Joint Committee on Climate Action debate

Third Report of the Citizens' Assembly: Discussion (Resumed)

Chairman

I welcome members and viewers who may be watching proceedings on Oireachtas TV to the 12th public session of the Oireachtas Joint Committee on Climate Action. At the request of the broadcasting and recording services, members and visitors in the Public Gallery are asked to ensure their mobile phones are turned off completely or switched to flight mode.

Sitting suspended at 2 p.m. and resumed at 2.01 p.m.

Chairman

We were having an issue getting into public session. I have already welcomed all the viewers watching proceedings on Oireachtas TV and asked everyone to turn off their mobile phones or switch them on to flight mode.

I extend a warm welcome on behalf of the committee to our witnesses from the Department of Finance: Mr. Derek Moran, Secretary General, Mr. John McCarthy, Ms Mary McSharry and Mr. Gerry Kenny. I also welcome Mr. Robert Watt, Secretary General, and his colleagues, Ms Patricia Coleman, Ms Mary Austin and Mr. Ken Cleary from the Department of Public Expenditure and Reform.

I advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing ruling to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

I call Mr. Moran to make his opening statement.

Mr. Derek Moran

I am pleased to have the opportunity to participate in the discussion. I will keep my opening comments brief.

The recent report published by the UN's Intergovernmental Panel on Climate Change, IPCC, highlighted the magnitude of the global challenge. Addressing the threat of climate change is a priority for Government as is reflected in the programme for Government. It is a whole-of-government issue that requires joined-up effort.

In her introduction to the Citizens' Assembly's third report, the chairperson acknowledged the topic of climate change is "incredibly broad, wide-ranging and affects us all in one way or another". There is no single solution to addressing the challenge of climate change and a collaborative effort is required across Government involving a range of inter-related actions and actors. A targeted balance between Exchequer-supported expenditure, taxation policies and regulation are necessary to deliver upon our climate change objectives.

Tax policy has an important role to play in contributing to our decarbonisation objective but the complexity and need for balance in policy actions was recognised in the assembly’s recommendations. The qualification of recommendation No. 3 on taxes on carbon intensive activities referred to the need to protect the poorest households and a recognition, in ancillary recommendation No. 3, that the impact of the agriculture sector on the economy, particularly the rural economy, has to be taken account of in transitioning that sector towards models of production.

Taxation and pricing is a significant aspect of the contribution the Department can make in this regard. Other issues include our ongoing work with our agencies such as the launch of Ireland’s sovereign green bond, Ireland Strategic Investment Fund, ISIF, investment supporting green technology and the promotion of the sustainable and green finance sector as part of the work under IFS 2020.

Our existing taxation system is positively contributing to climate change. The extent to which it can, and should, do more is a matter of ongoing policy discussion. Recommendation No. 3 highlights an acceptance of paying higher taxes on carbon intensive activities, subject to the qualifications such as the spending of the increased revenue on measures to support the low-carbon transition. The Government is committed, in the national mitigation plan, to carbon pricing as a part of the suite of policy measures to address and reduce greenhouse gas emissions over time. However, we also need to understand its impact on low-income households, on households for whom at present there is no realistic substitute to the consumption of carbon commodities for home heat and transport. The assembly recognised this challenge for poorer households in its qualifications to the recommendation.

Understanding the impact of carbon pricing on emissions is imperative. In this regard, the Department has worked with the ESRI and published a report in October 2018 that provides a better understanding of the environmental, social and economic impacts of increasing carbon tax rates. It found that a doubling in carbon tax to €40 per tonne would result in less than a 5% decrease in greenhouse gas emissions, which is a positive impact from just one measure. While this would be a positive contribution to our objective, it also underlines the importance of pursuing complementary policy levers in conjunction with taxation policy to support our transition to a low-carbon economy.

To build on this work, the ESRI is currently developing a multi-annual model to better inform our decision-making into the future which will be capable of modelling a carbon tax pathway which captures behavioural change on the part of producers and households alike in response to policy initiatives such as a phased increase in carbon tax rates over time. On budget day the Government reaffirmed the intention to put in place a long-term trajectory for carbon tax increases out to 2030 in line with the recommendations of the Climate Change Advisory Council, CCAC, and this committee. This is an explicit acknowledgement that carbon pricing and carbon tax, in particular, has a key role to play in the transition to a low-carbon economy.

In recommendation No. 9 of the report, the vast majority of members of the assembly recommended the State should immediately take steps to support the transition to electric vehicles. To support the achievement of this goal, a number of tax incentives are in place to encourage the uptake of electric vehicles, EVs, and more carbon-efficient vehicles. For example, in addition to the vehicle registration tax, VRT, relief of up to €5,000 and the Sustainable Energy Authority of Ireland, SEAI, purchase grant of up to €5,000, which are in place, a 0% rate of benefit-in-kind, BIK, on EVs was introduced this year. A new accelerated capital allowances scheme for gas-propelled vehicles and refuelling equipment is being provided for in Finance Bill 2018, designed to encourage the uptake of gas-propelled commercial vehicles as an economic and environmentally friendly alternative to diesel. Ireland's CO² based VRT and motor tax have been redesigned towards incentivising the uptake of lower emissions technology, whereby the higher the emissions, the higher the tax. This charging system was introduced in 2008. In January 2013, a revised banding structure was also introduced for both motor tax and VRT to take account of technological differences. A zero emissions band for electric vehicles was also introduced for motor tax purposes. The introduction of these measures has been effective in influencing purchasing decisions in favour of more fuel efficient vehicles, with a significant increase in new vehicle purchases in the lower band categories. In 2009, only 13% of vehicles registered were in the 0g to 120g band; it has now increased to 77%. From virtually none, there are now approximately 4,000 electric vehicles on Irish roads.

The launch of Ireland’s first sovereign green bond for €3 billion by the National Treasury Management Agency, NTMA, on 10 October is a significant development, as it will assist in funding the Exchequer investment committed. While the proceeds of the bond are remitted like all other issues to the central fund, the yields will be channelled to projects with environmental benefits. Eligible green project categories for the first Irish green bond issue include sustainable water and waste management, clean transportation, environmentally sustainable management of living natural resources and land use, renewable energy, energy efficiency and climate change adaptation projects. The issuance of the bond was met with strong demand with a total order book of more than €11 billion.

With regard to the imperative of mobilising private sector capital, I note the important work of IFS2020, which has included green and sustainable finance as a strategic priority in the 2018 action plan. Last week, Sustainable Nation Ireland, which has a role under the IFS2020 strategy to support and promote Ireland as a green and sustainable finance hub, co-hosted this year’s EU annual climate innovation summit. The summit was held on 6 to 8 November and attended by more than 600 decision-makers from Ireland and Europe.

Officials from the Department have also worked closely with Deputy Pringle on the Fossil Fuel Divestment Bill 2016, which was passed by the Dáil in July and which I believe is before the Seanad this week. The Bill requires the NTMA, as custodian of the ISIF, to endeavour to ensure it does not directly invest in a fossil fuel undertaking and to divest from an investment which is or becomes a fossil fuel undertaking.

At a micro level but in keeping with recommendation No. 2 of the report on retrofitting and regeneration of public buildings, the recent renovation of the Department's offices in Government Buildings has resulted in annual electricity bill savings in the region of €60,000 per annum. In this redevelopment we were aware of the need to significantly reduce our energy footprint.

I again thank the committee for the opportunity to discuss the report and recommendations of the Citizens' Assembly, which is an important aspect of the national dialogue on climate action. Progress is being made, but we still have a long way to go with significant challenges ahead.

