System Thinking and System Dynamics in public policy making: some - - PowerPoint PPT Presentation

Prime Minister’s Strategy Unit

System Thinking and System Dynamics in public policy making: some experiences of the Prime Minister's Strategy Unit

Nick Mabey (Senior Advisor, UK Prime Minister’s Strategy Unit)

26 July 2004 Systems Thinking in Government 1

‘There is nothing a government hates more than to be well-informed; for it makes the process of arriving at decisions much more complicated and difficult’ John Maynard Keynes

26 July 2004 Systems Thinking in Government 2

• Governments’ primary concern with systems thinking methods is

to deliver insights that lead to better decisions; map unintended consequences of actions; and counter tendencies to silo/departmental thinking.

• State of social science – including limits on fundamental

understanding of human behaviour - reduces scope for methodological purity; reflexivity of political processes has same effect making processes truly “complex”.

• So the variety of systems tools – quantitative and non-quantitative

– are best seen as ways of underpinning judgement and action in conditions of uncertainty and complexity.

Context

Rapid nature of decision making means that a broad understanding

• f systems concepts by policy makers is often more useful than

fully worked up models/analysis

26 July 2004 Systems Thinking in Government 3

Governments often work in complex domain Systems thinking works best in the knowable domain

Known

Cause and effect relationships are clear, repeat and can be predicted

Knowable

Cause and effect separated in space and time

Complex

Cause and effect only coherent in retrospect and do not repeat

Chaos

No cause and effect relationships perceivable

(Source: IBM Cynefin Framework, 2004)

26 July 2004 Systems Thinking in Government 4

• Large proportion of key problems are systemic and dynamic:

social exclusion, environment, economic growth, crime.

• Most vital problems involve multiple departments/disciplines and

involve investment decisions over the long term System thinking and tools brings…..

• Common language for bridging different disciplines (nearly 1000

social researchers, economists, OR and statisticians)

• Tools for engagement of stakeholders – understanding scenarios

New UK machinery for strategic analysis and design across government: central strategy unit and strategy units in all departments; growing use of modelling and other tools

...But even in complex domain systemic understanding can help underpin decision processes

26 July 2004 Systems Thinking in Government 5

Government decisions can be usefully split into three levels

Details of policy implementation and evaluation: how to implement policy; instrument design; institutional issues and control; financing and project management. Major choices and objectives to follow key strategic directions: wealth creation policy; service liberalisation; contestability; defence stance; road strategy.

High Strategy Defining Objectives and Policies Implementation, prioritisation and allocation

Defining key targets and policy directions: instrument choice; speed of progress towards objectives; route maps; risk management

26 July 2004 Systems Thinking in Government 6

Example: Climate Change

Design of energy efficiency commitments; UK and EU ETS; climate change levy; capital grants and price support for renewables; R&D programmes. Climate Change is a key UK priority

High Strategy Defining Objectives and Policies Implementation, prioritisation and allocation

20% reductions by 2010; 60% goal for

• 2050. Near term focus on increasing energy

efficiency, emissions trading and 10% renewable energy supply.

26 July 2004 Systems Thinking in Government 7

Different levels use different analytical methods

• Narrative/compelling stories/simple offer
• Political philosophy/values (e.g. pro-market)
• Broad perceptions of cost and benefits

High Strategy Defining Objectives and Policies Implementation, prioritisation and allocation

• Tractability/deliverability
• Assessment of costs and benefits
• Finance availability
• Outcomes and delivery
• Fit with institutions and actors
• Detailed CBA and system analysis

26 July 2004 Systems Thinking in Government 8

In Government today economics plays more strongly at higher levels

Systems Thinking

High Strategy Defining Objectives and Policies Implementation, prioritisation and allocation

Few high level standard stories (virtuous circle etc) Good fit with level of detail and problems - especially institutional

