03/03/2019

SYSTEM DYNAMICS. MODELING AND

SIMULATION IN ENGINEERING.
TOPIC 4: SYSTEMS DYNAMICS IN ACTION

• 4.1 Wold 3 and the Limits to growth models

• 4.2 Simulations of the energy transition: Enerfiction
and WoLiM models
• 4.3 The beer game
• 4.4 Time dependency and chaos

4.1 WORLD-3 AND THE LIMITS TO

GROWTH MODELS
•World 3 is probably the best-known and most relevant Sistem Dynamics model.
It’s also one of the firsts.

•In 1970, Jay Forrester, a MIT control engineer, was invited to the meeting of the
Club of Rome in Switzerland, who commissioned him a model of systems dynamics
for the future of humanity.

• The study presented to the Club of Rome is based on model, World 2, that was
published in the book World Dynamics (Jay W. Forrester, 1970, World Dynamics, Productivity
Press).

•The Club of Rome likes Forrester’s work and funds a much larger study and model
(World 3) in which William W. Behrens III, Jørgen Randers, Dennis Meadows and
Donella Meadows work. The results are published in a book published by Donella
Meadows that becomes a "best seller": The limits to growth (1972 Universe Books).

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4.1 WORLD-3 AND THE LIMITS TO

GROWTH MODELS

4.1 WORLD-3 AND THE LIMITS TO

GROWTH MODELS
•The results of World3 model show that the overexploitation of natural renewable
resources and the depletion of non renewable ones could cause a collapse, unless
appropriate measures are taken on time. The authors expose as a possible solution to
this collapse the "zero growth" or "steady state economy”.

•In 1992, a new version of the report entitled Beyond the Limits was updated and
published (Beyond the Limits, Chelsea Green Publishing 1992), in which it was stated that mankind
had already surpassed the planet's carrying capacity.

•On June 1, 2004, the updated and comprehensive version of the two previous
versions, entitled The Limits to Growth: 30 Years Later, is published (Chelsea Green
Publishing Company, 2004).

•Historical data fit the BAU scenario quite accurately, despite the difficulty of a 40-year
prediction seen and which the model was not intended to predict

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4.1 WORLD-3 AND THE LIMITS TO

GROWTH MODELS

4.1 WORLD-3 AND THE LIMITS TO

GROWTH MODELS
•The studies on the limits of growth were hardly criticized, specially within the world of
economics. Economist Robert M. Solow argued that the prediction of growth limits was
based on data with a weak base. Likewise, other critics have also argued that the report does
not take into account the possibilities of new discoveries of natural resources or technologies
that may appear and the mechanism of prices.

•In recent years several authors have compared the predictions of the 1972 report with the
historical data of these decades. Graham Turner in 2008 published an article comparing the
predictions of The Limits of Growth with the reality that occurred in the later thirty years (A
comparison of The Limits to Growth with 30 years of reality, Global Environmental Change, August 2008)
and Ugo Bardi in 2011 analyzes the report, its methods and its historical reception (The Limits
to Growth Revisited, Springer 2011) .

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4.1 WORLD-3 AND THE LIMITS TO

GROWTH MODELS

Polution
Population

Industrial capital

Agriculture

Natural resources

WORLD 1

Births emissions

…las suyas
population
pollution
deaths
absortion

investment

Capital

renovation obsolescence

Natural
regeneration
resources
Soil
extraction erosion

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Source: “A comparison of the limits to growth with thirty years of reality”, Graham
Turner, CSIRO Working Papers, 2009.

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Source: “A comparison of the limits to growth with thirty years of reality”, Graham
Turner, CSIRO Working Papers, 2009.

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11

Source: “A comparison of the limits to growth with thirty years of reality”, Graham Turner,
CSIRO Working Papers, 2009.

