Energy models are a vital tool to help predict what the future energy system could look like. Conventionally, such models are based on business-as-usual scenarios – points of reference informed by historical norms. However, the energy transition is already underway: basing future energy models on such scenarios could be highly risky. Following an energy modelling workshop with academics, industry leaders and policymakers, research postgraduates Jonathan Bosch and Clara Heuberger reflect on its conclusions, analysing what business-as-usual means today, and the future of energy models.
What is business-as-usual?
Business-as-usual scenarios have long been considered an essential point of reference in policymaking, planning and investment – a baseline to compare alternative scenarios, or a starting point for analysis of a system. In the energy industry, business-as-usual scenarios are based on a set of assumptions that build on historical norms, projecting the configuration of the energy system 10-50 years into the future.
However, given the pace of technological innovation – and the transformational change necessary to reach a sustainable energy system – what is the value of using archaic assumptions to inform future scenarios? If we only use reference scenarios that include social, technological and policy norms that have already happened, we may miss the changes that will significantly alter the trajectory of the future energy system. For example, those of us not immersed in the world of energy technologies may not have perceived the revolution in electric vehicles that is just around the corner; just as at the turn of last century, customers of the horse and cart may not have predicted the imminent abundance of the motorcar.
Current business-as-usual scenarios tend to employ little or no efforts to limit carbon dioxide emissions, often resulting in scenarios with a high reliance on fossil fuels up to and beyond 2050. Yet in recent years, the international community has pledged sustained climate action – committing to substantially reduce carbon emissions and implementing various policies to do so, such as emission-trading schemes and carbon pricing. This makes many business-as-usual scenarios seem obsolete.
In addition, although the likelihood of such scenarios becoming a reality is questionable, the message they project to the wider community could have far reaching consequences. Continuing to present such scenarios gives the impression that modellers themselves believe such a course of action remains a likely, and perhaps acceptable, future. That’s why scenarios presented to the world should be rooted in the current reality, and not based on historical events.
What’s in a name?
Any reference scenario we use should not imply a modus operandi for the global economy. Instead, it should represent a consensus among experts about what the most likely course of events is going to be (however wrong they turn out to be). So perhaps the name “business-as-usual” needs a rethink, too.
Consider a curve showing carbon dioxide emissions over time. The trajectory we are most interested in is what is most likely to happen given today’s commitments to future policies, business practices and social behaviours – not one that assumes that we go on as we have in the last year or the last century. That’s why some authoritative forecasts, like the International Energy Agency’s Energy Technology Perspectives, now uses the term Reference Technology Scenario (RTS) to describe how the energy system could evolve if we implement the current commitments on energy policy – with the nationally determined contribution (NDC) mitigation targets already included. Note that even this scenario shows a big discrepancy compared with the two degrees scenario (2DS), which is meant to represent the trajectory needed to avoid dangerous climate change and limit temerature rise to two degrees centigrade.
Source: https://www.iea.org/etp/explore/
The debate as to what that reference case should be is a precarious one though. Business-as-usual has sometimes been shown to be so discordant with reality that when one retrospectively assesses the system outcomes, it was in fact the furthest from the truth out of all hypothesised cases.
In our post-COP21 world, where governments have made huge commitments to stymie climate change, and public pressure is at its highest, it seems unlikely that a business-as-usual future is even possible. Especially if it means industry, power generation and transport sectors burning coal at the rate they did throughout the 20th century. This shouldn’t make us complacent, though.
If we look at the intended nationally determined contributions (NDCs) established at COP21, we already have legal framework that pushes humanity away from a business-as-usual path. With many countries promising stronger action, and a five-year NDC cycle to reappraise ambitions, should our reference case be streamlined to a “NDC reference”? Or perhaps better still, the NDCs should be considered the minimum possible mitigation scenario? It would be appropriate, as many experts readily admit that those commitments alone won’t be enough to limit global temperature increases to below two degrees centigrade this century.
Reaching a consensus
Energy models are often overtaken by current events more quickly than they are able to adjust their methods and data. As such, a wide range of scenarios should be studied – at least then the most likely pathway might fall within the studied range.
With this in mind, the energy systems modelling community – from academia, industry and policy – need to establish a transparent and consistent reference scenario (as discussed in Nature Energy’s eloquent editorial Business as Unusual). This would help members of the community, and the public, to better compare future energy system configurations. Even more importantly, it would spell a shift in perceptions, allowing people to truly believe that systemic, transformational change is possible. That business as usual isn’t the most likely outcome. That it could in fact be the most unlikely outcome.
In this vein, the Grantham Institute hosted a workshop on the future of business-as-usual in energy systems modelling. It brought experts from academia, industry and government together to tackle the issues head on. It soon became evident that not only are a consistent set of metrics needed to enable experts to sing from the same hymn sheet, but that their audience is a vital stakeholder in the process. As we’ve discussed already, the terminology of “business-as-usual” communicates something different from an “NDC reference” scenario. But is the audience interested in the concrete-bottom of energy scenarios, or in a best guess middle of the road?
The ultimate audience for scenarios, whether they be made by industry or academia, tends to be national governments. They make system-wide policies that affect all sectors of the economy; they govern the trajectory and outcomes of civil society. Government policymakers are the people energy modellers need to inform and guide. And since many governments have legally binding commitments on economy-wide climate change goals, as well as other constraints such as security of supply and employment, it would be sensible for the reference scenario to already include the minimum expected policy and technology assumptions necessary to meet current and future obligations.
The message to energy modellers then is to:
- Be bold and use evidence to shape your modelling assumptions;
- Communicate ideas and assumptions among the community to help harmonise scenario assumptions and strengthen them where others have expert sectoral knowledge;
- Present a reference scenario that is rooted in current reality and not predicated on historical events.
Not only will the model outputs be more credible, but, to the rest of the world, it will seem much more likely to succeed.
One thought on “What does business-as-usual mean today?”