Posts Tagged economy

Transforming Not Recovering Robert Hickson Oct 24


In my previous post  I noted some of the major global changes underway. No one has the solution to how best navigate the energy, economic, educational, and geopolitical transitions underway. So what could New Zealand do?

Futures practitioners often write about ‘possible futures’, ‘probable futures’ and ‘preferred futures’. The object of the last is to identify where you’d like to be and the actions that will help you get there.

What are preferred futures for New Zealand in such an environment? A range of recent discussions have looked at where New Zealand needs to be in the future. These tend to focus on a particular issue — such as the need to be more sustainable, or to have a more diversified  and productive economy

These are good and necessary aspirations. But will they be enough given the other changes going on in the world? I don’t think so because we also need to create a society (not just an economy) able to not only weather but prosper through the turbulence. Dame Anne Salmond  also recently passionately urged the need to think beyond technical innovation to improve New Zealand’s well being.

One thing is certain, we need a plan. Muddling through won’t do. Ernest Rutherford’s bon mot ‘we’ve got no money, so we’ve got to think’ applies to more than science. Other countries are strategically stronger and committed to long term planning.


Strategic Planning

China is onto its 12th five year plan  (see also The Economist). Whether you agree with their approach or not, they have certainly made things happen. We aren’t, and don’t expect to have, a centrally planned and controlled economy like China. But countries such as Denmark also plan well. In 2006 they created a strategy to prepare the country for the future, with a particular focus on improving innovation. 

We can do that too. Again. We have looked to the future many times [PDF, 1.9 MB], but what we haven’t done well is to link such activities strongly to national policy and strategy, and to follow through. The Sustainable Future Institute has recently attempted to stimulate development of a strategic plan for New Zealand.

Management gurus have noted three strategic approaches to uncertainty (it mostly seems to be three of anything with management gurus) . Shape, adapt and ‘no regrets’ moves (where what you do is good no matter what happens).


Improving Education

An obvious ‘no regrets’ move is to improve the education system — making it relevant to the changing nature of work, as well as engaging a greater proportion of students. Kiwi kids can do very well in school in certain measures of educational achievement. But there is a long tail of educational underachievement. Our universities, while having some great researchers and research teams, are also slipping in international rankings.

Improving achievement in the basic skills is important but it is not the end point, and there is the risk of stalling education on measuring national standards.  Secondary Futures explored ideas for the future education environment in New Zealand a few years ago, but this has been discontinued and it doesn’t seem like any of their findings are informing educational policy. Alternatives forms of teaching at university — concentrating on teaching how to learn are being explored overseas.

New Zealand has produced some remarkable and influential educationalists in the past — such as Clarence Beeby & Sylvia Ashton-Warner — while current educational entrepreneurs such as Wendy Pye are having a significant international effect on curriculum development for literacy.

Many factors go into having a great education system. Copying these in another country doesn’t necessarily lead to the same outcomes. So focusing on building an educational system that meets the requirements for the future will be a considerable competitive advantage.

Another ‘no regrets’ move is to reduce social inequality. As Anne Salmond and others have noted, creating a fair and just society will be critical for both economic and social well-being. New Zealand has led before in introducing far sighted social policies. It is time we do again.


Energy Change

In the energy sphere we are certainly in a position to both shape and adapt to low carbon economies. In terms of natural resources for energy and food production, we have an enviable set of cards. The challenge is to play them well. Others already consider that we have the potential to be a leader in being able to do more with less.


Geopolitical Shifts

We will need to adapt to the changing geopolitical environment. Remaining neutral as the US and China consider each other’s geopolitical capabilities and ambitions is likely to be a good strategy. What would it take for New Zealand to become a Switzerland of the South Pacific — a country that prospers in part from geopolitical neutrality? What does New Zealand need to prepare for to manage challenges (and opportunities) likely to arise from environmental migration?


