Investigation and modelling framework of biofuels as a new
socio-technical regime
Stamboulis Yeoryios' and Papachristos George”
' Laboratory of Infrastructure, Technological Policy and Development, Department of
Planning and Regional Development , University of Thessaly, Pedion Areos, 33834,
Volos, Greece; email: ystambou @uth.gr
Dept. of Mechanical Engineering and Aeronautics, University of Patras, University
campus, 26504, Rio, Patras, Greece
Abstract
The advance of a biofuels future involves a set of interconnected changes across the
value system that amount to a techno-economic regime transition. Within such a process
occur various situations of co-opetitive games which take place in a dynamic concurrent
manner. Systems dynamic modelling is proposed as the core of a policy development
methodology in order to facilitate the participatory investigation of policy alternatives.
Keywords: system dynamics, systems thinking, simulation, resource-based view,
renewables, biofuels, socio-technical regime, innovation, diffusion, transition
1. Systemic Complexity of Socio-technical Regime Transition
Biofuels as a new technology are not just a substitute similar to the one they might
potentially replace.
- Biofuels and renewable energy sources in general require different structures in
production, distribution and consumption as well as in the financial relationships
therein.
- There is different spatial arrangement in physical , technical and social levels
- New roles are emphasized, the importance of financial relationships changes,
and new interactions and synergies appear
- Inevery sector, there are different requirements for human resources, know how,
natural resource and capital
A socio-technical regime or system is a relatively stable configuration of institutions,
technologies, rules, practices and networks of cooperation that determine the evolution
and use of technology (Rip Kemp 1998). In its entirety a socio-technical regime
includes production, diffusion and use of technology (Geels, 2004).
With regard to this definition, biofuels diffusion on a wide scale could be regarded as
the successor of the fossil fuels regime. There are certain points that need attention in
the transition from the one to the other. The problem of maintaining a coordinated and
sustainable pace across the sectors is accentuated by the inherent complexity of the
attempt which is not easily manageable. Interdependencies amongst sectors and actors
in the production, distribution and consumption systems render coordinated action of
the system sectors necessary. Otherwise delays or unanticipated rapid developments in
the sectors might lead to a non sustainable situation and a failed transition.
What is described in the following sections is a framework of modelling and simulation
that can facilitate this complexity, also operating as a tool for experimentation of
scenarios and policies for the succession of the established fossil fuel regime in a virtual
environment.
Scenario exploration is conducted by investigating the strategic interactions of the
actors in the value system from primary production to final consumption and
documenting how these can ultimately affect in positive or negative ways the new
regime.
The proposed methodology provides the ‘space’ for investigating the effect various
different parameters have on the framework of institutions and rules of the socio
technical regime and their effectiveness as well as the policies for intervention and
regulation. It outlines the conditions under which co-opetition games may evolve into
either positive or negative outcomes.
2. Systemic innovation and co-opetition games
Regime transition involves the diffusion of complementary innovations and the
commitment of relevant resources in a variety of activities across the value system. So,
the diffusion of a renewable energy source such as biofuels has a system-wide nature. It
demands changes across the spectrum.
The pace of diffusion of the new regime depends on the availability of the required
resources. It depends on the willingness of actors to commit resources to the diffusion
process. This willingness is conditioned by the expectations of return on their
investment. This return, in turn, depends also on the coordinated actions of other actors
in the value system, within and outside each sector. Hence, there emerge co-opetitive
games amongst actors which co-operate for the diffusion of the new regime while at the
same time they compete for the share of the total returns. These co-opetitive games
occur intra-sectorally and along the value system.
The level of diffusion is directly analogous to the level of coordination of the committed
resources.
The final result will portray synergies between resource commitments to activities
across the value system.
Transition failure is highly probable, as breakdown may occur in any part of the system.
A variety of factors could lead astray a transition process:
- A lack of coordination could lead to reduced investment return and market
decline. For example investments in conversion units could surpass both/either
investments in primary or tertiary sectors.
- Over-investment leads to cost increases (eg. land), reduced returns due to
demand hysteresis, eventually discouraging other entrants and causing those
already involved to withdraw.
- Constraints in critical resources (land, human resources, equipment etc.), set
limits to the development of the sectors or the industry in general.
- Asymmetrical pricing in wholesale and retail prices and returns could lead to
significant fluctuation or crises.
An effective policy analysis would highlight the factors that could potentially impede
development or those that are leverage points for the total system.
3. Systems dynamics modelling of biofuels diffusion as regime transition
Below we present a systems dynamics model — as well as the corresponding causal loop
diagrams — that serves for an exploratory analysis of the described diffusion process via
simulation. The model is divided in three sectors (Figures 1-3) for the purpose of
ontological realism and user friendliness: the primary sector is dealing with the
introduction of new “energy crops”; the secondary sector deals with the investment in
the processing of these crops for the production of biofuels; finally, the third sector
deals with the dynamics of diffusion in retailing and end users. The model has been
developed in the Powersim system dynamics simulation environment (Figure 4).