• design. Lack of

familiarity with modelling techniques Economics Strong grip on thinking e.g. picking winners; govt failure System solutions often look complicated to implement – need parallel tracks etc Strong theories for policy choice Price only solns attractive – if rarely used in practice Weak tools for policy design – except for specific instruments. Institutional economics not understood well. Econometric models still used extensively

26 July 2004 Systems Thinking in Government 9

Thoughts

• Empirical basis of system dynamics is a strength and a weakness
• Strength allows application to real and complex problems – but often can
• nly be justified in time and expense during implementation phase
• Weakness is a lack of well known theoretical insights which can be routinely

applied to new problems at an early stage, for example: » A system model for organisational change » A system model of future investment routemaps » A system model for compliance with laws

• Time and resources are often most limited for the largest decisions – so

people fall back on what they know - which is often simple economic logic.

Prime Minister’s Strategy Unit

PMSU: Range of Systems Applications

26 July 2004 Systems Thinking in Government 11

Analytical frameworks: Innovation Chain Model

Government Business Consumers

Policy Interventions

Investors

Investments

Diffusion Commercial

• isation

Demon- stration Applied R&D Basic R&D

Product/ Technology Push Market Pull

26 July 2004 Systems Thinking in Government 12

Understanding demand: Courts are the key demand drivers for correctional services

Prison population Sentencing decisions

DRIVERS OF DEMAND FOR CORRECTIONAL SERVICES

Number under supervision Number of fines/ discharges

The number of offenders within each service may influence a sentencer’s decision. For example, prison overcrowding may reduce demand for custody, or sentencers may lose confidence in an over-stretched probation service.

FACTORS INFLUENCING SENTENCING PRACTICE

Work of Police and CPS Legislation and guidelines Public and politicians’ perceptions Confidence in delivery

• rganisations

26 July 2004 Systems Thinking in Government 13

Diagnosis: for correctional services outstripping supply which results in vicious circle of crisis

SHORT TERM “FIRE FIGHTING” PREVENTS LONG TERM PLANNING

• We are spending £1bn more on

correctional services than ten years ago, but there is no evidence that this is the best way to reduce crime

• If demand for services continues to
• utstrip supply, there will continue to be

a disjoin between what we are saying and what we are doing

• Similarly, there will be a reduction in the

effectiveness of any interventions

Early release Resources of system stretched Increased sentencing severity Reduced public/ sentencer confidence

VICIOUS CIRCLE OF INCREASING SENTENCING SEVERITY

26 July 2004 Systems Thinking in Government 14

Structural drivers of weakness and instability

e.g. history of conflict, bad regional neighbourhood, availability of conflict financing

Country capacity and resilience

e.g.

• Civil society
• Governance capacity to

provide security, legal and economic institutions, public goods

• Internal and international

legitimacy

• Other intangible factors, e.g.

good leadership

Build system descriptions which are useful to senior decision makers and analysts

External stabilising factors

e.g. aspiration for membership in regional and global institutions, external security guarantees

External shocks

e.g. natural disaster, global/regional financial crisis

Political instability, violent conflict and economic decline

• emerge when country capacity is weak, structural and proximate

drivers of instability exist, and external stabilising factors are limited

• feed back into structural drivers of instability, creating vicious circle

26 July 2004Source: SU analysis

26 July 2004 Systems Thinking in Government 15

Can add dynamic factors in simple ways

Shocks

Violent Conflict, Political instability, Loss of Territorial Control, Economic Crisis

Risk factors for instability Country capacity and resilience External stabilising factors

• 1. Stable Country

Shocks Risk factors for instability Country capacity and resilience External stabilising factors

• 2. Pre-Crisis, instability increasing

Shocks Risk factors for instability External stabilising factors

• 3. Crisis Emerges

Country capacity and resilience

External Intervention to Halt Crisis

Shocks Risk factors for instability External stabilising factors

• 4. Post-Crisis with International Stabilisation

Country capacity and resilience

26 July 2004 Systems Thinking in Government 16

..and populate with key factors from other research

Political/Institutional

• Bilateral relationships
• Regional groupings
• Standards in regional

/global institutions Economic

• Open external markets
• Good quality FDI

Security

• Security guarantees

Shocks Violent Conflict, Political instability, Loss of Territorial Control, Economic Crisis

