JOINT COMMITTEE ON CLIMATE CHANGE AND ENERGY SECURITY debate -
Wednesday, 30 Apr 2008

Climate Change Strategy: Discussion.

Vice Chairman

I welcome the delegation from the Institute of International and European Affairs led by Mr. Peter Brennan, chairman of the institute's climate change group. Perhaps Mr. Brennan would introduce the members of the delegation. I thank him for taking the time to attend this meeting and for the material supplied to the committee. The format of the meeting is that Mr. Brennan will give the presentation, after which there will be a question and answer session with members of the committee.

Before beginning I should point out that the members of the committee have absolute privilege, but this privilege does not apply to people appearing before the committee. Members of the committee are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. I invite Mr. Brennan to begin.

Mr. Peter Brennan

I am chairman of the climate change working group of the Institute of International and European Affairs. I am accompanied by Mr. Donal Buckley, a member of the group, Mr. Joseph Curtin, a senior researcher in the institute, and Mr. Owen Wilson, another member of the climate change working group. As agreed with the committee's secretariat, we have prepared a PowerPoint presentation which I will go through for the committee. If members wish to interrupt during the course of the presentation to seek clarification on any points, they are welcome to do so.

We are primarily discussing the EU's climate change and renewables package, which was presented by the European Commission on 23 January. These are proposals, and we are considering them as such. They are fundamental but they are still being negotiated. In fact, it is expected that the package will not be finalised for another 12 months. The key message, however, is that the ground rules have changed fundamentally. Currently, the national climate change strategy has a single national climate change target but if these proposals are adopted, there will, effectively, be two targets - one set at EU level for the emissions trading scheme and one set for the domestic economy, what we call the non-traded economy. It is becoming apparent that the targets for the domestic economy, that is, other than for the powergen and heavy industry energy users, will be very difficult to achieve. These proposals are as fundamental, in terms of the strategic implications for Ireland and Europe, as perhaps the EMU package. Their implications are only beginning to be fully understood by the different constituencies as the detail is being examined.

The first slide is complicated but it shows what might happen in 2020 on a business as usual basis. On the left hand side members will see the ETS sector, that is, the emissions trading sector. Approximately 100 Irish companies are covered by that sector, such as all the powergen companies, aluminium, cement, paper and glass. They will have their rules set down at EU level and the compliance of the ETS sector will become an EU issue. It will be taken out of the competence of the Irish authorities. Compliance with these targets will be set at EU level. The bottom line is that this sector must reduce its emissions by 5.7 million tonnes by 2020, on the assumption that there is a 30% cut as part of the EU energy package.

The emissions trading sector accounts for approximately one third of Ireland's over 70 million tonnes of emissions. In other European countries the figure is significantly higher, so the burden of the domestic sector is lower. A critical issue is shown by the right side of the slide, which shows where domestic policy-making must focus. Where in the domestic sector, which includes agriculture, transport, residential, industry and services, can we realistically achieve a 30% cut as prescribed by the European Union? It amounts to approximately 10.8 million tonnes. Taking that amount out of a pot, if one can call it that, of approximately 48 million tonnes is very significant, given the possibilities for agriculture and transport, in particular.

The next slide shows the figures relating to the non-emissions trading scheme. They comprise agriculture, transport and residential. The forecast is that in 2005, in terms of millions of tonnes of carbon equivalent, the national emissions will total 70.4 million tonnes. For the non-ETS sector, it is 48.4 million tonnes. We are expecting that the 30% cut, and the consensus is that it will be a 30% cut, will involve a shortfall of approximately 10.8 million tonnes, which is 80% of the current output of the transport sector. The challenge, frankly, is utterly enormous. For the sectors in this area, it is beginning to dawn on the major players that there is a significant challenge involved. Another way of looking at it is how the different sectors might respond if we must go from approximately 47 million tonnes to 33 million tonnes. Where, how and on whom does the burden fall? I will deal with some of the sector specifics.

I draw the committee's attention to the purchasing graph. That is a reference to the flexible mechanisms that currently exist. The Commission is proposing that these mechanisms be very limited at EU level. However, there is another view, which is that given the high targets that have been set, there should be far more flexibility in using clean development mechanisms to help us achieve our national targets. There is a big debate about how these clean development mechanisms should be used. There is also an overseas development assistance dimension in the sense that if we manage to secure emissions abatement in countries where we have bilateral overseas development assistance mechanisms, they might in certain circumstances help us achieve our domestic emissions targets. As everybody knows, a carbon emitted in Tanzania is the same as a carbon emitted in Ireland, so we should consider all these issues. However, there is a big debate within our group as to where the burden should fall.