Important, but realistic, simplifying assumptions have been made. Most significant are
two:
- the source of biomass for biofuels is limited to dedicated “energy” crops;
- biofuels consumption is limited to individual consumers (for transport of other
purposes); industrial users are not dealt with here in any specific way.
Key resources are identified:
- in the primary sector the land committed to biomass production;
- in the secondary sector the investment in production (processing) capacity; and
- in the market sector the availability of retailing sites and the attraction of end
users.
In all cases the expected benefit is the critical factor affecting investment decisions.
Benefit is determined primarily by intermediate and end prices and level of scaling. It is
important to notice that prices may affect decisions in counteracting ways. Thus, while
increases in biomass and biofuels wholesale price may favour the producers of the
corresponding goods and induce them to invest in further production resources, at the
same time they reduce the prospect of benefit for the next actor in the value system, thus
putting them of committing resources downstream. Time delays are also critical in this
process.
In the process of policy development two sets of issues demand particular attention in
terms of methodology. First, the question of performance and success criteria and the
variables that signify them is directly related to the dynamic hypothesis under
investigation and the scope of the investigation; the first (dynamic hypothesis) is raising
the question of modelling realism and the extend that the modelling exercise is relevant
to the problem it aims to address; the second (scope) involves boundary determination
and the selection of the parameters and factors investigated.
The second set of issues is related to the involvement of the actors in the modelling and
policy formation exercise. Participatory modelling and assumption formation could
involve two generic steps: arriving at a common understanding of the system by causal
loop diagrams and investigating alternative policies by using system dynamics models,
in search of the most robust policy.
4. Conclusion
A biofuels future would involve spectrum wide interrelated changes in a coordinated
and interacting systemic structure, involving a variety of actors across the economy. It is
possible to form a scientific, practical framework for policy making addressing
problems characterized by systemic complexity. This would involve systems thinking
and systems dynamic modelling at the heart of a participatory decision making process.
Such a framework would facilitate robust and concrete scenario analysis and enables
policy making with higher success potential. It would highlight points of leverage and
risks of transition breakdown.
References
Geels, F. W. (2002). Technological transitions as evolutionary reconfiguration
processes: A multi level perspective and a case study. Research Policy, 31(8/9):
1257-1274.
Kemp, R., Schot J., Hoogma R. (1998). Regime shifts to sustainability through
processes of niche formation: the approach of strategic niche management.
Technology Analysis and Strategic Management, 10(3): 175 — 195.
Rogers, Everett M. (1962) “Diffusion of Innovations” New York: The free Press
Smith, A., Stirling A., Berkhout F. (2005). The governance of socio-technical
transitions. Research Policy, 34: 1491 — 1510.
Sterman, John D. (2000) “Business Ddynamics: Systems Thinking and Modeling for a
Complex World” New York: Irwin McGraw-Hill
Warren, Kim (2002) “Competitive Strategy Dynamics”, John Wiley & Sons
Figure 1: Biomass production (primary sector)
Required initial
investment a, i Technology
level
New land
+ expanses
= +
Farmer profit Land in use
rospects i
“ prosp: Land Price @——— Land crop yield
+ +
+
Biomass price Biomass
production +
; +
A Market ae
consumption —~~__,, saturation ee
+
Figure 2: Biofuel production (secondary sector)
Biomass Biofuel |
price wholesale price Manufacturing
__ process +
+ investments
Production
capacity
Manufacturer
ty Profitability z Biofuel +
production
+
+ Biomass
Biofuel demand consumption
Biofuel Inventory -
Average biofuel
consumption Market
- . . saturation
“cs Biofuel pricey
Conversion
factor
Figure 3: Biofuel distribution (tertiary sector)
New retail
points oo
Available retail
int
Retail poftiability + points
+
+
Biofuel price =<———___________ Market
- saturation ““——H-_________ > Biofuel demand
+
Average
ee :
Consumer saving + consumption
+
Consumers
Figure 4: Systems Dynamic Model of Biofuels Diffusion
Primary Sector
Farmer
profitability
prospects
New
expanses withdrawn
| Biomass
inventory
Biomass price
a
+3
Biomass Biomass
production consumption
Land crop O
yield Conversion
factor
Secondary Sector
Wholesale
ility
profitabi
Manufacturing
Production
capacity
Investment
Wholesale
iofuel pric
investments withdrawal
Biofuel
| inventory
a XO
Biofuel
production
Market
saturation
©
Supply
O
Marker
demand
Consumer
savings
eS
Tertiary Sector
Retail
profitability
Retail sites
Withdrawing
Consumers,
lost Public
Consumers
turning
consumers
