As members are aware, a key responsibility of the Department of Communications, Climate Action and Environment is to deliver national policies and programmes in the climate change area. Operating under the Department's aegis, the Environmental Protection Agency monitors and reports on the level of Ireland's greenhouse gas emissions.
Through its EU membership and participation in various international agreements, Ireland is committed to a number of climate action targets. While some of these have been adopted voluntarily, others are binding and there will be significant financial consequences if they are not met. Following on from these commitments, Ireland is pursuing climate targets through a combination of carbon pricing and taxation, payment of grants and subsidies, regulation and public awareness campaigns. These activities give rise to financial transactions but because they are spread across a wide range of State organisations, the net impact on the Exchequer finances is not readily visible. My objective in compiling this report was to present an overview of the key current financial transactions that are related to greenhouse gas emissions.
In the context of EU climate policies, a distinction is made between greenhouse gas emissions emanating from sectors of activity subject to the EU emissions trading system, ETS, and those of all other, non-ETS, sectors. In Ireland, economic activity subject to the ETS accounted for about 28% of emissions in 2017, which is low by comparison with the EU average. This includes power generation, manufacturing and industrial processes. The level of emissions allowed for each operator declines each year, and if the cap is breached, carbon credits must be purchased through an EU-wide auction system. Revenues from the auction of credits is divided between European Union member states, which must use at least 50% of the proceeds to finance specific climate and energy programmes. Ireland's Exchequer has benefited from such sales to the amount of €367 million between 2013 and 2018.
Since 2013, separate targets apply to non-ETS emissions, which accounted for 72% of Ireland's output of greenhouse gases in 2017. This includes the agriculture, transport and residential sectors. On the basis of projections that Ireland's greenhouse gas emissions for the period 2008 to 2012 would exceed the level committed to under the Kyoto Protocol, resulting in an obligation to surrender what are referred to as carbon credits, the State spent a total of €121 million on acquiring carbon credits. Ultimately, Ireland met its emissions target for that period, but mainly due to the contraction in economic activity as a result of the banking and financial crisis. Just over one third of the credits acquired had to be surrendered at the end of the target period. The balance of the credits remains to assist in meeting further obligations as they arise.
In contrast to the first Kyoto period, the Environmental Protection Agency projects that Ireland will not meet the non-ETS emissions reduction target for the 2013 to 2020 period. The available unused carbon credits are not expected to be sufficient to meet the resulting obligations. The Department has estimated that the cost of purchasing additional required credits in 2020 will fall within a range of €2 million to €14 million, depending on the quantity of credits required and the prevailing market price.
In terms of renewable energy, Ireland has a mandatory target for at least 16% of gross final energy consumption to come from renewable sources by 2020. While progress has been made in that regard, it is expected the target will not be met. Based on the likely shortfall projected by the Sustainable Energy Authority of Ireland, the Department estimates that the future cost associated with failure to achieve the target could be in the order of €110 million. Against a targeted improvement of 20% in energy efficiency by 2020, the latest projections indicate that the actual increase will be around 16%. However, as the energy efficiency target is non-binding, there is no direct financial penalty for failing to achieve it.
Carbon tax is one of a number of environmental taxes based on the consumption of fossil fuels. While other fuel-related taxes were introduced for revenue raising purposes, carbon tax is intended to have a disincentive effect on the consumption of such fuels by raising prices. Exchequer receipts of carbon taxes in 2018 amounted to around €431 million.
A range of State bodies are incurring substantial climate-related expenditure. At the same time, the State is receiving significant income in the form of environmental tax receipts and revenue from the auction of emission allowances. However, there is currently no comprehensive national account to capture this income and expenditure. Even in individual accounts where climate-related transactions are recorded, there is little transparency. The report concludes that it would be timely for relevant Accounting Officers to consider including additional information and disclosures on climate change initiatives in the statutory accounts they produce.