Emerge when country capacity is weak, large risk factors of instability exist, and external stabilising factors are limited

Risk factors for instability External Internal Country capacity and resilience External stabilising factors

Generic factors

• Low GDP/
• Economic decline
• Previous conflict
• Natural resource

dependence

• Horizontal inequality
• Organised Crime

Future factors

• HIV/Aids
• Resource scarcity
• Climate change
• Demographics

Generic

• Bad regional

neighbour- hood

• International

terrorism

• Geopolitical

competition

• Conflict

financing

• Off-shore

financial havens

• Low quality

MNCs State Capacity

• Security
• Macroeconomic

fundamentals

• Public good provision

Civil Society

• Civil society orgs
• Traditional systems
• natural disasters
• global/regional financial crisis
• commodity price shocks
• assassinations

Rules of the Game

• Political Institutions
• Legal/economic

institutions

• Executive checks

& balances Social Contract

• Leadership
• Legitimacy
• Expectations

vs delivery

Feedback of instability into risk factors creating vicious circle

26 July 2004 Systems Thinking in Government 17

Sierra Leone Botswana

Examples: Botswana and Sierra Leone

• Botswana is

landlocked with few resources

• Economic

dependence

• n narrow

range of primary commodity exports

• Growing HIV

crisis

• Alignment of

interests between elite and wider population

• Visionary

leadership

• Relevant and

functioning pre-colonial institutions

• Diamond

wealth funded development

• Donor support

and persistent interest in Botswana as a front line state during apartheid

• Linkages into

S African economy (e.g. employment for migrant workers)

• Patronage

system & rent seeking undermined economic development and alienated young men

• Contagion

from Liberian conflict

• External

interventions

• ften unhelpful
• Colonialism

undermined traditional institutions for calling leaders to

• account. State

weak and poorly developed

• State never had

monopoly over means of violence

• Weak revenue

collection systems Drivers of weakness and instability Country capacity and resilience External stabilising factors Drivers of weakness and instability Country capacity and resilience External stabilising factors 26 July 2004Source: SU analysis based on literature review

• Since 2000,

UK military intervention & UN peace- keeping

• peration

Prime Minister’s Strategy Unit

Fisheries: Regulation and Complexity

26 July 2004 Systems Thinking in Government 19

Fisheries – ‘Net Benefit’ published February 2004

• Classic systems issue combining formal modelling of

dynamic ecosystems, industry behaviour and regulatory systems

• Stakeholder engagement with complex governance

system e.g. Scottish Executive, European Commission as well as fishing organisations, environmental groups, retailers & consumers

• Key to change was understanding overall systemic

behaviour and creating a package of interventions to break out of negative patterns of behaviour

26 July 2004 Systems Thinking in Government 20

Fisheries is an Issue Covering Several Policy Domains and Objectives

26 July 2004 Systems Thinking in Government 21

UK and EU Fisheries are the most complex in the World

26 July 2004 Systems Thinking in Government 22

Fishing Communities are dispersed, rural and

• ften poor….

Source: DTI, SU analysis using DEFRA and ABI data

>4% 2-3.9% 0.6-1.9%

Total Fisheries dependency by TTWA and map of availability of structural funds 2000-2006

15 UK areas have over 5% dependency; 5 over 15% dependency.

26 July 2004 Systems Thinking in Government 23

…..And have been in decline

• 4%
• 4%

Cagr Employees Vessels

No (UK)

UK Employment and Fleet Size of UK Fisheries

5,000 10,000 15,000 20,000 25,000 1994 1995 1996 1997 1998 1999 2000 2001

26 July 2004 Systems Thinking in Government 24

With falling key stocks and legacy of subsidised fleet.

