C-Thru - Deep Dives
C-THRU
The economic context
Deep Dives
Deep Dive 5

The economic context

Authors:
Carey W. King
Elham Jahani
Neeraj Hanumante

1 Department of Engineering,

University of Cambridge, Trumpington Street, Cambridge, CB2 1PZ, UK.

2 Department of Mechanical Engineering,

Centre for Sustainable and Circular Technologies (CSCT), University of Bath, UK
Download pdf

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.

We need to consider the potential wider economic impacts of climate change mitigation actions taken within the petrochemical sector. Therefore, we have developed an integrated macroeconomic model that combines both material and economic flows. The model is calibrated for the US context so that it represents the real-world stocks and flows of mass, energy, population, and money.

Figure 2 Skeleton diagram showing how processes and objects are aggregated across the chemical supply chain processes: a) overview of chemicals and plastics production; b) an example of detailed skeleton of primary chemicals in a).

the problem

Interventions made in one sector have repercussions for other sectors of the economy. It is therefore important to model and explore the impacts that emissions reduction strategies in the petrochemical industry, such as reducing carbon emissions from production processes or increasing recycling rates for plastic, will have on other sectors. An integrated macroeconomic model must be developed and calibrated to explore these wider economic implications.

Methods

We have developed a US-calibrated Human and Resources with MONEY (HARMONEY) model, which is a macroeconomic growth model that incorporates both biophysical and economic dimensions of the world in a single framework. The model is calibrated to ensure it provides a good approximation of the economic processes and flows of mass and energy that operate in the real-world economy.

The model considers five broad sectors of economic production:

  • Regen (production of all regenerative and biomass materials)
  • Goods (manufacturing, construction, and petrochemicals)
  • Fossil (extraction and refining of metals, minerals, and hydrocarbons)
  • Electricity (conversion of fuels and natural resource flows into electricity)
  • FIRE (Finance, Insurance, and Real Estate)
Key Results
  • The five-sector HARMONEY-US model has been developed for the US context, capable of capturing real-world dynamics using historical data on energy and mass flows and the capital stocks for each sector in the US.
  • This model is calibrated for energy, population, and money flows, with the calibration for mass flows underway.
  • The fully calibrated model will be able to consider the dynamics and feedbacks for a low-carbon energy transition in the US.  
  • Further refinement will allow the model to consider the wider impacts of broad decarbonisation interventions (such as electrification and Carbon Capture and Storage) which may be implemented specifically in the petrochemical sector.

Keep scrolling to read the full Deep Dive

Explore more Deep Dives

Deep Dive 1
Model-based energy and emission analysis of ammonia production for improved process sustainability

Ammonia production is highly unsustainable. Our model-based analysis reveals that in the US, emissions from the ammonia industry could be reduced by 10% by taking measures to enhance the efficiency of existing plants. To reduce emissions to near-zero by 2050, more fundamental changes to production pathways are necessary. Low-carbon technologies such as water electrolysis and carbon capture and storage will need to be developed and deployed to achieve this near-zero target with minimum cost.

Deep Dive 2
Global mass flow of nitrogen fertilisers and mitigation options

Nitrogen fertilisers account for 5% of global greenhouse gas (GHG) emissions. Our global mass flow model uses a whole-systems approach to explore combinations of mitigation interventions. If all the interventions we consider were applied together, GHG emissions from synthetic fertilisers could be reduced by 84% by 2050. The single most effective intervention is increasing the efficiency of nitrogen fertiliser application to plants during their use phase.

Deep Dive 3
Recycled polymers as a feedstock for chemical manufacturing supply chains in the United States: A network analysis for polyethylene pyrolysis

If 5 Mt of PE waste were chemically recycled each year, and the resulting ethylene and propylene were put to use by the chemical industry, other sources of these chemicals would be displaced. The knock-on effects of this would span a large number of products and processes. These wider repercussions need to be considered in any evaluation of chemical recycling as an emissions-reduction strategy.

Deep Dive 5
The economic context

We need to consider the potential wider economic impacts of climate change mitigation actions taken within the petrochemical sector. Therefore, we have developed an integrated macroeconomic model that combines both material and economic flows. The model is calibrated for the US context so that it represents the real-world stocks and flows of mass, energy, population, and money.

Deep Dive 6
Why is a Network Analysis of the Petrochemical Industry useful?

A network analysis of the petrochemical industry reveals the complexity and interconnectedness of the sector and indicates how changes made in one plant or location would have implications elsewhere. This knowledge helps policymakers to target strategic locations or companies for emissions mitigation.

