2010 Kelly work example Analytical report for Siemens - High oil and gas price impacts

The Economic Impacts for Ireland
of High Oil and Gas Prices
Pathways to risk mitigation and a low carbon future
A research project commissioned by Siemens Limited

Contents
Table of Contents
Pathways to risk mitigation and a low carbon future THE ECONOMIC IMPACTS FOR IRELAND OF HIGH OIL AND GAS PRICES 01
Foreword 03
Chapter 1.
Oil and Gas Prices and
their Determinants. 04
Chapter 2.
Baseline Scenario 2025. 07
Chapter 3.
Economic and Social Impacts of
three Oil and Gas Price Scenarios. 09
Chapter 4.
Ireland’s dependence on Oil and Gas. 15
Chapter 5.
Options and actions to reduce
exposure to High Oil and Gas Prices. 18
Chapter 6.
Summary, Conclusions and
Recommendations. 24
Endnotes and References. 27
This publication is a management summary of a more in depth analysis presented by the
researchers. The full report is available on request from Siemens Limited.

Foreword
Foreword
O
il and gas prices have been the
subject of considerable interest in
the wake of a particularly volatile
year in 2008 which saw a nominal peak of
over $140 per barrel in July of that year,
with a subsequent collapse to just under
$40 dollars per barrel by December1
. The
scale of the price swing and the rapidity of
the change stand out from real and nominal
price trends over the past two decades and
serve as a timely illustration of the power of
the unexpected.
As a small open economy, Ireland is
heavily dependent on world demand for
Irish exports and also on our competitive
position within the global marketplace.
Any shock to the global economy that has
a negative impact on global growth will
reduce the demand for Irish exports and
therefore domestic output. Additionally
Ireland’s dependency on imported oil and
gas for the operation of the economy and
society is particularly high and this adds to
the level of national risk exposure.
In this report we examine the macro-
economic impacts for Ireland of three
high oil and gas price scenarios for the
period from 2010 to 2025 and consider the
challenges Ireland may face in the event of
such developments.
The focus is principally on the economic
exposure Ireland and the world maintain
with respect to oil and gas price volatility
and how and to what extent, we can
influence the rate of dependency on these
fuels in order to mitigate the corresponding
level of impacts.
The report is structured into three core
sections:
1. The development of three high oil
and gas (HOG) price scenarios out
to 2025.
2. An estimation of the macroeconomic
impacts for Ireland for each of the
three HOG price scenarios as compared
with the most recent national Baseline
from the Economic and Social Research
Institute (ESRI).
3. An outline of strategic options that
could reduce Ireland’s reliance on oil
and gas.
Siemens is grateful to Dr Andrew
Kelly of AP EnvEcon Limited for his
contribution to this report. We would also
like to acknowledge the support and input
of the ESRI. Siemens sees itself in the
vanguard of the drive for sustainability.
This report, together with our previous
studies, represents part of our contribution
and commitment to help stakeholders
take informed decisions – decisions that
could have economic and environmental
ramifications for generations to come.
Dr Werner Kruckow
CEO Siemens Limited
Dublin, Ireland
July 2010

Oil and Gas Prices and their Determinants
Chapter 1.
Oil and Gas Prices and
their Determinants
T
his opening section of the report
deals with oil and gas prices and has
fed directly into the design of the
three HOG price scenarios tested as part of
the macroeconomic impact analysis. The
purpose of this review is not to identify
the most likely path for oil and gas prices.
Shocks, by their nature, are rarely a feature
of such exercises and as a result, such
an endeavour would no doubt yield a
moderate and steady outlook linked to the
current situation.2
However, the recent and
unprecedented economic crisis serves as
an unfortunate and timely reminder of the
distinction between the unlikely and the
impossible. As such we choose to highlight
the unlikely. We identify the principal price
determinants, examine historical evidence
of change, and consider long and short run
price outlooks from major international
analytical sources. In essence we gather
evidence for ‘what could be’ and thereby
use this information to set boundaries
for our HOG price scenarios without the
constraint of an international consensus on
‘what seems most likely’.
Determinants of price
Oil is an important global commodity
and its price is broadly determined
by the fundamental principles of supply,
demand and market expectations.3
There are numerous market agents,
however the dominant roles are arguably
held by a handful of operators. OPEC
is the most influential player on the supply
side while the OECD countries are seen
as the most influential group on the
demand side. Additionally, emerging
economies, principally China and India,
account for the majority of the increase
in global energy consumption and have
thereby evolved into important drivers of
demand and price change in the global oil
market.
These players and a set of possible
04 THE ECONOMIC IMPACTS FOR IRELAND OF HIGH OIL AND GAS PRICES Pathways to risk mitigation and a low carbon future
Table 1: Examples of oil price influencing events
SUPPLY SIDE EVENTS DEMAND SIDE EVENTS
International conflicts and terrorism Population growth
OPEC production rate adjustments Accelerated growth of developing countries
Revisions to national reserve
inventories
Revisions to internationally viable oil stocks
and production rates
Market efficiency Speculation and exchange rates
Renewable penetration Other technological change
Unconventional oil and gas Shifts in demand of energy services
Natural disasters
The unknown
Increased penetration of oil
and gas powered technologies
Figure 1: Annual average crude oil price 1970-2010
‘events’ are highly influential in the
evolution of oil price. Some illustrative
examples4
of such major price driver events
on both the supply and demand side are
presented in Table 1 below.
Historical evidence of change
Figure 1 presents the historical free market
prices of Illinois crude in both real and
nominal dollars per barrel from 1970 to
2010. The most striking events are the
2008 peak and trough where a threefold
change in price was experienced within the
same calendar year and the significant and
extended shock of the late 70’s and early
80’s during the Iran/Iraq conflict period. The
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evidence in this case illustrates quite clearly
that shocks – both acute and protracted
– have occurred in recent history.
Short-term price outlook
In Figures 2 and 3 we present short (1 year)
price outlook confidence intervals from
the Energy Information Administration
(EIA) with a view to illustrating the
perceived volatility in the market price
even on this time horizon. Figure 2 is taken
from the time of the oil price peak in July
2008 whereas Figure 3 is taken from the
same publication one year later in July
2009 (when prices had collapsed and were
comparatively stable). In these figures,
the red line represents the upper bound
expectation for oil price, whilst the green
line indicates the lower bound.
Figure 2 gives us a clear indication of
how significant changes in the current
price can lead to far greater uncertainty
with respect to price outlook. In this
case indicated by the particularly large
gap between upper and lower bound
expectations. Figure 3 then moves
the same methodological assessment
forward one year and shows how the fall
and apparent stabilisation in oil prices,
along with the shorter price outlook time
frame allow for a much reduced angle of
divergence between the upper and lower
bands. It is also of note, that when looking
back at the actual price path in Figure 2,
we see that from the July peak of 2008,
prices actually dipped well below the lower
statistical bound over the course of the
following year.
Whilst this is only one outlook on price,
it serves to illustrate how outlooks and
expectations for ‘plausible’ energy prices
can shift dramatically in a short period of
time– in this case because of the financial
crisis and the following Great Recession
that took almost everybody by surprise.
In the context of our developed HOG price
scenarios the point here is to note that
unforeseen spikes and collapses in price
can occur and they can do so within a very
short space of time. Additionally, we make
note of how price volatility can debase
confidence in the stability of future prices
and can thereby create an environment of
major uncertainty surrounding future price
evolutions.
Long-term price outlook
Forecasting long-term oil prices is
challenging and arguably futile. Forecasts
can respond quite dramatically to current
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Figure 2: EIA NYMEX WTI 95% confidence intervals in July 08
Figure 3: EIA NYMEX WTI 95% confidence intervals in July 09
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Figure 4: International energy outlook: world oil ($2007) for reference cases in 2008/2009
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Oil and Gas Prices and their Determinants
events and changes in expectations. Both
can change quickly as illustrated by the
revised EIA International Energy Outlook
(IEO) for world oil prices presented in
Figure 4.
The trend lines represent the change
in the ‘reference case’ world oil price($2007)
outlook between the IEO 2008 and IEO
2009 reports. In the space of a year the
price projection – not its confidence
interval – has altered significantly, with
a near doubling of the real oil price($2007)
in 2025 under more recent analysis5
.
Adjusting values to nominal prices would
result in a nominal price forecast for 2025
of approximately $220 per barrel from the
2009 outlook, as compared with a nominal
price of over $120 per barrel from the 2008
analysis6
.
Figure 5 draws on the associated
literature and presents the EIA high and
low world oil price scenarios which frame
the reference case. These alternate price
projections present a real oil price($2007)
low
of just $50 and a high of just under $200
in 2025.
The boundaries of the high price
scenario described here have been used
in developing the HOG Price scenarios to
restrict the impact of ‘events’ in a given
year to the comparable high price scenario
range. In no case or year do the HOG prices
exceed the EIA high price scenario peak
real value of $200($2007)
per barrel. The
highest real oil price($2008)
reached being
approximately $175 in the second peak
of the ‘Camel’ HOG price scenario which is
presented later.
Conclusion on price outlook
The primary conclusion on price outlook
is simply that both moderate change and
extreme shifts are possible and changes in
price can occur within a very short space
of time. There are numerous factors which
may combine to deliver short and sharp
price shocks, as well as more persistent
combinations that could deliver prolonged
changes in price. Similarly, expert
international outlook on price can change
dramatically and quickly for both the short
and long-term.
Into the future, it seems likely that
sustained pressure on available resources
will ultimately lead to increased price
volatility with implications for the market
price. Therefore, we conclude that there
is both precedent and growing potential
for price changes of the scale described in
the HOG price scenarios in Chapter 3 over
longer time frames.
Figure 5: Annual energy outlook: Reference, high and low price ($2007) oil scenarios to 2025
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High Price
Low Price
Real$($2007)
perbarrel
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Baseline Scenario 2025
Chapter 2.
T
his study models the economic effect
of a series of high oil and gas price
scenarios on the Irish economy.
However, oil and gas prices are just
one component of the macroeconomic
modelling exercise and need to be
mapped against a broader perspective
comprising the many different parameters
and assumptions relating to the structure,
interactions and development of the Irish
and world economies. For this purpose, we
have adopted the ESRI’s Baseline forecast for
Ireland out to 20257
as the scenario against
which the HOG price scenarios are tested.
Baseline Scenario description
The ESRI Baseline 2025 scenario (hereafter,
Baseline Scenario) takes a lead from the
Recovery Scenarios for Ireland report that
was published by the ESRI in May 20098
and
specifically the World Recovery Scenario
(WRS) described therein9
. The principal
assumption is that global economies
recover from recession by the middle of
2010 and then proceed to grow at rates
nearing potential from 2011 onwards10
with
a corresponding recovery in world demand
for Irish exports. The forecasts for the key
macroeconomic aggregates of this WRS
scenario for Ireland are presented in Table
2 with the principal statistic for average
GNP growth of 3.3 per cent over the period
2015 to 2020 and more moderate growth
averaging 2.7 per cent over the period
2020-2025. An ESRI ‘storyline’ for this scenario
is presented under the next heading.
Scenario Story
Weak domestic demand and the recession
in the international economy leads to a
substantial fall in output in the
manufacturing and market services sectors
with overall GNP expected to fall by 9.0
per cent in 2009 and by almost 2 per cent
in 2010. The increase in unemployment
associated with the contraction in
economic activity over the period 2008-
2010 is expected to lead to significant
wage moderation in both the public and
private sectors. The macroeconomic model
suggests that nominal wage rates in the
economy as a whole could decline by 6.6
per cent in the period 2009-2011. As a result
of the world recovery and the improvement
in competitiveness, GNP growth is expected
to resume, averaging 5.5 per cent in
the period 2010-2015 (i.e. the average
growth experienced in each of the five
years 2011-15).
The high degree of responsiveness
of the Irish economy to changes in world
activity could give rise to a strong recovery
from 2011 onwards, assuming the economy
regains competitiveness. However this
recovery would imply a restoration of only
some of the losses sustained over the period
2008-2010. As a result of the recession, by
2015 output would be around 15 per cent
below where it would have been without
the global economic crisis.
On public finances, the lower level
of economic activity is likely to reduce
government revenue from a range of
taxes while at the same time government
expenditure is expected to rise due to
increased welfare and national debt
interest payments. As a result the general
government balance as a percentage of
GDP is expected to remain very high at
12 per cent in 2010, taking into account
the fiscal measures for 2009 and Budget
2010 announced to date. The resumption
of economic growth after 2011 would
bring about an improvement in the general
government balance which on the basis of
this benchmark scenario is forecast to fall to
3.9 per cent of GDP in 2015.
The deterioration in the economy
is expected to lead to a dramatic rise in
unemployment and the unemployment
Table 2: World Recovery Scenario Major Aggregates
2009 2010 2010-15 2015-20 2020-25