Number of cod boats still in use and total cod catch in North Sea

10 20 30 40 50 60 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 Number of boats in UK cod fleet built still in use in 2002 50000 100000 150000 200000 250000 300000 350000 400000 Total catch of cod in North Sea, tonnes Number boats Landings

Whitefish fleet still suffering from over-investment and government subsidies during gadoid outburst

26 July 2004 Systems Thinking in Government 25

Giving empirical and systemic understanding of the elements of a sustainable regulatory system.

Profits Compliance Entry exit The majority of fishermen should comply with the rules. If this is not the case then the system is broken The majority of fishermen should comply with the rules. If this is not the case then the system is broken Information should be unbiased and relevant. Information not just on stock assessment but also effort and technical creep and socio-economics Information should be unbiased and relevant. Information not just on stock assessment but also effort and technical creep and socio-economics Fixed capital in the fleet should be broadly aligned to the long term state of fish

• stocks. Effort should

be reduced with technical progress Fixed capital in the fleet should be broadly aligned to the long term state of fish

• stocks. Effort should

be reduced with technical progress Sufficient profits to allow investment in new technology and savings for the bad years Sufficient profits to allow investment in new technology and savings for the bad years Information

26 July 2004 Systems Thinking in Government 26

Future profit options investigated by biological modelling projections of future UK fish stocks

• 100

200 300 400 500 600 700 800 1998 2002 2006 2010 2014 2018 2022 £M first sale value Other Sole Sole.Echannel Sole.Wchannel Other herring Herring.Nsea Nephrops.VII Nephrops.VI Nephrops.Nsea Other whiting Whiting.Nsea Angler.VII Angler.Nsea&Via Hake.Northern Other plaice Plaice.Nsea Other haddock Had.Nsea Mackerel.Western Other cod Cod.Wscotland Cod.I&II Cod.Nsea All other spp

26 July 2004 Systems Thinking in Government 27

Looking at stochastic stock stability under different management rules – and profit volatility implications

5 0 0 ,0 0 0 1 ,0 0 0 ,0 0 0 1 ,5 0 0 ,0 0 0 2 ,0 0 0 ,0 0 0 2 ,5 0 0 ,0 0 0 5 1 0 1 5 2 0 2 5 3 0 3 5 4 0 ye a rs stock numbers 2 0 ,0 0 0 4 0 ,0 0 0 6 0 ,0 0 0 8 0 ,0 0 0 1 0 0 ,0 0 1 2 0 ,0 0 1 4 0 ,0 0 1 6 0 ,0 0

1 -ye a r o ld s 2 ye a rs a n d o ld e r U K c a tc h a ve ra g e c a

5 0 0 ,0 0 0 1 ,0 0 0 ,0 0 0 1 ,5 0 0 ,0 0 0 2 ,0 0 0 ,0 0 0 2 ,5 0 0 ,0 0 0 5 1 0 1 5 2 0 2 5 3 0 3 5 4 0 ye a rs stock numbers 2 0 ,0 0 4 0 ,0 0 6 0 ,0 0 8 0 ,0 0 1 0 0 ,0 1 2 0 ,0 1 4 0 ,0 1 6 0 ,0

1 -ye a r o ld s 2 ye a rs a n d o ld e r U K c a tc h a ve ra g e c a

26 July 2004 Systems Thinking in Government 28

Linking this to modelling of potential economic scenarios for the UK fleet

Stock Recover Scenarios Stock Recovery Scenarios Economic Scenarios Economic Scenarios Implications Implications Fleet Strategy Fleet Strategy Fleet Structur Fleet Structure Impact on Communities Impact on Communities Policy Response Policy Response

26 July 2004 Systems Thinking in Government 29

Information: Scientific assessments of fish stocks world class but still uncertain