We examine the marginal costs, in other words, where the cost should best fall, and there is a graph later which will explain this in more detail. Essentially, at EU level, the costs of the Irish ETS sector are capped at whatever the EU marginal cost is - that decision is taken out of our hands. The Government here, as a matter of extreme urgency, must carry out an exercise to produce what is called a marginal abatement cost curve for the economy. This will show, when making decisions, where the decisions should best be applied and at what cost. In other words, instead of inventing a figure with regard to transport, there will be an empirical basis upon which one can say that if a carbon tax is imposed on X, Y and Z, for example, it will have a demonstrable impact. If one wishes to achieve energy efficiency in transport, it can show the costs. It will then be possible to weigh up the different costs for each sector. That work should be carried out; we believe it is one of the most essential tasks to be done in the immediate future.

We are in the second phase of the emissions trading scheme. The Commission's proposals will take us into the post-Kyoto period. The proposals reflect the large consensus that has been achieved. The Commission conducted an EU-wide review among all the operators so the design of its proposals reflects what the current operators have found. There are some good elements in the proposals but also some negative elements. The issue for many people is whether the proposals about auctioning, which are good in principle, will work and how they will work. There are no rules about how auctioning will work. Will every single powergen company in Europe go into the marketplace on the same day, 1 January 2013, trying to buy allowances? Will it be done by country or by sector? All these rules must be organised. The actual mechanisms of running the auction have not even been presented other than the principle that auctioning should take place. While there is general support for the principle of auctioning, there is a great deal of uncertainty. Many of the powergen or heavy industry users who may be caught by auctioning are concerned that these rules have not been clarified. One of the key issues in terms of the Council's and Parliament's considerations of the emissions trading scheme is how auctioning will work.

If one assumes that the powergen sector will be covered anyway, which seems to be the case, one is looking at 16 million tonnes having to be found by auctioning every year. If the price is €20 a tonne, €320 million will accrue to the Exchequer every year. If the price is double that, one is talking about €640 million per year. That is an annual cost to take account of the EU's emissions trading arrangements. That is a heavy financial burden for companies to pay to be part of the EU emissions trading scheme.

The competitiveness impact of the proposals is another issue that arises. The Commission has indicated that where there is carbon leakage it will take cognisance of the fact that the emissions trading scheme could give rise to some competitiveness effects. It is not clear what exactly the Commission has in mind, however. We hope the negotiators will bring greater clarity to the debate about carbon leakage and will bring forward the timescale to give certainty to the non-powergen companies covered.

There are also major issues concerning the need for regulatory certainty. One of the positive aspects of the ETS is that it gives pretty good regulatory certainty to the powergen sector, which is very important. Tomorrow, we are meeting Avril Doyle, MEP, who is the European Parliament's rapporteur dealing with the emissions trading scheme. She will have a key influential role in emissions trading. Emissions trading accounts for one third of Ireland's 70 million tonnes of emissions.

There is a large ESB investment plan which, in terms of its scope and scale, is one of the most strategic plans ever announced by an Irish State company. It represents a paradigm shift in the way a State company operates. It will reduce the ESB's emissions significantly by 50%, so one is talking about perhaps 8 million tonnes being reduced by 2020. That is of benefit to the EU, but it does not benefit Ireland's national target because, as we understand the Commission's current proposals, emissions trading and non-emissions trading are effectively ring-fenced. If we over-perform concerning the emissions trading scheme we get compensation or account is not taken concerning the domestic side. That is a huge issue which we call permeability. We were hoping that during the negotiations more flexibility would be allowed for a small, open economy such as Ireland's. If, largely through the ESB's investment package, we achieve an introduction of renewables on the scale envisaged, with interconnection and increased energy storage, that would help to balance out the burden that is going to fall on the domestic economy.

There are some important elements in the ESB's announcement, which we certainly find helpful, including among other things the €1 billion it hopes to spend on smart meters between now and 2012. However, the benefit largely will not fall to the Irish economy because we still have a non-ETS target to meet. Obviously, therefore, the savings will be large but will not accrue to the Irish economy. There is a major element in the negotiations to see to what effect there could be with some change in the permeability issue. This is probably one of the biggest issues concerning emissions trading. I suspect there is an unintended side-effect in that the Commission may not really have intended for the two sectors to be ring-fenced in the way they have been. For a small economy such as Ireland, however, it is critical that our national effort, regardless of where it is sourced, should be counted as a whole rather than two separate parts.