Mr. Robert Watt

It is a pleasure to be here. As the committee will be aware, we have a significant challenge in respect of climate policy. I will set out why we think this is, what we can do about it and the specific actions that are relevant to our Department. The climate is a public good. The story of modern humanity is one of its ability to conquer the elements but it is hard for us to conceive of a world radically altered by rising temperatures. This perception gap collides with our well-known bias towards the immediate. In general, we are bad at sacrificing now to benefit later. This effect is compounded when it comes to climate change because we have never previously had to deal with a situation where the consequences of a problem are so far removed from the actions we must take to deal with it. The price that will be paid for the emissions we release into the atmosphere today will be borne by our children and their children. Naturally, Departments focus on the interests of the public and society. The determination of the public interest is filtered through the views expressed by their stakeholders and, ultimately, the political system. Due to our biases, we underestimate the impact of our current behaviour on the climate, and continue doing business as usual. This status quo bias is reflected in our approach to climate policies.

The actions we have been pursuing to date have evolved to be compatible with existing policy priorities in a variety of areas rather than specifically aimed at delivering the change we need at the scale required. We have pushed open doors in respect of certain policies where the evidence suggests that reductions in emissions on the scale required will involve significant winners and losers and have significant consequences for society. I have described a well-recognised problem. The adverse effects of emissions fall on society collectively rather than on those individually responsible for their emission. They are external to the market or externalities. There is not enough incentive for individuals, whether businesses or consumers, to reduce emissions. The best way to address these externalities is to place a price on them. The Europe-wide emissions trading scheme, ETS, is an attempt to do this for emissions in sectors, such as electricity generation and other high emitting sectors. Given that every installation has to pay a price for every tonne of emissions it releases, it bears a direct cost for its emissions and is incentivised to find new and creative ways of reducing them. Even with the flaws of the ETS, the impact of pricing carbon in power generation has seen emissions from that sector consistently decline across Europe.

With an effective mechanism in place for the ETS, the primary focus of policy is to reduce emissions in the non-ETS sectors where the liability for non-compliance rests with the State. Do we have enough least cost abatement options in the policy system? The biases I have outlined translate into a basic principal-agent problem, which is significant in this area because responsibility for climate action rests with the Minister for Communications, Climate Action and the Environment, but responsibility for policies to reduce non-ETS emissions fall across many Departments and agencies. Like other countries, we have structures in place to try to address this problem but we should consider whether these structures are likely to be sufficient or if they need to be complemented by more stringent central mandates or perhaps, even replaced by mechanisms such as making individual Departments or Ministers more directly responsible for specific emission reductions targets in their sectors.

Irrespective of the type of structures we have in place, we need to develop new climate policies and measures and we need methodologies to assess options across sectors. There is no easy way of deciding whether we should prioritise actions in any one given sector. That is why the first question that we should ask of any proposal is how does this initiative help us meet our climate targets and at what cost does it do so. We need to know the marginal cost of abatement for potential options. The committee has been discussing this in recent months. Once we know where the economic opportunities are, we can have a proper discussion about the policy trade-offs and make progress in respect of the options we face. As Mr. Moran outlined, carbon pricing through the ETS or taxation allows market discovery. This mechanism allows market agents to establish least cost opportunities and provides them with the incentives to take appropriate action. These market mechanisms may need to be supported by expenditure measures to encourage, for example, early adopters. It may also be underpinned by regulations that can provide investment certainty to private consumers and businesses. A tangible example in this area is Government policy on EVs. There are generous supports available for such vehicles at the moment, both expenditure and taxation. As the technology advances and the cost of an electric vehicle becomes competitive with that of a fossil fuel vehicle, it will no longer be appropriate to reward early adopters. Instead, the role of Government will be to ensure that the regulatory environment supports EV drivers, ensuring that there is a sufficient supply of charging points available for example and there is competition in the supply of electricity through these charging. In the interim, until there is a critical mass sufficient that the market can provide this EV infrastructure, its development will be funded by Government.

Regarding investments funded by the taxpayers, decision-makers need to reflect a realistic estimated shadow price of carbon to ensure decisions reflect the future costs of emissions and, of course, the benefits of abatement. The Department of Public Expenditure and Reform is contributing to this policy work with the levers at our disposal. The mission of the Department is to serve the public interest by supporting the delivery of well-managed, well-targeted and sustainable public spending. When it comes to climate change, this means public spending that supports the achievement of Ireland's low carbon transition in the most cost effective manner. It means targeted expenditure while allowing market mechanisms to deliver carbon reductions in the most efficient manner. With regard to project appraisal, we have published some significant proposed reforms to the public spending code. In a major departure, we will now require all Government investment projects to price any future greenhouse gas emissions at the estimated cost that society will have to bear in reaching our climate targets. In effect, this triples the cost of greenhouse gas emissions that applies today, with the price reaching €32 a tonne by 2020, €100 a tonne by 2030 and €265 a tonne by 2050. This responds to a criticism that has been made of the public sector code for some time, which is it is underpricing the future cost of carbon and needs to reflect a much higher price in decision-making, and we have taken steps to address that concern. These moves will reduce the economic viability of certain projects that produce emissions and critically place a high value on projects that cut or abate emissions. We are also lowering the discount rate that applies to Government investment appraisal from 5% to 4% and for long-term projects, this discount rate will decline over time. These reforms mean that investment decisions must fully reflect the climate consequences. Finally, the Irish Government Economic Evaluation Service, IGEES, was created to enhance the role of economics and value for money analysis in public policymaking. IGEES has conducted reviews of areas of climate-related expenditure and will continue to do so in the future. This is a major task for the system in our Department and others to assemble the evidence required to inform Government of the decisions taken. Significant work is required to consider options, how much they cost and what will be the emissions reductions from these options.

In summary, we are supporting policies to price carbon. We believe incentives matter and the best way of encouraging behavioural change is to place a price on the behaviour that we want to change and encourage people towards the alternatives. Applying a trivial charge per plastic bag, for example, lowered plastic bag use by 95%. I know in that case there was a clear significant alternative so the elasticity of demand was high in terms of the response to any price change and that is not exactly analogous or comparable to climate, depending on the type of change we are considering. It shows, however, how price changes can affect behaviour depending on the availability of substitutes and alternatives. On a larger scale, in the UK as recently as 2012, 40% of electricity came from coal. This year, up to the middle of the year at least, just 6% of their electricity came from coal. That is a significant change in fuel mix in the electricity sector.

The second action is having a shadow price for carbon for Government decisions that properly reflects the cost of emissions. Just as prices matter to the individual, so too they matter for Government decision-makers. We are now pricing the carbon emissions of any new Government investment at the price it will cost us to eliminate those emissions at a later date. This raises the bar and will help to avoid investments which may lock us in to high carbon patterns of living. Third, developing least cost options by estimating the marginal abatement cost of options and making effective climate policies will involve hard choices and trade-offs. To enable these choices to be made, we must provide Government with the evidence that allows it to compare and contrast climate measures from across a wide variety of sectors. This means examining the progress each measure will make towards our targets and the potential cost associated with them. We are working with other Departments to ensure that when the Government is considering climate policy, it has the necessary information to make decisions. Fourth, we are examining structures to ensure that we address the principal-agent problem and the Department is working through the existing climate structures established at Government level. We need to ensure that we have the necessary structures to drive this change across Government, reflecting the scale and urgency of this challenge.

Our Department leads in a number of areas on climate change. The Office of Government Procurement is actively working with the Department of Communications, Climate Action and Environment to update our procurement guidelines to ensure that we can source goods, services or works within the public sector, with a reduced environmental impact.