• Good management needs information about stocks and

environmental impacts that is accurate and timely. The accuracy of information has deteriorated over time, partly because policy gives incentives to misreport

• Even with good data, models have a minimum range of uncertainty of

17-27% on key stocks. Fuelling differences of perception between scientists and fishers

The ICES North Sea Working Group of 2001, gives the following estimates TAC (kt) and its minimum possible c.v. (%):

• Cod

85.7 22%

• Plaice

83.0 18%

• Haddock

135.0 27%

• Sole

20.3 17%

• C.V. estimates are minimum estimates based on the assumption of perfect model construction and error only in input data,

actual errors will be greater. A c.v. of 25% implies that one time out of three the estimated status-quo TAC will be

• verestimated by more than 25% or underestimated by more than 25%. And one time in 20 it will be over- or under-estimated

by more than 50%. Or, the TAC for one stock in 20 will be over- or under-estimated by more than 50% - and TACs are set for some 100 EU stocks.

26 July 2004 Systems Thinking in Government 30

Measuring Fishing Capacity

Capacity utilisation

e.g. asset sweating, effort constraints, size of fish hold, proximity to fishing grounds, market manipulation

Level of use of existing assets

• decommissioning

schemes & their cost

• effort restrictions
• r other input controls

Level of capacity utilisation (CU) affects success of :

• Pelagics deliberately restrict fishing days to manipulate market price
• Days at sea regulations to directly restrict use of capacity
• Transferable effort/quota systems help improve level of CU

26 July 2004 Systems Thinking in Government 31

Best skippers can catch twice that of avg skipper

• strong family fishing histories
• education and qualifications

Technical efficiency

Efficient use of assets

e.g. use of onboard technology, skill of crew and skipper, level of training, age of boat, input mix configuration

Measuring Efficiency

‘Technical creep’ is only one form of efficiency improvement

Source: CEMARE, TEMEC Report (2002)

10% 30% 50% 70% 90%

Efficiency partly due to skipper’s qualities; varies between gears and areas

Channel trawler efficiency range

26 July 2004 Systems Thinking in Government 32

Entry/Exit Dynamics – Vensim simulation model

60,000 45,000 30,000 15,000 2003 2006 50% 75% 95% 100% 2009 2012 2015 2018

tonnes If no intervention NS cod SSB may rise short-term, but crash long-term; stock never recovers to Bpa (150,000t)

North Sea cod SSB

26 July 2004 Systems Thinking in Government 33

Stock collapse - all scenarios

150,000 112,500 75,000 37,500 tonnes

North Sea cod SSB

2003 2006 2009 2012 2015 2018

Bpa is never reached

No intervention Decommission + 4 yr tie-up Decommission + 8 yr tie-up Under Stock Collapse SSB plummets in long-run, interventions delay the decline

26 July 2004 Systems Thinking in Government 34

Varying technical creep assumptions

Assumes weak stock recovery, intervention

2.0 1.5 1.0 0.5 2003 2006 2009 2012 2015 2018

Fishing mortality

2% 4% 1% 3%

North Sea cod fishing mortality

Fpa Technical creep

High levels of technical creep accelerate fishing mortality rates; Intervention plans must be backed by strong fleet management 4yr tie-up 1yr decomm

Flim

26 July 2004 Systems Thinking in Government 35

Systems analysis: Compliance Fisherman

Fish Market for fish Financiers Inspectorate

Illegal market Legal market

Discards

EU and nat. policy

Scientists

Cheat?

Investment Effort? Location? Species Enforcement effort End markets

Discard fish?

Expand? Exit?

Labour mkt Mkt for quota, equipment

Intelligence and monitoring

Fish Information Money Regulatory power Fish

Key flows

Italicised text represent key decisions made by fishermen

26 July 2004 Systems Thinking in Government 36

Spreadsheet modelling of compliance and enforcement

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0.25% 1% 5% 10% 20% probability of being fined % of total landings Black Legal

Management Fisherman

Skills Debt Compliance boat Level of fine Effort / TAC Prosecution risk Tradability

Cost Data Landings Profits

Debt

Landings Revenue

26 July 2004 Systems Thinking in Government 37

Elements of Proposed Package…...