As for non-emissions trading, there are effectively five sectors: agriculture, transport, the built environment, industry and services as the non-energy intensive sector, and commercial and residential. The Government is responsible for all these sectors and the new national climate change strategy will focus primarily on how it will take 10.5 million tonnes of carbon out of these sectors. That will be a very difficult task. We would argue that there should not be any national derogations. There is an issue of what we have described as inter-sectoral equity - that every single part of the Irish economy which generates emissions effectively should play its own part. There is an issue therefore concerning the quantification of the challenge and the distance to target for each of these sectors. The current national climate change strategy has indicated targets but in light of the January proposals, that strategy needs to be revised on a timescale far sooner than is currently envisaged. It is essential for every sector, including agriculture, transport, construction, industry and services, that a revised strategy be put in place at the earliest possible opportunity, even to anticipate the outcome of the EU negotiations, so that the correct signals are given to these sectors that their challenge is X. The last thing we want to know is that in 2012 the transport sector must cut 5 million tonnes in the space of ten years. That will not be physically possible if it is announced within a ten-year horizon. The current national climate change strategy certainly needs to be revised in partnership with all the stakeholders. A large stakeholder group is available to work with the Department, including our good selves.

A critical issue is where the burden should fall. This is where the marginal cost of abatement measures arises. I will ask Mr. Owen Wilson to go into this in the question and answer session. In other words, where are the most cost-effective solutions? Bearing in mind that the emissions trading scheme is outside the control of Government policy, are such solutions technically employable and, if so, over what time and at what cost? Many countries have prepared what is called a marginal abatement cost curve. IBEC has produced a graph which we will show to members of the committee. It is based on consultancy work carried out for one of the Swedish utility companies. On the left side it shows the quick wins - the cheap or obvious solutions. In other words, if one insulates a house, it reduces energy costs and the payback is instant. The further one goes to the right the more expensive the abatement measures are. This applies for an economy, but it differs per economy. We cannot use the UK's marginal abatement cost curve to inform Irish policy makers. An Irish model using the McKinsey formula is urgently required. Otherwise we cannot take an informed decision about what is required and where.

I will cite an example. We currently apply refit tariffs to support renewables. Every other country in Europe does it, but when one does an Irish abatement cost curve, the costs could be quite different from those in Scotland, Spain or France. This work needs to be done. In talking to the Government's senior officials group dealing with climate change, we know they also recognise this is a critical area.

Within our own power there is also the option of introducing a carbon tax. The report of the institute's working group has examined the issue of carbon tax in detail. There is broad support for the introduction of a carbon tax and it is being considered as a priority by the commission on taxation. It will apply to all business companies, households and individuals outside the emissions trading scheme. The view is that the emissions trading scheme is paying its own price, so if the carbon tax is introduced, it will apply to the domestic economy only, that is, the non-emissions trading scheme. It will be revenue neutral, the idea being that if it generates €1 billion per year, it will be ploughed back into energy efficiency within the sectors, presumably pro rata to whatever contribution they make. For example, therefore, if the tourism sector is forced to pay €100 million in carbon tax, that sum will be hypothecated and given back to the tourism sector to help it become carbon neutral and introduce energy efficiency in buildings. That is a big question for Government because typically the Government does not like to hypothecate new revenue streams. It is a bit like the road fund, but we will not get into that.

If the auctioning and carbon tax revenues are available, one is probably talking about between €500 million to €1 billion from 2013. How will this money be spent to best effect? If a significant burden falls on companies and individuals to comply with EU targets, there is a big argument that it should be ploughed back into well-targeted and highly focused subsidy schemes and other measures, including household behaviour.

Deputy Ciarán Cuffe

Is IBEC's view on the issue of carbon taxation softening?

Mr. Peter Brennan

We are from the Institute of International and European Affairs.

Deputy Ciarán Cuffe

Sorry. I thought Mr. Donal Buckley was representing--

Vice Chairman

We will take that later.

Mr. Peter Brennan

The other major area we have addressed is energy efficiency. The Government has a national energy efficiency plan and is talking about reducing emissions by 9.7 million tonnes. However, if the savings come from the ETS sector, they do not count towards the national target. There are very big issues here. There are enormous opportunities in this area. For example, Sustainable Energy Ireland estimates that the cost of retrofitting the building stock would work out at, on average, €25,000 per building. We have 2 million buildings. If we want to comply with the highest building energy rating, we have to retrofit a significant number of the current building stock. Therefore, €25 billion to €50 billion worth of investment is required. The construction industry does not have the products or the skilled workforce to do this at present but with the right price signals, there are issues here to facilitate and to bring, within a short enough period of time, the construction industry in Ireland to a position to facilitate reaching these targets through retrofitting.

Much can be done in terms of appliances. The European Commission even suggested that carbon neutral appliances might have a reduced rate of VAT. However, I understand that proposal did not last long when it was raised in Brussels.

There are very significant issues in regard to energy efficiency and they are all positive. The Government has put in some useful and helpful incentives. Again, if the marginal abatement cost curve was prepared, these incentives might be increased or become more focused. We hope this exercise, to which I have referred more than once, will inform Governments subsidies. If the windfall revenues from the carbon tax and auctioning must go into one sector, that would inform where best the revenues might fall.

