I welcome Dr. Mary Kelly, director general, Dr. Ken Macken, Ms Kelley Kizzier and Mr. Frank McGovern from the Environmental Protection Agency. We thank you sincerely for appearing before the committee to complete the various presentations. We hope to have a good question and answer session.
Energy Policy: Discussion with Environmental Protection Agency.
Dr. Mary Kelly
Thank you, Chairman. We are delighted to be back before the committee to complete the presentation we began a number of weeks ago. At that meeting we gave an overview of the role of the Environmental Protection Agency in terms of the climate change agenda. Issues around flexible mechanisms and the EU emissions trading scheme arose at that time and we said we would come back to the committee on it. We have prepared a Powerpoint presentation rather than a paper submission; one could write two books about this issue. With the Chairman's permission we will take members through what we believe is the clearest exposition of flexible mechanisms. It is an area that lends itself to a great deal of complexity, many acronyms and much confusion and we have tried to put it as clearly as possible. We will answer any questions we can following the presentation and if we do not know the answer we will come back to the committee with them but at least members will have for future reference an idea of the flexible mechanisms. We have also prepared a glossary of abbreviations because this area is rife with them. That is not for this particular presentation but for members' use at some other time.
I will ask Dr. Ken Macken, the programme manager in climate change, to take members through the presentation. Ms Kelley Kizzier and Mr. Frank McGovern, who are our experts in these areas, will contribute. Ms Kizzier will speak on the mechanisms and Mr. McGovern will speak on the science of climate change. They will both answer any questions from members.
Dr. Ken Macken
I will take members through an overview of flexible mechanisms. The next slide refers to the United Nations Framework Convention on Climate Change, UNFCCC. This framework convention was agreed in Rio de Janeiro in 1992 and sets the international structure for development of actions to address climate change. The objective of the convention is to stabilise atmospheric greenhouse gas concentrations at a level that would prevent dangerous human interference with the climate system.
The framework convention has been ratified by Ireland and almost every other country in the world. The convention laid the groundwork for the Kyoto Protocol agreed five years later in 1997. Ireland has ratified the Kyoto Protocol. A notable absence from the Kyoto Protocol is the United States of America, which has not ratified it. The Kyoto Protocol covers the period 2008-12 and establishes emission reduction targets for developed countries, including Ireland, via the EU burden sharing agreement. It is an essential first step to achieving the objectives of the UNFCCC. The position post-2012 remains uncertain and hence at the Bali meeting last December the COP/MOP identified a pathway for agreement on the next steps in the process.
The Kyoto Protocol sets a key target for each of the signatory countries, called the initial assigned amount. This is calculated on the basis of a base year by a per cent target by a number of years commitment. In our case 1990 is the base year, which is based on the inventory figures compiled by the EPA, multiplied by the target we have been allowed under the EU burden sharing agreement, 113% of that, multiplied by five. That gives an initial assigned amount of 314 million tonnes of CO2 equivalent. That number has been set, following a formal review last spring, and has yet to be officially issued as the formal target, but that is the target. It is based on carbon dioxide equivalents. There are six categories of greenhouse gas — carbon dioxide, methane, nitrous oxide and so on, all of which have different weightings. They are all added up together and multiplied by their weightings. That gives the total emission and the total amount.
Our initial assigned amount is then issued in individual units to all of the signatory countries. These individual units are called assigned amount units, AAUs. Under the Kyoto Protocol, every country is issued with its total amount of AAUs for the five-year period at the beginning. Ireland begins the Kyoto commitment period, 2008-12, with these 314 million AAUs. Each AAU represents the right to emit one tonne of carbon dioxide equivalent.
How does compliance get decided with the Kyoto Protocol? Compliance is assessed on the basis of comparing the country's unit holdings with the country's actual emissions over the total of the five years. The pictogram shows countries' holdings. On the left side is their initial assigned amount and on the right, in blue, is their actual emissions. In this particular case the "deep green" is below the actual emissions. They are short, so they have to acquire units through the various mechanisms. Their actual emissions, hopefully, are lower than they would have been as business as usual, so they have made some domestic reductions indicated by the grey patch at the top. That reduction, in this example, has not been enough to bring them down to their initial assigned amount. In this example, the country in question will have to acquire some units to match its emissions. It could, of course, have made greater domestic reductions, in which it would not have needed to buy units or it might have been in a position to sell units. These are the variations that are possible.
In Ireland's case for meeting our commitment, we can obviously use domestic action, which are reductions that take place within Ireland or, in addition, we can use a portion of Kyoto Protocol flexible mechanisms. These comprise three mechanisms, which we will go into in some detail over the next few slides, namely, international emissions trading, joint implementation, known as JI, and clean development mechanism, known as CDM. In essence, we are going to, most likely, use a combination of domestic reductions and some flexible mechanisms to meet our emissions and that will be our assessment.
On the next slide we look at the first of these flexible mechanisms, which is international emissions trading. This takes place at country level and allows parties or countries to acquire Kyoto units from other parties or countries, or to sell Kyoto units to other parties or countries. In the example on the left of the slide, there are two countries. Party A, in orange, has assigned amount units, that is less than its actual emissions. Therefore, it is short of what it needs. Party B has assigned amount units greater than its actual emissions. Therefore, it has a surplus. Party B can sell some of its surplus to party A. It enables parties to make use of lower cost abatement opportunities internationally. The countries that can make the reductions cheapest can do so, and the countries that find it very expensive to make reductions can benefit by buying these extra reductions off those who can make them cheapest. It forms a framework or an umbrella under which national and regional schemes can also operate. For example, the EU emissions trading scheme operates within the framework of international emissions trading. We will see in a moment how that fits in.
Parties or countries can acquire or buy an unlimited number of units but transfer is restricted. Countries must always maintain at least 90% of their initial amount. One cannot reduce below a certain amount, which means that a certain amount of domestic effort must be made. The system requires supplementarity. It requires an effort made by parties plus an amount of trading.
The other two project based mechanisms, joint implementation, JI, and clean development mechanism, CDM, involve emissions reductions generated from specific projects. Credits are issued for each tonne of CO2 mitigated or reduced. The crediting is done by way of a baseline, which is what would have been emitted in the absence of the project. When the project is up and running, the emissions are reported and the credit occurs where the baseline is higher than the actual emissions, that is, one must have reduced one's emissions.
In the case of joint implementation, the project is in what is called an annexe 1 country, which is a developed or transition economy country. These are the 37 or so countries that have ratified the Kyoto Protocol and accepted targets. For joint implementation projects, the unit involved is called an emission reduction unit, ERU. If the project, however, is taking place in a non-annex 1 country, it takes place under the clean development mechanism, CDM. These are developing countries and those who have ratified the Kyoto Protocol but who do not have a specific target. The unit in question here is called certified emission reduction, CER. All of the units represent one tonne of carbon dioxide equivalent reduced.