Annual % Growth Rate Average Annual Growth Rate
GDP -7.8 -2.3 5.2 3.3 2.6
GNP -9.0 -1.9 5.5 3.3 2.7
Total Employment (PES basis) -9.2 -5.8 2.8 1.5 1.0
Output, industry -9.2 -3.9 8.3 4.0 2.2
Output, market services -4.6 -1.2 5.2 3.0 3.0
Consumer Prices
(Personal Consumption Deflator) -1.0 -0.2 2.5 2.7 2.2
Non-agricultural Wage Rates -3.2 -1.8 3.1 4.6 3.2
Personal Savings Ratio 9.9 10.4 7.9 6.4 5.4
General Government Balance, % GDP -12.3 -11.6 -3.9 -1.2 -1.0
General Government Debt, % GDP 61.0 74.8 81.2 67.8 58.0
Balance of Payments, % GNP -2.2 1.0 5.2 6.7 4.5
Unemployment Rate (ILO basis) 12.7 16.5 6.6 4.9 4.0
Net Emigration (thousands) 30.0 40.0 -8.3 -24.7 -18.2

rate. As a result of lower levels of output
in the building, manufacturing and market
services sectors total employment is
expected to fall by 9.2 per cent in 2009
and a further 5.8 per cent in 2010. The
unemployment rate is expected to peak
at 16.5 per cent in 2010. In line with the
anticipated recovery in economic activity
from 2011 onwards, employment growth
is expected to resume and average 2.8 per
cent over the period 2010-2015. This is
expected to result in some moderation in
the unemployment rate which is projected
to fall to 6.6 per cent by 2015.
Emigration is assumed to peak at 50,000
in 2012. The cumulative net emigration
of 152,000 over the period 2009 to 2015
represents a significant reduction in the
labour force as a result of the recession. Of
course the likely response of migration to
the current recession is highly uncertain.
If migration were not to resume to the
extent assumed here this would lead to a
larger rise in the unemployment rate and a
slower recovery in the labour market than
described.
The combination of the bursting of the
housing bubble and the world financial
crisis has had a substantial impact on the
endowment of labour and capital in Ireland.
This has served to permanently reduce the
potential output of the economy. While the
Medium-TermReview2008-2015published
in Spring 2008 suggested that the potential
output growth rate for the Irish economy
over the period 2005-2020 was around
3.6 per cent a year, today we feel that it
is closer to 3.0 per cent a year. Over the
longer-term we anticipate average GNP
growth of 3.3 per cent over the period
2015 to 2020 and more moderate growth
averaging 2.7 per cent over the period
2020-2025.
Specific scenario assumptions
Fuel price assumptions in the Baseline
Scenario are as follows:
• Gas prices fall from €25.8 per MWh
in 2008 to €17.7/MWh in 2010, then
climb steadily to €31.5/MWh in 2025.
• Similarly, oil falls from €56.4/MWh in
2008 to €44.9/MWh in 2010 before
increasing to almost €58.2/MWh by
2025.
• Coal prices increase from €8.1/MWh in
2008 to €14.0/MWh in 2025.
• We assume no growth in real peat prices
over the period.
• Carbon taxes increase from €13.8/tonne
en implemented according to the
timetables announced by the relevant system
operators.12
Note on alternative scenarios
It is noted that the Baseline Scenario
is the less ambitious of the two main
energy scenarios developed in Ireland
at the end of 2009. The more ambitious
scenario is the ‘White Paper plus’ scenario
which incorporates assumptions such as
greater penetration of renewables, higher
proportions of electric vehicles and meeting
all of the targets established within the
National Energy Efficiency Action Plan
(NEEAP)13
.
We believe that the targets of the
“White Paper plus” scenario and other
similarly ambitious scenarios will require
concerted national action and investment
over the next 15 years and there are
many challenges yet with respect to
infrastructure, investment and technology
that must be considered. It is in the context
of this challenge that this report hopes
to support further debate on the risks we
face, the options available and the means
of progression. It is for this reason that
the Baseline Scenario is adopted as our
reference case.14
2010 2016 2020 2025

Baseline 65.5 212.2 401.2 637.4
Table 3: Electricity savings in MWh
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Figure 6: Baseline oil price scenario
CO2
in 2009 to over €40/tCO2
by 2025.
Figure 6 illustrates the specific oil price for
the Baseline Scenario. The price path dips
from 2008-2010 in response to the current
global recession before assuming a steady
linear growth path out to 2025, reaching a
nominal price of $185 dollars per barrel in
2025 or just under $100 in $2008 prices.
The Baseline oil price scenario therefore
assumes a steady and moderate increase
in oil price with no price shocks anticipated
over the next 15 years.
Electricity demand in the Baseline
Scenario has been adjusted to take account
of recently implemented measures which
have not yet had a substantial impact
(further details in DCENR’s National Energy
Efficiency Action Plan, 2009-2020)11
but
will lead to savings over the period to 2025.
Energy demand is reduced by the amounts
shown in Table 3, and changes linearly
between the reference years.
With respect to energy infrastructure,
plant commissioning and decommissioning in
the modelling exercise has be

Economic and Social Impacts of three Oil and Gas Price Scenarios
Chapter 3.
Economic and Social Impacts of three
Oil and Gas Price Scenarios
R
elative to the Baseline oil price
presented in the last chapter, we have
modelled three alternative oil price
scenarios known as – “Accelerated growth”,
“Root” and “Camel”15
along with an impact
assessment for each of the scenarios. In
each impact assessment we interpret the
results to explain the outcomes and their
linkage with the oil price variable16
.
HOG Price Scenario 1: “Accelerated
Growth”
The accelerated growth scenario (Figure
7) presents a steady but rapid increase in
global oil prices from the recovery year of
2011. The most rapid growth occurs in
the eight years subsequent to the 2011
recovery, with a slowed rate of growth
then from 2019 to 2025, where real prices
actually fall and level off. The scenario is
illustrative of an aggressive price path where
global demand, supply and associated
political constraints combine over the
next ten years to drive available resource
prices significantly higher before ultimately
moderating somewhat as markets adjust.
Internationally, the impact of a rise in oil
prices on output and inflation varies across
countries and depends on the response of
monetary authorities. An oil price shock of
this size would have a substantial effect on
inflation. Figure 8 shows the percentage
change in the price level compared to the
Baseline Scenario for the US, the UK and
the Euro Area. In this simulation monetary
authorities react by increasing interest rates
to negate some of the upward pressure on
the price level. The results suggest that
by 2015 interest rates in the US would be
around 13
/4 percentage points above the
Baseline Scenario and that interest rates
in the Euro Area and UK would be around
11
/5 to 11
/4 basis points above the Baseline
Scenario.
This higher level of interest rates
would increase the cost of capital in these
countries and have a negative effect
on output. In addition, the Euro would
appreciate by around 3 per cent against
both the Dollar and Sterling in the long
term, having a negative effect on Euro Area
competitiveness. The effect of the oil price
shock on the levels of GDP for the US, UK
and Euro Area are shown in Figure 9. The
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Accelerated Growth
Baseline
Figure 7: Accelerated Growth scenario
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Figure 8: Accelerated Growth Scenario - Impact on Price Level in International Economies

