System Dynamics for System Innovation

"In times of radical socio-technical change, system-level or transformative innovation (hereafter simply system innovation) is necessary in order to achieve, or maintain, economic prosperity, in ways compatible with environmental sustainability and a cohesive society. There is growing policy interest and experimentation with transformative innovation policies, which seek to address pressing societal challenges, including global ones, such as climate change, and domestic ones, such as successful industrial transitions. Existing tools for measuring, modelling and evaluating innovation policy inputs and outcomes are unable to capture crucial features of transformative innovation policy, including synergies, tipping points, multi-level interactions, sequencing and rebound effects. This report documents an exploratory, one-year research project to build the knowledge base and assess the feasibility of a system dynamics model of system innovation. The project centred around the development of a proof-of-concept version of POLYTRoPOS (a POLYvalent model for the evaluation of TRansformative POlicy Scenarios), a system dynamics model focused on the interactions between technology deployment and productive capability accumulation. The prototype, in this early form, cannot yet provide policy guidance, but is meant to illustrate key concepts, demonstrate policy relevance and generate lessons for the later development of a more fully-featured model.Large heterogeneity in the framings of system-level innovation relevant to each production sector, and uncertainty about their future transition paths have been important stumbling blocks to aggregate measurement and evaluation that is internationally comparable. The project sought to reconceptualise system innovation processes in general ways that are more receptive of aggregate and internationally comparable measurement, in order to model them quantitatively. To do so it was necessary to contain the analytical boundary of the model in processes which combine high policy interest, for which economics and social science theory offer adequate guidance, and which exhibit sufficient statistical regularity to permit meaningful modelling. The report contains an overview of background literature providing a theoretical basis for the construction of the model (section 2); the rationale for the choice of the case study, namely the current episode of Renewable Energy Sources (RES) deployment-capability accumulation as it is unfolding in the EU, and some key definitions (sections 3.1 and 3.2); global and European metrics of the RES transition in the EU from internationally comparable statistics (section 3.3); develops the overall structure and boundaries of the model and the substantive and policy stakes of case study of RES (sections 4.1 and 4.2); showcases a computer simulation model, partially calibrated on empirical data on RES deployment and production capability accumulation for the EU27. This stylised system dynamics model has been expressed in Causal Loop and Stock and Flow diagrams. We have documented our calibration data and parameters (sections 4.3-4.5) and provided some illustrative simulations of relevance to current policy debates (section 4.6). Lessons from the exploratory project can inform the future development of policy measurement and evaluation tools in the JRC, including a more fully-fledged and versatile version of the POLYTRoPOS model."