The agriculture sector accounts for a very large percentage of our emissions. It is difficult to say there is a complete solution. One cannot say, "Shoot the national herd". That is not going to happen. If anything, the current herd numbers will increase as agriculture production is increasing. There are particular issues here for Ireland in the sense that its emissions from the agriculture sector are among the highest in Europe. We export many of our agricultural products, which is also an issue specific to Ireland.

However, the Common Agricultural Policy controls agriculture in Ireland. One of the ideas at which we have looked is whether the EU Commission should look at solutions the farming community might bring to bear because it is the Commission which controls policy in regard to farming and agriculture. I stand corrected but I have not seen a Directorate General for Agriculture and Rural Affairs document saying the agriculture community can contribute to the climate change debate in the following ways because we, the policy makers in the directorate, have the following views. There are many issues here and there is much concern that agriculture, like every other sector, needs to engage in this debate. I hope the agriculture community, like ourselves, can share its views with the committee on how it can reduce emissions which, I understand amounts to 24% of total emissions. That is not an inconsiderable figure.

Forestry is not covered by the emissions cap largely because the view taken at the time of the Kyoto Protocol was that carbon sinks would be excluded. That is currently the view. We hear mixed talk as to whether when there is a post-Kyoto agreement, carbon sinks will be included. They effectively amount to 4 million tonnes of carbon savings. They are not in the national figures but if they were, it would significantly help to achieve our domestic targets.

In a way, one could make a link between agriculture and forestry and ask how the land of Ireland could contribute to the national effort. Unfortunately, EU rules on the CAP prescribe what the farming community can do. Also, the Kyoto Protocol does not give us much flexibility and leeway in regard to carbon sinks and investing in forestry. If we could double the amount of land covered by forestry and if, at international level, there was a little bit more flexibility in regard to a 30% cut in emissions, then looking at forestry as one of the ways to help the domestic endeavour would be very important.

Another tricky area is transport. The Minister for Transport's recent consultation paper on transport sustainability indicates that our emissions will reach 19 million tonnes. That is a rapid increase from where they are at present. No solutions have been provided in the Minister's consultation paper as to how the transport sector will resolve its issues in terms of reducing its carbon footprint.

It is also very clear that the rapid increase in the price of fuel has had no impact on fuel consumption and, as a consequence, has had no impact on emissions. The price of fuel has gone up by 25% or 30% in the very recent past but it has had no impact on people's driving behaviour. Therefore, we are emitting the same amount of carbon as a consequence. It is a huge issue.

Other countries are looking at electrical and fuel cell vehicles. It is a long-term issue. Ireland is a technology taker. We have looked at examples in Denmark and Israel where it is very clear that the motor manufacturing sectors are looking to use electric vehicles to a greater extent. That has implications in terms of extra requirements for electricity but it would reduce the carbon footprint of the transport sector.

Some 2 million tonnes of the emissions figure of 19 million tonnes are accounted for by what is called "fuel tourism", that is, UK citizens buying petrol in Ireland. That is covered by our statistics. Even discounting that out, there is much to be done.

One could also argue that CIE might look at how the current national development plan, in particular Transport 21, is geared up to delivering not only a transport scheme but a reduction in transport emissions. It could also look beyond the timescale of Transport 21 to see if there could be a deeper electrification of the bus fleet and the interurban rail fleet and an extension of the DART fleet to get away from diesel. It would mean moving to a much more expansive public transport system going beyond perhaps the narrow confines of Transport 21. There could be some scope for addressing domestic measures there.

The residential sector, which accounts for approximately 10% of the total emissions, is a huge area. When the Government's Change Now scheme filters down into households and when the smart meters are introduced, people will see that their electricity consumption can be reduced. This is another area we believe is a win-win situation. It requires a considerable amount of awareness raising. This is only starting and, hopefully, in the very near future, there will be much more scope for reducing emissions in households, commercial buildings and in public buildings, such as the one we are in.

We have met the senior officials group - all the Assistant Secretaries General dealing with climate change - and have presented some of our initial findings. We have asked whether the current institutions are geared up to delivering what we consider to be the third industrial revolution. This is a very difficult job given the way the current institutions are organised. There will be a climate change committee but what exactly will it do? We have a carbon budget which is a very good vehicle. That kind of labelling instrument is also extremely positive.

Is the public sector, however, geared up to deliver this paradigm shift? It is a cross-sectoral issue and a cross-Government one. The agricultural sector has a view and it must be brought along in the same way as the transport, residential and construction sectors. There is a great need for strong leadership in this area. We know the Cabinet sub-committee has been given that. We are now at a stage where the Cabinet sub-committee and the senior officials' group must negotiate a package in Brussels, which will be extremely difficult. At the same time they must set about revising the national climate change strategy. While the current national climate change strategy is, more or less, meeting our requirements, we are only at the foothills of what must be done after 2012. The stronger the cross-party support to facilitate these developments the better.