How are these project mechanisms, JI and CDM, controlled? They are controlled under the United Nations which establishes the project base lines and the emissions are validated. This is done by verified internationally accredited companies, the equivalent of auditors. Each mechanism is supervised by members of an international body, nominated and governed by the meetings of the parties, MOP, to the Kyoto Protocol. In our case we must keep in mind that any country partaking in these mechanisms must obtain letters of approval from the host country and from the investor country. In Ireland's case the letters of approval are issued by the EPA, which is the designated body under the regulations. The UNFCCC allows the issuance of the CERs or the ERUs into the project participant's accounts, that is, the investor accounts, once the verification of the reduction has been received. The units are only issued after it is definitively shown that there has been a reduction. Once issued, these units can be traded by the international emissions trading or they can find their way, to a certain extent, into the EU ETS.
The EU ETS scheme works like international emissions trading but it works for companies rather than countries. Approximately 12,000 sites or installations throughout the EU 27 are covered by the EU ETS. There is a limited amount of free allocation in accordance with the national allocation plans. Each of the countries has to draw up a national allocation plan for its own companies that are covered by the scheme. In that plan, that country has to decide how much it will give to the ETS trading scheme and how it will be divided out. Ireland has just completed the process for our companies and most of the other EU 27 are nearing the end of the completion process for the 2008-12 period.
A Deputy
What companies are involved?
Dr. Ken Macken
In Ireland's case the main companies are those involved in electricity generation and cement production, large manufacturers in food and pharmaceuticals, and certain other institutions. Slightly more than 100 sites in Ireland are covered by the EU ETS. The unit of allowance in this case is called the EUA, the European unit of allowance. Companies can use EUAs; CERs, which are the certified emission reductions from the CDM; or ERUs, which are the emission reduction units from JI. It is quite an alphabet, but I will provide a slide to summarise the units.
That will make it nice and simple.
Dr. Ken Macken
Yes, there is some alphabet work here. The point is, companies can acquire an unlimited number of allowances. They can get as many EUAs, CERs or ERUs as they wish, but use of these allowances has certain restrictions, in the case of CERs and ERUs, under the national allocation plan as approved by the European Commission. On average in the EU 27 member states, approximately 10% of the allowances can be covered from project schemes only. The rest must be covered by EUAs. This means that although a company can have any number of credits in its account, it cannot use more than about 10% on average. This varies from country to country, depending on the national plan.
Does Dr. Macken mean the same applies for countries as for companies — each can only use 10% approximately? Is that right?
Dr. Ken Macken
No, countries have a ——
Dr. Macken said countries must keep at least 90% of their allocation.
Dr. Ken Macken
Countries cannot reduce their holding below 90%. However, when it comes to settle the national account at the end of the five-year period, the country is not limited to just 10% of project credits.
Okay.
Dr. Ken Macken
There are two different methods. Preventing a country reducing its holding puts a certain break on the amount of speculative trading that might be carried out, along with a requirement to take a certain amount of domestic action. However, in the case of surrendering credits, slightly different rules apply at UN level to what applies at company level. I will elaborate on this in more detail later.
The EU trading scheme is similar to the international emissions trading scheme. The example shows company A, whose allocation is higher than its emissions. Either it has reduced its emissions or, for whatever reason, it is not generating as many emissions as it has been allocated, thus creating a surplus. Company B, on the other hand, has emissions greater than its allocation and so has a shortage. This allows company B to purchase from company A. The purpose is that companies that can make the reduction cheapest will do so and companies that find it very difficult to make reductions have the opportunity of purchasing them at a more economically efficient price. The purpose of the scheme is to ensure the reductions take place in the cheapest way possible.
Can Dr. Macken explain to the committee the process by which this allocation is made? Is it possible for a company to be allocated an allowance greater than its needs, thus allowing it to start trading?
Dr. Ken Macken
The allocations for each member state are based on the national allocation plan. Each plan uses a methodology and most methodologies are historical. In most countries, the authorities examined national emissions for a given recent year and allocated a certain percentage of that, depending on how far the country was from its Kyoto Protocol target and the amount by which it needed to reduce.
From whom does company A get the allocation?
Dr. Ken Macken
Company A gets it from the authorities, such as the Environmental Protection Agency, but it might have reduced its emissions. It might have put in a new plant.
On what basis did the agency decide the initial allocation?
Dr. Ken Macken
It would have been based on historical emissions for, say, 2005. We would have looked at its emissions and worked out the allocation. In Ireland's case companies got, on average, 87% of their historical emissions.
I apologise for interrupting but I want to get a clear picture. Were there some instances where it was easier to project that it might be easier for one company to reduce its emissions than another company? Does it make sense to say that given the nature of the business a company is in, it might be possible for one to reduce emissions more quickly than another?
Dr. Ken Macken
That is the whole point. To allocate on that basis is tricky because every company has its own view of its capability when making a case for an application. Projections from companies are notoriously difficult to deal with. We want the companies that can make the reductions most cheaply to make them. If we give three companies the same allocation, for example, and one can do something very quickly and easily to reduce emissions, it will do that. That is what the scheme is supposed to encourage. The company will then sell its excess to another company which, for example, is producing electricity from gas, and cannot reduce emissions by much because it has put in the latest plant and is already operating at the highest efficiency and therefore must have some extra allowances. The reduction is done in the cheapest way.
The object of the exercise is to get companies to reduce their emissions. Dr. Macken is saying it is cheaper and easier for a company not to bother and to buy from another.
Dr. Mary Kelly
The way the national allocation plan is set out by the Environmental Protection Agency means there will always be a scarcity. There must be a scarcity of carbon in the system or it does not work. The entire scheme must operate with less than the amount needed by the 100 companies and the cap is below predicted emissions. Therefore, the reductions will occur in the most affordable way within those 100 companies. Some will have the opportunity to reduce more than others and such companies can sell to those that cannot. However, there is an overall reduction among the companies. As it is a European scheme, an overall reduction happens across Europe rather than in only one or two individual companies or countries. The idea is to achieve targets across the European Union.
Can companies work across countries?
Dr. Mary Kelly
Within the EU ETS, it is possible to trade across the 27 member states.
What happens if a country exceeds the assigned amount?
Dr. Ken Macken
It is the same for countries and companies. A country is obliged to buy ——
I understood there was a limit on that too. Is Dr. Macken saying a country can go on or is there a limit?
Dr. Ken Macken
We will get to this after the presentation, but there is a requirement for what is called supplementarity. There is a requirement to make a measure of domestic effort and this puts a break on how widely a country can buy. If a country exceeds its target, not only can it buy, it is obliged to because it is obliged to produce enough units at the end to cover its emissions.