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4.1 WORLD-3 AND THE LIMITS TO

GROWTH MODELS
• The main feedback in World 3

Depletion problems

Investment increase

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4.1 WORLD-3 AND THE LIMITS TO

GROWTH MODELS
• feedbacks in World 3
Resources
limits

+ resources -
neded

- Faster resource
+
+ depletion
production Dificulties to find
resources
+

+
-
Capital investment

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4.1 WORLD-3 AND THE LIMITS TO

GROWTH MODELS
•(Personal) criticism to World 3:

•Its main value is to be brave enough to model a system as enormously complex as the World. Its
simplifications and basic elements are correct and the conclusions are obvious.

•It performs a good modeling of the population and the demographic transition.

•One of its drawbacks is that It brings together all natural resources (minerals, fossil fuels, etc.) without
separating energy resources and renewable energies (which are only modeled as a greater efficiency in
fossil use).

•Its modeling of pollution is too simplistic.

•Another drawback is that it only provides for an improvement in agricultural yields through the use of
mineral fertilizers, and does not model agroecological improvement. Years later, Acharya and Saeed
modeled this option (Acharya, SR and Saeed, K. 1996. An attempt to operationalize the recommendations of the 'Limits to growth'
study to sustain the future of mankind.).

•It is a model that can be improved but it gets the essential points of the problem: the dynamics of growth
in a world of finite and exhaustible resources. The criticisms made of it are simplistic, some of them did not
understand the dynamic modeling. None of its critics dared to make a good model with feedbacks that
included the relations economy-natural resources-population, none of them tried to complete or to improve
World-3.

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.

•Uva GEEDS group

•Energy: a major global problem

•Sinks of fossil fuels pollution: climate change
•Peak oil /gas /uranium theories

•86% of today’s energy consumption from fossil fuels

•When/ how are we going to make the transition?

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
Is the transition possible?

•Simplistic view of technology: “only a new discovery is

needed”

•Pessimistic view: “if fossil fuels are exhausted we would go back

to previous state of development”

•System dynamics view?

•Technology needs time to react: rates and delays are key factors
•History is important, previous states influence future states

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Peak oil theories: ASPO (Asotiation for the Study of Peak Oil and
Gas

Marion K. Hubbert Colin Campbell Jean Laherrere Mikael Höök

Colin:"Understanding depletion is simple. Think of an Irish pub. The glass starts full and ends empty. There are only so
many more drinks to closing time. It’s the same with oil. We have to find the bar before we can drink what’s in it.

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Peak oil theories:

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Peak oil theories
Conventional oil extration estimations published in scientific journals.

The implications of fossil fuel supply constraints on climate change projections:A supply‐side analysis, Jianliang Wang, Lianyong Feng, 
Xu Tanga, Yongmei Bentley, Mikael Höökc. May 2016, DOI: 10.1016/j.futures.2016.04.007

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
Non conventional oil extration estimations published in scientific journals.

The implications of fossil fuel supply constraints on climate change projections:A supply‐side analysis, Jianliang Wang, Lianyong Feng, 
Xu Tanga, Yongmei Bentley, Mikael Höökc. May 2016, DOI: 10.1016/j.futures.2016.04.007

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
Conventional + Non conventional oil extration estimations.

Total oil

Conventional
oil

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
Conventional  oil, gas and coal+ Non conventional oil and gas extration 
estimations.

The implications of fossil fuel supply constraints on climate change projections:A supply‐side analysis, Jianliang Wang, Lianyong Feng, 
Xu Tanga, Yongmei Bentley, Mikael Höökc. May 2016, DOI: 10.1016/j.futures.2016.04.007

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
What is non conventional oil ? 

Tar sands Alberta, Canada

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
What is non conventional gas ? 

Hidraulic fraturing of Oil and gas, Texas

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25

4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.