Economic Transformation

Economically New Zealand is weakening in terms of global competitiveness. Philip McCann has pointed out how our geographic location can influence productivity. In addition to geography, under achievement may be attributable to the modest ambitions of many businesses, lack of capital, under investment in infrastructure and R&D, and unsophisticated management. So, business as usual won’t be a great help. Shaping, adapting, and no regreting will all be required.

To borrow from Umair Haque, we should be thinking beyond recovery (such as catching up with Australia) and be focussed on transformation.

In the next post I’ll look at why being small can be beneficial for transformation.


Update 26 October - the NZ Institute has updated their “Report Card” – Ïmprovement in some measures, but on the whole they give NZ a “C”

Energy Forecasts Robert Hickson Sep 30

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The US’s Energy Information Administration has released its International Energy Outlook 2011. This forecasts energy demand out to 2035.  A caveat is that their assessments assume no new policy or legislative initiatives being introduced that could affect energy markets.

Drivers: Economic development, technological innovation

Trends: Increasing energy consumption, diversifying energy supplies, exploitation of new sources of fossil fuels

Challenges: Costs of supply, economic downturn, environmental safety

Opportunities: Improving energy efficiency, developing renewable energies

A main prediction under their Reference case is that world energy consumption increases by 53 percent, from 505 quadrillion Btu in 2008 to 770 quadrillion Btu in 2035 (Btu stands for British thermal units – a measure of energy usage). This growth comes mainly from the continuing development of China and India, whose combined energy use will more than double, making up 31 percent of total world energy consumption in 2035.

Source: EIA

Source: EIA

Where will this energy come from? Mostly from fossil fuels according to the EIA (and most other energy assessments). Renewables – largely hydropower - are expected to be the fastest-growing source of world energy, with consumption increasing by 2.8 percent per year, but fossil fuels will continue to dominate.

Source: EIA

Source: EIA

 The EIA also anticipate that China, which has largely been powered by cheap coal, will rapidly expand its use of nuclear power, contrasting with slow or no adoption in OECD countries. It goes without saying that China’s nuclear power plants will need to be better built and managed than their rail system.  

The EIA have been accused of being too optimistic in their predictions of energy demand  because they seem to underplay the rising costs of recovery of fossil fuels. Other analyses forecast lower oil production. The 2010 report of the UK Industry Taskforce on Peak Oil and Energy Security (whose members include some major transport providers) predict lower oil production in 2015 than EIA estimates. Nevertheless, there is agreement that energy consumption will continue to rise. The Industry Taskforce on Peak Oil and Energy Security also expressed concern that

‘oil shortages, insecurity of supply and price volatility will destabilise economic, political and social activity potentially by 2015’

 The large reserves of what is called unconventional oil in North America hold great promise to some oil men. Daniel Yergin’s book ‘The Quest: Energy, Security, and the Remaking of the Modern World’  is optimistic that these reserves can be tapped economically with new technologies, and shift the oil balance from the Middle East back towards America. Others are of course concerned about the safety of existing and new oil recovery techniques. Not to mention the quantity of  greenhouse gasses that will get pumped into the atmosphere from increasing use of fossil fuels.

Whose predictions are right, if any? That’s hard to say, and is dependent on the assumptions made by the forecasters. Certainly another economic downturn will undermine some of the EIA assumptions, while technological advances could make extracting oil out of tricky things like shale both attractive price wise and safer. It is too early to judge what will happen. Most pundits agree that regardless of new reserves, the prices of fossil fuels will keep increasing.

The issue then really isn’t whether whose estimate of energy use is more accurate, given that the trends are similar.  The important questions are what price of oil (or coal or gas) will still allow us to enjoy economic, social and environmental well-being, and what do we need to do so we can switch to other forms of energy before then?

Barriers to clean energies Robert Hickson Aug 31

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Clean energy technologies are being hailed by some as the sixth great technology revolution — an insurrection that will free us from the shackles of fossil fuels, and provide the staging ground for further economic growth without the nasty environmental and military consequences of an addiction to hydrocarbons. However, this revolution will play out over decades.