Project Ireland 2040 contains a commitment to the effect that every building in the public stock will achieve an energy efficiency rating of at least B by 2030. To realise this commitment, the OPW is working with the Department and the SEAI on a pilot scheme. In 2012, 12 buildings, including our building on Merrion Street, underwent significant energy efficiency upgrades. A further 50 buildings were upgraded this year and it is planned to upgrade another 40 in 2019. The evidence from the pilot is that this will allow us to develop a programme sufficient to reach the target set out in Project Ireland 2040. These initiatives are primarily financed by the Exchequer.

Ireland cannot solve this problem on its own, particularly in view of our scale and our contribution to global emissions. However, we must show that as a developed country we are capable of making the necessary changes.

I thank Mr. Watt. I call Senator Lombard who has ten minutes.

Senator Tim Lombard

I welcome the two Secretaries General to these very important hearings. My first question is for Mr. Moran. What is his view of the taxation system? Does he believe there are environmental goals attached to it? Do we have the vision to move to a low-carbon economy? In other words, what major changes are required in current policy to ensure we can make it more proactive? Do we have that vision in the Department and Government to work towards those issues?

Carbon will be one of the main issues we will discuss at these hearings in the coming weeks and months. The Climate Change Advisory Council made a submission on the price of carbon per tonne.

It was hoped it would come in at approximately €30 per tonne in the budget. It did not change, unfortunately. What will be the trend for carbon pricing in the next decade? There is talk of an increase to €80 per tonne by 2030. Will there be a yearly increase in the price or will it occur only on the final day? Do people believe it will increase to €80 per tonne by 2030? How do our guests envisage the gradual increases in the carbon price being made? How will we deal with fuel poverty and meet the concerns of people of economic need who, unfortunately, require fossil fuels at present? There are two elements to be balanced. This will be important so we can take society with us. I am concerned about how we can move to a low-carbon economy while offering support to those who need it. In the context of the price of carbon increasing to €80 per tonne by 2030, what timeline is the Department considering with a view to having a vision to drive forward? These are questions on which the Department needs to give us guidance.

Procurement is a major issue in the context of public expenditure. It has been a major issue across all Departments for a long time. The lowest-price principle is one we have discussed at several committees with a view to determining how to achieve the best value for money. Where will the environmental factors come into the schedule? The Chairman mentioned schools. The schools we built in the past decade all had oil burners, reflecting the lowest-cost syndrome we promoted in our economy. What will be the guidelines on this? Renewables are more expensive on the first day but there will be a long-term benefit for everyone. Even turning to a gas boiler rather than an oil boiler is significant. This all falls under Government procurement. From where will the vision come? From where will the review and changes come? The Chairman mentioned oil boilers being installed in schools in the past seven or eight years. Do we lack vision in this regard? Do we need to move to a different model of procurement?

Mr. Derek Moran

Going back as far as 2008 and 2009, we have taxed motor vehicles on the basis of carbon emissions. We introduced a carbon tax in 2010 and 2011. We saw progression in both of these areas until approximately 2012. The carbon tax increased from €15 initially to €20, but it has been flat ever since. With regard to motor vehicles, excise duty and so on, the rates increased but they have been unchanged since 2012. With regard to using fiscal instruments and taxation for the purpose in question, there has not been any change over time.

The speed at which the carbon price will rise over the next ten years will ultimately be a policy matter for the Government. There are examples of where governments have set out a trajectory for a carbon tax. In France, for example, there is to be a rise from approximately €30 to €85 over a period of five or six years. The fuel poverty implications for the French are quite different because it does not affect households as much. This is because 75% of French energy is derived from nuclear power. It is much less fossil-fuel intense. The reality is that if one increases the carbon tax, one generates revenue. By generating revenue, there is revenue to recycle to mitigate some parts of the problem. One cannot mitigate all parts but where there are fuel poverty issues one can address the points where the pressure is greatest, including through the winter fuel scheme, for example.

Some of the important work we have done is reflected in the report. I would recommend it. We worked jointly with the ESRI and we published the report in October. For the first time, for any given increase in carbon tax, we can calculate the likely impact on emissions. For a €20 impact, a doubling of the carbon tax, there would be a reduction of about 4.7% in emissions. That is very significant in light of the overall target of a 30% reduction over the next decade or so. The Climate Change Advisory Council talks about achieving a figure three times that. The likelihood is that it will not be linear. We are doing some work over the next 12 months as a priority considering the multi-annual impact and how it will be phased. Even if it is not linear, and if it is not a case of three times 4.7% but somewhere between 10% and 15%, it would be a very significant contribution to meeting the decarbonisation goals. I view those points as important. The work will inform how we map out the trajectory over the coming period. Mapping out a set of steps over the next ten years will be important. If if is not done, the chances are that if one picks off issues on an annual basis, with an annual budgetary cycle, one will not make a huge amount of progress.

On vehicle taxation, there are fairly fundamental changes happening over the next 12 months. The emissions measurement for new vehicles is changing. According to the EU Commission, if we move to the worldwide harmonised light vehicle test procedure, on which Mr. Kenny can provide detail, a much more realistic measurement of the actual emissions from vehicles would be given. One would see the emissions measurement going up by 20%, on average. That will result in a significant behavioural change. We already saw that with the changes we made in 2008.

It is a question of having a plan and marking it over time and of the recycling of revenue to the pressure points. The interesting piece concerning the work done with the ESRI concerns a 20% increase. Its overall impact on the economy was not that significant, it is fair to say.

Mr. John McCarthy

It was very trivial.

Mr. Derek Moran

It was very trivial.

On the impact on households, the energy costs for the lowest-income households went up by about 2.9%, and by about 4.5% for the highest-income households. The effect on net income was such that those in the lowest category saw their income drop by about 0.7% and the highest by about 0.3%. That defines the space one has to address and mitigate. The mitigation would have to be at the lower end. One is generating revenues that permit one to do this, however.

Mr. John McCarthy

I have a follow-up point to emphasise what the Secretary General said about the carbon tax pathway and the importance of signalling future trends. It is important because it creates certainty. It means economic agents do not lock into expensive systems right now. It creates certainty regarding what the future price will be, which will help reduce emissions directly, but it will also signal to economic agents that it will be increasingly profitable to invest in low-carbon and zero-carbon alternatives, and that it will be profitable to invest in carbon capture, carbon storage and so forth. By creating certainty now and setting out a medium-term trajectory, one can overcome some of the issues associated with the cliff-edge effect.

Chairman

There was a question on procurement.

Mr. Robert Watt

Procurement raises a big issue in terms of whether we have an approach based on regulation whereby we can be prescriptive and say that we support a particular technology or whether we ensure that decision makers reflect the higher price of carbon. We have in the public expenditure code new estimates for the future costs that will incentivise renewables and more efficient forms by comparison with those of the past. That will send a price signal to decision makers.

The use of heating oil in schools raises an issue. If ten years ago a school decided on a much more expensive option, based on a given view on energy costs, another committee of this House would have criticised the Secretary General in the Department of Education and Skills for allowing schools to misspend public funds. Heat pumps and the renewable alternatives would have been much more expensive. If, however, one has a different view on emissions and energy costs, one does not just calculate the cost of heating for the first few years but also for the next 20. That requires the wider system, not just ours, to reflect upon the cost of each choice.

We might be saying that in the short run, we will have school buildings that are more expensive but will lead to more efficient use over their life cycle. That comes down to difficult choices. In the short run, other measures will have to be foregone in the education system to afford such buildings. We have to face the policy decisions and choices that are raised in that context. Our approach involves the accommodation of regulations. All public buildings will have to adhere to the standards of the near-zero emissions directive from 1 January next. We have to ensure we look at the overall cost over time in the hope that it reflects what the true cost of carbon will be in the future.

Senator Tim Lombard

I cannot ask Mr. Watt to speak on behalf of individual Departments, but I would like to know whether he believes a vision of procurement that involves taking a longer view, rather than focusing on the cheapest price, has taken hold across the Government as a whole. Is such an ethos apparent across Departments? If not, how much change is required to bring it about?