What is in place to stop a country that can afford to do it simply buying its way out? There should be some break on each country using that mechanism.
Dr. Ken Macken
The market price ultimately will be a break. The scheme is economic, with the advantage that a country will know in advance what its reductions are because the cap for the trading element is set. For instance, the countries that signed up to the Kyoto Protocol accepted certain percentage reductions. On average there is a 5% or 6% reduction on 1990 levels to be achieved under the Kyoto Protocol. The cap is set and that is the reduction.
Our record is not great in that regard.
Dr. Ken Macken
No, but the 37 or 38 countries must achieve that cap and they will do so using the rules within the flexible mechanisms. The reason is that a company or country is certain with regard to the reduction it must make and uses the mechanisms to make that reduction in the most cost-effective way. Two things are happening in parallel. There is a certainty of reduction and, separately, there is a cost-effective way of achieving that reduction. There will be some bobbing up and down in achieving that but it does not matter because the objective of that part of the scheme is making cost-effective reductions. With the other part of the scheme — the cap — we have the certainty of reduction. The two happen as part of the overall scheme.
We will move on. Does anybody wish to ask another question?
I am not sure if the Chairman wants us to ask questions now.
I just wanted to seek clarification.
I wish to ask about the national allocation at a later stage.
We can do that.
Dr. Ken Macken
On the question of whether flexible mechanisms are desirable, the simple answer is "Yes", because they allow cost-effective reductions. They also promote technology transfer to developing countries and economies in transition. This promotes sustainable development. Furthermore, they promote climate friendly, foreign direct investment in developing countries. Bear in mind that climate change is a global problem and one tonne of reduction anywhere in the world counts. The less we spend by making it cost effective, the greater the possibility for making greater reductions. Obviously, if reductions are very expensive, the world will be slow to make them. The cheaper we can make reductions, the bigger the reductions will be. The clean development mechanism is a key driver for engaging developing countries in the global mitigation effort. We will see that again later. An important part of securing the international agreements is to put in place this complex, layered series of mechanisms where there are benefits for all of the parties. Otherwise securing international agreements might become impossible.
To summarise the alphabet soup on the Kyoto units, the ones shown in this slide are probably a ready reckoner. We had the assigned amount units, AAUs, which are the Kyoto credits; the certified emissions reductions, CERS, which come from the CDM mechanism; the emission reduction units, ERUs, which come from the joint implementation, JI, and within the EU ETS we had the EUAs, the EU unit of allowances. There are more which the committee might come across when reading various publications and correspondence, to further confuse matters, and these are mostly tied to LULUCF, that is, land use, land use change and forestry. This phraseology crops up.
It is a good thing we know that.
Dr. Ken Macken
The other three are RMUs, which are removal units, tCERS, which are temporary CERS, and lCERS, which are long-term CERS. These are complex and I do not intend to talk about them unless the committee wishes to do so at the end of the meeting. Their use is further restricted. If members have specific questions about them, we will be happy to answer them, but the main units are the top four. They are the ones the committee needs to know about.
Does each unit, regardless of type, represent one tonne of carbon within the EU and UN mechanisms?
Dr. Ken Macken
That is correct.
Dr. Mary Kelly
However, they allow one to see precisely where the unit originated. The Deputy asked us about that at the last meeting. That is how one can tell where it originates.
Dr. Ken Macken
To summarise, we showed the committee this chart, "Meeting Ireland's Kyoto Protocol Target", previously. It shows the units. The domestic reductions are shown in yellow and it is based on what would have happened if we had done nothing. These are the Government projections. Obviously, we have already brought that down because a number of things have happened in the country to reduce the emissions. We are at approximately 70 million at present. The domestic reductions are part of our contribution. The ETS is another part. If we do not get down to the Kyoto line with the combination of those two, the Government will most likely have to purchase project credits or international credits to bring us down to the line. If our domestic reductions and ETS are big enough, we will manage it without any purchases.
Who purchases for Ireland and how many will be purchased? The National Treasury Management Agency, NTMA, has been given responsibility under the Carbon Fund Act 2007 to make the necessary purchases for Ireland. The National Development Plan 2007 —2013 provides €270 million for purchases through the flexible mechanisms. This was based on the earlier estimates of how many units might be required. Obviously, as we increase our domestic effort, we might be able to manage with fewer international units. With regard to the current price for units, the European units are trading for 2008, 12th period, in the band range of €20 to €24 per tonne and the CERs are trading at approximately €15 per tonne.
Should Ireland make use of the flexible mechanisms? Under the international agreement we entered, unless we meet our target by domestic actions alone we are obliged to use flexible mechanisms to ensure we meet it. The international agreement provides that the country meets its target one way or the other. The flexible mechanisms are designed to minimise the cost of compliance. The country has to decide the balance between how costly the domestic actions are and the use of mechanisms. The CDM in particular is a key driver for engaging developing countries in this mitigation effort. It stimulates investments in countries without targets and it becomes a valuable catalyst for ensuring that significant financial flows and clean technologies go into those developing economies. That is very important as part of the global response to climate change. Without these mechanisms the global response will not necessarily move forward in the same way. The flexible mechanisms have also resulted in the establishment of a global carbon market. This has ensured that there is private sector involvement in tackling climate change. Again, this is important because it brings extra funding, other than just government funding, into tackling climate change. It is necessary.
The second last slide looks at lessons learned. Scarcity of supply is required to establish a meaningful price for carbon. This is like telling one's grandmother how to suck eggs, as it were. It is obvious that scarcity would be required. In the first year of the EU ETS, allocation was over-generous because the data were not sufficiently sharp and hard. In May 2006, it became clear that there was over-allocation and the price began to fall drastically. It ultimately went from a high of €30 per tonne down to 1 cent or 2 cent per tonne for phase one. Again, that is part of the success of the scheme because the looseness has now been taken out of it. Hard data are now available so in the future there will be more certainty.
Private sector involvement is crucial. It is now understood that governments alone do not have the wherewithal to tackle this problem. Carbon markets require certainty on the long-term commitment to the mechanisms. The problem we face at present is that without an agreement post-2012 there is a level of uncertainty. The markets require that an international agreement be put in place as soon as possible to give certainty towards 2020 and beyond. Otherwise, the markets will not function properly. The complexity of the entire scheme, particularly of the project mechanisms, has to a certain extent reduced public transparency and has temporarily caused some unease in confidence in the scheme. Hopefully, this will be overcome as the schemes go forward. It is not easy to get a full understanding of how these schemes work and to see that there is a meaningful role for them in the overall issue of treating climate change. Trying to sell them in the public forum has been difficult. Media articles have attacked the schemes and there are some rough edges on some of them that require tightening. In general, however, the schemes are on a sound footing.