It would be wrong to characterise the public policy approach as one of incrementalism. While the EU January proposals will be changed in the course of negotiation, they will result in a major shift in requirements as to how the Irish economy operates in a carbon constrained mode. We must quantify this per sector. This has not been done at a fine level of detail. The forecast emissions may be understated. The national climate change strategy forecasts 74 million tonnes by 2020 but the economy is growing by 3% or 4% per year. Over 15 years the figure could be 6 million short, for example. If that is the case the distance to target will be even greater than is currently the case. Therefore, some work needs to be done about projecting emission levels. We do not want to constrain the ability of the economy to function but we must meet our international climate change commitments. There is a huge dilemma between being responsible in meeting our climate change commitments at European and international level and not bringing the entire economy down. There is significant scope through increased use of renewable energy sources and energy efficiency to get us quite a bit of the way to our distance to target.

The approach the institute mentioned is to minimise our derogation. We have explained to the Government our view that the 20% and 30% targets are not negotiable. Ireland is the fifth largest emitter of carbon in the world and the second, after Luxembourg, in the EU. We are second in the EU only because Luxembourg has coal and steel plants, which emit considerable carbon. We are also massively exposed to imported fossil fuel. We need to move towards a renewable energy source platform, which is exactly what the ESB has done in its recent statement. This excludes factors such as peak oil, which is for another day. As the price of fossil fuels rises the price of other products also rises. This is all part of the climate change strategy.

The Commission's proposals are merely proposals. The major target numbers will probably stay, but much debate and good argument must be brought to bear where the unique characteristics of Ireland, in particular, should be taken into account. A single solution may work for some countries but we have identified certain areas where Ireland has genuine issues. We expect the legal agreements to be concluded before the direct European Parliament elections, about this time next year. We expect the European Heads of State and Government will conclude the major policy issues by December. We also expect that the 20% target will become a 30% target, given that the US and even China, India and other major countries are moving towards a global package. If there is a global package there will be a 30% cut. There are major issues around the use of flexible instruments such as clean development mechanisms and carbon sinks. The more flexibility there is the easier it is for Ireland to meet its stretch targets.

With regard to mitigation, the current level of ambition is short of where we should be. We also need very clear emissions forecasts for 2020. We estimate the current target of 74 million tonnes is shy of what it might be in 2020. If that distance to target goes out to another 3 million or 4 million tonnes the current distance to target of 10 million will become 14 million. A 40% increase in our distance to target is an utterly enormous amount. A marginal abatement cost curve should be prepared. There is already proven methodology in the United Kingdom and other countries.

We also put forward the proposition that there is very serious intersectoral equity. Every householder, business, farmer, transport user and driver in the economy must participate in and contribute to the challenge of the third industrial revolution. We use the heading "Cars or Cow". This is very unfair because the issue is wider than that. However, it illustrates the idea that everyone in the economy must contribute.

While we focus on the threats, there are also significant opportunities. The ESB announcement is one such opportunity. The construction industry has numerous opportunities if building standards are tightened. There are opportunities for households to save if they become aware that they can save on electricity use and carbon emissions through the installation of smart meters in every household.

The Government must make major decisions in the preparation of a revised national climate change strategy and about what it will do with the extra revenue generated through optioning and carbon tax. How will the revenue be applied to the sectors most at risk and facing the highest burden in meeting the EU climate change strategy requirements?

Thank you, Chairman, and my apologies for straying over my allotted 20 minutes.

Deputy Ciarán Cuffe

I thank Mr. Brennan for making a presentation which was both comprehensive and succinct, which is not an easy task with such a challenging topic.

I asked Mr. Brennan earlier if IBEC had a view on this matter. If Mr. Donal Buckley wishes to give IBEC's view I would welcome that.

I welcome Mr. Brennan's reference to the opportunities in tackling climate change. The phrase, "green collar jobs", is creeping into the vocabulary as well as suggestions of sunrise and sunset industries. We cannot stand still and must use Government policy to encourage sunrise industries, which will provide the jobs of the future.

I echo Mr. Brennan's concerns regarding Transport 21. I am gravely concerned that the road projects are front loaded while the public transport portions of Transport 21 are much further away than the work being progressed by the National Roads Authority. I wonder if we need institutional change or simply a change in the timing of projects such as the interconnector in Dublin or the proposals for light rail services in cities other than Dublin.

I thank Mr. Brennan for a very important document which has brought much more light to the subject than many of the speakers who have addressed the committee in recent months.

Mr. Donal Buckley

It would be prudent to reassess our position on carbon tax. We are in a different situation from 2003, as Deputy Cuffe will know. The Kyoto agreement had not been ratified, the EU emissions trading scheme was not in place and people were not facing an actual carbon price. We did not have the 2020 targets, particularly on the non-trading side, which we have now. We have always said we need a price for carbon if we are to drive innovation and change behaviour. That can be done by a carbon tax, and we await the findings of the Commission on Taxation on that matter. While IBEC will reassess its position on carbon tax, we continue to have concerns. The scope of the tax, for example, was mentioned by our delegation to this committee. It would not be fair if the trading sector was doubly hit. If a carbon tax is imposed they should be outside its scope.