results show that by 2019 output in the US
would be around 4.5 per cent below the
Baseline Scenario and that output in the
Euro Area and UK would be 3.75 and 3.3
per cent, respectively, below the Baseline
Scenario. Over the medium to long term,
the impact on output is strongest in the
US as they have a higher oil intensity of
production. After that, the decline in output
continues but not at the same pace as this
scenario assumes that the increase in the
oil price post-2019 is more modest than in
earlier years. Overall the adverse effects are
less marked in the UK economy as it has
domestic oil reserves.
This type of shock would affect Ireland
through three main channels. Firstly, the
appreciation of the Euro reduces Irish
competitiveness by leading to an adverse
movement in our terms of trade and this
results in a loss in income. Secondly, the
increase in interest rates would have
a negative effect on investment and
therefore output. Finally, the slowdown
in the international economy reduces the
demand for Irish exports. The effects of this
shock on the Irish economy are stronger
than on the international economy. This
arises not necessarily because the Irish
economy is more sensitive to oil prices but
rather because of its greater sensitivity
to a slowdown in international output,
changes in interest rates and changes in its
competitive position.
Figure 10 shows that there would be a
sharp reduction in the level of Irish GDP as
a result of this oil price scenario. Our model
indicates that the level of output in 2025
would be around 7.5 per cent below the
Baseline Scenario. In terms of the effect
on GDP growth rates, this oil price scenario
would knock around 1.4 percentage points
off the average growth rate between 2010
and 2015. The average growth rate between
2015 and 2020 would be around 0.6
percentage points lower and the average
growth rate between 2020 and 2025 would
be around 0.2 percentage points lower. The
shock to world output would substantially
reduce the demand for Irish exports and
consequently reduce output in the industrial
and market services sector. By 2019, output
in both the industrial and market services
sector would be around 6 per cent below
that in the Baseline Scenario.
The impact on the price level in Ireland
is more muted than on the international
economy. The effect on the consumption
deflator is shown in Figure 11. The more
negative impact on output puts downwards
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Figure 9: Accelerated Growth Scenario - Impact on Output (GDP) in International Economies
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Figure 10: Accelerated Growth Scenario - Impact on Irish GDP
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Figure 11: Accelerated Growth scenario: Impact on Irish Price Level

pressure on the price level which negates
some of the upward pressure caused
by higher oil prices. The impact of
higher consumer prices would lead to a
substantial fall in real personal disposable
income. This has a marked negative effect
on consumption and, in turn, has a
negative impact on sectoral output that
is driven by domestic demand (e.g.
distribution). The rise in interest rates would
have a negative effect on investment in
Ireland with total investment being around
5.5 per cent below the Baseline Scenario in
the long run.
Given the impact on consumer prices,
we would anticipate knock-on effects of
higher inflation on wage rates as employees
bargain to protect their real after-tax wage.
However, the simulation results indicate
that wage rates could actually be below
that of the Baseline over the long term. This
arises because the effect on the demand
for Irish exports (due to the slowdown in
the international economy) is so severe
that the only way firms can negate
some of this impact and try to regain
some lost competitiveness is to reduce
wage growth. The results show that
employment could fall by 2 per cent below
the Baseline in the long-run and that the
unemployment rate would be on average
around 0.5 percentage points above the
Baseline Scenario. These effects are likely to
be stronger if wage rates do not fall below
those in the Baseline Scenario.
HOG Price Scenario 2:” Root”
In the Root Scenario (Figure 12), the oil
price is low for an extended period of time
before jumping to above $150 per barrel.
The price then reaches a bumpy plateau
with no sustained return to sub-$150
prices. In real terms, the price by 2025 is
only marginally higher than that of the
BaselineScenario.Thescenarioisillustrative
of a major short-term price shock where
revisions to global supply and accessibility
force a rapid increase in oil price to a new
plateau. This plateau is sustained and the
price mitigates over the years in real terms
as markets adjust and new supply sources
are exploited at the higher costs.
In this Scenario, the impact on the price
level in the international economy is very
strong over the medium term but the effect
begins to diminish in the longer term (see
Figure 13). Over the medium term monetary
authorities respond to the strong increase in
the price level by raising interest rates which
has a further negative effect on output.
250
300
200
150
100
50
0
2008
2010
2009
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2024
2023
2025
Nominal$/bl
Root
Baseline
Figure 12: Root scenario
5
4
3
8
7
6
2
1
0
-1
2010 2012 2014 2016 2018 2020 2022 2024
US Euro Area UK
Figure 13: Root Scenario - Impact on Price Level in International Economies
0
-1
-2
-3
-4
-5
-6
-7
-8
2012 2014 2016 2018 2020 2022 20242010
US Euro Area UK
Figure 14: Root Scenario - Impact on Output (GDP) in International Economies

2010 2012 2014 2016 2018 2020 2022 2024
4.00
5.00
3.00
2.00
1.00
0.00
-1.00
Consumption deflator
Figure 15: Root scenario - Impact on Price Level for the Irish Economy
2010 2012 2014 2016 2018 2020 2022 2024
-3.5
-4.00
-2.5
-3
-1.5
-2
-0.5
0
-1
GDP
Figure 16: Root Scenario - Impact on Output (GDP) for the Irish Economy
Figure 14 shows the effect on output as
a result of this shock. Output falls steadily
below the Baseline Scenario in the US, the
UK and the Euro Area until the latter half
of the decade; it then falls by less as the oil
price moves back closer to where it is in the
Baseline. By 2025, output is between 1.5 to
2.5 per cent below the Baseline in the US,
UK and Euro Area.
As before, the results for the Irish
economy follow a similar pattern to those in
the international economy. The inflationary
impact of the oil price increase results in
the Irish price level being around 4 per
cent above the Baseline Scenario in the
medium term (see Figure 15). This effect
weakens over the longer term and prices
actually end below the Baseline by 2025.
This seems counter intuitive but in this case
the downwards pressure on the price level
as a result of the negative effect on output,
outweighs the upwards pressure caused by
higher oil prices at the end of the period.
As a result of this shock, output in
Ireland falls sharply relative to the Baseline
out to 2016 (see Figure 16). Despite the
fact that the impact on the international
economy is slightly more moderate over
the longer term, GDP remains around 3.5
per cent below the Baseline as Ireland is
more sensitive to shocks in the international
economy. The simulation results indicate
that output in the industrial sector would
be around 31/2 per cent below the Baseline
Scenario in 2025 while output in the
market services sector would be around
41/2 per cent below the Baseline Scenario.
In this Scenario the effect of higher interest
rates leads to a fall in investment of around
21/2 per cent in the long run relative to the
Baseline Scenario.
In terms of labour market impacts,
when the oil price increases sharply
(between 2013 and 2016) wage rates
initially increase above the Baseline
Scenario as workers demand higher wages
to compensate for their loss in purchasing
power. However, as in the Accelerated
Growth Scenario, in the long-term firms
try to regain some lost competitiveness so
wage rates fall below the Baseline leaving
workers considerably worse off. In this
Scenario, total employment is around 1 per
cent below the Baseline in the long run.
HOG Price Scenario 3:”Camel”
The “Camel” scenario (Figure 17) incorporates
two major and sustained price shock events
one year apart with an ultimate reversion to
a trend comparable to that of the Baseline
250
300
200
150
100
50
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2008
2010
2009
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2024
2023
2025
Nominal$/bl
Camel
Baseline
Figure 17: Camel Scenario

Scenario. In real terms, the second price
shock peak of the camel scenario represents
the highest oil price assessed as part of
the study – at a level of $175 in 2019. The
scenario is illustrative of a highly uncertain
future oil price market where major
sequential and persistent conflicts lead to
dramatic market responses.
In this Scenario there are two transient
oil price spikes in 2014-2015 and 2018-
2019. As a result, in the simulation results
there will be stronger effects during these
two time periods. Figure 18 shows the
impact on the price level in the international
economy. In this Scenario, as oil prices and
the price level follow a more unsteady path
and so too do interest rates. Monetary
authorities respond to this type of shock by
increasing interest rates sharply during the
two price spikes but lowering them when
the price level starts to come down again.
In this scenario there is some appreciation
of the Euro against the Dollar and Sterling
but the effect is much smaller than in the
Accelerated Growth Scenario and the effects
are strongest when the price spikes occur.
The effect on the level of output in the
international economy is shown in Figure
19. As mentioned above, the impact on
output is not smooth over time because of
the nature of the shock. For each country
the impact on output is considerably smaller
than in the Accelerated Growth Scenario.
Figure 20 shows the impact on the
level of Irish GDP and Figure 21 shows
the impacts on domestic price levels. The
impacts reflect the patterns shown for the
international economy. As in the previous
Scenario, the effect on Irish output is
stronger than the effect on international
output. In the long run output is around 3.5
per cent below the Baseline Scenario; more
than half the long run effect reported in
the Accelerated Growth Scenario. By 2025,
industrial output is around 3.4 per cent
below the Baseline Scenario and output
in the market services sector is around 4.5
per cent below the Baseline Scenario. As
the interest rate differential (compared to
the Baseline) is not smooth, neither is the
response of investment to such a shock.
Although the impact on investment is
negative, it is more marked during the
periods of the oil price spikes. For example,
total investment is around 4 per cent below
the Baseline Scenario during the second oil
price spike but is around 2 per cent below
the Baseline Scenario in the long run.
Similar to the Root Scenario, wage rates
initially rise above the Baseline Scenario
2010 2012 2014 2016 2018 2020 2022 2024
1
0
3
2
4
6
5
8
7
US Euro Area UK
Figure 18: Camel Scenario - Impact on Price Level in International Economies
2012 2014 2016 2018 2020 2022 2024
-2.5
-3
-1.5
-2
-0.5
0
-1
2010
US Euro Area UK
Figure 19: Camel Scenario - Impact on Output (GDP) in International Economies
2012 2014 2016 2018 2020 2022 2024
-3.00
-4.00
-2.50
-3.50
-1.50
-2.00
-0.50
0.00
-1.00
2010
GDP
Figure 20: Camel Scenario - Impact on Level of Irish GDP