•Energy Return on Energy Investment:(EROEI)

Energy output
EROEI=
Energy Input

Windmil
manufacture

Windmil
electricity

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Peaks of conventional oil

Noruega Reino Unido

Norway United Kingdom
4000 3500

3500 3000
Miles de barriles diarios

3000
Miles de barriles diarios

2500
2500
2000
2000
1500
1500

1000 1000

500 500
-
-
1960 1970 1980 1990 2000 2010 2020
-^ 1960 1970 1980 1990 2000 2010 2020
años año

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27

4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Peaks of conventional oil

Mexico
México
Algeria
Argelia

4500 2500

4000

3500 2000
Miles de barriles diarios

Miles de barriles diarios

3000
1500
2500

2000
1000
1500

1000
500
500

- -
1960 1970 1980 1990 2000 2010 2020 1960 1970 1980 1990 2000 2010 2020
año año

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Peaks of conventional oil

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Peaks of conventional oil

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Peaks of conventional oil

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Oficial BP statistical data of oil production

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Oficial BP statistical data of oil production

Decreasing: 30 countries, growing: 24 countries

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Oil discoveries (green) – oil extraction (red)

Saudi Arabia
Kuwait

North Sea

Datos: C. Campbell (discoveries) BP extraction

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
• Calculated reserves (Green)– oficial reserves BP (red)

Datos: C. Campbell (discoveries) BP extraction

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
Natural Gas extration estimations published in scientific journals.

The implications of fossil fuel supply constraints on climate change projections:A supply‐side analysis, Jianliang Wang, Lianyong Feng, 
Xu Tanga, Yongmei Bentley, Mikael Höökc. May 2016, DOI: 10.1016/j.futures.2016.04.007

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
Coal extration estimations published in scientific journals.

The implications of fossil fuel supply constraints on climate change projections:A supply‐side analysis, Jianliang Wang, Lianyong Feng, 
Xu Tanga, Yongmei Bentley, Mikael Höökc. May 2016, DOI: 10.1016/j.futures.2016.04.007

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
Uranium extration estimations published in scientific journals.

Source: Capellan et. al 2014

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4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
“Enerfiction”: a system dynamics model of the
transition to renewable energies

•An ideal model of a society based on fossil fuels that tend to get
exhausted
•No real data, only a sort of game
•The main dynamics are considered: holistic view (previous models
focus on particular aspects of energy-economy relations and climate change)

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4.2 Simulating the Enery Transition:

Enerfiction
The model: basic dynamics

•The industrial society needs energy for its

maintenance and growth
•Material capital: all kinds of artifacts that use energy

•The amount of energy-consuming equipment tends to

grow exponentially
• Economic growth

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4.2 Simulating the Enery Transition:

Enerfiction.
The model: basic dynamics
•The non renewable energy sources get exhausted,
and the lower the stock, the slower the extraction
•Peak Oil theories

•Renewable energies need time and investment and

have a physical limit

•Policy  if energy is scarce there is more investment

on renewable sources

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41

4.2 Simulating the Enery Transition:

Enerfiction.
The model: basic loops
+ material
capital
R
+ material Energy
growth + - investment +
Energy Growth of
abundance S renewable E.
+
+ Energy
demand - S
S +
Renewable
Stock of infrastructure
non +
renewable -

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4.2 Simulating the Enery Transition:

Enerfiction.
The model: basic loops
+ material
capital +
S
+ material Energy
growth + - investment +
Energy - Growth of
abundance renewable E.
+
+ Energy R
demand -
Renewable
+
Stock of infrastructure
non +
renewable -

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43

4.2 Simulating the Enery Transition:

Enerfiction.

