Macro-economy - WITNESS

WITNESS macro-economy model main model assumptions are the following :

1/ Gross Domestic Product depends on capital, labor and net energy output

The first main assumption of WITNESS is that the Gross Domestic Product depends on capital, labor and net energy output :

• The capital represents all assets, for instance factories, buildings, machines, etc.
• The labor corresponds to the working-age population and changes depending on age distribution and population evolution.
• The net energy output corresponds to the usable energy by removing from the raw energy production, the energy used by the energy sector or the energy wasted before effective usage.

It is assumed that no economic output can be produced without energy. It is mandatory to feed the capital with energy for it to be able to produce output such as having fuel for trucks to transport goods, or electricity for robots in factories.

For this reason the usable capital notion has been introduced that depends on the capital and the net energy output.

Moreover, the capital is not able to absorb more energy that it is built for, thus the notion of maximum usable energy of capital is also introduced.

The final notion used is a productivity factor of capital that represents a loss of productivity if the minimum number of labor is not affected for the capital usage.

The maximum usable energy of energy evolves with technology evolution as well as the productivity of the capital.

It is shown in the past for instance by the decrease of labor in agriculture while the food production is increasing, all due to the technological evolution of capital and thus the associated energy usage. It states that it is not only necessary to have tractors to produce food, it is also necessary to have farmers and fuel.

From the definition of the usable capital a standard constant elasticity of substitution function from classical economy is used to compute the GDP.

With the damage fraction of output due to climate change, the Total Factor Productivity measures the efficiency of the inputs in the production process and follows standard DICE form to which we added a climate damage.

The definition of the usable capital allows us to take into account the role of energy in the overall production function. Work still needs to be done on the substitution of capital that is needed when the overall energy mix is changing.

2/ Population must be a first class citizen in world evolution scenarios

The second main assumption is that it is necessary to have a population model to properly create world scenarios.

The labor used to estimate the overall GDP depends on the age distribution of the population, that is evolving to an aging population at the present time, affecting the labor greatly. Moreover, population evolution is also impacted by the consequences of climate change that causes death due to extreme weather conditions, sea level rise, extreme local temperature, etc.

The amount of food available to the population evolves with climate change since the productivity of agriculture is decreased with global warming that can cause famine. Contrary to other IAMs, the population model is a key aspect in WITNESS as it is in the World3 model.

3/ Net energy production need to feed production

The third main assumption is that it is key to have access to the net energy production to properly feed the production function.

To be able to compute net energy production, it is necessary to model the different technologies used in the global energy production mix and their links. For example, the natural gas used in gas turbines for electricity generation would not be available for domestic usage, or the electricity used by an electrolyser would not be available for factories.

It is important to model as many technologies as possible to assess the different interdependencies and solve them to have a proper net energy production computation.

The evolution of energy production is also fully linked to the availability of investments for the energy sector, which depends directly on the overall GDP computation.

This creates a bi-directional coupling between the energy production and the GDP.

4/ Earth is a finite world with finite resources

The fourth main assumption is that the Earth is a finite world with finite resources. We cannot expand the Earth's surface and most of the habitable land is already used for agriculture.

If one way to decarbonize the energy sector is to use biomass that could lead to neutral carbon fuel, it would require a surface already allocated to food production. At present, forests are disappearing due to the deforestation necessary to accommodate more agriculture to feed a growing world population.

This fact is conflicting with the will to compensate CO2 emissions with reforestation. The balance between deforestation, reforestation and agriculture usage impacts the overall CO2 emissions that are called land emission.

WITNESS encompasses a land use evolution model considering forest and agriculture and which depends on temperature and population as we believe is key to understanding the world energy transition.

The primary fossil energy resources such as coal, gas, oil are limited on the planet and their availability per year can impact the fossil energy production. Other key materials for renewable energy such as lithium, cobalt and rare earth elements are also limited on the planet. Easy access to uranium is also limited on the Earth that limits the potential nuclear electricity production. A detailed model of the resources limitation is key to understanding the world energy transition as it was modeled more roughly in the World3 model.

Within WITNESS, carbon cycle and climate change models are based on standard equations and are not different from any other Integrated Assessment Model. The temperature change model affects the productivity used in the GDP computation as well as the damage function which also impacts the overall GDP, the productivity of agriculture surface and the death rate used in the population evolution.

The different interactions may seem overwhelming but are easily handled by SoSTrades technology based on GEMSEO that is specialized in multi-disciplinary analysis and optimization. It would have been very difficult to handle this amount of interactions without the usage of these modern technologies. In the Open Source environment of the SoSTrades platform, contributions to any of the main concepts introduced in WITNESS are more than welcome to help improve the overall behavior and realism of the simulations.

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More detailed documentation on WITNESS macro-economy model can be found in the module embedded documentation, accessible within the tool or directly consulting the module documentation in gitlab