2010 2012 2014 2016 2018 2020 2022 2024
4.00
5.00
3.00
2.00
1.00
0.00
-1.00
Consumption deflator
Figure 21: Camel Scenario - Impact on Price Level for the Irish Economy
values when the spikes in the oil price occur
and then fall below the Baseline Scenario in
the long-term. As a result of the lower level of
activity in the economy, total employment is
around1percentbelowtheBaselineScenario
in the long-run and the unemployment rate
rises by around 0.3 percentage points above
the Baseline values.
For each of the prior price scenarios
we have described the modelled economic
impacts. However, whilst these broader
economic indicators are a core component
of this report, it is important to be aware
that there are further additional impacts
with associated value that are not explicitly,
or in some cases even implicitly, captured
within such analytical systems. We identify
six such impacts in this study.
Table 4 presents a qualitative summary
of these six impact areas to be considered in
the context of what high oil and gas prices
would mean for Ireland.
DESCRIPTIONIMPACT
Higher energy costs will impose a greater financial burden on the poor relative to the rich. In
this way the exposure to higher energy prices poses a greater potential cost to those least able
to afford the change. This can lead to negative welfare implications.
Related to the distributional impact, higher fuel and energy costs will push more individuals from
the margins into a position of energy and fuel poverty. This is a situation where a household
spends more than 10% of its income on trying to heat and light a home to an adequate level.
The costs of this shift include reduced welfare, poor health and excess winter mortality.
Increased fuel prices will add to travel costs and constrain travel decisions. This may lead to
reduced emissions, an outcome similar to that of a carbon tax for transport. However, unlike
a tax which would at least generate revenue for investment, exposure to rising international
oil prices would simply increase costs. Whilst the very poorest may not have access to a car,
the dominance of private transport in the Irish market would suggest the impact would be felt
widely with reduced travel for leisure and additional cost for commuting.
Energy price volatility associated with high oil and gas prices creates a situation of market
uncertainty. This makes planning difficult, can generate financial problems for business and
individuals, hinders investment decisions and creates a poor environment for economic growth.
On a positive note however, such volatility can also serve as a strong incentive for alternative
energy sources for those who do choose to invest. The indirect taxes on final energy demand offer
another mechanism to mitigate price volatility, although there are constraints in this regard.
Within Europe, Ireland already has comparatively high electricity costs and fuel costs. Whilst
Ireland lacks the major energy-intensive industries to have competitiveness severely impacted
by oil and gas prices, the cost of energy and fuel is a factor in relation to the operational costs
of business and associated investment decisions.
Thecostnationallyofimportingoilandgaswouldbeexpectedtoriseunderthehigherpricescenarios.
Whilst demand may drop somewhat, the lack of alternatives and strong energy requirements in
society would likely see the national energy import bill rise. Statements from Minister Ryan suggested
Ireland currently spends approximately €6 billion per annum on imported fossil fuels.
Table 4: Summary table of non-modelled impacts
Distributional impact
Energy and fuel poverty
Mobility reduction
Price volatility
COMPETITIVENESS
ENERGY IMPORT COST

Ireland‘s dependence on Oil and Gas
Chapter 4.
Ireland
,
s dependence on Oil and Gas
T
he previous chapter presents
outcomes of the HOG price analysis
withrespecttothepotentialeconomic
and social impacts for Ireland. The purpose
of this exercise has been to explore possible
price scenarios, identify the potential risks
and consider national and international
exposure. In this chapter we consider
Ireland’s reliance on energy imports and
the corresponding dependence of specific
sectors and key activities on these imports.
This review incorporates both historical and
baseline scenario forecast values.
Energy security and exposure to price
fluctuations
Energy security of supply and exposure
to price fluctuations are topics of concern
within the European Union. The EU 27 is
a net importer of energy, importing over
half of its energy needs. Of this share,
approximately 60% are oil imports and 26%
are gas. The bulk of oil is imported from
OPEC and Russia, while Norway and Russia
provide the major share of the EU’s gas
requirements. A long term concern lies in
the availability of oil and gas reserves within
the EU 27, which are expected to be severely
depleted by 202517
(unless Europe’s shale
resources can be commercially exploited).
The general ambition of the European
Commission with respect to energy security
is to become more efficient and to diversify
both our energy sources (types) and energy
suppliers (origin).
For Ireland specifically, dependency on
imported oil and gas for the operation of the
economy and society is particularly high.
This is shown in Figure 22, which displays
the forecast energy shares out to 2025
according to the ESRI Baseline Scenario18
.
In this chart we see that oil and gas account
for over 80% of primary energy demand19
in Ireland with the remaining fuels (i.e.
coal, peat and renewables) accounting for
the remainder.
The overall share of energy imports
by fuel type is presented in Figure 23
historically from 1990 to 2008 and
forecasted then out to 2025. Forecast
values are based upon the ESRI Baseline
energy scenario and information from
the Commission for Energy Regulation.
It illustrates the historical and expected
0%
10%
100%
80%
90%
70%
60%
50%
40%
30%
20%
2008 2010 2012 2014 2016 2018 2020 2022 2024
Peat Renewables Coal Gas Oil
Figure 22: Ireland’s primary energy demand share by fuel, 2008-2025
0%
10%
100%
80%
90%
70%
60%
50%
40%
30%
20%
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Coal Gas Oil
Figure 23: Fuel shares in energy imports into Ireland, 1990-2025

Figure 24: Indigenous energy production shares, 1990-2008
0%
10%
100%
80%
90%
70%
60%
50%
40%
30%
20%
1990 1995 2000 2001 2002 2003 2004 2006 20082005 2007
Natural GasRenewables Peat
Figure 25: Final consumption of oil by sector, 2008-2025
0%
10%
100%
80%
90%
70%
60%
50%
40%
30%
20%
2008 2010 2012 2014 2016 2018 2020 2022 2024
Losses Agriculture Services Power Industry Household Transport
Ireland‘s dependence on Oil and Gas
future dominance of oil and gas in Ireland’s
imported fuel mix.
Ireland is part of a handful of EU 27
countries with greater than 80% energy
import dependency. SEI (Energy in Ireland,
2009) state that imported oil and gas
accounted for 81% of energy supply in
2008 and overall import dependency
was running at 89%. This is estimated to
rise to approximately 91% by 2025 under
the ESRI Baseline Scenario. In terms of
individual import rates, both coal and oil
are at 100%. Gas stands at 89% (in 2008)
and although this will fall as Corrib comes
online, we would expect this to rise again
to 95% by 2025 in the absence of any
further significant finds and an increasing
shift towards gas fired power generation.
In short, our indigenous energy use will
remain dominated by imported fuels in the
Baseline Scenario.
Furthermore, if we examine our
suppliers, we note that Ireland is entirely
dependent on the UK for its gas imports
and similar to many of the EU 27, is entirely
dependent on outside EU imports of oil.
With respect to gas, the Commission for
Energy Regulation suggests potential
scenarios for Irish gas supply (CER, 2009)
involving various assumptions of new
sources and storage capacity. Principally, it
is noted that the Corrib gas field could meet
over 60% of Irish demand in the medium
term. However, the production capacity of
Corrib is expected to decline rapidly to less
than 50% of its peak after 6 years. Liquefied
natural gas (LNG) imports (e.g., from shale
gas) may offer the potential to diversify our
suppliers further over the medium term,
however, the price of such imports is likely
to be influenced by transport, extraction
and environmental costs.
In terms of indigenous production of
energy, Figure 24 presents the growing
shares of peat and renewables and a decline
of natural gas production up to 2008. In
absolute terms, indigenous production
remains small and the relevance of high
import dependency rates become more
apparent when we refer back to the overall
consumption and dependency on oil and
gas in Ireland. Looking forward, growth in
indigenous energy production of significant
scale is only likely to be achieved through
further development of renewable energy
sources.
The breakdown of oil and gas by sector
in the Baseline is displayed in Figures 25
and 26, respectively. For oil, the transport
sector remains, by far, the dominant sector
0%
10%
100%
80%
90%
70%
60%
50%
40%
30%
20%
2008 2010 2012 2014 2016 2018 2020 2022 2024
Losses Agriculture Services Power Industry Household Transport
Figure 26: Final consumption of gas by sector, 2008-2025

with approximately 63% of the oil use
share and little change anticipated in the
Baseline shares out to 2025. The industry
and household sectors account for much
of the balance. With regard to gas,
the power generation sector utilises
the greatest share of gas in Ireland, at 63%
in 2008 but this share is expected to drop
to 51% by 2025. In absolute terms the
level of gas used in power generation out
to 2025 changes little under the Baseline
Scenario, however an increase in demand
from households and industry reduces
its share.
This chapter has illustrated a clear
dependency within the economy on
imported oil and gas. Virtually every
sector of our economy is to some extent
dependent on oil or gas for its normal
operation - a common situation in
developed countries. Understandably this
reliance contributes to the fact that shocks
to the price of fossil fuels can therefore
have pronounced economic and social
impacts. Rather more unfortunately, the
modelling analysis within this report
suggests that Ireland is particularly sensitive
to such shocks and their outcomes, and
as a result would suffer more pronounced
economic impacts and a slower recovery as
compared with other countries. The next
topic addressed in this study is to consider
broad actions that could be taken to reduce
national dependence on oil and gas and to
discuss the drivers and motivators for action
in this regard.

