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.

We have not been here before

The present economic crisis has two main causes. One is the downturn of an extreme version of the normal business cycle. The other is that a trend - the increasing inadequacy of the world's supply of oil as a result of resource depletion - revealed itself just as that cycle was reaching its peak and both precipitated and accelerated the decline.

There has never been a coincidence of a cycle and a trend in this way before. We are in completely uncharted waters because the cheap, abundant energy supply which has enabled economies to recover from depressions in the past may not be available this time around.

In a normal economic cycle, the easy availability of cheap credit provides the extra purchasing power required for output to grow. According to David Roche, an investment consultant writing in the Financial Times, $4-$5 of new credit is needed for each $1 of GDP growth.

After a time, however, the economy concerned begins to run out of key resources – skilled workers, perhaps, or factory space – and prices begin to rise, pushing up the Consumer Price Index. This, in turn, triggers a response from the central bank, which raises interest rates or puts restrictions on lending to prevent inflation becoming excessive. Borrowing falls, the rate of demand growth slows, and the down phase of the cycle begins.

The cycle that has just entered its down-phase was rather different, however, because the world's central banks failed to step in to keep it within previous bounds. They failed to act because the price rises it generated were not reflected in the consumer price indices they monitored until very recently because supplies of cheap goods, foodstuffs and skilled labour were available from the poorer parts of the world. The price increases which did develop came in ways which did not directly affect consumer prices. They were in asset values: property and share prices increased, but everyone thought that this was a good thing.

These increased asset values provided security for additional loans, and so the up-cycle continued until one critical resource - oil - began to run short on a global scale. Its price soared, taking money out of the oil-consumer-countries' economies and transferring it to the oil producers just at the time that the asset-based borrowing boom was peaking anyway in the US and several other countries. The boom was peaking because borrowers did not have the incomes to take on more debt despite valiant efforts to enable them to do so, such a giving 100% mortgages to be paid off over 40 years at five times (or even seven) times a couple's joint income.

If the current down-turn was like its predecessors, we could expect a period of readjustment (an innocuous term meaning unemployment, repossessions, a few winners and a lot of losers). After a time, house prices would dip down to a point where buyers come back into the market, credit became more freely available and the economy started to pick up.

This time, however, because a super-boom was allowed to develop, the risk is that the bust will be on a similarly super scale and that the capital write-offs will be huge, endangering the banking and money creation systems. Unemployment may reach record levels. The demand for energy is already dropping. The danger is that oil prices will return to a low level, not only destroying the viability of all the renewable energy projects that are now getting under way but also halting oil field development.

If this happens, since very little new capacity will be built, when economies eventually start to recover, supplies of energy and other resource may quickly become inadequate and prices could rise again very rapidly, This could stifle the recovery and make it very costly to move to a more sustainable economic system.

Energy Scenarios Ireland 2.0 explores the present situation and how it might work out.
In Business As Usual we assume that the economists who think that the down-phase of the economic cycle will be short are correct and that growth will resume in the near future. We also assume that significant supplies of oil and gas will be discovered and we can therefore ignore the possibility of energy shortages for the moment. A further assumption is that fossil energy use is not restricted for climate change reasons.

In Enlightened Transition, we assume that action to replace the world's depleting supplies of oil and gas stimulates a global economic recovery so that, as the economy grows, demand for non-renewable energy falls.

In Fair Shares, the economic recovery is slow as Ireland struggles to make its economy more sustainable but with limited resources to do so. In this scenario, falling global energy prices mask
the decreasing supply trend until the economy starts to recover.

In Enforced Localisation no significant action is taken and the country slides into economic collapse. Recovery is long and slow.

Introduction to Energy Scenarios Ireland 2

In looking to help people understand how the future might be different from today, we could have made a prediction about what that future holds. To do this we would first have had to reach a compromise between us about what the future would be like. Then we would have had to adjust that future to within the bounds of what we thought others would find credible, after all there is no point in making a prediction that nobody believes. This would have limited the areas we could explore by not going outside the popular comfort zone. In the end our damped down prediction would have read something like "After a period of readjustment, Ireland will return to a period of strong economic growth...". Just what everyone wants to hear.

Or, we could go ahead and make a prediction. Human nature being what it is, the most common reaction would be to focus on the areas of disagreement. A heated discussion would follow that might change a few opinions, but make little progress towards identifying risks and opportunities for the future and improve long term decision making.

So instead we have chosen to continue to use Scenario Planning to explore a range of possible futures, none of which we expect to reflect what actually happens, but instead explore different aspects of our future. Our experience developing Energy Scenarios Ireland version 1, was that it is much easier to lay aside our inbuilt assumptions and consider a unexpected future if it is not being touted as a prediction. It circumvents the long process of convincing others that we are right and we can go straight to applying our collective imaginations to exploring the risks and opportunities for that scenario. Everyone can then apply what they have learned to their own vision of the future. Looking at the scenarios collectively helps in developing and testing plans - if a plan will only work in one scenario, building in more flexibility should be considered.


We are, in fact, going to explore "After a period of readjustment..." with four scenarios, that are similar but not exactly the same as those in the previous version of Energy Scenarios Ireland.

Read more about the previous version here: http://www.energyscenariosireland.com

Business As Usual - we briefly look at a short period of readjustment followed by a return to strong economic growth. What might have to happen in order for this fairy tale to come true!
Enlightened Transition - considers a longer downturn but an immediate focus on increasing energy productivity and moving to renewable sources of energy. This leads to economic recovery driven by investment in these new areas. Not without pain for those dependent on Business As Usual.
Fair Shares - we wait longer before making a commitment to move away from fossil fuel and therefore have less resources with which to do so. Recovery takes longer to start and improvement is slow.
Enforced Localisation - we continue to be optimistic about the future until there are few options left but to return to a subsistence economy.

Scenarios are not predictions. In order to explore these different scenarios we are making assumptions about the wider world that include:
- no sudden and significant climate change
- no sudden and significant increase in terrorism
- no pandemics in either humans or livestock
- no discover of direct replacement for oil that is cheap and quickly scaleable
- Ireland cannot act unilaterally to any extent, so the rest of the world follows broadly the same scenario