IEA Training Manual - Module 6

6. Policy analysis

Experience suggests there are a variety of ways in which policies can and have been addressed in a scenario exercise.1 Unfortunately, in most cases, this has been an afterthought, and little attention has been paid to how these approaches differ, their appropriate purposes and the implications for designing a scenario exercise. In this section, we will explore this issue in some detail.

In order to clarify the distinctions among the various approaches to link policy and scenario analysis, it is useful to consider the following questions:

  • Are there existing policies you wish to explore as part of the scenario exercise?
    A standard use of scenario analysis is to compare the feasibility, effectiveness, and broader impacts of alternative policies (or combinations thereof), e.g., taxes vis-à-vis tradable permits on certain pollutants. This can be done by assessing scenarios that differ only with respect to the absence or inclusion of the policies of interest. Remembering the basic uncertainties that underlie the use of scenarios, the robustness of existing policies can be assessed by exploring their feasibility, effectiveness and broader impacts across a range of scenarios that differ with respect to other significant factors.

    If there are no relevant, existing policies, then one purpose of the scenario exercise should be the identification of policy options. Even where they do exist, the exercise can, of course, be useful for expanding the set of policy options for consideration.
  • Is there a preconceived end vision, or at least some aspects of a vision, i.e., specific targets?

    In many cases, a scenario exercise is used to explore the feasibility and broader implications, e.g., tradeoffs, of meeting a specific target, e.g., an 80 per cent reduction in CO2 emissions by 2050. If the vision is used to define the scenarios, i.e., the range of scenarios to be explored is restricted to only those for which the target is achieved, the exercise takes on the character of a standard back cast. At a minimum, the presence of a preconceived end vision implies that there are at least some metrics against which a scenario and its policies can be evaluated as being “successful.”

    In the absence of any preconceived vision, the question of how to evaluate a scenario and the impacts of policies, in particular any definition of “success,” is less clear. There will almost certainly be metrics that can be used for this purpose. Even where clear targets do exist, these other metrics are important for evaluating the broader implications of achieving the targets.
  • Are the effects of a policy of such magnitude that they would fundamentally alter the basic structure of the scenario?

    Depending on how the scenario is defined and the perspective of the person using them, policies can be seen as essentially determining the scenario or as merely affecting some aspects of it. For example, if a scenario is defined by the international trade in agricultural commodities, a group like the WTO or some larger countries could conceive of policies that will alter the overall level and terms of this trade. Small countries and individual producers, on the other hand, are more likely to take these as given. In the latter case, the policy question to be asked can be phrased as, “What can we do to cope best with the set of possible situations we might face?” In the former, a more relevant question would be, “What could we do to create a particular situation?”

Combining the above, we can talk about eight cases:

Case Existing policies? Preconceived end visions? Policies determine 
the scenario?
Potential uses
a YES YES YES Test particular policies to see if they can create the conditions under which end visions or specific targets can be achieved, while also considering the broader implications of the policies.
b YES YES NO Test particular policies to see whether and
to what extent they can help to achieve end
visions or specific targets under otherwise
fixed conditions, while also considering the
broader implications of the policies.
c YES NO YES Explore the role of particular policies in
determining the broad nature of the future.
d YES NO NO Identify policies that can create the conditions under which end visions or specific targets can be achieved, while also
considering the broader implications of the
policies.
e NO YES YES Identify policies that can create the conditions under which end visions or specific targets can be achieved, while also
considering the broader implications of the
policies.
f NO YES NO Identify policies that can help to meet specific targets under given conditions, while also considering the broader
implications of the policies.
g NO NO YES Identify policies that may determine the broad nature of the future.
h NO NO NO Identify policies and their implications under
certain given conditions.