The final slide discusses the successes to date. The global carbon market has been established. That is a major success because there was no such market before the Kyoto Protocol came into being. The entire system is underpinned by the establishment of the system of national inventories. The EPA is responsible for producing Ireland's national inventory. The inventories are important because they give accuracy to emission numbers and allow the schemes to go forward. They also provide knowledge of where the emissions arise and hence knowledge of the measures a country might need to take to reduce those emissions. The inventories have an important role. Part of the reason there was a long gap between 1997, when the Kyoto Protocol started, and the first Kyoto period of 2008 —2012 was to allow the establishment of the inventories in the participating countries.
The CDM is a huge success. The 2007 market was worth €12 billion, which ultimately will represent approximately 1 billion tonnes of CO2 reduction. Not all of that has yet been delivered. Some of it represents projects that are only starting and have yet to run their course. To date, however, 100 million tonnes of reductions have already occurred and those units have been issued by the UN. They are actual reductions in developing countries. The project mechanisms have contributed to global savings and they have also contributed to technology transfer to developing countries. The EU will achieve an 8% reduction on 1990 emissions of greenhouse gases. It is on target to do that. Part of that will be achieved by use of the various international mechanisms. However, the reduction is a real reduction within the EU. This is not arbitrary, it is absolute. The groundwork has been laid for a follow-on agreement after 2012. The EU itself has been a main driver in implementing these project-based mechanisms and has strongly supported the carbon markets.
At this stage I would like to pass back to Dr. Mary Kelly for any final comments.
Dr. Mary Kelly
Members of the committee can see it is a complex area which is full of acronyms. One must get a sense that each one of these things is worth a tonne of carbon dioxide. The main message about the mechanisms is that in order to meet our Kyoto commitments Ireland will probably need to use the mechanisms at some level. The EU sees the mechanisms as an important part of meeting its commitments under the Kyoto Protocol. Developing countries also see those mechanisms as being important to them in terms of getting the investment they need in cleaner technologies. Every tonne of carbon dioxide that is reduced is an achievement, no matter where in the world it occurs. This problem is so large and could cost so much that we will have to take cost-effective solutions in so far as we can.
We will be happy to answer questions, Chairman, as best we can.
I thank the witnesses for attending the committee. This is a very complex area and I can only wonder in awe at how Dr. Macken will get through that material at local authority meetings, given some of the members I know of.
The Minister has regularly stated that a price must be put on carbon. Does Dr. Macken have any indication of what he considers to be an appropriate price for carbon at this stage, that would help us in meeting the objectives as set out in his presentation?
As the Chairman said, not only must the EPA come up with a national allocation plan, but a Government decision will also be required. Does the Minister or the Government have to sign off on this plan, or is the Oireachtas involved in some way in signing off on what sectors will receive appropriate allocations under the plan? I want to get some sense of the mechanism and process it must go through and where it will ultimately end up.
The programme for Government contains an objective to reduce carbon emissions by 3% over its period of office. How are we doing as regards achieving those objectives? Can Dr. Macken indicate if something more needs to be done? Transport is the obvious one but perhaps Dr. Macken can indicate what measures are working well and what agenda items we should examine in order to assist in meeting our objectives as laid out in the programme for Government.
I have a number of questions. The national allocation process has been mentioned briefly and Dr. Macken said we had just finished that. I have not seen any figures on the national allocation, so have they been published yet? If so, perhaps I should be looking harder. I want to understand how that decision is made. If it is made as Dr. Macken outlined, on the basis of a base year minus X% in order to create demand, surely there is an inherent unfairness about that. Taking generators for example, if one is allocating to the ESB on the basis of an old, dirty plant versus a brand new Viridian gas plant, the base year is essentially as efficient as Viridian will ever be in its plant. However, presumably major improvements could be made to a plant like Moneypoint with new screening efforts and other steps to reduce emissions from a coal or peat-powered plant.
I also want to know about ministerial involvement. Is this decision made by the EPA and then signed off by the Minister, or is it a decision that involves intensive lobbying? We are talking about huge sums of money for big companies such as Cement Roadstone. Is there a lobbying process that gives companies an opportunity to make a case for themselves, or is there merely a set equation that applies to every company in terms of a base year minus 10% or 15%?
Can Dr. Macken give the committee an idea as to how much money we will spend this year, using the flexible mechanisms to ensure that Ireland meets its commitments? My understanding is that we have set aside approximately €40 million in the budget, but is that enough? The National Treasury Management Agency has responsibility to manage CERs, EUAs and ERUs in the markets. I presume it is that agency's job to get the best value it can in order to compensate for Ireland's overproduction of carbon which goes into the atmosphere. Surely calculations have been made on what purchases will be required this year, given that we are well into the first quarter.
With regard to the pricing of EUAs and CERs, Dr. Macken said that within the European Union, EUAs are valued at between €20 and €24 per tonne. However, CERs, which are basically certified emission reductions coming from the developing world under the CDM mechanism, are valued at approximately €15 per tonne. Why therefore would countries buy a tonne of carbon for €20 to €24 a tonne when they could purchase it for €15 per tonne from the developing world? I do not see how the market works in that respect, but perhaps I am missing something.
I think I understand how countries must use the flexible mechanisms to compensate for their carbon overproduction. In Ireland's case, therefore, that is all the carbon emissions produced here outside our top 100 companies. Can the companies themselves also use any one of the three mechanisms to purchase carbon credits? My understanding is that a company like Cement Roadstone, for example, is investing in projects in other parts of the world that will give carbon credits in the future. I am sure that is a very bright thing to do from their point of view, but are there any limits on what companies can do within the EU trading mechanisms, the joint implementation mechanisms between developed countries, and the clean development mechanisms in developing countries? In a nutshell, can countries and companies purchase credits through any of those systems, or is there a limit on European companies trading with other European companies? If that is the case, why would one buy a tonne of carbon at €20 to €24 instead of €15 from the CDM mechanisms? I may have read the situation wrongly but perhaps Dr. Macken can explain it.
I will now call Deputy McManus. We will then get some answers before I call Deputy Cuffe.
There is quite a lot of information to absorb. I have a couple of questions to pose. If one is talking about 2008-12, it is a very short period. I would imagine that both companies and countries would require a certain amount of lead-in time to be able to make the changes that would bring about the reductions. Is that taken into account in how these allocations are monitored and how the requirement is met? If one has a big company dependent on the construction industry —Cement Roadstone Holdings is an obvious example —is there a kind of waiver system in place or is it simply a case where no matter the economic climate in which one operates, one still must meet these particular targets?
On monitoring this scheme, is the EPA's role to monitor on a 12-month basis or does it come in at the end stating we did or did not do it? Does the EPA publish its report every year on how this is done?