Options and actions to reduce exposure to High Oil and Gas Prices
T
he previous chapter shows the clear
dependency within the economy on
imported oil and gas. As illustrated in
the earlier sections, this dependency among
Ireland and our core trading partners creates
an economic exposure to high oil and gas
prices.
But what actions can mitigate the
exposure to this risk and these impacts?
The international dimension of the impacts
would likely require concerted action
amongst Ireland and its trading partners
to reduce our collective reliance on oil
and gas if we seek to mitigate the extent
of the potential impacts (e.g. trade
slowdown). However, in this piece we focus
Chapter 5.
Options and actions to reduce
exposure to High Oil and Gas Prices
on Ireland and in this regard there remain
many options which could contribute
towards a reduced exposure toward a
number of the identified impacts in the
report.
The options for action presented
here are extracted from a position paper
entitled Ireland in the New Electricity Age20
presented by Siemens Limited.
In this position paper, Siemens proposes
four ‘pillars’ for a sustainable energy system
in Ireland, as set out in Table 5, namely :
Pillar 1: Maximising electricity generation
from renewable sources.
Pillar 2: Grid upgrade and integration into
the European grid.
Pillar 3: Increased energy efficiency and
conservation.
Pillar 4: Maximising electricity usage in
end-use applications.
In the following pages we consider
three “Focus Areas” from these pillars
and discuss the drivers and motivators
for action in each Focus Area. The Focus
Areas addressed are as follows:
Focus Area 1: Renewable energy
generation from wind.
Focus Area 2: Improvements in energy
efficiency and conservation.
Focus Area 3: Electrifying the transport
sector.
DESCRIPTIONPILLAR
Rapid implementation of the existing pipeline in onshore wind along with fast tracking of offshore
projects. Additionally, in order to maximise the efficiency of wind farms, deploy storage
technologies to capture off-peak renewables energy. Explore the opportunities from ocean energy.
Develop and optimize the national grid for renewable energy, including the:
• Development of the national grid infrastructure on an all island basis.
• Extension of 400 kV and 220 kV network to facilitate transmission from key renewable locations.
• Implementation of “smart systems” to manage future load-to-generation matching.
Significantly increase the number and capacity of interconnectors to UK and mainland Europe in
order to be able to export surplus renewable energy and benefit from a European/global super grid.
Apply the technical solutions available today to improve the energy efficiency of, inter alia:
• Buildings.
• Domestic appliances.
• Motors and drives in industry.
• Public lighting.
• Expanding the use of e-cars and hybrid cars .
• Improving the energy efficiency of diesel public buses through hybrid electric drives and
regenerative braking power.
• Replacement of fossil fuel driven heating by ambient or geothermal heat pumps.
• Electrifying the national rail network in Ireland.
Pillar 2:
Grid upgrade and
integration into the
European grid
Table 5: Four pillars for a sustainable energy system in Ireland
Pillar 1:
Maximising electricity generation
from renewable sources
Pillar 4:
Maximising electricity
usage in end-use
applications
Pillar 3:
Increased energy
efficiency and conservation

For each of the Focus Areas presented,
we offer a qualitative examination of each
against four evaluative criteria as presented
in Figure 27, namely:
(a) Contribution to the Green Economy:
Creation of green employment, green
business opportunities and a green
market place.
(b) Impact on the Environment:
Contribution to emissions reduction and
improved international environmental
performance.
(c) Influence on Competitiveness:
Impact upon the level of cost
competitiveness of Irish businesses
and the country’s international
attractiveness for investment.
(d) Mitigation of Energy Risk:
Reduction in energy price volatility and
energy supply risk in the Irish market.
This chapter concludes with a quantitative
case study that connects the analysis
conducted in this report with the business
case for investment in a 101 MW onshore
wind farm in Ireland. This case study
illustrates how the varied factors of
inflation, interest rates and fossil fuel
prices could combine to influence the
investment return under both the Baseline
and Accelerated Growth scenarios. The
purpose being to illustrate how a HOG price
scenario may influence the investment
decision in one of the ‘options’ for change.
Focus Area 1: Renewable energy
generation from wind
This first option refers to the progressive
scaling up of Ireland’s wind energy
generation capacity from both on and
offshore large scale projects. Ambitious
plans are in place in this regard21
in Ireland
and in this section we examine some of the
reasons to maintain a sustained effort to
reach these goals, as well as some of the
challenges that must be overcome to be
successful.
(a) Contribution to the Green Economy
While Ireland presently does not
possess an indigenous wind turbine and
component manufacturing industry, the
progressive scaling up of Ireland’s wind
energy generation capacity represents an
important employment opportunity for the
green economy. Wind energy employment
can be broken down into direct and
indirect employment. Wind turbine and
component manufacture are responsible
for the majority of direct wind energy jobs
(59%, European Wind Energy Association
[EWEA] 2009).22
Other direct employment
includes jobs created in the initial phase of
getting a wind energy project operational;
wind farm development, wind turbine and
component installation, employment of
relevant financial and consultant personnel
and RD, all employment positions that
may be created within Ireland.
Other employment from wind farms
refers mostly to jobs associated with wind
turbine and wind farm operation and
maintenance once a wind energy project
has entered its full operational cycle. These
are longer term positions that would offer
further employment creation opportunities
in Ireland.
According to EWEA, the wind energy
sector employed 154,000 in the EU in 2007.
This figure is forecast to surpass 325,000
by 2020. EWEA figures show that in 2007
1,500 people were directly employed by
wind energy companies in Ireland. EWEA
highlight that 15.1 jobs are created in the
EU for every MW of installed wind capacity.
The development of this sector would
also support reductions in the national
energy import bill for fossil fuels (estimated
at approximately €6bn per annum) and
could stimulate the development of greater
marketable national expertise for export.
However, the decision to invest in
renewable energy technology deployment
will be heavily influenced by prevailing
market conditions. Significant start up
costs, access to capital and the expected
market return for electricity generated are
fundamental considerations for investors.
With respect to this issue it is possible for
governments to create the right conditions
to encourage investment. This can be
achieved through the introduction of
policy support mechanisms. One of the
most common policy mechanisms used
to encourage the adoption of renewable
energy sources and increase the use
of renewable energy technologies in
electricity production is the use of renewable
energy feed in tariffs (REFIT). Renewable
energy investors and developers support
the introduction of such tariffs as they
provide a form of investor certainty. Like
many other international governments,
the Irish Government has opted for this
policy support mechanism. In 2006 the
Irish government launched the REFIT
scheme which has become the main tool
for promoting RES-E and wind energy
development. The REFIT scheme provides
support in the form of a fixed feed in tariff
to renewable energy projects over a 15
year period thereby providing renewable
investors with a degree of short to medium-
term market certainty. In the case study
presented later, we will illustrate how the
Accelerated Growth high oil and gas price
scenario may be expected to change the
investment case for a 101MW on shore wind
farm as fossil fuel prices add upward price
pressure to the market price of electricity.
However, whilst high oil and gas
prices and supports such as REFIT can be
important in the decision to invest, further
challenges persist in terms of access to
start-up finance, the speed of planning
procedures and the characteristics and
availability of the overall grid infrastructure.
All these challenges must be addressed if
wind energy is to achieve a greater share of
the electricity generation market and make
Contribution to the
Green Economy
Cleantech Jobs
Impact on the
Environment
Targets Legislation
Influence on
Competitiveness
Energy Price Cost
Mitigation
Energy Risk
Supply, Stability Price
Figure 27: Four evaluation criteria for actions