Each of these cases is obviously a caricature; most scenario exercises will include some combination of these, and certain cases are of less interest than others. The lack of both existing relevant policies and a preconceived vision in cases g and h make it highly unlikely that either would be undertaken in isolation. However, they might be used as extensions to cases d and e, respectively, whereby new policies are identified in the process of testing existing ones. Given their inclusion of preconceived visions, cases a, b, e, and f lend themselves to backcasting exercises, but they can also be addressed in forward-looking exercises when the targets are not used to limit the set of scenarios to be considered. With the latter, they are not significantly different from the equivalent cases without preconceived visions (i.e., c, d, g, and h respectively). Finally, cases b, d, f, and h, by exploring policies that do not “determine” the scenario, can be pursued without a full scenario development process if scenarios already exist within which these policies can be adequately assessed.
 
Several concrete examples of where scenario exercises have been used, and how they can be seen to fit within this schema, are provided below..

  • Testing policies to limit pollutant emissions from the power sector in the United States

    The Energy Information Administration (EIA) in the United States analysed the potential costs and impacts of various existing policies that sought to limit emissions of four pollutants from electricity generators, sulphur dioxide (SO2), nitrogen oxides (NOx), carbon dioxide (CO2) and mercury (Hg), in four different scenarios. Since there were existing policies and clear targets, but other basic conditions were held fixed (e.g., overall economic growth), this serves best as an example of case b above. The analysis showed emissions could be significantly limited for all pollutants, if a substantial effort was made by industry, and this helped to illustrate the nature and scale of the effort depending on the scenario. It also indicated that the increase in energy costs and other economic impacts of the policies under investigation would decline over time.

  • Identifying policies to achieve a 60 per cent reduction in carbon emissions by 2050 in the United Kingdom

    The UK Department of Trade and Industry has used the Royal Commission on Environmental Pollution’s target of a 60 per cent reduction in carbon emissions by 2050 as a desired vision of the future, and has used scenarios to help identify possible paths to meet this target. Since the policies were not clearly specified beforehand, but a target did exist and key scenario conditions were held fixed, this is best seen as an example of case f but also a and e, inasmuch as some particular policies were tested. This work yielded a number of new policy initiatives and measures to achieve this target. The scenario analysis was model-based and helped identify the technology portfolios in each sector that could achieve the target and their evolution over time, while providing an indication of the overall cost.
  • Exploring the future of the environment in Latin America and the Caribbean

    GEO Latin America and the Caribbean: Environmental Outlook 2003 (UNEP 2003) considered three broad scenarios for the future. Each started from a set of assumptions about general policy developments, which was assumed to determine, in large part, the future shape of the region. This can be seen as an example of case c, but also g to the extent that the policies considered were somewhat vaguely defined. The authors pointed out that the path to a sustainable future, as presented in the “Great Transitions” scenario, would be supported by the Latin American and Caribbean Initiative for Sustainable Development, approved by the Regional Forum of Ministers of the Environment in August 2002. The initiative’s numerous priority areas included “Strengthening of technical and vocational training institutions” and “Promotion of human resources development, particularly in information and communication technology.” In contrast, the “Market Scenario” emphasized policies such as free-trade agreements, intellectual property rights, deregulation and privatization as well as other measures, resulting in quite different implications for the environment.
  • Scenarios to explore adaptation to Climate Change

    Within the Global International Waters Assessment and, as reported in the assessments of the IPCC and elsewhere, numerous scenarios have explored not only the potential impacts of climate change, but also policies and actions to ameliorate or adapt to these changes. These may or may not have preconceived policies or end visions, but almost all take the change in climate as given. Thus, depending on their particular setup, they can provide examples of cases b, d, f or h.

See Exercise 6.6

Footnotes
1
  Note that a similar approach was used by the OECD in their second Environmental Outlook (OECD 2008)
For the purposes here, the word policy is defined broadly. It denotes any organized intervention by an actor in the system of interest. Thus, it should be seen to include inter alia laws and legislation, economic instruments, property rights reform and market creation, reform of state bureaucracies, activities by the private sector, NON-GOVERNMENT ORGANIZATIONSs, and civil society.

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