Deputy Ciarán Cuffe

They could be put outside it easily enough.

Mr. Donal Buckley

Yes. The rate would be also quite important on the competitive issue, as would how high it must be, the kind of signals and the time period under which it would be introduced.

We would see the revenue as a significant issue. We would like to see it being revenue neutral. Nothing would undermine the credibility of a carbon tax system more than the State saying that it is a green measure but keeping the money.

The last aspect would be its effectiveness. As Mr. Brennan stated, the price of petrol has gone up more than 50%, which is equivalent to a carbon tax of over €100 a tonne. At the same time emissions from transport have gone up 25%. On its effectiveness, the danger is that we would see the carbon tax as the silver bullet or the panacea. Much more needs to be done.

Deputy Ciarán Cuffe

I agree.

Mr. Donal Buckley

That may answer the Deputy's question. IBEC will make a submission to the Commission on Taxation on this issue and we are currently considering our position. I agree it would be prudent for us to reassess the position.

Mr. Peter Brennan

I wish to respond to the point on green collar jobs. Forfás, the industrial development policy agency, is completing a consultancy study on this very issue, looking at the business opportunities across the entire environmental goods and services sector including renewables and different issues flowing out of the climate change and other agencies such as water waste. That report was commissioned largely because the Government believes there is a new sector here that needs to be looked at and to get a higher focus than has been the case to date in the same way as has happened in the ICT sector, the software sector and the life sciences. In the near future one will see an environmental goods sector emerging in Ireland in response to global developments. There is significant venture capital investment taking place across Europe, the UK and particularly the US. We need to be part of that game and that will happen as this climate change debate effectively alters everyone's view of investment opportunities.

Deputy Liz McManus

I hope the Vice Chairman does not mind that I will probably take a little longer than Deputy Cuffe because so much ground has been covered. I thank the delegation for what is a comprehensive, even panoramic, presentation containing a great deal of information which we must absorb. These are major challenges and the more one thinks about it, the more difficult it will get. I am not clear what the chances are of us meeting the challenges but we must give it our best shot. In terms of the process within the European Union and, indeed, the national Parliament, we have not debated any of this as yet. I understand that the incoming Taoiseach stated he would agree to a debate.

At present there is a 3% target for reduction in CO2 emissions. That is the Government target but when one raises the matter it states that it will reach that target over the five years in government but will not achieve a 3% reduction this year. It seems the big danger to which we are being alerted here is that even that is not enough and certainly the kind of delaying inherent in such thinking will lead us into real trouble.

Earlier it was mentioned that there was a need to carry out a study of the implications of this, to produce the empirical evidence. IBEC, for example, made the point that there were obvious cost implications that we need to understand. Who does it suggest should carry out that study? It seems that we still have a problem as to who is leading on this issue. A Cabinet sub-committee meets once a month only. It is quite clear that the integrated approach we need between Departments simply has not developed and there is a question of how this is being progressed and who is responsible for what. Perhaps they could advise us on who should carry out such a study and be responsible for it.

I am taking these points in the order in which they were raised in the presentation. The ESB plan is certainly a significant one but I have concerns about the funding of the infrastructural development required. Up until now the ESB has been dependent on the customer paying for the kind of development which it carries out. Is that an issue? Should I be concerned about it? How do we envisage carrying out such a major shift in the development of infrastructure to meet significant targets, particularly of renewables? I would appreciate their views on that.

Areas such as energy storage were not even included, as far as I recall, in the all-island grid study. Interconnection is on its way and it is welcome, but energy storage is still an outstanding issue and perhaps they could speak about that. This issue of permeability is a new concept. Presumably, the ESB is a good example of it. Perhaps they could elaborate on the possibilities of us making that case and what we can do about it.

It was stated that each sector - agriculture, transport, environment and energy - must play its part. This committee has received presentations from all those key Ministers but, for example, the Minister for Agriculture, Fisheries and Food, Deputy Coughlan, who is an excellent Minister, has made it plain that such is not on the cards and, in fact, that the CO2 emissions from agriculture are likely to rise next year. It seems that the only area where there has been a real shift such as that required elsewhere is energy. To be fair to the Minister for the Environment, Heritage and Local Government, Deputy Gormley, there have been changes in the building regulations, on light bulbs, etc. However, there has not been the required shift and we would be fooling ourselves if we thought that there is any sight of that.

I realise these gentlemen are presenting ideas on how that can be changed. We must have a new round bringing back the Ministers in the context of what has been presented to us today and of a revised climate change strategy which we, as Members of the House, need to pursue.