a strong contribution to the development
of the green economy.
(b) Impact on the Environment
Wind is a clean renewable energy insofar
as there are no emissions associated with
the generation of energy from the wind
turbines. Thus wind generation can form
a key part of the solution for countries
seeking to reduce national emissions
associated with energy generation.
Government targets and legislation can
provide an added stimulus in this context
for the scaling up of national wind energy
generation. A recent renewables target
assigned to the Government under the
European Commission’s 2008 Climate and
Energy Package requires Ireland to reach
a renewable energy share of gross final
consumption of energy of 16% by 2020.
Prior to this, in 2007 the Government
launched its Energy White Paper (Delivering
a Sustainable Energy Future for Ireland)
which included a number of ambitious
renewable targets. Targets included
renewables achieving a 15% and 33%
share of electricity generation by 2010
and 2020 respectively, with the latter
value subsequently being raised to 40% in
December 2008.
Wind energy is not without
environmental cost however and turbines
themselves require materials, manufacturing
and transport which give rise to a level
of emissions that may be considered as
part of a lifecycle analysis. Furthermore,
the mass deployment of wind farms
imposes a degree of cost on society in the
form of visual disamenity.
(c) Influence on Competitiveness
With respect to competitiveness, two factors
are identified which may contribute to an
increased energy cost in Ireland. The first,
as discussed in this study, is the potential
for high oil and gas prices to increase in
international markets. Changes in the
fuel input cost to oil and gas fired power
generation in Ireland would be expected
to increase the market price of electricity.
Secondly the introduction of “full allowance
auctioning23
” within the EU emissions
trading scheme from 2013 onwards to the
power sector will also raise the cost base
of fossil fuel power generation. The degree
to which carbon raises the cost base will
depend on the price fossil fuel producers
have to pay for allowances at official EU
allowance auctions as well as the prevailing
price for allowances in the EU carbon
market. Interim technologies such as
Carbon Capture and Storage may offer an
alternative to allowances but will similarly
introduce their own costs to the mix.
Development of wind generation
capacity in Ireland would reduce the
exposure to such energy cost increases in
Ireland, as wind generation has neither
fuel input costs nor a carbon cost. Clearly
the balance of energy sources in the
power sector is an important consideration
and in the short-term, wind energy may
struggle to compete with gas and coal
fired power generation on a direct basis
(i.e. particularly if there were no supporting
REFIT tariff). However, over the longer term
as technologies and the grid become more
efficient, the renewable energy component
of our energy supply should support lower
prices than would otherwise prevail where
fossil fuel and carbon prices are rising.
(d) Mitigation of Energy Risk
Energy risk as defined in this context
encompasses both the potential for a supply
interruption and/or particularly unstable
and volatile prices. The scaling up of Ireland’s
wind energy generation capacity can offset
some of the risk to supply interruption as
wind generation would be an indigenous
and nationally managed energy source
with no fuel dependencies. Furthermore,
the absence of a fuel input cost allows wind
energy to deliver energy at a reasonably
steady marginal cost of production. This
limits the potential for supply side driven
price increases or price volatility.
However, there are constraints and
in order to maximise Ireland’s wind
energy potential and improve security of
supply significant transmission network
development and capital investment are
required. The ability of the transmission
network to absorb large amounts of
electricity produced from renewable sources
is one of the most significant barriers to
the successful deployment of high rates
of renewable energy24
. A strategy for the
storage of wind energy and managing
intermittency will become an important
part of the renewable penetration plan.
There are many factors to consider with
regard to storage including the additional
cost, the maturity of the technology
adopted and the feasibility of the option in a
given location. A recent and comprehensive
review of storage technologies for wind
generation concludes that there is not one
ideal individual solution. Instead efforts
to closely integrate renewables with the
electricity, heat and transport sectors is
noted as offering great potential as the first
stage for increasing renewable energy use
and this approach can then be augmented
and made more flexible with individual
storage technologies, particularly pumped-
hydro electric or flow-battery energy
storage (Leahy et al, 2010)25
.
The potential of high levels of renewable
energy penetration was examined in the
2008 report on an all island grid by the
Department of Communications, Energy
and Natural Resources (DCENR, 2008)26
.
This study identified a number of national
grid developments and capital investments
that need to occur in order for Ireland
to achieve a high level (30%-40%) of
renewable energy penetration. In the first
instance DCENR note that the national grid
development that is required is extensive.
The report notes that while the cost related
to development are in “acceptable ranges
(0.8 – 1.2 €/MWh)”, the developments
will require considerable resources to be
deployed by transmission owners and
operators in addition to the work necessary
to implement the east-west and north-
south interconnectors and other extensive
transmission infrastructure development
required to accommodate non-renewable
generation and growth in demand. In order
to connect wind energy into the grid some
4,000 – 5,000km of new transmission
lines will need to be built27
. Another factor
to be considered is the potential for an
interconnection to Europe as part of a
European super-grid.
Focus Area 2: Improvements in energy
efficiency and conservation
This option refers to increased energy
efficiency and conservation through
consumer and business investment in
available technologies. Specific energy
technology investments include investments
in building energy efficiency, energy
efficient home appliances, lighting
efficiency and smart lighting. A report
commissioned by Siemens (2009)28
outlined a number of such technological
levers in the context of their potential to
deliver CO2
abatement across a range of
sectors in Ireland. This earlier report offers
a useful perspective on the types of energy
efficient investment options available.
In terms of policy direction, on a national
scale, ambitious plans have been defined
as part of the National Energy Efficiency
Action Plan (2009), whereby Ireland hopes
to achieve 20% energy efficiency savings

to deliver a low carbon economy and help
realise the UNFCCC’s target of 450ppm
already exist38
. However, at current low
carbon prices and without government
subsidy or other support many of them are
not yet commercially viable.
Once again, it should be noted,
Government action with regard to ‘green
procurement’ and supporting transitions
to new efficient technologies could also
providesignificantsupporttothemorerapid
development of national energy efficiency
by delivering business for suppliers and
leadership for consumers.
Improved energy efficiency in industry
and the services sector can contribute to a
reduced and more stable operational cost
base. The savings associated can improve
the competitiveness of an operation
and release funds for reinvestment and
development. However, clearly not all
investments will deliver a suitable return
and fuel costs would influence the scale
of potential gains to be made in each case.
Thus caution and guidance is required to
make sound investments in appropriate
efficiency and conservation options.
Indeed, the barriers to the increased
uptake of efficiency related measures can
include a lack of awareness of the potential
savings and expected return on investment,
and connected to this, limited access to
capital for such investments. Continued
efforts are therefore required to inform
businesses of the sensible investments
in efficiency and conservation that are
available to them.
Increased energy efficiency and conservation
offers greater protection from the cost of
energy price volatility but does not offer
protection from a supply interruption. In
general however, the simple advantage of
increased efficiency and conservation is
that the operation requires less energy to
achieve the same output as previously.
Focus Area 3: Electrifying the transport
sector
This option refers to supporting shifts in
the structure of the national transport fleet
examining specifically an increased rate of
deployment of electric vehicles. In addition,
it is noted that besides electric vehicles,
Ireland needs to invest in railbound city
infrastructure and also to electrify the
national rail network.
by 202029
. Here we examine some of the
motivations for these goals and some of
the barriers to progress.
Whilst many energy efficient technologies
may be developed and/or manufactured
abroad, the deployment of these
technologies will create installation and
maintenance jobs in Ireland. In parallel
it could be expected that the emergence
of increased national investment levels
in energy efficiency technologies would
create an attractive market place which
provides a suitable test bed and incentive
for indigenous manufacturing and
engineering sectors to engage in this area,
potentially leading to further job market
creation, innovation and exports to the
larger international markets.
Perhaps the greatest challenge with
broad nationwide energy efficiency
improvements is overcoming the initial
inertia that can prevent investment. This
can be based on a lack of incentive to change
but can also simply be the result of long
payback periods for the investment which
render them less attractive. Initiatives such
as the ‘pay as you save scheme’30
in the UK
are an example of innovative approaches
which may overcome the challenge of
securing these initial investments.
Indeed financing models are an integral
component of the strategy to deliver
efficiency changes in the market place.
The desire to change can be constrained
by the capacity to invest particularly in
times of restricted credit availability. In this
respect new financing and business models
are needed. One example of possible
support to this market would lie in a shift
in public procurement policy. Public sector
investment in energy efficient options
could provide a significant source of
business to the developing market as well as
leadership to households and businesses.
Efficiency is generally a “win-win” situation
with respect to the environment. Increased
efficiency contributes to both reduced
emissions and resource use, both of which
are core components of sustainability.
However, while improvements in
national energy efficiency are encouraged
from a climate change and economic
perspective, due consideration needs to
be given to the so-called “rebound effect”
that can arise from improvements in energy
efficiency. Brannlund et al. (2007)31
and
Greening et al (2000)32
highlight that
potential emission reductions arising
from improvements in energy efficiency
may be reduced by the existence of the
rebound effect. Brannlund et al note how
the rebound effect can be described as
the direct and indirect effects, such as
substitution and income effects, induced
by a new energy-saving technology.
In this regard, the state can play a
role in terms of complementary policies
and legislation, such as incentive levies
or a carbon tax. For example, in Ireland,
whilst the Government’s scrapping of its
proposed levy on traditional incandescent
light bulbs prevented a significant switch
in consumer behaviour towards more
energy efficient CFL or LED light bulbs, this
proposed levy was an example of how the
Government can legislate to encourage
investment in energy efficient technology.
While CFL and LED bulbs are more efficient
and economical in the long run, their initial
purchase price is higher than the traditional
incandescent light bulb. The Government’s
plan to legislate for an environmental levy
on incandescent bulbs would have reduced
their price advantage and encouraged
consumers to switch to CFL or LED bulbs.
According to the Government, the sole goal
of the levy was to alter consumer behaviour
as opposed to generating revenue (DoEHLG,
2006).33
Similarly, a carbon price can serve to
protect some of the environmental gains
achievable through increased efficiency
and energy conservation. A recent report
by the UK Environment Audit Committee
highlighted the important role that carbon
prices have to play in the deployment of
renewabletechnologiesandenergysources.
The report emphasised how high carbon
prices are needed to deliver substantial
green investment (UK Environment Audit
Committee, 2010)34
and how they are
necessary to curb the demand for fossil
fuels and reward the development of
renewable technology. According to the UK
Environment Committee and the Financial
Times (2009)35
current carbon prices in
the range of €10-20 per tonne of carbon
dioxide are too low to drive investment in
green technologies and energy efficiency.
Euractiv (2010) note that the carbon price
would have to be at least €100 per tonne of
carbon dioxide in order to trigger enough
investment for a shift to a truly low carbon
society36
. Indeed, the International Energy
Agency (2009)37
has highlighted that many
of the renewable technologies necessary