•Renew return: amount of material capital needed to

extract a unit of energy (similar to EROEI)

+ material renew return

capital +
S
+ material Energy
growth + - investment +
Energy - Growth of
abundance renewable E.
+
+ Energy R
demand -
Renewable
+
Stock of infrastructure
non +
renewable -

44

4.2 Simulating the Enery Transition:

Enerfiction and WoLiM models.
+
•Parameters. Max renew: renewable energies have a
limit, the more infrastructure installed the most difficult it
is to grow.
+ material
capital +
S
+ material Energy
growth + - investment +
Energy - Growth of
abundance renewable E.
+
+ Energy R
demand -
Renewable
+
Stock of infrastructure
non + max renew
renewable -

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45

4.2 Simulating the Enery Transition:

Enerfiction
•Parameters. Non renew init: amount of non
renewable energy left (number of years at the initial
pace of extraction)
+ material
capital +
S
+ material Energy
growth + - investment +
Energy - Growth of
abundance renewable E.
+
+ Energy R
demand -
non renew init Renewable
+
Stock of infrastructure
non +
renewable -

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4.2 Simulating the Enery Transition:

Enerfiction
•Parameters. Limit non renewable extraction: non
renewable energy cannot
+ be extracted at the desired
rate, the less stock left the slower the extraction (peak
oil theories)
Limit extraction
Limit extraction

P3=-1.5 plateau
P3=1.3 sharp
peak

non_renew_resources/ max_non_renew non_renew_resources/ max_non_renew

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47

4.2 Simulating the Enery Transition:

Enerfiction

•Parameters. Energy percent: share of the growth of

the material capital that is dedicated to investment on
energy infrastructure  POLICY
Energy percent

P4=0.4
P4=0.3
P4=0.2

abundance

48

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49

50

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51

4.2 Simulating the Enery Transition:

Enerfiction
Experiments and results: collapse
material capital renewable (-), non renewable energ. (..) growth material cap.(-), energy invest. (..)

1.2 1.2
1.5
1 1

0.8 0.8
1
ue/yr
umc

ue
0.6 0.6

0.4 0.4 0.5

0.2 0.2

0 0 0
0 50 100 150 200 0 50 100 150 200 0 50 100 150 200
time (yr) time (yr) time (yr)

Renewable infrastructure grows very slowly, when the renewable energy extraction equals the
non renewable the amount of total energy is very small. It stabilizes at a very low amount of
material capital. (EROEI 30, 66 year stock, plateau,max renew 07, energy investment slow)

52

4.2 Simulating the Enery Transition:

Enerfiction
•Crisis: fast reaction

material capital renewable (-), non renewable energ. (..) growth material cap.(-), energy invest. (..)

1.2 1.2
1.5
1 1

0.8 0.8
1
ue/yr
umc

ue

0.6 0.6

0.4 0.4 0.5

0.2 0.2

0 0 0
0 50 100 150 200 0 50 100 150 200 0 50 100 150 200
time (yr) time (yr) time (yr)

Renewable infrastructure grows fast, since the material capital is large the renewable
infrastructure is large too. It stabilizes at a high amount of material capital after a crisis
(EROEI 50, 60 year stock, peak, max renew 08, energy investment fast).

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53

4.2 Simulating the Enery Transition:

Enerfiction
•Crisis: slower reaction
material capital renewable (-), non renewable energ. (..) growth material cap.(-), energy invest. (..)
1
1.2 1.2

1 1 0.8

0.8 0.8 0.6

ue/yr
umc

ue
0.6 0.6
0.4
0.4 0.4
0.2
0.2 0.2

0 0 0
0 50 100 150 200 0 50 100 150 200 0 50 100 150 200
time (yr) time (yr) time (yr)

Renewable infrastructure grows fast, since the material capital is large the renewable
infrastructure is large too. It stabilizes at a high amount of material capital after a crisis
(EROEI 50, 62 year stock, plateau, max renew 0.7, energy investment medium)

54

4.2 Simulating the Enery Transition:

Enerfiction
•Which parameter influences most the result (final value
of material capital)?