Deep Dive 4
Material flow analysis of petrochemicals production in the UK

We use a new methodology to map the emissions and energy use of the petrochemical sector in greater detail than existing studies. An effective, targeted emissions mitigation strategy requires both a big-picture view of the sector and an understanding of the granular detail so that broad goals can be translated into specific interventions. Here, we demonstrate the use of semantic web technologies, which allow us to navigate multiple levels of detail and aggregation with the same tool. This has not been possible before now.

Deep Dive 1
Model-based energy and emission analysis of ammonia production for improved process sustainability

Ammonia production is highly unsustainable. Our model-based analysis reveals that in the US, emissions from the ammonia industry could be reduced by 10% by taking measures to enhance the efficiency of existing plants. To reduce emissions to near-zero by 2050, more fundamental changes to production pathways are necessary. Low-carbon technologies such as water electrolysis and carbon capture and storage will need to be developed and deployed to achieve this near-zero target with minimum cost.

Deep Dive 2
Global mass flow of nitrogen fertilisers and mitigation options

Nitrogen fertilisers account for 5% of global greenhouse gas (GHG) emissions. Our global mass flow model uses a whole-systems approach to explore combinations of mitigation interventions. If all the interventions we consider were applied together, GHG emissions from synthetic fertilisers could be reduced by 84% by 2050. The single most effective intervention is increasing the efficiency of nitrogen fertiliser application to plants during their use phase.

Deep Dive 3
Recycled polymers as a feedstock for chemical manufacturing supply chains in the United States: A network analysis for polyethylene pyrolysis

If 5 Mt of PE waste were chemically recycled each year, and the resulting ethylene and propylene were put to use by the chemical industry, other sources of these chemicals would be displaced. The knock-on effects of this would span a large number of products and processes. These wider repercussions need to be considered in any evaluation of chemical recycling as an emissions-reduction strategy.

Deep Dive 6
Why is a Network Analysis of the Petrochemical Industry useful?

A network analysis of the petrochemical industry reveals the complexity and interconnectedness of the sector and indicates how changes made in one plant or location would have implications elsewhere. This knowledge helps policymakers to target strategic locations or companies for emissions mitigation.

Read the full Deep Dive

Abstract

We have developed a macroeconomic model of the United States (US) that tracks physical flows of mass and energy from extraction to becoming embodied in intermediate and end products. We identify data sources for US biophysical and industrial flows and began processing these data into an aggregated form with 5-sectors: Regenerative (biomass) extraction, Fossil material extraction, Goods (manufacturing), Electricity generation, and FIRE (Finance, Insurance, Real Estate). The petrochemical sector is part of the Goods sector, but after the first calibration, we will separate it as its own sector. We have completed the calibration of economic variables such as wage rate, depreciation, profits, taxes, and population dynamics. We are now completing the material and energy stock-flow data summary to enable a coherent linkage between physical and monetary flows and stocks of capital.

Introduction

Interventions made in one sector have repercussions for other sectors of the economy. It is therefore important to model and explore the impacts that emissions reduction actions taken in the petrochemical industry will have on other sectors. This work integrates data and sub-modelling from across C-THRU into a system dynamics macroeconomic model that is stock- and flow-consistent in both money and physical (mass, energy) variables. The specific objective is to create a high-level macroeconomic model of how supply chains from various sectors of the economy (including the petrochemical sector) interact and influence each other. We will use this to model the dynamics and feedbacks of carbon mitigation efforts and circular economy strategies in petrochemical production and plastics recycling. The model is being implemented for the United States and will serve as a template for other economic regions.

The model builds upon the existing Human and Resources with MONEY (HARMONEY) model.1, 2 The HARMONEY model is an integrated model incorporating both biophysical and economic dimensions in a self-consistent framework. It has several features suitable for this work, such as a specific account of energy and material inputs for extraction of natural resources (e.g. hydrocarbons, renewable energy), money creation via debt issued by banks to the private sector, wage dynamics, and other features. All these components are encapsulated within a multi-sector Leontief (input-output) structure that enables the modelling of inter-sectoral demands and economic impacts of energy use and resource depletion.

Method

Model calibration to the United States

In its current form, the HARMONEY model captures the behaviour of economic factors in a biophysical system but its parameterisation is abstract in nature. To ground the model in reality, we have performed extensive work to calibrate the model to US data. Such a calibration enables us to use the model to explore real-world policy and technology scenarios.‍

Modelling the economy using five industrial sectors

Every model approximates reality. We start our calibration by categorising all economic production into five sectors: Regen, Goods, Fossil, Electricity, and FIRE. Table 1 shows the definitions of these sectors in terms of the types of economic activities included.