• 1. Competitive and Profitable UK Fleet
• 2. Compliance Package
• 3. Decentralisation and modernisation of UK Management
• 5. Progressive Regionalisation of EU Management
• 6. Integration with other uses of Marine Environment
• 4. Clear Social Objectives in Fisheries policy

26 July 2004 Systems Thinking in Government 38

…..elements work together as a system

Competitive and Profitable UK Fleet Compliance Package Decentralisation and modernisation of UK Management Progressive Regionalisation

• f EU Management

Integration with other uses

• f Marine Environment

Clear Social Objectives in Fisheries policy

Address concentration and vulnerability

• Better Information
• Incentives to comply

Clear Rights and Responsibilities Local Flexibility and Objectives Trust & Legitimacy Credibility in Co-operation Conflict Resolution

• Policy

Integration

• National

Control Underpin RACs and innovation

26 July 2004 Systems Thinking in Government 39

Beyond the theory: building a new management system

• Change needed both in

management system incentives and in the trust and behaviour of fishers

• perate within it
• International experience

shows that you never get it right first time

• Need a period of crisis

and adjustment (5-10 years) before reaching acceptance

Fishers behaviour responds Change in management system

26 July 2004 Systems Thinking in Government 40

Lessons (I)

Combined economic and biological modelling laid basis for discussions with stakeholders

• Fleet modelling became central – based on robust projections
• f stocks from biological models and future input costs.
• Disagreements over baseline data on catches and fleet sizes

undermined acceptance by industry

• Combining modelling with survey and qualitative data allowed

for some agreement on possible maximum future size of fleet

• The process of building the models with stakeholders and

sharing the final structures probably most important. Carried on post publication on a regional level.

26 July 2004 Systems Thinking in Government 41

Lessons (II)

• Building the strategy required a large number of systems models

based in different disciplines: biology; economics; game theory; business analysis. Unified modelling was too complex and less useful than focused work.

• Diversity and complexity placed severe limits on the cost-effectiveness

practicality and accuracy of modelling – finer grain analysis was too

• expensive. Complicated by prevalence of illegal fishing activity.
• Limits of biological understanding – especially of impact of climate

change – gives high future uncertainty to stock predictions.

• Qualitative understanding of necessary parts of regulatory system key

to motivating further investment in continually updated systems models to reduce risk of either stock collapse and/or industry collapse and respond to future environmental and economic challenges.

Limits of modelling motivated investment in a system that can learn

Prime Minister’s Strategy Unit

Energy: Routemaps, Options and Uncertainty

26 July 2004 Systems Thinking in Government 43

Energy Policy Objectives

Four objectives for UK energy policy:

• security: maintaining secure supplies at stable prices in the long term
• environment: primarily climate change
• competitiveness: industrial energy costs comparable to key competitors
• social: eliminating UK fuel poverty and achieving Millennium

Development Goals UK energy policy has mainly been driven by economic imperatives for 20 years Near energy self-sufficiency meant UK energy policy has been nationally focused

26 July 2004 Systems Thinking in Government 44

New Energy Policy Challenges

Growing Oil and Gas Import Dependency:

» By 2020 80% of UK oil and 84% of UK gas will be imported - 75% of UK energy use » A rising proportion will come from regions with a significant risk of political instability » Rapidly growing demand for oil and gas in industrialising countries (China; SE Asia)

Climate Change:

» Global stabilisation of CO2 concentrations at a maximum of 550 parts per million - and perhaps lower - needed to prevent dangerous climatic change » Requires global reductions in emissions of at least 60% from 1990 levels by 2050

All future UK energy policy exists inside an international framework

26 July 2004 Systems Thinking in Government 45

Long term climate change targets require sharp increase in renewable energy use...