0.8 0.8

0.6 0.6
material capital final
material capital final

0.4 0.4

0.2 0.2

0 0
0 0.5 1 1.5 2 30 40 50 60 70 80
P1 renew return P2 non renew init

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55

4.2 Simulating the Enery Transition:

Enerfiction
•The policy of renewable investment is the most influential

0.8 0.8

0.6 0.6

material capital final

material capital final

0.4 0.4

0.2 0.2

0 0
-1.5 -1 -0.5 0 0.5 1 1.5 0.2 0.4 0.6 0.8 1
P3 non renew extraction (1.3 peak, -1.5 plateau) P4 energy percent (0.2 slow, 0.8 fast)

56

4.2 Simulating the Enery Transition:

Enerfiction
•Fast rate of renewable investment plus high energy return
lead to success

0.8

0.7

0.6
material capital final

0.5

0.4

0.3

0.2

0.1

0
0 0.5 1 1.5
P 1 renew return*P 4 energy perc ent

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57

4.2 Simulating the Enery Transition:

Enerfiction
Enerfiction: conclusions
•No real data, but the basic dynamics allow to extract
some conclusions

•There are two types of results: “collapse” and “crisis”.

•“collapse” results show a society that looses its ability to use
technology,

•if the renewable energies development is slow there is no

energy and no material capital for further investment.

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4.2 Simulating the Enery Transition:

Enerfiction
Conclusions
•The transition is possible, a high state of energy is maintained by
itself,

•…but the growth of renewable energies is feed with non

renewable energies

•When the non renewable energies are exhausted the model tends
to stability

•The rate of investment on renewable energies must be fast

•The technologies must have high energy returns (biofuels,

photovoltaic??)

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59

4.2 Simulating the Enery Transition: WoLiM

More realistic models: WOLIM world limits model
Peak oil Peak gas Limits non
conventionals

Climate
change

Economy Limits of
and society renewable
energies

Minerals

Peak carbon Peak Technological

uranium development rate

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4.2 Simulating the Enery Transition: WoLiM

¿¿¿??

Scenarios economy
(UN, FMI)

World economy

demand demand demand ELECTRICITY

TRANSPORT INDUSTRY-
BUILDINGS

Escarcity??

oil EV-HV gas Renewables Renewable

other coal non electric electricity
liquids uranium

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61

62

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63

4.2 Simulating the Enery Transition: WoLiM

• Data included in WOLIM:

• Pek oil, gas, coal and uranium according to published studies (low

case, best guess, high case).

• Energy intensities of each sector: transportation, industry and

buildings, electricity.

• Reasonable evolution and cost of renewable technologies.

• Physical limits of renewable energies.

64

4.2 Simulating the Enery Transition: WoLiM

Energy intensity

I = E / GDP ; Efuture-demand = GDP · Iestimated

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65

4.2 Simulating the Enery Transition: WoLiM

The dynamics of the technological substitution

ELECTRICITY,
5% Uranium stock HEAT

21% Gas stock

25% Coal stock GTL, CTL

32% Oil stock LIQUID FUELS

(transport, fertilizers,
pesticides)

Renewable (wind, sun, biofuels

6% hydroelectric)

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4.2 Simulating the Enery Transition: WoLiM

Oil substitution: biofuels
Land needed for biofuels for all cars today: twice the arable land on
Earth ( 3000Mha out of 1520 Mha)

•LAND OCCUPATION
SUN: energy of the biosphere; •LOW EROEI
winds, waves, photosinthesis,
tides, etc. •NOT ACCUMULATED

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67

4.2 Simulating the Enery Transition: WoLiM

Oil substitution: electric car
Energy per unit volume

•LAND OCCUPATION
SUN: energy of the biosphere; •LOW EROEI
winds, waves, photosinthesis,
tides, etc. Energy per Kg
•NOT ACCUMULATED

Electric car: energy storage capacity 10-15 times lower tan similar gasolina vehicle (similar
price and caracteristics)
(1) Future Transport Fuels, UE 2011

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4.2 Simulating the Enery Transition: WoLiM

Absolute limits of renewable energies

•LAND OCCUPATION
SUN: energy of the biosphere; •LOW EROEI
winds, waves, photosinthesis,
tides, etc. •NOT ACCUMULATED