The markets need certainty. Is there any way there can be an indication given to the markets that this is the most likely outcome of negotiations or is it simply that everybody must sit tight and wait? I do not expect the EPA to be fortune tellers, but surely there is some form of forecasting to give an idea of outcomes?
Somebody stated that cars and cows are the big culprits. I get no sense that in either case there has been the fundamental shift required. I am concerned that if we do not get those matters sorted out, there will be either unfairness or failure in meeting these commitments.
Investing in the developing world is obviously a great goal. Is it a case that the state aid we provide for the developing world can be used more productively to ensure the development of these clean technologies? For example, the ESB has a great reputation and track record in other countries. It has done a terrific amount of international work. Can we develop that further so that we meet parts of the globe that need it most rather than simply trade in areas where there is a lesser need? It may be financially better for us anyway, but in terms of social justice is it possible for us to construct a way of assisting those in the developing world, quite apart from meeting the climate change targets, to ensure that they also benefit most because they are the ones experiencing most destruction and damage?
Perhaps somebody will answer the previous three speakers and then I will move on to Deputies Cuffe and Aylward.
Dr. Mary Kelly
We will make an effort to cover all of the issues raised. For the sake of simplicity, I will break them down into those on the national allocation plan, which I will ask Dr. Ken Macken to answer because that is where he works, and those on the CDM and the mechanisms, some of which Ms Kelley Kizzier will be able to answer. I will attempt the more general issues.
Deputy Hogan asked what a price on carbon should be. The general view is that it should be approximately €20 a tonne but there is no hard and fast rule on it. It will probably be approximately the same as the emissions credits at European level.
We were asked whether we will meet the Government programme target of 3%. At present we are calculating projections to see where we stand on that. The following also may answer some part of Deputy McManus's question. One of the EPA's jobs is to produce and publish an inventory on an annual basis on our greenhouse gas emissions broken down into the various sectors. Our emissions have risen from 1990 levels to a peak in 2001 and since then have fallen, risen a little, and fallen back a bit this year. This year our emissions fell by approximately 0.8%.
Was that not because of Moneypoint?
Dr. Mary Kelly
There were all kinds of reasons. One of the reasons this year is Moneypoint, but the previous year it had risen a little and before that it fell by a couple of per cent, mainly because of the closures of IFI and Irish Steel. One can read in the figures exactly what is happening in the economy with the big energy users. It was because of Moneypoint, but in most years one of the big energy producers will be out of commission for some kind of maintenance. We all are working on trying to bring those emissions down. We are hoping that the measures being put in place at present will bring them down by 3% per annum over the five-year period.
Are we heading in the right direction?
Dr. Mary Kelly
Yes. It is not something about which I want to be complacent. We are heading in the right direction at present. I have never seen so much effort in terms of people trying to drive the emissions down. One can say that we have all these measures that we would like to put in place and the key to it over the next number of years will be putting them in place and seeing reductions from them.
Deputy McManus mentioned transport, and the difficulty of cars and cows being the culprits. The difficulty is that if we do not take drastic measures on the transport side, namely, if we do not stop using cars and freight transport as much as we do, we will increase by 265% our emissions from transport. Currently, we are at 180% above 1990 levels. Transport emissions are increasing the fastest. We can have all the plans we like but if we do not implement plans that require all of us to stop using cars for all of the reasons we use them, our transport emissions are set to go through the roof and that will not help us.
On the national allocation plan, the Environmental Protection Agency is charged with producing the final plan. However, it is done within a rigid structure in two stages. The Government decides what the overall cap for those 100 industries should be and allocates that, in the first instance, to the EPA to divide between the 109 or so companies.
In reply to Deputy Coveney, today we published our final national allocation plan including the figures for each installation. It was out for consultation over the past number of months. It is available on the Internet. In doing that, both this time and the last time, we produced a set of rules according to which we will conduct the allocation. That set of rules has been worked out to be as fair and transparent as we can possibly make it. It is also governed by some directions from Government. For example, the Government told us this time around to treat the power generation industry differently from the others because it is able to pass on the costs of their abatement. In doing the allocation we allocated much less to the power generation industry than to other industries because it can recoup the cost.
On a point of clarification, does the EPA get guidelines from the Government on how to treat different sectors?
Dr. Mary Kelly
First, we get a tonnage to divide and then we get general guidelines, which are not very specific. Although I cannot remember the exact words, we were told to treat the cement and power generation industries differently because they could pass on the costs.
We developed a clear and transparent methodology according to which we could allocate the units. That methodology —on both occasions but, in particular, the first time around —was put out for consultation with the public. Anybody who wanted to comment on it could. We took much of the comment on board and changed the methodology somewhat. In doing that and in ensuring that we stuck to it, we were successful in that none of the companies took us to court claiming we had been unfair to them. We developed a fair system with which no one could argue in the end. We gave everyone ample opportunity to consult in respect of this system.
I am sure plenty of lobbying occurred. However, the Government made the decision on our allocation. After that, it was our responsibility to decide how it would be apportioned. Individual companies ——
Is it for one year or for four years?
Dr. Mary Kelly
It is for the four-year period. However, we issue it on an annual basis.
Yes, but responsibility for the final sign-off rests with the EPA rather than with the Minister.
Dr. Mary Kelly
Yes. We send it. There is a further check on this in that we are obliged to submit the national allocation plan to the European Commission, which runs the rule over all 27 such plans. In some cases —this happened to Ireland —it states that the overall allocation was too great. As a result, the Government was obliged to reframe and reduce slightly its allocation. The Commission felt that the overall allocation was too generous. Our allocation was reduced and we then reduced ——
Was everyone's allocation reduced accordingly?
Dr. Mary Kelly
We reduced them according to our methodology. The beauty of having such a methodology is that we adhere to it and we do not make exceptions. We take everyone's circumstances into account in the context of the rules we have laid down. Our methodology is based on historical emissions. We do not have anything else to go on. That is the basis on which most people in Europe went well.
Without belabouring the point, are the 109 companies to which Dr. Kelly refers responsible for the most emissions or are they chosen through different criteria?
Dr. Mary Kelly
They probably are the 109 responsible for the most emissions. The way they are chosen is that they appear in the schedule to the directive, in which are set out the activities to be covered. Aviation is not included at present because it is not listed in the schedule. I do not know what position it would hold in respect of the level of emissions for which it is responsible. Shipping, transport or methane production are also not included. The schedule sets out carbon dioxide emissions from a group of companies. Included in the latter are power generation, large manufacturing concerns and any companies that use more than 50 MW of power.
When Dr. Kelly refers to Government, is she talking about a particular Department?