OECD Electricity Generation Mix Reference Scenario

• 2,000

4,000 6,000 8,000 10,000 12,000 14,000 2000 2010 2020 2030

TWh

Hydrogen Fuel Cells Other Renewables Hydro Nuclear Gas Oil Coal OECD Electricity Generation Mix Alternative Scenario

• 2,000

4,000 6,000 8,000 10,000 12,000 14,000 2000 2010 2020 2030

TWh

Hydrogen Fuel Cells Other Renewables Hydro Nuclear Gas Oil Coal

• The alternative scenario has implications for both the level and range of fuels used in electricity
• generation. In 2030 the alternative scenario:

» Reduces overall electricity demand by 12% » Increases renewable and hydrogen generation by 41% » Decreases fossil fuel generation by 30% - although gas and coal remain the two biggest sources of electricity generation

Source IEA 2002

26 July 2004 Systems Thinking in Government 46

But UK has lowest share of renewable energy of comparable countries

1 2 3 4 5 6 7 8 9 10 D e n m a r k F r a n c e U S S p a i n J a p a n G e r m a n y N e t h e r l a n d s B e l g i u m U K 1996 1999

Share of renewable energy in total energy production (%) 1996,9

Source: Dutch International Benchmarking Survey

26 July 2004 Systems Thinking in Government 47

Low Carbon Pathway

2002 2010 2020 2050

Energy Efficiency & Renewables least cost to 2020 Renewables Fossil + Sequestration, Nuclear and/or Surprise Technologies “3G” grid needed Fuel Cell & H2 Transport needed Full H2 System needed System Change Service Change Radical Increase in Resource Productivity

26 July 2004 Systems Thinking in Government 48

A Low Carbon Pathway for the UK

2002 - 2010 Current climate change and fuel poverty policies - if delivered - put UK on track to reaching 60% by 2050 2010 - 2020 Need to reduce to 110-115 mt in 2020. Least cost strategy uses energy efficiency and renewables (goal = 20%) and EU emissions trading. No technology lock-in. 2020 - 2050 Need to reduce CO2 by 60% from 1990. Energy efficiency remains main strategy. No clearly dominant low cost energy supply technology - renewables, nuclear and coal plus sequestration all possible choices. Should delay any technology lock-in choice until information improves. Uncertainty implies need to invest in developing alternative technologies now and that the option to delay lock-in to one technology is valuable

26 July 2004 Systems Thinking in Government 49

Not All Futures are Equal

The future might be uncertain - but some scenarios are more likely than others:

• some technologies will penetrate less quickly than expected
• new scientific evidence is likely to show climate change will be more damaging
• this will probably imply the need for steeper and quicker emissions cuts
• but unexpected new technologies will lower the cost of reaching these targets -

these will be determined mainly by activity in global markets - not UK R&D

• emissions growth in developing countries may jump with personal car use

Hedging strategies should take into account the likely need for stronger CO2 reductions

26 July 2004 Systems Thinking in Government 50

Pathway 2020 - 2050 - Technology Uncertainty

Uncertainty around technological solutions under development…. Wind Energy rate of cost reductions as global markets grow Solar Energy rate of cost reductions as global markets grow Biomass Energy cost-effectiveness of next generation technology Nuclear Energy cost-effectiveness and safety of next generation technology Carbon Sequestration cost effectiveness and environmental integrity and potential surprises……. Solar Technology appearance of ultra-cheap solar technology Biotechnology development of high efficiency cellulose conversion Nanotechnology development of ultra-efficient energy use technologies

26 July 2004 Systems Thinking in Government 51

Key Short Term Decisions/Policies

Policies to keep UK on the path to 60% by 2020:

• Policies to ensure 2010 targets are met - with hedging strategies
• Policies for shifting to “smart” distribution and transmission system by 2010
• Clear signals to private sector on aim to increase penetration of energy

efficiency and renewables in 2010-2020 period

• Strategy to accelerate global use of low carbon technologies - especially

efficiency and renewables - outside climate change agreements

• Investment in developing renewable energy options for 2010 to 2020 period

Preparing the ground for policies to reach 60% (and beyond):

• Strategy for ensuring all existing major low carbon options - renewables,

nuclear and coal plus sequestration - are available for a decision in 2015-2020

• Clear strategy for ensuring fuel cells/hydrogen systems available by 2020
• Investment in fundamental innovation, “surprise” and far-from-market

technologies for 2020-50 - particularly through international collaboration

26 July 2004 Systems Thinking in Government 52

Key Lessons

• Energy policy requires long term investment decisions which impact multiple

policies and objectives – giving investor certainty is key.

• Decisions must be made under conditions of high uncertainty over prices and

availability of fuels and technologies – primarily driven by global forces – so flexibility is also vital.

• Essential to use quantitative systematic analysis and modelling to guide long-

term policy making – especially the interface of international politics (security of supply), economics and climate change

• Need better ways of analysing and measuring policy flexibility – identifying

relevant timescales for decisions and value of investing in options and insurance Simple and compelling communication of dynamic investment issues to senior decision makers remains elusive

Prime Minister’s Strategy Unit

Conclusions

26 July 2004 Systems Thinking in Government 54

What counts as success?

Predictability and control will always be elusive. The business of government is inherently unpredictable, messy and shaped by events. But better use of systems models should mean …

26 July 2004 Systems Thinking in Government 55

"..chance only favours the prepared mind" Louis Pasteur

• Fewer shocks
• More holistic understanding and actions
• Making explicit underlying assumptions
• Richer narratives to understand and explain processes of change
• Capturing knowledge and understanding which otherwise would

dissipate with staff turnover Use of systems approaches is hampered by lack of demand from decision makers, and a lack of familiarity and training in civil service

...better informed crises!

26 July 2004 Systems Thinking in Government 56

• Most decisions are surrounded by complex political contexts
• These often capture harder to define issues which are not

amenable to modelling (e.g. societal norms; ethical issues etc)

• The raw political issues of resources, power and constituencies
• Factoring politics into systemic thinking - explicitly defining links

and impacts helps separate the truly political from poor analysis

There will always be politics - but this should be addressed in defining the systemic context

Investment in mapping formal and informal decision making processes key to designing useful system tools

26 July 2004 Systems Thinking in Government 57

Future Challenges for System Approaches

• Embedding formal system approaches inside richer (and often simpler)

mapping of overall problems which acknowledges the limits and constraints

• f systems thinking e.g. developing languages and frames for thinking
• Using system approaches to motivate and inform institutional mechanisms

for learning, flexibility and change e.g. as knowledge management and creative challenge tools

• Developing resonant languages and practical tools for assessing long term

investment decisions in hard and soft policy interventions - including assessment of options and hedging strategies under uncertainty

• Better integration of simple system approaches inside training for policy

makers and decision makers so it becomes a “normal” approach to policy

• making. Including in more informal “judgmental” decision making processes.

Benefit of system approaches in many areas is in stimulating clarity of thought and identifying the broad scale of impacts and interventions

26 July 2004 Systems Thinking in Government 58

Future Areas for System Approaches

• Security: vulnerability and volatility; global criminal networks and

markets; stability and crisis in countries and regions.

• Transport: behaviour; modalities; composition; planning for

alternatives and communities; investment in infrastructure.

• Wealth Creation: cluster dynamics; innovation; global systems

and institutions; skills and knowledge; IPR.

• Aging society: future demands; services; opportunities.
• Global sustainable development: climate change; water use;

urbanisation; poverty reduction; biodiversity loss

Prime Minister’s Strategy Unit

Thank You Find out more at www.strategy.gov.uk and www.policyhub/gov.uk