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69

4.2 Simulating the Enery Transition: WoLiM

Maximum solar energy?
•Today’s World consumption of all energies: 17TW
•Maximum solar energy in literatures:

De Vries (170-490TW), Grassi et al (33 TW), Jacobson –Deluchi (340 TW)

•Realist density
12-23 We/m2  3,3 We/m2

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4.2 Simulating the Enery Transition: WoLiM

Solar energy estimations in literature

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4.2 Simulating the Enery Transition: WoLiM

Limits to solar energy

Two times today’s The 17 TW of primary

electricity consumption energy consumed today
all renewable electricity
(aprox.)
33TW 13TW
4TW

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4.2 Simulating the Enery Transition: WoLiM

The energy transition

renewable
coal

gas

oil

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73

4.2 Simulating the Enery Transition: WoLiM

Scenario 1- Economic optimism with some market reforming:

Strong focus on the mechanism of competitive, efficient market, free trade and associated
rapid economic growth, but including some additional policy assumptions aimed at
correcting some market failures with respect to social development, poverty alleviation or
the environment. The scenario typically assumes rapid technology development and
diffusion and convergence of income levels across the world. Economic growth is assumed
to coincide with low population growth (given a rapid drop in fertility levels). Energy and
material scarce resources are upgraded to reserves or substituted efficiently through market
signals (price rising). Eventually, everyone will benefit from globalization and technological
advances will remedy ecological problems (e.g. ‘Environmental Kuznets Curve’).

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4.2 Simulating the Enery Transition: WoLiM

Scenario 2: Global Sustainable Development: Strong orientation

towards environmental protection and reducing inequality, based on solutions found through
global cooperation, lifestyle change and technology (more efficient technologies,
dematerialization of the economy, service and information economy, etc.). Central elements
are a high level of environmental and social consciousness combined with a coherent
global approach to sustainable development. Within this scenario family, it is assumed that a
high level of international governmental coordination is necessary and possible in order to
deal with international problems like poverty alleviation, climate protection and nature
conservation. It entails regulation of markets but on a global scale and based on the
conviction that the Earth’s limits are in sight and that therefore pro-active policies are
necessary.

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4.2 Simulating the Enery Transition: WoLiM

Scenario 3: - Regional competition/regional markets: Scenarios in

this family assume that regions will focus more on their self-reliance, national
sovereignty and regional identity, leading to diversity but also to tensions between
regions and/or cultures. Countries are concerned with security and protection,
emphasizing primarily regional markets (protectionism, deglobalization) and
paying little attention to common goods. Due to the significant reduction in
technological diffusion, technological improvements progress more slowly.

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4.2 Simulating the Enery Transition: WoLiM

Scenario 3:Regional Sustainable Development: this scenario is the

“friendly” version of the previous one, where globalization tends to be
deconstructed and an important change in traditional values and social norms
happens against senseless consumerism and disrespect for life. Citizens and
countries must each take on the responsibilities they can bear, providing aid or
setting a green example to the rest of the world, from a sense of duty, out of
conviction or for ethical reasons or to solve primarily their own problems. In fact,
although barriers for products are re-built, barriers for information tend to be
eliminated. The focus is on finding regional solutions for current environmental
and social problems, usually combining drastic lifestyle changes with
decentralization of governance.

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77

4.2 Simulating the Enery Transition: WoLiM

Cuantification of scenarios

78

4.2 Simulating the Enery Transition: WoLiM

Results: socio-economic
.

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4.2 Simulating the Enery Transition: WoLiM

Results: electric energy

Scenario BAU: observed trends

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4.2 Simulating the Enery Transition: WoLiM

Results: transportation

Scenario BAU: observed trends

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4.2 Simulating the Enery Transition: WoLiM

Results: transportation

“Scenario: “regional sustainable development”

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4.2 Simulating the Enery Transition: WoLiM

Results: climate change

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4.2 Simulating the Enery Transition: WoLiM

Results: climate change

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4.2 Simulating the Enery Transition: WoLiM

Conclusions of the WoLiM model

• None of the U.N. scenarios is compatible with energy limits and reasonable
technological developments.

