Ireland’s GDP could fall by as much as 7.5% if the world was to experience a sudden oil or gas price rise, according to a report launched by Siemens. The report, which examines the economic impacts for Ireland of different high oil and gas price scenarios, highlights the particular vulnerability of the Irish economy to such price shocks.
The findings of the report entitled ‘The Economic Impacts for Ireland of High Oil & Gas Prices; Pathways to risk mitigation and a low carbon future’, indicate that the impacts of an oil and gas price rise would be more severe on Ireland than other economies such as the UK, Europe and USA. “Ireland is particularly sensitive to this type of shock particularly the knock-on effects in global markets and trade. Results from the study show Ireland suffering more pronounced economic impacts and a slower recovery as compared with other countries,” according to Dr Werner Kruckow, chief executive of Siemens.
As a small open economy heavily dependent on world demand for Irish exports, any major shock to the global economy would significantly impact on Ireland. Additionally, Ireland’s high dependency on imported fossil fuels would also further exacerbate the effects of any shock – with ramifications for business and society through higher electricity, transport and heating costs, increased levels of ‘fuel poverty’ and a loss of competitiveness.
The high oil and gas price scenarios presented in the report were constructed within plausible boundaries of future prices from 2010 to 2025. They illustrate alternative futures that may be triggered through one or a combination of events. The price scenarios were then evaluated in co-operation with the ESRI against a baseline scenario to offer a detailed analysis of the impact of each on GDP, inflation, interest rates and wage rates internationally and for Ireland, resulting in GDP drops of between 3.5%-7.5%.
One of the authors of the report Dr Andrew Kelly, AP EnvEcon, says: “These are scenarios not predictions, but you only need look back to the summer of 2008 to see how quickly the price of oil can rise and fall. Nobody can say with certainty what the future market price of oil and gas will be, however, in building these scenarios we set the boundaries within the broader international market outlooks on price. What could make these happen? In the years ahead there are a number of factors which may increasingly contribute to both higher and more volatile prices, including rising demand in emerging economies, natural disasters, political tension and conflict in regions of supply, and of course a diminishing supply pool from which to extract these resources at lower cost. It is another risk we face that should be factored into political decision making.”
The good news, according to the report, is that Ireland has options to reduce our risk exposure to some of the identified risks. “Ireland’s 80% dependency on imported oil and gas puts the economy at considerable risk. And yet Ireland is surrounded by an abundance of renewable resources that could reduce our risk of exposure, create employment opportunities and reduce emissions. Irish waters have the biggest wave heights, greatest tidal flows and strongest winds in Europe, giving us the potential advantage over other European countries to generate and export energy across the Continent,” comments Dr Werner Kruckow.
The report recommends a number of policy actions that Ireland could undertake on a national level. Ireland needs to develop a plan for a sustainable integrated energy system based on four strategic pillars and do so without delay. They are:
* Maximising Electricity Generation from Renewable Sources,
* Grid Upgrade and Integration into the European Grid,
* Promoting Energy Efficiency & Conservation,
* Maximising Electricity Usage in Transportation.
Siemens will make the following recommendations of policies and measures to Government in the coming weeks to build a sustainable energy system in Ireland;
* Develop a high level 2050 strategy plan with a measurable roadmap for the energy system in Ireland – covering the four pillars outlined above.
* Develop a ‘Carrot & Stick’ approach for business and public sector on energy savings and green house gas emissions. Support investment with tax incentives and favourable financing models.
* Electrifying the Transport Sector – Deliver rail related projects in Transport 21, run hybrid buses in Dublin, speed up 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 to participate and lead.
* Modify the Public Procurement Process to take into account life cycle costs and support quick roll-out of projects in the sustainability area.