economy and nature can be analyzed
in two ways.
On the one hand, mainstream economics has generally come to accept the idea that the
environment should be treated as another variable in the economic system, along with labor or
capital, for example.
Thus, nature and ecosystems are seen as subsystems of the economy, rather than seeing the economy
as embedded within the larger systems of society and the biosphere.
On the other hand, ecological economics takes the more realistic latter view: the economic
system is a subsystem embedded in a larger system, the biosphere, and therefore its dynamics
are restricted to, and should be compatible with, the laws governing the functioning of
the biosphere itself (the laws of thermodynamics and ecology).
Unlike the conventional approach, the production of goods and services is here considered an
open system, co‐evolving in close collaboration with other social and natural systems.
Given that ecological economics insists that the economy must be seen as a subsystem of
the environment, thus sustainability should be analyzed as a “scale issue.”
It refers to the size of the economic system within the biosphere, which raises an important
question: how can this size be measured?
An alternative proposed by ecological economists is based on accounting for energy and materials
that flow through the economy (socioeconomic metabolism).
Ecological economics is therefore concerned with highlighting the limitations of energy
and material consumption as constraints on any situation of unrestricted growth in the
production of goods and services.
Thinking in terms of open systems involves first rethinking the representation of the
economic process; going beyond the traditional circular flow of income between households
and firms to incorporate natural resources before they are assigned monetary value, and
waste once they have lost their value.
From this perspective the economic process can be described in terms of social metabolism:
just as any organism takes energy and food from nature to live, grow, and reproduce,
the economy extracts raw materials, energy, and work and transforms them into consumer
goods, infrastructures, and waste.
The MEDEAS economy module is building upon an ecological economics perspective.
Some general remarks should be pointed out: First, unlike the conventional optimization
economy-energy-environment models (which have several methodological and theoretical flaws
not considered here), MEDEAS is a simulation model that describes the intertwining between
the energy-economy and climate, which allows the propagation of disturbances into the system
to be examined and the different outcomes of policies to be evaluated.
Second, MEDEAS is a demand-led model.
In this way, the production of goods and services is determined by the evolution of the aggregated
demand.
As demand-led models tend to underestimate, or directly not take into consideration, biophysical
supply-side constraints (so gdp is able to keep growing unhindered), the main contribution
of MEDEAS in relation to this is the incorporation of supply constraints (energy availability
and climate change impacts), which affect the economic process and limit the growth
of gdp.
Third, MEDEAS is sectorial disaggregated.
By using ioa to start the demand modelling, MEDEAS can not only make a sectorial analysis
of its results, it is also able to capture structural conditioners in transitions, something
often missing in macro-economic modelling.
And finally, by linking ioa, system dynamics and a demand-led approach, MEDEAS contributes
in an original way to the three concerns present in the field of ecological macroeconomics.
Following hardt and o’neill (2017), these concerns are: 1) the need to manage an economy
without growth; 2) to find new analytical models to represent the interdependence of
the economy and the environment; and, 3) building a bridge between the post-keynesian and ecological
economics approaches.
This has been the description of the theoretical and methodological framework of the MEDEAS
economy module.
Now, we are ready to describe it and see some examples in the next session of this topic.