• Transportation is the most critical sector (before 2020 in all scenarios).

Renewable energies and technological alternatives available cannot
contribute significantly to avoid shortage.

• In order to overcome the energy crisis we would need policies that go far
beyond technological change (public transportation, relocatization, etc.)

• Results would probably be worse than the model due to feedbaks we have
ignored.

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4.2 Simulating the Enery Transition: WoLiM

How are we reacting to peak oil?
Energy demand
+ Peak oil
- -

poverty

+
shortage - New energy
sources
Economic +
crisis +
+ Investment in
technological substitutes

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4.2 The beer game

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The Beer Game

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About the creators of the game

“The Beer Game is a role‐playing simulation developed 
at Massachusetts Institute of Technology (MIT) in the 
1960's to clarify the advantages of taking an integrated 
approach to managing the supply chain; it particularly 
demonstrates the value of sharing information across 
the various supply chain components.”

Source: http://beergame.mit.edu/guide.htm)

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About the game
• This game represents a simplified beer supply chain (single retailer, single  
wholesaler, single distributor, single factory):  Bar, mayorista, distribuidor 
fábrica 

• The factory has unlimited raw materials and the other parts of the supply 
chain have unlimited storage capacity

• Each “round” in the game will represent  a week in the business supply 
chain

• Each week customers buy beer from the retailer’s inventory (quantity of 
consumer demand is determined by the game  itself – cards ‐).

• Retailers are the only ones who know what the customers actually order 
(they should not reveal this information to anyone else.)

• Each member of the supply chain, each week, receives a shipment from 
their supplier and each member places and order with their supplier.
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Let’s see how the empty board looks like …

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Empty Board

Orders sold to 
RAW 
customer MATERIALS

Used Order
cards Order  Incoming  Order  Incoming  Order  Incoming 
Placed order Production 
Placed order Placed order
Requests

Order Order Incoming Order Incoming Order Incoming Production

cards placed Orders placed Orders placed Orders Requests

Produc
Retailer Wholesaler Distributor Factory tion
Current Delay
Current Current Current
Inventory Inventory Inventory Inventory

Shipping Shipping Shipping Shipping Shipping Shipping Produc

Delay Delay Delay Delay Delay Delay tion
Delay

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Initializing the board
• Put the cards in order with side that reads the week # facing up in the  board 
place labeled “Order Cards”  (week 1 on the top) 

• Put 12 chips in the each of four boxes labeled “Current Inventory”

• Put 4 chips in each of the six boxes labeled  “Shipping Delay”

• Put 4 chips in each of the two boxes labeled  “Production Delay”

• Use the small papers to write the initial orders. 
All the time the papers with the orders, need to be put with the number 
facing down. 
(In this presentation in the slide about  initialization of the board they appear visible to help the facilitator to understand 
better)
The colors also correspond to each part of the supply chain:
‐ Retailer → Gray paper
‐ Wholesaler → Blue paper
‐ Distributor → Green paper 
‐ Produc on → Pink paper 
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Initializing the board
• For initialization all the orders boxes & production request box  must have the 
#4 written in the order (colored paper) and facing the number down.

• The color of the paper for the orders is important because avoid confusions. 
If you run out of the color paper that the game came with, you can cut your 
own papers . You can cut regular color paper or cut the sticky pat of color 
small post its and use the rest.