Mr. Robert Watt

When we talk about the lowest cost, we are talking about something that reflects the lowest costs of build and the life cycle costs as well. The evaluation should, and does, reflect that the lowest cost is not just about the build costs. It is a question of ensuring the inputs are appropriate. A judgment call has to be made regarding future energy bills and the price of carbon into the future. We have put forward a view on the price of emissions. We are waiting to hear back from those involved in the system about their views. This is not cost free or risk free for the public sector when it makes decisions.

Deputy Timmy Dooley

I thank Mr. Moran and Mr. Watt for their presentations. I will begin by asking Mr. Watt about the potential for the State to be fined if it does not reach its targets by 2020 and the impact of that if it happens. We have heard about different costs. This is something that the Department of Public Expenditure and Reform is good at. It is not about spending money. The Department is good at planning and estimating what certain costs will be. I hope it can identify its best guesstimate at this stage. If we recognise that the cost is X, we have to move along from there by accepting that we have slipped in the areas of heat and transport. We have had our own interactions with various Departments. Perhaps some Departments are better than others at addressing the climate change element of their work. What role does the Department of Public Expenditure and Reform play in encouraging other Departments to assist it in saving the State from having to pay these fines? I appreciate that the Department's overall role from a budgetary point of view involves making the most of loaves and fishes and identifying the projects that will give the best bang for their buck. In the absence of such projects coming forward, can Mr. Watt give us an insight into the role played by the Department in trying to get the Government as a whole to try to move this agenda forward?

My questions for Mr. Moran relate to taxation. He has covered the carbon tax, which is well recognised. At the time of last year's budget, I was vocal about the one-year benefit-in-kind exemption. The Minister indicated in his Budget Statement that it was more than likely that there would be a review, that everything would be fine on the night and that the exemption would probably be extended for two years. That happened and was accounted for this year. When measures like that are not sufficiently concrete at an initial stage, it does not instil confidence in the sector to invest. People will not change from petrol or diesel vehicles to EVs unless there is certainty. If there is one thing the officials before us know about, it is the importance of certainty. I thought at the time that it was remiss of the Government not to nail it down clearly in the Finance Bill that this would be a five-year project. I do not know how companies do it, but most people try to see what value their cars have after three years, or perhaps five or seven years if they are not doing a great deal of mileage. We need to be upfront about measures that are important signals. Does Mr. Moran have any other ideas about how we can use taxation to improve the uptake of EVs? It has been mentioned that we now have more than 4,000 vehicles, having come from a relatively low base. When Fianna Fáil and the Green Party were in government, it was projected that the figure would reach 50,000. I accept that many things have happened since then. We are a long way short of the critical point where second-hand cars are coming on the market. Cars need to be rolling over in the marketplace. There is no way we could suggest that 4,000 or 5,000 vehicles make much of a difference in the marketplace. If the witnesses have any other ideas, I would be interested to hear them.

Mr. Robert Watt

I thank the Deputy for his comments. It is loaves and fishes time all the time.

Deputy Timmy Dooley

Yes.

Mr. Robert Watt

It is not just some of the time. It is loaves and fishes time every day. Perhaps it is more acute at budget time, but there is never enough money to go around.

Deputy Timmy Dooley

I have some concern about that. When one sees the fluctuation in the price of fossil fuel at the pumps at present, it does not seem to be enough of a deterrent. In Ireland we are quite used to massive fluctuations in oil prices. The Government has to go further with the carrot in the initial stages to try to achieve that change.

Mr. Derek Moran

Just to round out the argument, if we have a ten year plan for carbon tax then one is pricing forward and saying that certain costs will be going up and then it relates back into the incentives.

Chairman

Senator Grace O'Sullivan has ten minutes but I will indicate after three minutes.

Senator Grace O'Sullivan

I thank the witnesses for their presentations. I will address my first question on governance to Mr. Watt. It has been good to read Mr. Watt's presentation to see how he identifies and addresses the attitudes that have led Ireland to be known as the climate laggard. That is where we are at present. The Oireachtas considered the best legislative approach to ensuring the Government and Civil Service gave the necessary priority to climate change and so enacted the Climate Action and Low Carbon Development Act 2015. However, the legislation has not put us on the path of transition in line with the national transition objective and the Taoiseach has acknowledged this. NGOs have said that we are second worst in Europe and the Climate Change Advisory Council states we are going completely in the wrong direction and the State is facing legal action because we are not meeting our obligations. Some 97% of the members of the Citizens' Assembly recommended that there would be some kind of governance body set up and that we would look at specific functions, including the setting of a body of five year targets and a function of pursuing the State in legal proceedings to ensure legal obligations would be met. In the course of his opening address Mr. Watt referred to some of these issues and I would like him to go into more detail on governance and how he sees a governance mechanism as supporting Ireland in this regard.

The Climate Change Advisory Council has been modelled in part on the UK climate change committee and in part it was modelled on the Irish Fiscal Advisory Council and both of these bodies have been far more successful in getting the British Government to take advice. Has Mr. Watt any insight as to why they are making more progress than we in Ireland are making?

On Project Ireland 2040, Mr. Watt's statement emphasises the importance of public spending that supports the achievement of Ireland's low carbon transition. Did the Department produce an analysis of the climate impact of Project Ireland 2040 in order to enable the Government to ensure its decisions in that major plan will support the achievement of the low carbon transition? None of us has seen an analysis and we have been told that 20% of the plan will support low carbon transition but, of course, if much of the remaining 80% of the plan is undermining transition, it will not work. Does Mr. Watt have an analysis of the greenhouse gas emissions which will result from the implementation of project Ireland 2040? If not, is the Department prepared to do a retrospective review so that we can see what the impact of Project 2040 will be?

Chairman

I thank Senator O'Sullivan.

Mr. Robert Watt

To respond to the Senator's first point, I do not agree with the recommendation of the Citizens' Assembly. I do not know if we are allowed to say that, but I do not agree with the proposal for an independent body. That is a bit of a cop out. It is for the Government and the Oireachtas to decide what decisions will be taken because the decisions have significant implications for society and citizens. The notion of an independent body that will suggest that to an official such as Mr. Derek Moran or to the Minister for Finance that a carbon tax will be €200 by 2030, or whatever, will not work. These involve political decisions that have to be decided by the Oireachtas and the Government in the normal course. This comes to the essence of public policy and politics. I do not agree with the recommendation of the Citizens' Assembly. We already have an independent body the Climate Change Advisory Council which has many good things to say, but this involves having to make difficult decisions. Whether we can change the structures in the system to help us make difficult decisions is something we can do and it comes down to the issue of how we are organised in the system and the relationship between the Department of Communications, Climate Action and Environment and the other Departments. I mentioned the difficulty that whereas the Department of Communications, Climate Action and Environment is responsible for the targets, it is not responsible for the levers. How does one have proper structures in Government, Cabinet committees or the structures to ensure that the genuine responsibility is taken here? I think it is about different options. In my statement I set out some options about ascribing target savings to sectors that are responsible for them, for example that one says to the agricultural sector that it must deliver "X" and that transport needs to deliver "Y". The challenge with that approach is that flat rate reductions across each sector, reflecting their contribution does not necessarily reflect the marginal cost of different options. That might be an inefficient way of doing it and might lead to higher costs than we have to incur. We need to look at different ways to ensure the system is galvanised to deliver on this.

It is within the Government and not externally that we need to look at the governance. I do not think an independent body will help. What was the Senator's second question?

Senator Grace O'Sullivan

It was on the Climate Change Advisory Council being modelled on the UK.