significant and challenging sectors to
manage nationally with respect
to greenhouse gas emissions and
transboundary air pollution. A shift
towards electric vehicles charged by a clean
renewable energy source would contribute
significantly to the emission reductions
from this sector. This would in turn support
national efforts to meet international
greenhouse gas emission reduction targets
and also efforts to meet national emissions
ceilings for transboundary air pollutant
emissions. There could also be noticeable
reductions in noise pollution associated
with road transport as the share of electric
vehicles in the fleet grows.
With respect to related environmental
targets and ambitions, this shift would
also support national obligations to the
renewable energy for transport target
(RES-T) which calls for renewable energy
to account for 10% of transport energy by
2020, with interim targets of 2% by 2008
and 5.75%39
by 2010. The move towards
electric vehicles would also clearly be
necessary if the Government is to fulfil
plans outlined in November 2008 to have
10% of all vehicles in the transport fleet
powered by electricity in 202040
.
Whilst the environmental gains of
such a change in the transport fleet are
Ireland does not have an indigenous motor
manufacturing industry yet the necessary
changes for the increased penetration of
electric vehicles into the national fleet will
provide an opportunity for job creation.
The successful introduction of electric
vehicles into the Irish transport sector will
be heavily dependent on the provision of
the appropriate infrastructure. This refers
primarily to the adequate and convenient
availability of battery recharging or
replacement facilities. The initial
installation and continued maintenance
of such facilities will provide a job creation
opportunity. Furthermore, although Ireland
does not have an indigenous motor
manufacturing industry, there are first and
second tier suppliers who will also benefit
from sales in electric vehicles.
A potential longer term benefit from
electric car deployment with respect to
the green economy is the support that
the electric car may deliver to the wind
energy sector, by providing an additional
storage medium for renewably generated
electricity – particularly at off-peak times
i.e. overnight charging.
Transport has proven one of the most
potentially significant, it is important to
stress that the environmental ‘credentials’
of the shift are in part determined by the
form of power generation used to provide
the electric charging. Furthermore, the
battery components of electric vehicles
could create further environmental issues
if proper management and recycling
initiatives are not put in place.
Ireland’s small size is well suited to the
reduced range currently offered by
reasonably priced electric vehicles. As a
result, one of the most frequently cited
constraints to their widespread adoption
may be less relevant in Ireland.
Furthermore, by switching to electric
vehicles, users (including business, private
and public service providers) will be able
to lower their operational costs for their
vehicle or fleet. Savings will accrue in terms
of the fuelling cost of vehicles relative to
oil driven vehicles, as well as considerable
reductions in vehicle road tax. Energy
Minister Eamon Ryan notes that the cost
of driving an electric vehicle for one year
equates to one month’s petrol bill for a
regularly fuelled vehicle41
.
However, whilst there are operational
cost savings, investment in a new vehicle
This section builds on the broader discussion
of large scale renewable wind generation to
look specifically at how changes from our
Accelerated Growth (AG) oil and gas price
scenario may influence the business case
for investment in a 101MW onshore wind
farm relative to the Baseline Scenario.
Table 6 presents the key parameters
and assumptions for the financial analysis.
There are twin sets of parameters for certain
variables which vary under the Baseline to
AG scenario conditions. These relate to
inflation, interest and revenue streams.
For simplification the average annual
values have been used and presented in
this table for inflation and interest rates.
In practice these would vary year to year
and alter the cash flow development year
to year. Using the annual average value
smoothes payments over the 25 year
investment life. Another set of assumptions
for Year 1 includes the return of 50% of
expected annual income in Year 1 and no
maintenance but only operational costs in
Year1.Operationalcostsforthispurposeare
assumed to be 20% of the expected annual
operation and maintenance costs. A final
assumption has been to ignore the REFIT
tariff in this assessment. The reason for this
has been that where the REFIT tariff is used,
a guaranteed market price for electricity
generation is in place that would not allow
the assessment to capture the change in the
market price stimulated by higher oil and
gas prices. As an interpretative note, the
study recognises that the REFIT tariff would
improve the returns in both scenarios, up to
the point where the REFIT tariff falls below
the market price of electricity otherwise
available to generators.
Thus in conducting this analysis,
simplifying assumptions have been
necessary and clearly projections over
a 25 year lifecycle entail uncertainty.
Nonetheless, the study illustrates the
relative difference between the two
scenarios and also the sensitivity of the
results to some key parameters – inflation,
interest rates and the market price of
electricity as influenced by rises in fuel
input costs42
. Results are presented for the
financial analysis in four forms, Net Present
Value (NPV), Internal Rate of Return (IRR),
Profitability Index (PI) and the Simple Pay
Back (SPB) year (when cumulative net cash
flow becomes positive). A further point
to consider in examining the results is
the potential continuation of Section 486
Corporate Tax relief which offers an 18%
reduction in taxable income for eligible
projects. This has not been factored into the
financial analysis directly, however, under
each scenario this would further improve
the after tax profitability.
The overall results are presented in
Table7.UndereachcriteriontheAGscenario
offers the most favourable conditions
for the investment. The NPV for the AG
scenario is over €33 million as compared
The impact of HOG on investment decisions: Case study- A 101 MW Wind farm

Table 6: Parameters for 101MW case study
Parameter Value Source

Site Location Sligo Study Assumption
Wind conditions Average annual 7.3 m/s Met Eireann
Technology Siemens AN Bonus 2.3MW Technical literature
Lifecycle of wind farm 25 years Study Assumption
Onshore capacity factor 31% International literature
MWh from 101MW farm 274,819 MWh Study calculation
Onshore capital cost per MW €1.233m per MW AIGS WS 1*
Onshore Operation and Maintenance per MW €51,900 per MW AIGS WS 1
Onshore grid connection costs €1m Adapted study estimate
Inflation average baseline to 2035 2.5% per annum Adapted study estimate
Inflation average AG to 2035 2.6% per annum Adapted study estimate
Debt interest rate BL 4% per annum Adapted study estimate
Debt interest rate AG 5% per annum Adapted study estimate
Onshore feed in tariff BL Variable market price43
Adapted study estimate
Onshore feed in tariffs AG Variable market price44
Adapted study estimate
*All Island Grid Study
Table 7: Results of 101MW financial case study
Baseline Scenario AG Scenario

NPV €12,420,014 €33,850,027
IRR 5.4% 7.7%
Payback year of 25 Year 17 Year 13
Profitability Index 9.9% 27.0%
Figure 28: Cumulative net cash flow of 101MW onshore wind farm over 25 years
under the Baseline and AG HOG price scenarios
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
- �150,000,000
- �50,000,000
- �100,000,000
�0
�100,000,000
�50,000,000
�200,000,000
�150,000,000
CumNCFAG CumNCFBL
requires funds and the relative value of
the change will be connected to the age
and performance of the vehicle or vehicles
being replaced. It is also noted, that as of
yet, electric options for heavy duty vehicles
are extremely limited (though there may
be potential to explore a hybrid diesel
fleet), with most examples constrained to
very specific purposes not suitable for road
haulage.
Price changes in the transport sector
feed quickly through to the end-user
as oil prices change. This can create an
unstable price in a somewhat captive
market with consequences for individuals
and businesses. Whilst in the longer term
individuals and businesses may change their
travel patterns and modes in response, the
volatility can impact the sector noticeably in
the short run. Electric vehicles would reduce
exposure to such price fluctuations as they
can potentially be fuelled at a far lower cost
through the grid. Whilst oil and gas price
changes may influence the market cost of
electricity somewhat, the effect would be
moderated by the presence of renewable
generation sources and the far lower initial
base cost of ‘fuelling’ an electric car relative
to an oil powered vehicle.

to approximately €12 million under the
Baseline. IRR also compares favourably
at 7.7% to the Baseline 5.4%. In terms of
payback year, the investment is repaid in
Year 13 for the AG scenario and Year 17
for the Baseline. Finally, the profitability
index is seventeen percentage points
higher under the AG scenario. A visual
comparison of the cumulative net cash
flows for each is presented in Figure 28.
The principal conclusion here is
that even with the higher interest and
inflation rates, the AG scenario shift
in the market price of electricity for
the increase in the fuel input cost of
oil and gas creates a more favourable
investment prospect relative to the
Baseline Scenario tested. More dramatic
changes in power sector infrastructure
would themselves influence the market
price of electricity and as such these
results represent only the micro-scale
case study.