• Setting up the game might take around 30 minutes (including making the 
photocopies)

• See a graphic representation of the initialized board in the next page

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Initialize the Board

Orders sold to 
RAW 
customer MATERIALS

Used Order
cards Order  Incoming  Order  Incoming  Order  Incoming 
Placed order Production 
Placed order Placed order
Requests

WEEK 1 4 4 4 4 4 4 4

Retailer Wholesaler Distributor Factory

Current Current Current Current
Inventory Inventory Inventory Inventory

Shipment Delays Shipment Delays
Shipment Delays

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Overview of the game – for the facilitator ‐ :

• The players in each part of the supply chain cannot talk among themselves 
(i.e. warehouse cannot talk to distribution). Their “communications” are through placing 
orders and receiving shipments.
• The objective of the game is meet the customer demand  with minimal 
expenditure of back orders and carrying as less inventory as possible.
• Stockouts (orders which cannot be filled) become backorders and must eventually 
be filled. 
• Each member of the channel is charged $1.00 for each case of beer stocked out 
and $0.50 for each case of beer carried in inventory in excess.

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Overview of the game – for the facilitator ‐ :

• Because stock out costs are higher than inventory carrying costs there is an 
incentive to service demand from inventory rather than through backorders.
• Backorders are cumulative and must be filled eventually when stock is available.
• There are not lost sales due stock outs
• Participants are told that the winner of the game is the one with lowest total cost 
at the end of the game. The only decision participants must make is how much to 
order.
• The game is initialized in  a balanced condition.

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You will see that the steps are pretty similar 
along the game
1. You receive goods from the supplier
2. You receive orders from your customer
3. You deliver to your customer as ordered
4. You order new goods to your supplier

NOTE:  It might be slightly different in the first round

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4.4 Path dependency and chaos

• Why do people in most nations drive on the right? Why is the
diamond business in New York concentrated into the area around
west 47th Street? Why do nearly all typists learn the inefficient
QWERTY keyboard layout? How did Microsoft’s Windows and Intel’s
processors come to dominate the market for personal computers?
Why are there so many winner-take-all markets-situations where
success accrues to the successful, where the rich get richer and the
poor get poorer?

• Path dependence: the ultimate equilibrium depends on the initial

conditions and random shocks as the system evolves. Small,
unpredictable events early in the history of the system can decisively
determine its ultimate fate.

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99

4.4 Path dependency and chaos

• In path dependent systems positive feedback loops amplify the smaII
initial differences until they reach macroscopic significance. Once a
dominant design or standard has emerged, the costs of switching
become prohibitive, so the equilibrium is self-enforcing: the system
has locked in.

100

4.4 Path dependency and chaos

• The Polya process:

• We have a box with a black and a white ball. At each step, if you pick
a black ball, you add another black ball to the box, and if you pick a
white ball, you add another white ball.

• The more black stones the more probability of finding a black stone
next time.

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101

4.4 Path dependency and chaos

• Example: the Polya process

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4.4 Path dependency and chaos

• The Polya process:

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103

4.4 Path dependency and chaos

• Economies of scale:

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4.4 Path dependency and chaos

•

cause effect

Motion y(t)
Force F(t)

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105

4.4 Path dependency and chaos

• Lineal systems are predictable

Small variations in
the initial value y(t=0)
y(t) cause small
variations in the
trajectory y(t)

time

106

4.4 Path dependency and chaos

•

y(t)

time

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107

4.4 Path dependency and chaos

• Aristotelic and newtonian view of the world:
• Reality can be explained by a chain of causes and effects (God’s
being the initial cause). If the forces acting on a body and the initial
conditions are known the future position can be known.

• Non predictable view of the world: chaos

• Path dependency of non-lineal systems: small changes in initial
conditions cause great variations in the path.
• Quantum physics: initial position cannot be know with absolute
precision.
• prediction is not possible in the long run

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4.4 Path dependency and chaos

• Chaos, like damped fluctuations is a form of oscillation. However, a
chaotic system fluctuates irregularly, never exactly repeating. The
irregularity arises endogenously and is not created by external,
random shocks.

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109

4.4 Path dependency and chaos

110

4.4 Path dependency and chaos

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111

4.4 Path dependency and chaos

• Fractal structures

112

4.4 Path dependency and chaos

• Fractal structures

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