I still do not understand this question of forestry. As I recall, forestry used to be included, but for some reason was taken out. It was partly explained here but it seems we should be fighting our corner. The percentage of land covered by forestry is relatively low and we have much ground to make up. It seems we have a strong case in that regard and perhaps the witnesses could comment on that. I am sorry for going on but there is so much in this presentation.

I am hearing complaints from companies dealing in renewables and trying to develop that sector about the lack of tariffs on, for example, microgeneration into the EirGrid. If there is anybody present who could tell me a little about that, it would be useful.

The shortage of installation skills seems a matter on which Forfás, the Department of Enterprise, Trade and Employment and, perhaps, the Department of Education and Science, need to work rapidly. There was an interesting short essay, which they might like to read, in the North-South document produced some time ago. It showed that the big problem for installers getting cross-Border accreditation was down here - I think it related to the FETAC qualification. There seems to be a problem and perhaps we could have a look at that in terms of building the capacity of people who are not only skilled but qualified to carry out necessary work.

Presumably there is additional VAT coming into the Government coffers as a result of the increased cost of energy such as petrol. I do not know whether those present have any figures on that. I have tabled a parliamentary question on the matter. Those figures might be interesting. That seems to be a source of funding that should go directly into the climate change strategy, and particularly in transport we could deal with that.

In respect of the grants that are available for installing solar panels, geothermal pumps, etc., on residential properties, we need to address the issue of fuel poverty. This matter has not been mentioned and I intend to pursue it further. The people who can least afford it are often obliged to live in the most poorly insulated houses, both private and council owned. The grants to which I refer are not targeted at these individuals. These grants are so open and unstructured that the renewables companies operating in this area are targeting those who keep Porsches in their garages and who like the idea of having solar panels or microgeneration units installed in their homes. I was informed by a representative of one of these companies that it is focusing its business in this area because that is where it can make the greatest profit. I do not blame the company for so doing. In the main it is to the people to whom I refer that the grants are being paid. We need to pay specific attention to addressing this matter. It is our job to do so but I wanted to alert our guests to what is happening.

I asked the Minister about smart metering in recent days. His reply was extremely vague, particularly in the context of when the installation of smart meters will commence and also in respect of how these meters will operate. That is a matter of concern.

My final point relates to integration. In general, our record of meeting the challenge in this regard is extremely poor. There has been a shift in the thinking of both the Government and the Opposition. I do not believe that the major difficulties lie in trying to build cross-party support. I accept that problems will arise and that criticism will be forthcoming but this is to be expected. The greatest difficulty relates to the lack of integration among Departments. The Department of Agriculture, Fisheries and Food has been honest and stated that it will not be able to do anything about this matter. When one sets aside the flimflam, it appears that the Department of Transport, in the context of making a significant difference, is not going to take action either.

Deputy Simon Coveney

The Department of Transport does not know what it is doing. From discussing the matter with the Minister at this committee, it is apparent that the Department has no idea about the direction in which it is going.

Deputy Liz McManus

It is very much in the consultation phase. That phase is frustrating, particularly when one is trying to extract strategies from each Department. I am interested in the idea that there should be integration in the relationship between the commission and Government Departments. That is an aspect we had not considered and it is worthy of examination.

Vice Chairman

If Deputy Coveney does not object, I will ask Mr. Brennan to deal with the various questions posed by Deputy McManus.

Deputy Simon Coveney

I will come back in half an hour.

Mr. Peter Brennan

Some 14 points were raised but I am sure that only ten questions were posed. I will answer some of them and ask my colleagues to reply to the others.

With regard to the process, in the past year the Institute of International and European Affairs engaged with stakeholders in respect of the January renewables and climate change package. There are two or three draft directives before the European Council and the European Parliament at present. A summary report from the committee on the key issues would be an incredibly helpful contribution to the debate in the immediate future. It is envisaged that the series of proposals to which I refer will be adopted by March of next year. Between now and the early autumn, there is an opportunity to exert influence in the European Parliament, domestically and at the European Council. Inviting the various stakeholders, including ourselves, to make presentations on that package would provide the committee with a more wide-ranging perspective in respect of climate change. If representatives of the IFA, transport users and others came before the committee, members would be exposed to different views. It would simply be a matter of engaging with people, through a series of hearings, in order to obtain those views.

The second issue relating to the process is that the next version of the national climate change strategy is about to emerge. The Deputy is correct to say that there does not appear to be a high degree of clarity at present. The public sector is primarily focusing on the implications of the January package and trying to draw up a negotiating brief. When matters have settled and when the negotiators are in Brussels and Strasbourg doing what is necessary, the preparation of the next climate change strategy will flow automatically from this process. That is an item of work probably for the end of this year or the beginning of next.

