Presentation to Tax People in Ireland

Had great fun doing an energy scenarios excercise with the tax departments of Ireland's south west region. They were very imaginative when asked to come up with holiday ideas for 2020, from a space trip to a sing along at Youghal, and in ideas about implementing transaction taxes or local currencies.

Here are the key slides:

Four Miracles required for Business as Usual

We have always been keen to have Business as Usual included as one of our energy scenarios, but it is becoming increasingly difficult to think up a plausible story to explain how life can carry on unchanged. A number of miracles would be required and we think that, despite our best efforts, many people will find the following scenario unconvincing...!

Miracle 1. Credit Liquidity

Heroic efforts by countries world wide to shore up the banking system works and credit starts to flow between banks making it possible for them to offer credit to businesses and individuals. But it is not banking as before. Governments restrict the range of financial products to those which can be readily understood. Credit default swaps and many other derivatioves are banned. This leads to widespread unemployment in the financial sector but many of those who lose their jobs are re-employed to police the new system.
Miracle 2. Wages increase rapidly without inflation

While Ireland boasts about its low national debt compared to its European neighbours, its level of household debt is the highest in the developed world at 190% of household income. The British figure is 159% and America's 135%. Once the banks are again able to offer credit, people in Ireland need to be in a position to borrow in order to spend and put that newly created money into circulation thereby growing the economy. Borrowing power is based on earnings capacity and asset value so in order to borrow more Irish people must increase their earnings and the value of their collateral - most often property such as a house - must rise too. There are only two ways to achieve this. One is to restart the housing boom on the basis of rapidly increasing wages, or inflation to decrease the relative size of the debt against the property. As this is a Business as Usual scenario, inflation is out of the question, so we have to assume that Ireland develops a type of business in which it can outperform other countries and where its services are in in high demand. This is

Mircacle 3. Business found to replace Construction

Ireland is identified as world data hub and pulls off a deal with Google, Microsoft and many other cloud computing providers to host their data centres. Ireland's mild climate makes the energy costs of maintaining servers at a stable temperature low, and on the basis of these contracts to host 10% of the worlds servers, two 4GW nuclear power station are built. The construction of the new data centres and power stations creates a new boom for the economy, at least in the short term.

Data for sizing the power required:
3871 GW world electricity capacity
72 GW = 2% is used by servers
7.2 = 10% of that
6 GW = Ireland current capacity

Miracle 4. Stable and low energy prices

In order for the economy to recover in a Business as Usual scenario, stable and low energy prices are required. The building of two nuclear power stations to service the data centre business stablises the energy price in Ireland, although the costs of building the nuclear power stations are high and energy prices are significantly above what they were prior to 2007.

Enlightened Transition - Introduction

THIS IS A DRAFT - SOME STATISTICS MISSING!


Motto: "I can see clearly now' (the rain has gone!)

The economy bounces back, driven by investment in low energy infrastructure changes, renewables and development and sales of technology to make energy efficiency painless. 50% of the resources of the country are used for the transition to an ultra-low carbon economy, a future similar to that of the UK's rebuilding program after the 2nd World War. (?what proportion were used by the building boom??). The key energy assumption is that overall energy use remains level with rapid gains in efficiency meeting increasing demand. There is a rapid move from oil and gas to electricity and a rapid increasing in renewables both for supply to the grid and for own use. Additional interconnectors allow us to buy and supply to the EU electricity market.

This is an optimistic scenario that explores the idea that the loss of the construction sector could be replaced with long and short-term investment in a move to sustainable energy. This includes not just renewable generation, energy storage and energy efficiency technology but also the mechanisms to encourage a swift switch from fossil fuels to renewables.

To enter this scenario, we believe a short sharp shock is required in order for us to understand our vulnerability and the urgent necessity of securing our energy supply. In this scenario an explosion of the gas pipeline in Poland just before Christmas 2008 is the trigger. This gives focus to those trying to resolve the economic crisis - rather than trying to fix the problem, they put in place structures that will enable a more desirable future.

In this scenario, we recognise that the future for energy in Ireland is electricity. A significant proportion of transport and home heating will come from electricity so while overall energy use declines in the short term as we use it more effectively, the requirement for electricity grows. We focus our attention on our strengths which is wind primarily and potentially wave and tidal. Biofuel production is increased but is a niche market for agriculture and commercial road transport. By building high capacity interconnectors to Europe (and potentially North Africa) we sell wind at times of plenty and purchase electricity from Europe to boost supply at other times.

The government has set a figure of 30% of our electricity from wind by 2020. In 2006 our capacity was 5.5GW and we used 24 billion kilowatts in 2006. As wind is intermittent, to reach 33% of our electricity from renewables, mostly from wind, we will require three times that in capacity or roughly 6GW of wind. If each windmill is 1GW (although larger ones are being built) and we have almost 1GW already installed, that will be 5000 windmills or 417 per year or 8 per week, every week, until then. In this scenario we go all out for wind building both onshore and offshore wind and the first policy to facilitate this is to create a real-time pricing market to encourage use of electricity when it is cheap (windy) and shift loads when it is expensive. In order to encourage support for installations by local people, all planning includes a sinking fund for the decommissioning of the turbines at end of life.

While Ireland cannot act unilaterally, we can seek to be a leader in creating a secure economy with stable energy prices and a plentiful supply of electricity.

Key Characteristics

• Energy is expensive but stable is supply and price.
• Labour is expensive
• Credit is cheap
• Raw materials are increasingly expensive
• Transport is more expensive
• Globalisation of some goods/services no longer beneficial.
• Success measures are long term
• The future is an electron economy
  

Risks

• Worldwide recession stops projects.
  
• Continued shortage of credit prevents rapid investment.
  
• Persistence of Business as Usual view of the future makes change slow and difficult to implement
• High capacity interconnector to EU important for this scenario so timing of supergrid is critical.
• Changes are not rolled out in a coordinated way. eg. if public transport is not an option people must continue to use the car. Until real-time pricing comes into effect, wind cannot be increased.
  

Opportunities

• New businesses emerge to take advantage of new infrastructure.
• energy productivity
• energy production
• energy storage
• energy transportation
• energy arbitrage

Policies

• Security of energy supply more important than best price.
• Investment in renewables is not subsidised but is enabled by:
  
• reduced planning restrictions
• guaranteed connection to the grid
• guaranteed energy market
• Focus on creating an infrastructure suitable for true sustainable development.

Related Links:
UK and Ireland plans for offshore wind - http://www.finfacts.com/irelandbusinessnews/publish/article_1012056.sht
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Windpower in Ireland - http://en.wikipedia.org/wiki/Wind_power_in_the_Republic_of_Ireland