Mr. Robert Watt

Deputy Pat Deering

I welcome the Secretaries General and their colleagues. I have a number of questions for each group. Mr. Moran mentioned the incentives already in place and stated there are enough incentives at present. There has to be behavioural change in the climate discussion and debate and for this to happen we must have more incentives. Has the Department looked at other incentives such as tax credits? We have tax credits in a number of areas throughout the system.

Has the idea of a tax credit for doing X, Y or Z been looked at as an incentive in that regard? There has been a lot of talk in different areas of late about low-cost loans. The cost of refurbishing a house to bring it up to whatever standard is required is going to cost a lot of money. If an analysis on the figures was done, it might cost €50 billion over a period of time to bring the entire housing stock in the country up to a standard that would be required to be carbon-efficient, which is a lot of money. The State is never going to be in a position to do this for everybody. We have had low-cost loans from a Brexit point of view and in different sectors in recent times. Has that been looked at?

In general, there must be more carrot than stick in the whole debate. That has to be the whole selling point. The communications strategy in both Departments is crucial. In terms of selling the message of what is coming down the line, the consequences and implications of it and what it is going to cost - Mr. Watt referenced earlier the costs, differences and so on - this has to be done in a language that everybody understands. If we do not do that, we are losing the battle straight away. It would seem that most of the time, we are playing catch-up and it is a fire-fighting process. A very straightforward communications strategy needs to be developed. What communications strategy do both Departments have in place?

In his opening statement Mr. Watt stated that the evidence suggests that reductions in emissions on the scale required will involve winners and losers and have distributional consequences for society. This is obvious. Has an analysis been done in Mr. Watt's Department of the winners and losers and the potential costs involved?

Chairman

I will bring in Mr. Moran first.

Mr. Derek Moran

There are a lot of incentives for electric vehicles but there can always be more. If one takes the total, there are seven or eight. Perhaps they need to be coalesced into a single, bigger and more transparent piece. There are two parts to the equation; there is the carrot and the stick. The carrot is the incentive and the stick is how one treats other vehicles with-----

Deputy Pat Deering

I was not talking strictly about electric vehicles but about the matter in general.

Mr. Derek Moran

In general, we need to get the balance right. It has to be remembered that there are incentives and grants on the expenditure side and not just on the tax side and it is about getting the best value out of both.

On low-cost loans, that is certainly worth looking at. On tax support for renovation, we have had the home renovation incentive for a number of years. This essentially refunds the VAT content on the changes carried out. It is a model that could be developed further, if that is what is wanted. It is a refund of income tax but it is just the additional VAT component of it. There are a number of aspects.

On communications strategy, every summer we publish a paper on environmental taxation through the tax strategy group. It receives a fair amount of attention and it is right that we keep these things to the fore in terms of what we are doing and can potentially do. Each July we publish this in addition to the work Mr. McCarthy is doing with the ESRI on the research and the analysis.

Chairman

Would there be any impact in terms of having a low-interest loan because Marie Donnelly was here talking about the State not being able to do it all and that private individuals will have to find ways of retrofitting their own homes? For example, a credit union could offer a low-interest loan. Has Mr. Moran an opinion on how that might affect the State's books as opposed to an income tax credit? Is there any preference from his point of view?

Mr. Derek Moran

On low-interest loans from credit unions or banks, that is ultimately a matter for them. On targeted instruments that allow people reduce cost, there is a benefit whether it is a loan, a tax incentive or an expenditure measure. We need to bring as much coherence to all these approaches as we possibly can.

Deputy Pat Deering

Mr. John McCarthy

As both Secretaries General mentioned, we commissioned the Economic and Social Research Institute to undertake the analysis for us.

It looked at different sectors of the economy in granular detail. The ESRI does not look at the agriculture sector per se. However, it concludes that at an aggregate level there is a very limited impact. It has considered a €5 and a €20 increase in carbon tax. While the aggregate impact is minor, the most exposed sectors are the transport and the natural gas supply sector. The sectors that drive Irish exports, including the high-technology multinational sector, would not be affected greatly. As such, the overall competitiveness of the economy is unaffected. To come back to the Deputy's earlier point and something Mr. Watt was discussing, the ESRI looks at the impact on not only the productive sectors of the economy but on households in the ten different deciles from poorest to second poorest and on to the richest. It concludes that a carbon tax would be regressive and recommends flanking policies, as Mr. Moran says, to address those distributional issues. That is just the first stage in the research we have commissioned from the ESRI. We will work with the institute as it looks at how things evolve over time. In other words, it will not just look at a static impact, but at what the behavioural impacts will be if one has a carbon tax pathway from now to 2030 and how different sectors would be affected. It is probably possible to have a more in-depth look at the agriculture sector within that analysis. This time next year, I will probably be in a better position to quantify certain things for the Deputy.

Mr. Robert Watt

Before thinking about the taxation of agricultural emissions, if that is what the Deputy is suggesting, one would look at the subsidies in place. There is already negative taxation and activities which subsidise the production of greenhouse gas emissions in the agricultural sector, which I am sure the Deputy is aware of. I am happy to check the numbers I have. I am not that close to herd numbers. However, in the five year period, the number of dairy cows, which I acknowledge is not the totality, increased by 22%.

Chairman

We have those numbers.

Mr. Robert Watt

It is important to spell them out because this is the issue. There is no point getting away from it. Herd numbers increased by 22% between 2012 and 2016 while milk production increased by 27%.

Deputy Marcella Corcoran Kennedy

I thank Mr. Watt, Mr. Moran and their colleagues for attending. I address my first question to the Department of Public Expenditure and Reform. It is emerging that a whole-of-Government and whole-of-society approach must be adopted to address this as a matter of urgency. I heard the officials mention the Citizens' Assembly recommendation and their views on whether there should be a separate body. Does the Department have a view on the type of leadership required? Has it examined that question with reference to what other states are doing around governance? There has been plenty of discussion here about whether it should be led by the Taoiseach's office or the Department of Public Expenditure and Reform.

On the national mitigation plan, there is a proposal for a review of public expenditure. It is an appraisal and evaluation. Does the Department have plans for when that will take place? Climate action is a strategic investment priority in the national investment plan. I was wondering how the Department intended to prioritise climate action expenditure. Funding is provided for climate action through the disruptive technologies innovation fund and the €1 billion rural development fund. What type of evaluation framework will be put in place around this type of expenditure?

My next question is directed to the Department of Finance and it is on hypothecation, that dreaded word which is not in the dictionary of finance officials. There has been some discussion around whether funding raised through the carbon tax should be ring-fenced. Does the Department have a view on that? What is the Department doing to invest the money it is collecting from the carbon tax? Is it being used to transition to a low-carbon economy in some shape or form? Should there be further incentives to encourage the public to move to low-emission vehicles and electric cars? There seems to be a view that we must do a lot more there. I acknowledge Deputy Pringle's excellent Bill which has been accepted. What is the Department going to do with the divested proceeds? Is it going to be invested in green and low carbon investments in order to accelerate to a more sustainable economy?

Mr. Robert Watt

We have an open mind on the governance structure and I set out in my opening remarks some possible ideas. Having a Department responsible for climate action is important but I would be interested to hear from the political side what the view is. It is a good change to bring together within one Department. Of course, that Department does not have responsibility for agriculture, transport, housing stock and other issues we are talking about. It is about a combination of making that work effectively. There are different options in the UK, including centrally-mandated targets from the Prime Minister's office. Other countries have that too. There might be a combination of a climate Department plus more centrally-mandated targets from central Government. The UK allocates sectoral targets to different sectors and Ministers and their departments are responsible for delivering them. There is merit in looking at all of those options and we have an open mind in doing so. While I do not know what the best approach is, we have an open mind about the structures we have and need to be honest about whether they are working and whether they can deliver on a challenge of this scale. Ultimately, it is a political question of the interaction between Departments. That is a matter for the Taoiseach.

