Addressing capability failure in demand-led industrial transitions

Public policy is now confronted with the exceptional challenge of transforming our current production and consumption systems within timeframes defined by imperatives such as climate change mitigation. To this end, there are large potential policy gains from aligning, synchronising and/or sequencing demand-side policies for solution deployment with supply-side policies for production capability accumulation and diversification. For example, fiscal policies and regulations in support of solution deployment for the challenge of climate change with policies in support of innovation, investment and skills development. The present note outlines the conceptual basis for the development of a new System Dynamics model that aspires to quantify these policy gains. The model will be empirically calibrated and intended to capture the joint dynamics of solution deployment (demand) and production capability accumulation and diversification (supply) taking place over time horizons of one or more decades. This will serve as a basis to evaluate the approximate contributions of various policies over time. To facilitate model development, we demarcate an initial analytical space that combines high value for policy, theoretical soundness, sufficient data availability and well-established empirical regularities. The ambition is to offer a simulation environment that allows quick policy experimentation, learning and improvement, and can therefore facilitate the design of powerful packages of policies potentially spanning several policy areas and levels of governance.