Dr. Mary Kelly
We liaise with the Department of the Environment, Heritage and Local Government in respect of this matter. However, the direction came to us, on foot of a Cabinet decision, from Government via the Department. The decision is not the responsibility of the Minister for the Environment, Heritage and Local Government, Deputy Gormley; it was made by the Cabinet
Is Dr. Kelly stating that the power generation and cement industries are obliged to carry a bigger share of the burden because they can transfer the cost to their customers?
Dr. Mary Kelly
To a large extent. There is a competitiveness issue. The cost of everyone's product will rise on foot of the price of carbon. We were directed to take competitiveness into account as best we could in the context of making the original allocations. On this occasion we were given a direction to treat those companies somewhat differently.
Did that direction come from the Minister?
Dr. Mary Kelly
Yes.
Surely the cost of energy is one of the major factors in terms of competitiveness and it will increase as a result of our putting in place a higher burden.
Dr. Mary Kelly
Yes, but it has to happen in any event.
This is an extremely important matter and I would like to return to it. However, there are some other questions which Dr. Kelly is obliged to answer.
Should we not bank the questions and have Dr. Kelly answer them all together?
During the presentation, I felt like doing what a middle manager in a Kazakhstan tractor factory might have done in 1990 when it was explained to him or her that the winds of change were blowing from western Europe. The trading system is complex and we are still trying to come to terms with what might be the implications.
If we consider first the 2008-12 period and then the 2012-2020 period, is it the case that the former represents the calm before the storm? Will it be something of a phoney period when extreme reductions will not take place but when we will be preparing for the advent of such reductions? Is it correct that —regardless of commitments in the programme for Government —more significant international reductions will be required in the period after 2012?
On UN oversight and accounting, can we be confident in these international systems? There has been some comment in the media abroad as to whether the accounting system is adequately rigorous, particularly in the context of the clean development mechanism projects. I would appreciate our guests' comments on that matter.
With regard to cars, I presume emissions can be carefully accounted for in respect of each unit of fuel and that a financial penalty can be levied accordingly. This would mean that costs could be passed on to the end user. However, the position as regards cows is somewhat different. If we penalise farmers for placing too much emphasis on cattle, they will be obliged to make different decisions regarding the use to which they put their land. There might, as a result, be a move towards different crops, bio-fuel production or whatever. I presume the scheme takes into account the possibility of change in that area. What I am trying to highlight here is the danger that Irish farmers might move away from beef cattle but that their Brazilian counterparts would be quite happy to take up the challenge while not necessarily being included in the scheme.
I welcome the debate on this complicated and puzzling matter. Given the number of acronyms involved, it is difficult to follow. However, I am glad I learned the alphabet when I attended school.
Ireland and most other European countries signed up to the Kyoto Agreement but the United States, which is one of the world's largest power brokers, did not do so. This country is a small player on the western periphery of Europe. What was the point of Ireland signing up to the agreement when the United States did not do so? We must also take cognisance of what is happening in the developing world. I am informed that a new power plant is completed every day but I do not know whether that is true. I accept the need to set targets and goals but unless the entire international community signs up to agreements such as Kyoto, we are doing nothing but fooling ourselves.
Deputy Cuffe referred to agriculture. As Dr. Kelly stated earlier, 109 companies are being targeted in respect of their carbon emissions. For what percentage of the total figure for carbon emissions are these companies responsible and what is the level of emissions caused by cars and cows?
What would be the point in reducing beef production in this country, particularly when one considers that people across the globe need to be fed? If we reduce production, Brazil, Argentina or some other country will just increase production and the global emissions figure will remain the same.
How will the 3% reduction to which Dr. Kelly referred be achieved? Will the 109 companies mentioned earlier be obliged to carry the can in that regard? If companies exceed their emissions, will they be able, under the flexible mechanism for carbon credits, to purchase credits from other companies in this country? Will they be able, on an individual basis, to purchase such credits abroad or will the Government be responsible for doing so? Could one company buy from another to make up the difference within the country?
Ireland is trying to reduce development while other countries such as China and India are building like we did years ago and engaging in bad practices. How is that overcome?
I apologise for interrupting but it is difficult to hold one's tongue when something interesting needs to be asked.
Dr. Mary Kelly
That is fine. This complex issue raises many questions. If there were simple answers, we would have implemented them a long time ago. Deputy Cuffe asked about the period 2008-12 and then on to 2020. The year 2012 is almost upon us, to which Deputy McManus also alluded, and anything that will happen by then has been decided because it is such a short time from now. The measures we are putting in place will be in situ by then. However, we must think beyond that to 2020 and much of the focus in policy circles is on 2020 and even 2050 at this stage.
In response to Deputy Aylward, it is worth reminding ourselves every so often that we are doing this because the planet is heating up at an unsustainable rate.
I know that but why we are we doing this while other countries are breaking it?
Dr. Mary Kelly
The actions we take now in this part of the century will only affect temperature change at the end of the century. There is a 100 year lag on it. We need to do it.
There will be more serious reductions by 2020. The EU has agreed a 20% cut in emissions by 2020 and this may become 30%, depending on whether the US signs up. We should probably think about 30% anyway. By 2050, the cut will be between 60% and 80%. We must put systems in place that wean us off using fossil fuels in the long term and move us to something more sustainable and renewable. Transport and agriculture sectors are significant emitters but the energy sector through power generation is the greatest emitter. We cannot do this in the short term because the technology is not available at the prices we want. However, we must drive it there. That is where the price for carbon comes in. It must be high enough to support the use of renewable energies in larger percentages.
Deputy Cuffe asked whether we can have confidence in the UN oversight and I think we can. We probably remain on a learning curve. This complex system has been introduced in a short time. When it started, people did not believe it was possible to do it in such a short time. A complex system with a complex oversight mechanism is in place and there have been teething problems. As the problems emerge, solutions are found. The further we go with the UN and the more the UN and others learn about the system, the tighter it will be. Like any system based on statistics and like much of the work the agency does, the first few times we do something, it might be a rough cut but every iteration makes it more accurate. We must trust the UN on this, given it is the only show in this area.
A former colleague of ours, Conor Barry, works with the UN on Bonn in the area of CDM and verification. We have had him come and talk to us a number of times. The UN is tightening its systems all the time and it has a good overview of what is happening. We have confidence in its work.
I asked about the developing world.
Dr. Mary Kelly
And social justice. It is a good question because climate change is where social justice hits the rest of the world. The mechanisms are a good framework for encouraging investment in the developing world in the technologies these countries should have. Otherwise, the developing world will implement old, dirty technologies. CDM gives an incentive to other countries to subsidise the investment in newer and cleaner technologies in developing countries so that they skip the dirty technology and jump straight to modern technologies. There probably are plenty of opportunities for us to examine the social justice issues involved but one would not want to be in a position where the development aid Ireland and other developed countries give to developing countries becomes subsumed into this, although one would want them to work in parallel. One would not want one cut to have the other.