I have already spoken about the appraisal. We published the revised appraisal of public expenditure setting out the revised price of carbon, increasing that price into the future compared to where we are. That will feed into the final issue raised on assessing priorities and strategic investments. An appropriate carbon price will ensure Departments face the right incentives and costs when they evaluate a variety of potential projects. A lot of work has to be done to look at the best options for the future. A more realistic price of carbon will help us get to the right decisions. The two questions are interlinked. It is about having that code and adopting it, which we hope to do in the new year, and then ensuring it is reflected in decisions taken across Government. A whole variety of issues relates to that.

Mr. Derek Moran

The Deputy is right that the Department of Finance hates hypothecation. However, I said at the outset that we have a multi-annual trajectory for carbon taxation and recycling some of the revenues to mitigate some of the distributional issues would be worth doing. It has better links to ensure some of the money is going back. The €430 million or so which we collect in carbon tax now goes into the general taxation pot. However, it is part funding a lot of stuff in the national development plan in that area. Whether some or all of the carbon taxes collected go back to mitigation will ultimately be a decision for the Government of the day. We have touched on further incentives on and off. There will always be an argument for incentives. However, there has to be a balance between the carrot and the stick to incentivise changing behaviours.

On Deputy Pringle's Bill, the ISIF investment mandate will change in line with the legislation. It is an amendment to the NTMA Act. That is the material effect. The NTMA's investment strategy changes in line with the legislation. If I am right, the Bill goes to the Seanad this week and, with a change to the Title, it will be done.

Deputy Bríd Smith

I thank the witnesses for their presentations.

We are in a bubble here and we are not dealing with reality in the way we are talking about this. I remind everybody that we are talking about climate change. Has the Department studied the recent IPCC report? This conversation does nothing to deal with the urgency of the situation we are facing. That report warned us that within the next dozen years or so, we are in danger of overheating the planet to a degree where we will put species and human life in danger. We have done enough damage. My first question is on the carbon tax because Mr. Moran said that the ESRI study demonstrates that even if we double the tax to €40 per tonne, it would only result in a 5% decrease in greenhouse gas emissions, which, while welcome, goes nowhere near dealing with the challenges we face.

Later he said that he does not agree with the Citizens' Assembly's recommendation regarding an independent body. Yet there is a joke around this building that this is the committee on climate inaction. That is often said to me. This committee is getting that name because the Government's inaction on dealing with climate change is apparent. If I was Mr. Watt in his Department, I would seriously examine what I do to double or treble public transport provision to get cars off the road and to end that culture that he talked about of us driving everywhere and to get rid of the idea that fuel poverty is acceptable. MABS conducted a study recently on the constituency I live in, and one quarter of households live in fuel poverty. They spend more money trying to keep themselves warm than they do on food. In doing so, they are burning more gas and coal. These are the issues that his Department should be tackling. He uses the unfortunate example - given what has happened recently in education - of the choices we make about the types of school buildings that we decide to spend money on. Given the disaster that those choices have proven to be in the recent past, it was an unfortunate choice. Nevertheless it does not go near-----

Mr. Robert Watt

I was responding to a question that was put to me.

Deputy Bríd Smith

Fine, but it was still an unfortunate choice for Mr. Watt. I know schools where the kids are trying to get money from the Government to invest in solar power and they are knocking on doors and nobody is listening to them. I would welcome the establishment of an independent overarching body that would listen to communities and put pressure on officials such as Mr. Watt and Mr. Moran to say that their spending decisions are wrong. They are not doing enough to address the urgency of the situation and we have to start tackling climate change in a different way. Mr. Watt quoted the Stern Review: The Economics of Climate Change, which states, "Climate change is the greatest market failure the world has ever seen". Yet at no stage does his briefing document move outside the parameters of the free market and market mechanisms. He referred to cost abatement, carbon pricing, market discovery but presents no idea about how to tackle this except within the parameters of the market that has failed us, in the first instance. The fact that their submissions arrived late made it difficult for me and my staff to challenge them in a more comprehensive way. It is an impediment to the work of this committee that we continue to receive submissions at the last hour. Nevertheless, they are hollow, shallow and do nothing to deal with the urgency of the situation.

I ask Mr. Watt if he has read the IPCC report and whether he is aware of the urgency of the situation we are facing.

Mr. Derek Moran

I referenced the IPCC report in my opening statement. I recognise the urgency. On carbon tax, the 4.7% reduction for a €20 increase is an illustration of the potential of this as a measure for decarbonisation. The climate action commission is talking about €80. I spoke about mapping that type of change over a period and bringing certainty and focus to the fact that this will increase over time. While the net impact on emissions may not be linear, as in three times 4.7%, in terms of what we are trying to achieve over the next decade or so, it will solve not all of it but it could go a long way. That is why having a multi-annual trajectory for this becomes important.

Deputy Bríd Smith

I refer to the Citizens' Assembly recommendation for an independent review body. If, on the one hand, the Department of Agriculture, Food and the Marine and farming organisations are encouraging farmers to rear more cows and herds for dairy and for export, at no stage would the Department of Finance step in to say this will cost a significant amount in the long run because of carbon emissions. Where is the joined-up thinking? I do not believe there is joined-up thinking in the Government or in the State. That is why I agree with the Citizens' Assembly recommendation that we need an outside independent body that keeps an eye on all these Departments and tries to force through that joined-up thinking about the size, challenge, seriousness and urgency of the situation we are facing.

Chairman

Mr. Watt responded earlier on the independent body. I am going to move on.

Deputy Bríd Smith

I have not had a response to my question.

Chairman

We can go back and listen to his response to that earlier but it was raised by Senator O'Sullivan.

Deputy Bríd Smith

Has he read the IPCC report and does he think that his Department is doing enough to face up to the challenge?

Mr. Robert Watt

I have read the report. I have been involved in climate issues for 20 years. I worked for the European Commission a good many years ago on the ETS and carbon tax and on other initiatives. I am well aware of the issue. Nobody should downplay or trivialise the challenge we face. I have seriously engaged with this committee for the past two hours, as has Secretary General Moran. I am happy to do it another time and provide a briefing. We have been fairly upfront and honest about our views. We have set out where we think we need to go on policy. It involves difficult decisions and policy choices, and that is for political leadership. It is not for me and Mr. Moran. We are here to provide advice and to implement policy and that is what we do. There is a wider political challenge that has to be addressed.

Deputy Mary Butler

I apologise for being late, I was at another meeting. I thank the witnesses for their time and for the documents they provided for us.

Mr. Watt stated that we should not underplay the challenges that we face. We require changes to society on a scale not seen since the Industrial Revolution. We need buy-in across all sectors - political, departmental and throughout the country. The committee has previously raised concerns that there is a patchwork approach to climate actions across many groups and bodies working away in their area. A more unified and co-operative approach is obviously required to deal with these issues. Is this an issue that the Departments are looking at and have they looked at examples from other states that are meeting their climate change targets to see what improvements we could make?

We had the ESRI in here at previous meetings. They informed us that 88% of houses were constructed before energy efficiency measures were put in place. We spent a lot of time teasing out the Sustainable Energy Authority of Ireland, SEAI, better energy home grants and we learned from the statistics provided that the cavity insulation grant is the most popular grant, followed by the grants for the boiler, the heating control and finally solar panels. Dealing with constituents week on week, I put that down to the cost associated with solar panels or heating controls whereas most people can make up the difference when it comes to cavity insulation, or even if they have to change their boiler. The other heating measures are a step too far for many people. I ask the witnesses to discuss that point.