Summary, Conclusions and Recommendations
T
his study has examined some of the
economic and social costs that would
be incurred under certain high oil
and gas price scenarios. The results of this
analysis suggest there is cause for concern
should oil and gas prices rise in a manner
comparable to any of the developed HOG
price scenarios. For example, under the
Accelerated Growth Scenario there was
an estimated fall in Irish GDP of up to
7.5% below the Baseline conditions in
2025, alongside a host of other identified
distributional and societal impacts. In
this chapter, we present conclusions with
respect to high oil and gas prices, their
impacts on the economy and society
and actions to reduce these impacts.
These are then followed by the study
recommendations.
Oil and Gas Prices
In our examination of oil and gas prices we
illustrated how the outlook for price can
change dramatically for both the short and
long-term thereby reflecting the inherent
uncertainty of both the near and far future.
It is reasonable to assume – although not
free from dispute – that the price of oil
and gas will ultimately rise as resources
are depleted and new sources become
increasingly costly to exploit. Intervening
events such as conflicts and natural
disasters may also be expected to create a
more uneven path to future price levels.
The three scenarios presented have
been constructed within plausible
boundaries of future prices on a time
frame from 2010 to 2025 as the basis
for our analysis of impacts. They reflect
alternative paths with more aggressive
pressures on price. These are scenarios
and not predictions and thus their focus
is on illustrating plausible alternative
futures that may be triggered through one
or a combination of numerous events or
developments.
A notable assumption of the study is that
oil and gas prices are paired for the purpose
of the analysis, despite some emerging
evidence to suggest a stronger divergence
between the two. This divergence may be
relevant for shorter term policy decisions,
however, in the longer time frame oil and
gas supplies are finite and will become
constrained either sequentially or in
tandem. Furthermore, as these fossil fuel
resourcesaredepletedandsovereigncontrol
is strengthened over what remains, prices
can be reasonably expected to become both
higher and increasingly volatile. Whether
such changes occur in 2010, 2020 or 2030
is relevant to the timing of action but not
the need for change.
The principal conclusion in respect of
prices is that nobody can offer certainty on
future price levels but that the modelled
HOG price scenarios all fall within current
feasible international analysis ranges.
Economic and Social Impacts
International economic impacts were
assessed as well as the specific economic
and socio-economic impacts for Ireland.
On the international front, the modelled
results indicate that the USA, UK and Europe
would all be expected to suffer pronounced
and prolonged economic downturns
triggered by:
• The inflationary effects of the HOG
prices.
• The interest rate response from
monetary authorities.
• The corresponding falls in investment,
output and trade.
Drops in GDP for these three areas ranged
up to 3%-4.5% in 2025 under the various
HOG price scenarios45
.
In Ireland, as a small open economy,
the drivers of the impacts are the same.
However, the scale of the trade impact is
particularly severe contributing to a drop in
GDP of between 3.5% – 7.5% in 2025 under
the defined HOG price scenarios. Socio-
economic and other ‘non-modelled’ impacts
for Ireland were also identified as part
of the study. These impacts included the
distributional effect of higher energy costs,
the corresponding rise in energy and fuel
poverty, restriction of mobility, increased
market uncertainty from the price volatility,
reduced competitiveness for firms and a
higher national energy import cost.
impacts is that the international impact
on output for Ireland and our major
trading partners would be significant and
prolonged. Ireland would endure a greater
fall in GDP than the other regions and a
number of linked socio-economic impacts
would exacerbate the costs and challenges
faced nationally.
Options to reduce the impacts of HOG
prices
There are options available to reduce
exposure to the impacts described and a
selection of actions have been discussed.
On the international front, Ireland may
not have it within its control to noticeably
influence the drop in national output
associated with the HOG price scenarios.
This is due to the strong influence of a
slow down in international trade on
national GDP. In this case however, action
in our core trading partner markets (EU,
USA and the UK) to reduce their combined
exposure to high oil and gas prices would
be expected to mitigate the extent of
the economic downturn and impacts
experienced by all.
However national action is far from
irrelevant and would have a direct influence
in mitigating the socio-economic and non-
modelled impacts detailed for Ireland. The
options considered included the delivery of
a high share of indigenous renewable wind
energy generation, adoption of a broader
Chapter 6.
Summary, Conclusions and
Recommendations

range of energy efficiency related measures
and supporting the uptake of electric
vehicles into the national transport fleet.
The rationale for action on these options
as well as associated constraints and
concerns were discussed under headings of
prospective contributions towards the four
evaluative criteria, namely:
• Contribution to the green economy in
Ireland.
• Progress towards and impact on
international environmental targets.
• Influence on the competitiveness
and relative attraction of Ireland for
business.
• Mitigating national risk exposure to
high oil and gas prices and supply
interruptions.
options is that there are a number of
actions that can be pursued nationally to
reduce dependence on fossil fuels, with
associated benefits under the identified
criteria. However, a number of constraints
associated with these options have also
been identified – generally relating to
financing and infrastructure. Mechanisms
and efforts to remove these barriers are
vital in supporting a shift of scale towards
the available options.
Recommendations of this study
There is change underway in Ireland
and efforts are being made to meet
the environmental and new economic
challenges we face. There are ambitions
being stated, actions being taken and
achievements being made. Indeed on a
broad level the direction and ambition
is relatively clear in terms of energy and
environmental policy – improved efficiency,
lower cost and reduced emissions. This
direction can arguably be attributed to both
international obligations and a general
societal acceptance that it is better to be
more efficient, less wasteful and kinder to
the environment. The issue is not so much
direction: rather the questions we face are
the rate and extent of change necessary,
how to overcome the barriers to change
and deciding which technological paths to
follow.
This study has highlighted and analysed
the extent of the impacts from one specific
risk factor, namely high oil and gas prices,
as a support to this broader decision
making process. The results illustrate that
the current motivations for change could
be significantly altered under high oil and
gas price scenarios that present additional
and substantial risks to both economic
growth and societal welfare. The speed
and extent of the necessary change are to a
point determined by government decisions
on balancing risk against investment, as
well as the presence or absence of incentives
and barriers to change for investors. The
recommendations of this study are grouped
into international action, national action
and specific comments on the facilitation
of change.
International Action
Recommendations from the study focus
on actions within Ireland. However, a
general recommendation from the study
would be to examine the value of broader
international action across the US, EU
and UK with regard to mitigating the
existing exposure to HOG price conditions.
Whilst the scale of costs and benefits
is varied, many of the reasons for action,
as well as the costs of inaction that are
identified for Ireland, are common to
each of these regions also. In this regard,
co-ordinated international action would
provide this extended community with
a further buffer against energy price
increasesorsupplythreatswhichcandeliver
such damaging blows to their respective
economies.
General National Action
The challenge with plotting a course of
action under conditions of uncertainty is
that there is a risk of both doing too much
and too little. Each may carry additional
cost. Conclusions and recommendations
from the Siemens (2009)46
study on
reducing GHG emissions in Dublin by 2025
offer a useful reference of specific technical
options. A number of levers are identified
for emissions abatement across a range of
sectors in the report, as well as information
on abatement costs and the required
investment. Whilst the focus was on carbon
emission reductions, the direct linkage
between fossil fuels and carbon emissions
mean the report is equally relevant in the
context of this HOG price analysis. Indeed
one of the advantages of the decisions to
be made with respect to fossil fuel usage is
that there are many parallel benefits from
action that may mitigate the risk of doing
too much, including:
• Reduced GHG and transboundary air
pollutant emissions.
• Increased efficiency and less resource
use.
• Potential for market leadership in
environmental services and technologies.
Broader national recommendations would
be to pursue policy packages that contribute
towards the following five objectives for
Ireland:
• Stable energy prices.
• Secure energy supply.
• Reduced environmental impacts.
• Efficient and competitive economy.
• Engagement and development of
expertise in growing environmental
markets.
Specific National Action
In terms of specific national actions, this
study has identified a number of options
(“Focus Areas”) where Ireland could reduce

Summary, Conclusions and Recommendations
exposure to oil and gas price changes.
National actions in this regard would not
remove us from the economic impacts
of oil and gas price changes entirely, as
conditions in global markets are, as shown,
critical to Ireland’s small open economy.
However, our actions are not irrelevant in
the context of all impacts considered as
part of this study.
Beyond the discussed actions, if
Ireland is to move towards the desired
balance, it will require effective and timely
implementation of a range of policies and
measures, including:
Supply side policies
• Sustained support for increased
exploitation of nationally accessible
energy providing resources – principally
wind and ocean generation.
• Development of appropriate market
conditions to support this transition
– feed in tariffs, supportive planning
process for new investments.
• Prioritising grid improvements –
faster connections to the grid, smart
grid development, and increased
interconnection to Europe.
• Rolling out of green procurement
initiatives to support new investments
in green technology
• Aiding the business case for investments
with a clear strategy and the above
mentioned supports so as to facilitate
access to capital for investors.
Demand side policies
• Tackling the major sources of household
energy demand by supporting
consumers to improve insulation,
domestic heating efficiency and
appliance energy efficiency.
• Seeking a closer integration of
renewables into the electricity, heat and
transport sectors.
• Continuing to support increased energy
efficiency in business as a means to
dampen overall energy requirements,
thereby delivering improved
competitiveness for business.
Closing remarks
Policy should consider the economic
and social exposure to high oil and gas
prices, the security of supply implications
of potential international shortages or
price volatility, our high dependency
on imported fossil fuels (particularly for
transport and power generation) and
the challenges faced with respect to
climate policy and other international
environmental commitments. Beneficial
progress can be made to limit the risks
faced and to support broader national
objectives.
Policymakers must balance the costs
and benefits of action against the costs and
benefits of inaction, all under conditions
of considerable uncertainty about the
future. The risk examined in this study
is that oil and gas prices may increase on
unexpected pathways and supply may
become constrained. The cost and impacts
estimated in this study are considerable
both for Ireland and the international
community.
Options have been discussed that
are available to mitigate these potential
impacts and there are certainly synergies
to be exploited between energy
and environmental policies. There are
however, barriers to progress that can
in many cases be addressed through
Government actions. Table 8 outlines a
‘wishlist’ which Siemens would urge public
policymakers to rapidly adopt.
The greatest question however
remains in regard to balance and speed.
How much of a reduction in risk exposure
is enough and what rate of change
is fast enough? A definitive answer to
these two questions may never be
agreed yet the risk exposure identified
in this report, in balance with the
identified synergies to be exploited
from pursuing risk mitigation actions
would add urgency to the case for action
whilst allaying fears that we risk doing too
much.
Table 8: A Public Policy ‘Wishlist’
A ‘WISHLIST’ FOR PUBLIC POLICY MAKERS

Develop a high level 2050 strategic plan with a measurable roadmap for the energy system in Ireland, covering
the four pillars47
for a sustainable energy future in Ireland.
Develop a “carrot and stick” approach for business and the public sector on energy savings and
greenhouse gas emissions. Support investment with tax incentives and favourable financing models.
Electrify the transport sector. Deliver the rail related projects48
in Transport 21, run hybrid buses in Dublin,
speed up the implementation of electric cars and related infrastructure. Electrify the national rail network.
Position Ireland as an attractive test-bed for sustainable pilot projects and encourage industry and the public
sector to participate and lead.
Modernize the public procurement process by implementing a green public procurement policy that takes into
account full life cycle costs and supports the quick roll-out of projects in the sustainability area.
1
2
3
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2010 Kelly work example Analytical report for Siemens - High oil and gas price impacts

2010 Kelly work example Analytical report for Siemens - High oil and gas price impacts

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