I refer again to the national allocation issue. I am concerned the Government is allocating carbon credits worth €2.8 billion to industry and other generators but consumers will bear the cost. Based on what Dr. Kelly said, if an additional burden is placed on the energy sector in percentage terms, energy users, that is, consumers, households and businesses, will take the hit, which adds to our competitiveness problems. I do not expect the delegation to respond to the political question.
Dr. Ken Macken
The national allocation plan is required under an EU directive and it is implemented ——
I understand that.
Dr. Ken Macken
It has taken approximately two and a half years to produce the plan and it was done in accordance with 12 criteria laid down under the directive. In Ireland, as Dr. Kelly said, we have divided the responsibilities. The Government has decided to identify the total cap for trading for Ireland and it also attached other guidance on how to treat, for instance, power generation and cement industries. The agency must then divide that among the companies. We had to identify a methodology and we came up in the early stages with suggestions for that. We went through a public consultation in May 2006. We submitted a plan to Brussels, which proposed certain changes. We held a further public consultation, made changes, resubmitted the plan to Brussels where the officials said the changes were fine and we made a final decision, which was taken yesterday and published on our website.
In all of that, it is important to realise the way the burden has been divided and the allowances allocated. We have a reduction and a way of achieving a reduction. The reduction is, ultimately, the overall EU cap. The EU Commission has examined all 27 plans and has put in place an overall cap because it approves amounts for each plan above a certain threshold. There is, therefore, a cap on the emissions trading scheme. That is the certainty of the reduction that will be achieved under the scheme. The ways and means are to divide the allocations between the different companies within each member state and for them to trade. Irish companies can trade anywhere in Europe —they are not limited to the State.
But not outside Europe?
Dr. Ken Macken
No, the EU ETS only works within Europe. Companies can buy project credits up to on average 10% of their need from outside Europe, otherwise it is a European scheme.
I refer to the way the burdens work. The Government gave us a direction. Costs are associated with carbon reduction. If it was free, we would have done it all. The costs are placed on the producers of carbon, which are companies. Given the way economics works, those costs will always be attached to the end product one way or the other. There may be a time lag and various factors may arise, but the costs always end up on the end product. PowerGen can easily pass through the cost and the way the electricity price is regulated allows for that. This means the burden on the company is transferred through very easily. Other companies have a much more difficult time because they trade with companies that are not within the EU or with companies within the EU that have been given different allocations.
Part of the change that will occur in the EU ETS, the European Union emissions trading scheme, is the attempt to try and regularise the situation so that we do not get these differences. Companies in this sort of situation have a greater difficulty with pass through and the burden, to a certain extent, falls directly on them initially. For those reasons, the pass through is facilitated by certain sectors, which means that the allocation to those sectors can be slightly different from the allocation to others. All of this was in the plan, was teased out and went through various public consultations. The plan is now finalised and the allocations are set.
This has huge consequences for the future. Much of what is happening seems to be unplanned. I read that the Commission is talking about a further reduction of 30%. Why is it 30%, 40% or 50%? This was the point made by Deputy Aylward. We as politicians must sell the need for public co-operation to buy into the effort to reduce emissions. We must persuade people to switch off the lights they do not need, to cycle rather than drive and inform them of the consequences of high emissions. Dr. Kelly was quite right that the scientific evidence indicates we are heading for a heap of trouble if we do not do this. However, generation after generation thinks it is not its problem.
What is the use of us reducing emissions if the developing economies of China and India are going to do the very opposite? We gain nothing.
One can apply that argument in all kinds of circumstances. It may be unfair to ask our guests this question as they are not directly involved, but who decides we should reduce emissions by 30% and on what basis is the figure of 30% decided? We are showing our hand when other countries have not even committed to making an effort to reduce emissions. I read some time ago —I think it was in The Financial Times - that vast sums of money are being made out of the trading business. The article was written before the aircraft industry was taken into account. It is set to make a substantial profit from this trading, because it passes on the cost to the customer. It will not pass on just the amount it must purchase but, based on the fact that its total emissions are X, will pass on the cost per tonne. Nobody seems to be in a position to call a halt and say we will not allow this. People seem to be able to pass on the cost without having to justify the rate to anybody. It is similar with the ESB and the cost of electricity, and anybody booking a flight nowadays must pay a fuel charge.
We are not dealing with legislation here but I am alarmed —I do not suggest that the EPA acted in anything other than a professional way in doing its job —that decisions can be taken in Brussels, and the Government can make a decision that is not discussed or debated, and we only know about it after it has happened. This has significant consequences for future decisions that may affect the economy. Am I missing something here?
I want to focus on getting specific answers to some of my questions because we will run out of time shortly. In terms of the cost to Ireland this year, it is in effect a carbon tax. We hear all sorts of nonsense saying we cannot introduce a carbon tax here for competitive reasons. We are paying a carbon tax. If the country is paying €40 million this year to buy credits, that is a carbon tax as far as I am concerned, whether it is called a carbon levy or cost. What will Ireland spend this year to bail the country out?
I do not have a clear understanding of why the price of CERs varies from the price of CUAs. I understand that from a company point of view, companies are limited in what they can do outside of the European trading mechanism. However, why would a country purchasing credits buy them within the European mechanisms when it could buy them cheaper in the developing world? I agree with the Chairman otherwise.
I revert to the poor old person paying electricity bills. There seems to me to be a weighting towards people paying essential bills as opposed to people purchasing something by choice, such as a car. Is there not a danger that if there is a weighting against people paying for essential services, because that is easy and they are captive customers, this will create difficulties? I know this may be policy and that the EPA does not determine policy, but it seems to me that this approach will create difficulties. We have a growing problem of fuel poverty. I would think the people to hit should be the people who can choose whether to buy luxury items rather than essentials.
Dr. Mary Kelly
I will ask Ms Kizzier to answer the question about the price of CERs and CUAs.
Ms Kelley Kizzier
The price is different because of the risk associated with them. There is a risk because of the limitation on their use. CERs are limited in their use and there is a risk that if one buys a bunch of them, one will not be able to use them. The price is lower for that reason. That is one element of risk. There is a limitation on how many CERs a company can use in the EU ETS. In Ireland, PowerGen can only use CERs for compliance of up to 11% of its allocation.
It was the country's allocation, rather than a company's I asked about.
Ms Kelley Kizzier
Allow me continue. There is a live risk associated with CERs that is not associated with developed Government-issued EUAs. One is the restriction on use in the EU ETS. The second, and this is a big part of the differential rate now, is that the infrastructure by which these are traded, which is the international system of registries, is not fully built yet. This is an electronic banking system, but it is not fully built. Therefore, if one buys a CER now, one cannot take delivery of that CER into one's bank account yet. That will come in October. We expect that in October when the electronic banking system is fully built, the gap will close substantially. Currently, one cannot take delivery of something one has purchased, which is probably a big part of the gap.