Calibrating the biophysical system

Each of the five sectors utilises material (mass) and energy to produce an assumed homogenous output, even though we know it is composed of a mix of items (e.g. for every tonne of mass extracted by the Fossil sector some fraction is oil, natural gas, metals, rocks, etc.). A fraction of these outputs is consumed as essential auxiliary inputs for the sector to function. Another fraction of these outputs is embodied in new capital investment (fixed assets owned by firms). The residual outputs are then utilised by households and governments as consumer durable goods, fixed assets (buildings, homes), and fuels such as gasoline and electricity. Durable goods are discarded in a short time span, and fixed assets depreciate at a slower rate to contribute towards the capital of the HARMONEY model.

Figure 1 shows a simplified representation of an initial 5-sector (industrial) model of the US economy. The model calibration requires inputs from the historical datasets regarding energy and mass flows and the capital of each of the five sectors.

For example, we show the tracking of input and output flows for the Fossil sector using data from the EXIOBASE3 dataset for 2015 (see Figure 2). The Fossil sector extracts and refines fossil fuels, minerals (rocks, sand), and metals that are used by the other industrial sectors, as well as households and the government.

The data from EXIOBASE33 is aggregated to obtain the mass and energy inputs and outputs for each HARMONEY sector for 2015. We also obtain other data from the Manufacturing Energy Consumption Survey of the Energy Information Administration.4

Calibrating monetary flows and demographic data

To calibrate economic variables, we aggregate historical monetary data from EXIOBASE3 for the years 1995-2022. The list of economic variables is as follows:

  • Average Wage ($/person; $/hour)
  • Depreciation (of capital)
  • Profits
  • Taxes (federal)

We also use data from the United Nations to calculate historical fertility (births per female) and death rates for several different age brackets. This helps facilitate the long-term modelling of the workforce (e.g. prime working ages are between 15 and 65).5

Near-term future work

The next steps in data calibration include adding greenhouse gas emissions information to the combustion of fossil fuels and the production and use of cement. After the successful testing of the 5-sector (per Table 1) HARMONEY-US model, we plan to separate the Goods sector into three sectors: a petrochemical sector, a construction sector, and a manufacturing sector. This will enable us to separate the petrochemical sector to explore the wider implications of reducing the greenhouse gas emissions of that sector.

‍

‍

Scroll to keep reading

Table 1 Broad definitions of sectors of the economy

Fig. 1 Schematic description of the 5-sector model of the economy

Figure 2 Mass and energy input and output flow data structure for Fossil sector (kt – kilotonnes, TJ – Terajoule)

Results & Discussion

We have collected data to calibrate the HARMONEY model framework into a model that represents the real-world stocks and flows of mass (material inputs as well as capital outputs), energy, and population. This will enable a ‘HARMONEY-US’ model to effectively consider the dynamics and feedbacks of a low-carbon energy transition. It will also set the stage for further model refinement to include broad changes (e.g. Carbon Capture and Storage, electrification of processes) to decarbonise the petrochemical sector.

references
  1. King, C. W. An integrated biophysical and economic modeling framework for long-term sustainability analysis: The HARMONEY model. Ecological Economics, 169, 106464. (2020).
  2. King, C. W. Interdependence of Growth, Structure, Size and Resource Consumption During an Economic Growth Cycle. Biophysical Economics and Sustainability, volume 7, Article number: 1. (2022).
  3. Stadler, Konstantin, Wood, Richard, Bulavskaya, Tatyana, Södersten, Carl-Johan, Simas, Moana, Schmidt, Sarah, Usubiaga, Arkaitz, Acosta-Fernández, José, Kuenen, Jeroen, Bruckner, Martin, Giljum, Stefan, Lutter, Stephan, Merciai, Stefano, Schmidt, Jannick H, Theurl, Michaela C, Plutzar, Christoph, Kastner, Thomas, Eisenmenger, Nina, Erb, Karl-Heinz, … Tukker, Arnold. EXIOBASE 3 (3.8.2) [Data set]. (2021). Zenodo. https://doi.org/10.5281/zenodo.5589597
  4. https://data.worldbank.org/indicator/NY.GDP.PCAP.CD
  5. EIA, Manufacturing Energy Consumption Survey, https://www.eia.gov/consumption/manufacturing/.
  6. United Nations, Department of Economic and Social Affairs, Population Division, https://population.un.org/wpp/Download/Standard/MostUsed/.