Mr. Robert Watt

We have discussed some of these issues already so I apologise if I go over old ground again.

On insulation, there is a big question over whether people have the right incentives to insulate. There is also a lot of hassle involved in doing it and then there is the financial issue. A household might think it has a strong incentive to retrofit but it might not have access to the financing. SEAI could play a role there and we mentioned the potential for low cost loans earlier. The incentives, the hassle factor and the funding are different issues which might prevent people from insulating.

As the Deputy is aware, it is an enormous challenge and it will take a generation to retrofit homes. It is interesting to see the different types of options that people go with. I know that SEAI is doing a lot of work to try to figure out what is working and what is not, why is there a variability in take-up among different income groups and what is causing that. There is much work to be done there which will feed into policy in the future.

On climate change, we set out that there are governance challenges and a principal agent problem that we face and that other countries face. The problem is that the Minister is responsible for delivering the targets but the levers are with a whole variety of other Departments and agencies. Trying to have that co-ordinated approach is the job of the Department of Communications, Climate Action and Environment but there is an issue over which mechanism that should happen through. There is a Cabinet committee on climate change and there is a senior officials' group but are they operating to the best of their capabilities and there is the question of whether it could be done differently. We have an open mind on that. I mentioned in my remarks that some countries have mandated targets. For example, sector X would be mandated to deliver on a certain target and that would then be driven from the centre. This is something that we must look at and there are certainly ways that we can improve the co-ordination challenge that exists.

Deputy Sean Sherlock

On Wednesdays we flit in and out of committee meetings so I apologise if I repeat anything that was said or asked previously.

We have spoken about reaching targets and we are already surpassing the 5% reduction in emissions there need to be each year between now and 2050. We are just looking for help in producing the best report we can produce in order that the Government might map onto it.

Mr. Robert Watt

If we had to reduce emissions next year by 1 million units, we could agree to do that. The next question concerns which of the sectors has to do it and how we share the burden. It can be done on a pro rata basis or relative to the cost of abatement, which is the more efficient way. We could also say that, because agriculture is responsible for 40% of emissions, that sector should reduce by 400,000 units. That, however, is just to set the top-down target. The next question is how we are going to get there. We need to consider what options there are and how we would enforce them.

Deputy Martin Heydon

I am sorry I missed the earlier part of the meeting. I was discussing heritage, which is also important, at the meeting taking place next door. Do the Department of Finance officials have any plans for the long-term macro-analysis of the tax system? Are they looking at stabilisation within the system, such as by using tax to enable the transition to a low-carbon economy? Currently, we tax fossil fuels heavily and do not tax EVs. What is the timeframe for taxing EVs as revenues from fossil fuels decrease? The revenue from fuel is significant. Has the Department considered a carbon price floor for electricity, as has been done in the UK?

Chairman

We will start with those.

Mr. Derek Moran

We spoke about the importance of the development of a pathway over the next eight or ten years. I referred to the research which suggests that there is a potential return from carbon tax increases in the shape of the reduction of emissions. It is important that we have a good trajectory as we move forward. We have published stuff on what the pathway may look like and its implications.

Mr. Robert Watt

There will be a floor under the new ETS, which will come into effect from 2020. There is no floor under the existing scheme, though maybe I am confusing it with the UK scheme.

Mr. Ken Cleary

The UK has a floor.

Mr. Robert Watt

In the current phase, at one point there was such a supply of allowances that the price collapsed. Given the fact that the target is so difficult to reach and that we are going to see significant reductions in emissions and, therefore, allowances in the ETS, a credible price will be sustained during the period. Given that a lot of the cheaper abatement options have been pursued, we will see a higher price ETS.

Mr. John McCarthy

Deputy Eamon Ryan

My point follows on from the previous one. The general approach we need to take is that the country turns and changes when we are all working in a certain direction. We need to triple the level of ambition for climate action in the same way we have just tripled the price for carbon in our public procurement assessment in the political system. We need to triple our level of investment on this issue in our public administrative system. If we do that collectively, we can turn things around. We are showing that we are good at it.

I agree with what has been said about the governance issue. It has to belong to the centre of the State and the Government cannot be told what to do. The wording in the Citizens' Assembly's recommendation called for us to improve or resource the existing independent bodies. I would, therefore, resource the climate advisory committee more. I would have a commission to deal with transition and a green investment bank. There are loads of ways to do this. I agree that the centre has to be where this responsibility lies.

Last Monday, we made our submission on the consultation paper. Should we change the delivery board to be a climate action delivery board? Should we get Mr. Mark Griffin to co-chair with Mr. Watt and put climate at the centre of our decision-making process? That body has a responsibility because that is where the power lies, working with other Departments. Would Mr. Watt make that change in the governance structure?

Chairman

The Deputy can discuss his second issue.

Mr. Derek Moran

I agree with the urgency of this matter and that we need to move on. We have made progress, in particular with carbon tax and the carbonisation of how we treat vehicle registration some time ago. We need to move forward from that because we are stuck.

Senator Michelle Mulherin

Mr. Watt talked about the pain of transition, which is clear. However, we need to know the cost. He emphasised in his presentation that we need to know whether we will achieve the objective, which is a reduction in carbon emissions, and the cost of same. At every stage that is what we need to do here. The boat must be able to float in the end as well as us building it so when compiling a report, we must aim for something that will work.

Aside from the pain of transition, hitting targets and reducing carbon emissions, what will the economy and our lifestyles look like? I refer to economic forecasting and growth areas in general. For instance, will consumers have access to cheaper electricity? Will we embark on a crusade of innovation, research and intellectual property for new technology solutions to displace fossil fuels? Will we be leaders in this area? Does the Department of Finance consider this an area where we can glean economic benefits in the long term? We can encourage businesses and innovators. We must let them know that we will prioritise our spending on innovative ideas and that we will have a new economy.

Chairman

The Senator's time is up.

Mr. Derek Moran

There is a cycle. Economic growth in itself without being moderated leads to increased emissions, which we have seen over the recent period. We must get to the conceptual idea of putting growth on a much more environmentally sustainable path. The OECD has conveyed a strong message that this is where countries should be going.

Mr. John McCarthy

The focus of the EU, OECD, IMF, and so forth has moved away from just looking at GDP as a measure of our living standards, etc. The indicators tend to complement GDP with fiscal and environmental sustainability measures, inclusiveness and so forth. There is a work stream at a European level in Eurostat looking at some of these issues. Every two years we get together with the OECD to compile a report on the economy and consider sustainability as being more widely defined than just simply GDP. It is an area that a lot of work is being done on both in the Department and internationally.

Mr. Robert Watt

I do not know what the future is going to be. There is a saying that one should never make a forecast, especially about the future. I suspect that the future will be very different.

Senator Michelle Mulherin

I would like to hear the Department's vision than its view.

Mr. Robert Watt

I shall outline the Department's vision. How we heat our homes, transport ourselves and what we eat will be very different in the future. Earlier I mentioned big system changes. We will have a decarbonised electricity system. We will also have heat and transport electrified to a significant extent.

Chairman

Is that something for Mr. Watt's Department?

Mr. Robert Watt

This is probably for the Department of Transport, Tourism and Sport.

Chairman

We will try to get the answer to that.

Mr. Robert Watt

I do not think there is an answer to that question. The issue with electric cars and the range anxiety - which is about a distance of 320 km without being recharged depending on the latest Tesla which go far - is that they are expensive. The issue is about the price of batteries which is coming down even in the absence of the subsidy the Department of Finance provides. There are very significant falls in the cost of batteries and significant improvements in their power. That is the big issue that drives the change. It only works if the electricity system is fundamentally different and is more decarbonised. That is another challenge which the Department of Communications, Climate Action and Environment can talk to the committee about.