The third reason is that the €15 a tonne is a futures price. Therefore, there is more risk on the delivery of CERs. These are projects in developing countries and the investment climate being what it is, there is more risk on the actual delivery than on something that is mandated by Government in Ireland. That is why there is a price differential. If one wants to get the cheaper reductions and is willing to consider those risks, one will get the CERs at a lower price.
How are ERUs priced?
Ms Kelley Kizzier
It is more difficult to explain ERUs because there has been a slow start to joint implementation, JI. Currently, there is only one approved JI project and it has yet to have any ERU issued. That is the reason we do not have any figures or pricing on ERUs. They are different because they are more closely associated with assigned amount units. These are countries that took targets as well so they are probably closer to the EUA price than the CER price.
I ask Ms Kizzier to tell us about that particular joint implementation, JI project.
Ms Kelley Kizzier
That particular joint implementation project is a CRH project in the Ukraine. It is a switch from wet to dry cement. I am sure some of our chemists here could tell the Deputy more about that but it is a CRH project and the letter of approval was issued by the EPA.
Is that the only JI global project?
Ms Kelley Kizzier
It is the only one globally approved. There are several in the pipeline but that is the only joint implementation project currently approved anywhere.
That is fine while all this flexibility is there. However, if this country reaches its targets or set limits and there is nothing to be purchased out there, what is the scenario then? Will we be fined for exceeding our limits? There is flexibility at the moment and we can actually go out and purchase either from the EU or 10% outside the EU. If there is nothing there to be purchased and there is no longer any flexibility, where do we go then?
Dr. Mary Kelly
We are a long way from that situation at the moment.
I am a bit of a pest.
Dr. Mary Kelly
There are plenty of opportunities for reduction in carbon dioxide emissions even at home where they are expensive, never mind abroad in developing countries where they are not so expensive.
When Dr. Kelly says it was referred to Brussels, to whom is she referring?
Dr. Mary Kelly
I was going to come back to try and answer some of those questions.
Are these proposed reductions based on modern scientific information or what is possible? Is this a case of we want to be better than the next so we are going for 30% and they are only going for 20%?
Dr. Mary Kelly
There are two issues. If I gave the impression that it was just made up willy-nilly at European level, I apologise because it is not.
I am not saying Dr. Kelly does but we read about it.
Dr. Mary Kelly
No. The Intergovernmental Panel on Climate Change has reviewed the work of 2,500 scientists on climate change and determined that a 2° Celsius rise in temperature is about what we can take and we want to stop it at that. The Council of Europe decided in March 2007 that it would take on that 2° Celsius target and that this is what Europe should aspire to persuading the world to do. Europe has taken a leadership role and it is right we should because somebody has to. The 2° Celsius target is actually linked to the amount of carbon dioxide in the atmosphere so 450 parts per million equates roughly, in so far as scientists know, to this 2° Celsius rise. The scientists tell us that by 2050 we need to have reduced the greenhouse gas emissions, carbon dioxide equivalents, by 50%. This will keep us at the 2° Celsius increase. This can be traced back to a scientific basis. Europe has decided to adopt this, based on science. To the best of their knowledge, that is what is required and this is where the 50% by 2050 comes in.
Is it based on the current emissions of the whole of Europe?
Dr. Mary Kelly
It is based on the whole world because it is a global problem.
How are we taking that percentage of it?
Dr. Mary Kelly
I am sorry.
We have decided to look for 30% reduction. Suppose the United States says it can only manage 10%. Is that 30% scientifically based?
Dr. Mary Kelly
Europe has decided to take a leadership position on this and it wants to convince the United States and other countries to come with it on it. The only way Europe can do that is by demonstrating leadership and that it can be done. Therefore, Europe has taken a 20% and possibly 30% stance, and is looking at 50% to 60% out to 2050. The other countries absolutely need to come on board; this is not something Europe can do on its own. Europe is trying to bring the other countries with it. We are trying to persuade the US to come with us. If the US does come with us we will go to 30% but it is essential that all countries in the world do this. There is no point in not doing it.
That is what Copenhagen is all about.
Dr. Mary Kelly
That is what the roadmap from Bali is about.
I accept that but the point I am making is that at the moment we have an idea as to what tonnage we produce, based on 2007 figures. Each European member state has a similar figure. When it is all added, the European Union is contributing X millions of tonnes into the atmosphere. Are we comparing this to what the United States is contributing? If we reduce it by 30%, they may have to reduce it by 35%. Does Dr. Kelly understand the point I am trying to make? Is it that scientific?
Dr. Mary Kelly
Yes.
Dr. Ken Macken
All of this goes into the international negotiations when they come to the final decisions. The absolute amount has been identified by scientists. The developed countries have to reduce by between 20% and 30% by mid-century, and by between 50% and 80% by the end of the century. This has been scientifically established. There is no horse trading around this. It depends on the speed at which countries come in and the attempts to include developing countries and give them targets. These countries take a different view that developed countries have had 170 years of spewing out carbon dioxide and other gases and of raising up their economies and these countries are not going to cut back their economies while they are still at an early stage.
There is a transition point when the developing countries, through the aid of these mechanisms, have put in new technologies, have grown their economies to a certain extent when the developed countries are cutting their emissions. At some point there is a crossover point where even developing countries must accept caps. Ultimately this is where all this is going. This has been worked out in great detail as regards what is required. The difficulty, as Deputy Coveney alluded to, is to get the international agreement and this is not easy. This is what the post-Bali roadmap and the Copenhagen talks are about.
I would like a "Yes" or "No" answer to the question about whether €40 million is enough to buy the carbon credits this country needs this year?
Dr. Mary Kelly
There is not a "Yes" or "No" answer to that question.
Dr. Ken Macken
We do not need to buy this year at all. We only need to buy by mid-2013. The NTMA will use its own forecast as to when and how much it needs to buy and the carbon Act gives it that power. Ultimately, Ireland does not need to have its ——
One buys to cover oneself for the five years rather than annually.
Dr. Mary Kelly
Yes.
That is all I wanted to know.
I thank the delegation. This is a highly complex subject. The delegation has been very kind. I can only speak for myself but I hope they appreciate that we are novices in this area. The purpose of this meeting is to learn and we have learned a great deal today. Some of the questions I asked may sound stupid but it was not a case of being smart but to try and gain information.
I thank the delegation most sincerely for coming back to the committee and for the work they are doing. None of us on this committee underestimate the task we all face. I expect we will be calling on the delegation's expertise because they are the best people to be able to advise in an independent manner. I thank the delegation for travelling from Wexford.
The joint committee adjourned at 3.30 p.m. until 2 p.m. on Wednesday, 19 March 2008.