Explore more Deep Dives

Deep Dive 1
Model-based energy and emission analysis of ammonia production for improved process sustainability

Ammonia production is highly unsustainable. Our model-based analysis reveals that in the US, emissions from the ammonia industry could be reduced by 10% by taking measures to enhance the efficiency of existing plants. To reduce emissions to near-zero by 2050, more fundamental changes to production pathways are necessary. Low-carbon technologies such as water electrolysis and carbon capture and storage will need to be developed and deployed to achieve this near-zero target with minimum cost.

Deep Dive 2
Global mass flow of nitrogen fertilisers and mitigation options

Nitrogen fertilisers account for 5% of global greenhouse gas (GHG) emissions. Our global mass flow model uses a whole-systems approach to explore combinations of mitigation interventions. If all the interventions we consider were applied together, GHG emissions from synthetic fertilisers could be reduced by 84% by 2050. The single most effective intervention is increasing the efficiency of nitrogen fertiliser application to plants during their use phase.

Deep Dive 3
Recycled polymers as a feedstock for chemical manufacturing supply chains in the United States: A network analysis for polyethylene pyrolysis

If 5 Mt of PE waste were chemically recycled each year, and the resulting ethylene and propylene were put to use by the chemical industry, other sources of these chemicals would be displaced. The knock-on effects of this would span a large number of products and processes. These wider repercussions need to be considered in any evaluation of chemical recycling as an emissions-reduction strategy.

Deep Dive 5
The economic context

We need to consider the potential wider economic impacts of climate change mitigation actions taken within the petrochemical sector. Therefore, we have developed an integrated macroeconomic model that combines both material and economic flows. The model is calibrated for the US context so that it represents the real-world stocks and flows of mass, energy, population, and money.

Deep Dive 6
Why is a Network Analysis of the Petrochemical Industry useful?

A network analysis of the petrochemical industry reveals the complexity and interconnectedness of the sector and indicates how changes made in one plant or location would have implications elsewhere. This knowledge helps policymakers to target strategic locations or companies for emissions mitigation.

Deep Dive 4
Material flow analysis of petrochemicals production in the UK

We use a new methodology to map the emissions and energy use of the petrochemical sector in greater detail than existing studies. An effective, targeted emissions mitigation strategy requires both a big-picture view of the sector and an understanding of the granular detail so that broad goals can be translated into specific interventions. Here, we demonstrate the use of semantic web technologies, which allow us to navigate multiple levels of detail and aggregation with the same tool. This has not been possible before now.

Deep Dive 1
Model-based energy and emission analysis of ammonia production for improved process sustainability

Ammonia production is highly unsustainable. Our model-based analysis reveals that in the US, emissions from the ammonia industry could be reduced by 10% by taking measures to enhance the efficiency of existing plants. To reduce emissions to near-zero by 2050, more fundamental changes to production pathways are necessary. Low-carbon technologies such as water electrolysis and carbon capture and storage will need to be developed and deployed to achieve this near-zero target with minimum cost.

Deep Dive 2
Global mass flow of nitrogen fertilisers and mitigation options

Nitrogen fertilisers account for 5% of global greenhouse gas (GHG) emissions. Our global mass flow model uses a whole-systems approach to explore combinations of mitigation interventions. If all the interventions we consider were applied together, GHG emissions from synthetic fertilisers could be reduced by 84% by 2050. The single most effective intervention is increasing the efficiency of nitrogen fertiliser application to plants during their use phase.

Deep Dive 3
Recycled polymers as a feedstock for chemical manufacturing supply chains in the United States: A network analysis for polyethylene pyrolysis

If 5 Mt of PE waste were chemically recycled each year, and the resulting ethylene and propylene were put to use by the chemical industry, other sources of these chemicals would be displaced. The knock-on effects of this would span a large number of products and processes. These wider repercussions need to be considered in any evaluation of chemical recycling as an emissions-reduction strategy.

Deep Dive 6
Why is a Network Analysis of the Petrochemical Industry useful?

A network analysis of the petrochemical industry reveals the complexity and interconnectedness of the sector and indicates how changes made in one plant or location would have implications elsewhere. This knowledge helps policymakers to target strategic locations or companies for emissions mitigation.

Download this Deep Dive

Download pdf

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat.

Back to Start of Deep Dive