["Clean" is relative of course - reliance on digging rare earth elements out of the ground (or seabed) to build wind turbines or batteries isn't totally benign. And some, of course, object to the visual and auditory pollution of wind turbines]

 The philanthropic recently modelled the impact of clean energy innovation on the US economy out to 2050. They concluded that ‘aggressive energy innovation’ could both more than halve greenhouse gas emissions while enabling the economy to grow and unemployment to fall. The ‘aggressive energy innovation’ requires both technological breakthroughs and comprehensive federal clean energy policies.

 As Pew Charitable Trusts noted, the US while a hot bed of innovative research and development hasn’t got its act together (at a federal level at least) on policies that stimulate the adoption of clean energy initiatives, and so is not doing that well in the ‘clean energy race’. Countries such as China, Brazil, and western European states are doing much better if you look at the rate at which they are increasing the proportion of renewable energy generation. They are deploying tried and trusted existing technologies (wind, solar, etc).

 After the global financial crisis national stimulus packages also allocated big wads of money to clean energy research and development. Followers of cleantech will know that there is an amazing variety of approaches to creating biofuels, improving the efficiency of solar panels, building better batteries, developing fuel cells, designing smart power grids, enhancing energy efficiency and removing carbon from industrial waste streams.

 Which technological developments are going to power us in the future? That’s easy — the cheapest ones. The key bottleneck is not science but economics. The only successful developments will be those that are able to provide energy at the same or lower price as fossil fuels. This is a large challenge, made more difficult by volatile prices of the fossil fuels continually changing the target price. While oil may become scarcer, coal and natural gas will continue to be abundant and cheap.

 Many countries have been subsidising their renewable energy initiatives, but subsidies are being reduced. Governments, however, can’t step back and leave it to the market to decide the shape of our future energy systems. Incentives will be needed to build the new energy infrastructure (as they were for fossil fuels). The International Energy Agency estimated that global subsidies for fossil fuels were US$557 billion in 2008 while renewal fuel subsidies in 2009 were around US$57 billion.

 Another concern is that as the funding pulses from stimulus packages are coming to an end a lot of promising R&D won’t be able to get to a stage where the private sector steps in to commercialise it. While venture capitalists in the US are putting more money into clean tech, they are getting pickier about what they back – focussing on ventures that are likely to give a return more quickly. This means that newer start ups and more ambitious projects may find it harder to survive.

 China [PDF, 1 MB], and some other countries, are though retaining longer term support for renewable energy development. The US military is a fan of clean technologies and, as the biggest energy user in that country, able to have a substantial influence on developments. The revolution will happen, but the timing and form of it are uncertain.

 Given the uncertainty, what policies and strategies are going to be needed by governments, organisations and communities to transition as smoothly as possible away from fossil fuels? As M. King Hubbert (he of ‘peak oil’ fame) noted 40 years ago, cultural constraints are likely to be the most significant factor in the transition; can we break away from our short but dramatic history of exponential economic growth?

 Changing where and how we produce energy will have major social consequences. Transition towns are one example of local communities, with government assistance, that are already taking a different approach to energy generation and sustainable living. Planning for the rebuilding of Christchurch is considering how the role new forms of energy will shape the city. Plans for the future development of Auckland don’t seem to be giving this as much attention.


New Zealand’s Energy Strategies

Increasing our renewable energy supplies is recognised in the Strategies released this week. Rod Oram commented yesterday on Radio New Zealand National about his frustration with the government’s lack of ambition about our energy future. Many other comments and analyses have and will be forthcoming.

New Zealand is both a developer and an adopter of clean energy initiatives. I’ll end by suggesting that whatever revenues the government receives from new oil and gas drilling, a wise decision would be to use a significant proportion of it to help the country transition to clean energy. Part of this should include developing expertise in clean energy services that could be sold around the world (as Iceland did with geothermal power expertise decades ago). But policy as well as technological developments need to be ambitious.

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