Deputy Brian Stanley

Looking at the vehicle charging structure for electric vehicles, at the moment the regulator has said that the charging points must be moved from the ESB. The ESB has been providing these points free of charge. That will not go on for ever. Progress on that needs to move ahead of the take-up of EVs, because if the charging infrastructure is not there, this take-up will not happen. While we do have some at the moment, they are thin on the ground. In places there may be one in a major town of probably 20,000 people, at a railway station or some such point. There would be a need for five, six or seven such points. What is the view of the Department of Finance in that regard? We tried already to get the views of the Minister on this.

On renewable energy, we have huge potential here with wind and wave energy and even solar and other forms, such as biomass and biogas and indeed hydro. The climate action fund of €500 million over ten years does not reflect that we are making a major priority of this issue. I note that the national development plan has a €116 billion programme underpinning that. There is €7.6 million Exchequer and €14.2 billion non-Exchequer funding. Can Mr. Watt tell me where the €14.2 billion non-Exchequer is coming from?

While the €50 million a year is welcome as a starting point, the fact that it does not escalate from €50 million as we move on from 2020 and 2030, would not give hope that there will be any significant change as a result of that fund.

What is pertinent here is to look at the case of Bord na Móna and its transition from brown to green. We had that discussion again yesterday with Bord na Móna. In the constituency where I live and which I represent this is of huge concern to us. To move from brown to green, there is a huge area there for investment. Does the Department see that Bord na Móna would need a significant piece of that investment to help it with that transition?

The other question on funding for transition relates to the approximately €105 million that comprises the public service obligation, PSO, subsidy for peat. Is it possible within the rules of the Department and European Union for that or part of that to be used to help assist with that transition? The climate action fund of €50 million does not appear to escalate as we move on over the next decade to decade and a half. Could part of the PSO levy be brought into play?

I thank the Deputy for his valid questions. Most of the issues on SEAI schemes are for the Department and the authority. Our remit does not extend to publicising the benefit of schemes. That is for the different agencies.

On the question of funds, the Minister and the Government decided than it would be very useful, rather than allocating money to the Departments, to allocate instead to a fund and encourage different players inside and outside the system to come up with ideas.

There is a fund on sub-technology, which could be climate-related or outside the climate field. There is a direct fund for climate initiatives. We have received lots of submissions and those ideas are being looked through, evaluated and assessed. The Government will make announcements on those in the coming period. We will see how we get on with these funds. It is an area we are interested in because it creates that competitive tension and it encourages innovation across the system. What they will fund at this stage, we do not know, but we will make an announcement shortly.

On renewables, I could be mistaken - Mr. Cleary might be able to confirm this - but they now make up 40% of peak demand for electricity depending on which time of the day or year it is. That is fairly significant. When the former Minister, Deputy Eamon Ryan, was there it was only 15% or 20%. That is not too long ago.

Senator Michelle Mulherin

Was it not the 65% that I was told?

Deputy Brian Stanley

That was the fault of the Greens.

It is a really serious matter. We are talking about eliminating diesel and petrol by 2030. If between those two key Departments, the Department of Public Expenditure and Reform and the Department of Communications, Climate Action and Environment, we have not even got around to putting the charging infrastructure in place except what has been put there by the ESB, a stand-alone semi-State company, we are not in a good place. That needs to happen. The Ministers need to push it with the officials.

I asked about the disruptive technology fund. Is that aimed at, for example, Bord na Móna? If it or the ESB had to change from one technology to another-----

Mr. Robert Watt

Bord na Móna can apply. It is basically open to public bodies, commercial semi-State organisations and private bodies. There is nothing to prevent them. If I am mistaken, I will come back, but I think that is the case.

Deputy Brian Stanley

The only other question not answered fully related to renewable energy. While the €50 million has been announced and is in the capital programme, do the senior officials in the Department see any need to escalate that fund as we move along to 2021 and 2022 because we have a lot of catching up to do here?

Mr. Robert Watt

The renewable side is funded through the electricity system. It is funded by user charges and the PSO as appropriate. It is not directly funded by the Exchequer; the Exchequer does not have a role. Through the REFIT scheme there is a floor - a guaranteed price. There is a subsidy, but not direct Exchequer funding.

Deputy Brian Stanley

I understand that clearly; I am not confused about that whatsoever. I am asking a different question. We have €500 million earmarked for climate action that goes alongside the national development plan. Are there any discussions at senior level in the Department to increase that fund between 2020 and 2030? It is a specific question.

Mr. Robert Watt

We have not made a decision on the future fund because we are just looking at the applications now for the first tranche of funding. As I mentioned earlier, we are positively disposed towards these funds. We think they are a good idea because they encourage people to come forward with ideas. We will see. There is no reason we should not do it.

Ms Patricia Coleman

This is the first year for calls for proposals under that fund. We need to see how it works in reality. We all think it is a good idea. Let us just see how it evolves and the proposals that come in.

Deputy Brian Stanley

I have a feeling there will be no shortage of applications for the €50 million.

Deputy Carol Nolan

We have heard much about the electric vehicles initiative. I feel there is insufficient buy-in from people. I take the officials' point that the infrastructure is being developed further. In my constituency of Laois-Offaly there are very few charging points and the same is true in the wider midlands region. Are there any projected targets? What would the projected target for increasing the number of points in the midlands by 2030 be? Has the Department prepared a target plan?

Mr. Robert Watt

As the Deputy is aware, there is a significant target for increasing the number of electric vehicles. It is 4,000 now, but it is due to go up to 500,000 by 2030. We will need a massive increase in the number of charging points. I believe the ESB produced a paper recently - I am not familiar with the details. It outlines how this will be implemented. It requires considerable infrastructure.

Chairman

The roll-out would fall under the remit of the Department of Communications, Climate Action and Environment.

Mr. Robert Watt

That Department would have the details on all that.

Chairman

That concludes our session. I know it was a long session, but the Departments of Finance, and Public Expenditure and Reform are two very important Departments. I thank the witnesses for appearing before the committee. We will publish their submissions to our website.

The joint committee adjourned at 4.46 p.m. until 2 p.m. on Wednesday, 21 November 2018.

Joint Committee on Climate Action debate - Wednesday, 14 Nov 2018

Third Report of the Citizens' Assembly: Discussion (Resumed)

Chairman

Chairman

Mr. Derek Moran

Mr. Robert Watt

Chairman

Mr. Robert Watt

Chairman

Mr. Robert Watt

Chairman

Mr. Robert Watt

Chairman

Mr. Robert Watt

Chairman

Mr. Robert Watt

Chairman

Mr. Derek Moran

Mr. John McCarthy

Mr. Derek Moran

Mr. John McCarthy

Chairman

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Chairman

Mr. Ken Cleary

Mr. Robert Watt

Mr. Robert Watt

Chairman

Mr. Derek Moran

Mr. Derek Moran

Chairman

Chairman

Mr. Robert Watt

Mr. Robert Watt

Ms Patricia Coleman

Ms Patricia Coleman

Chairman

Ms Patricia Coleman

Mr. Robert Watt

Mr. Robert Watt

Chairman

Chairman

Mr. Derek Moran

Chairman

Mr. Derek Moran

Chairman

Mr. Derek Moran

Mr. Derek Moran

Chairman

Mr. Derek Moran

Mr. Robert Watt

Mr. Robert Watt

Mr. Robert Watt

Chairman

Mr. John McCarthy

Mr. Robert Watt

Chairman

Mr. Robert Watt

Mr. Robert Watt

Mr. Derek Moran

Mr. Robert Watt

Mr. Derek Moran

Chairman

Chairman

Mr. Robert Watt

Joint Committee on Climate Action debate -
Wednesday, 14 Nov 2018