A Discussion on Sustaining the Dynamic Linkages between Renewable Natural Resources and the Economic System
Mihir Mathur & Swati Agarwal, TERI
In this paper , we have used System Dynamics to test three popular policy options for sustaining Economic Growth, 1) Resource Efficiency, 2) Resource Efficiency and Green Growth, 3) Doubling of Resource Base due to technological advancement. The model outcomes indicate that the above policies fail to avoid the overshoot and fall of the economy due to resource depletion, but are successful in delaying it.
All economies of the world depend upon the use of renewable natural resources for their growth. This relationship inherently reflects that continued increase in extraction of resources is a must to sustain economic growth. Inevitably, a tipping point is reached from where the regeneration rates of the resources diminish due to depletion of the resource stock. The resource production peaks and declines which lead to a delayed feedback on the economy, ultimately restricting its ability to grow and sustain its level of output.
This discussion paper demonstrates, with the help of system dynamics model, that this feedback from the decline of natural resources into the economic system would lead to economic contraction much before the resources are completely exhausted. The paper provides useful insights through the modelling exercise by testing three of the most popular policy choices to sustain economic growth: (i) Improving resource efficiency of the economy, i.e., dematerialization, (ii) Green Growth, represented
here as Conserving/Restoring the resources, and (iii) Resource expansion due to technological advancements or new discoveries.
Simulation runs show that none of the policies are able to avoid overshoot of the economy although they are successful in delaying the overshoot and fall. The model demonstrates the counterintuitive outcomes of the above policy choices and makes a strong case to promote empirical research on this subject using system dynamics.