The Departments of Transport, Agriculture, Fisheries and Food and Health and Children will all be obliged to contribute to the development of the new strategy. The current strategy involved an intergovernmental approach. Our experience is that there is an extremely high awareness of the strategic and practical issues involved, particularly at Cabinet sub-committee level and among the members of the senior officials and technical groups. The senior civil servants are familiar with the big picture and are acutely aware of what is at stake. Matters may not have been articulated in the context of where we are going but the nature of the EU's climate change package and the renewables package is fully understood across the apparatus of government.

A revision of national climate change strategy must be made. It will not be possible to fudge in respect of this document because it will, in a sense, be peer reviewed by the European Union. Again, that is a matter for the next phase. The first phase will involve negotiating the EU package. Towards the end of this phase, the new national climate change strategy will emerge. The target in the programme for Government of a 3% reduction will, in a way, be factored into the new strategy, which will take us up to 2020. The strategy will have to indicate that by 2020 Ireland's target will be to ensure that our non-ETS emissions are at X level, that the distance to target will be Y and that it will be split between five sectors, each of which will be responsible for taking certain actions. That is a summary of what will be contained in the strategy. It is a simplistic explanation but it is what will happen.

The full implications of the strategy, including those relating to the marginal abatement costs and revenue, will be analysed by the Department of the Environment, Heritage and Local Government, which is primarily responsible for the strategy. We worked extremely closely with the Department's senior officials group. The Department has strong support from the Department of Finance. From discussing matters with the senior officials, I am aware that there is a heightened awareness as to what is at stake and what needs to be done. We will be obliged to wait until the negotiations unfold.

I will ask Owen Wilson to reply to the Deputy's questions on matters relating to the ESB and smart meters.

Deputy McManus referred to permeability. We need to make the case in this regard, particularly in light of the high level of emissions from transport and agriculture. These are unusual in Ireland and are growing at a much higher rate than in other countries. As stated earlier, I suspect there is an unintended side effect. If we need to have a 15 million or 16 million tonne reduction, it should not matter to the European Union if half of this comes from the emissions trading scheme and half from elsewhere. As long as we achieve the reduction, the Union should be happy that we have been successful and should not be placing barriers in our way. That argument must be made but we must also demonstrate that we can make the reduction. The arguments in respect of this matter can be made. I hope the work we have done will help the Government and senior officials make them in Brussels.

On renewables, every major European economy has refit tariffs. These tariffs subsidise the use and deployment of renewables. In respect of microgeneration and solar power, the Deputy is correct to state that they must be at a level which incentivises their use and brings forward innovation. What should be the level of these tariffs? The level of tariffs in Germany should not be the same as that in Ireland. Until the marginal abatement cost curves are worked out, one cannot identify what will be the ideal tariff. It will then be necessary to fund the subsidy. Should it be funded from the optioning revenue or from carbon tax? Such a tax has not yet been introduced. Will we begin to fund the subsidy when it is brought in? These matters must all be considered.

A major issue of concern relates to the planning laws. The Minister for the Environment, Heritage and Local Government intends to bring forward more relaxed rules regarding the introduction and placement on buildings of small microgeneration units and solar panels. Specific difficulties will not be met in putting solar panels on a house. One will be able to do this as easily as possible. If people install such panels, not because it is fashionable, renewables will be produced and used on a more systematic basis. The use of renewables will not be fashionable because it will become absolutely essential, as the price of electricity and energy inevitably increases. People will say, "I am not paying 50% more for my electricity. I have an option to do it differently." When the smart meters are deployed, one will be able to clearly indicate what are one's costs and how they can be reduced by using renewables.

Mr. Buckley has figures on VAT which he will share with the committee. Skill shortages are a problem in regard to our engineering capacity to produce renewables. They are also a major issue in the construction sector. If 2 million buildings must increase BER standards, the skills quantum is not available to do it as quickly as the Minister and the Department of the Environment, Heritage and Local Government would like. There are skills issues, of which the relevant sectors are acutely aware.

I apologise for not mentioning fuel poverty in the slide on carbon tax. We have examined the issue extensively. I agree it is a major one and that if the price of electricity increases as a result of climate change and the ETS, the people most at risk must be targeted. A strong view has been expressed to us through the ESRI that when the carbon tax is recycled back into the economy, a significant percentage must offset the additional costs to those affected by fuel poverty. In our work to date we have taken account of the issue at significant length. We share the Deputy's concerns and envisage the solution being the carbon tax offsetting the increased costs for those most at risk.

Mr. Owen Wilson

I refer to the permeability issue. While special circumstances apply for Ireland, it should be borne in mind that the spilt between the trading and non-trading sectors is at the heart of the Commission's policy proposals or legislative package and that it will be extremely difficult to unpick it. There are two options through which it can be resolved at domestic level. The first is member states individually purchasing allowances in the emissions trading market. That would create huge problems. Cement companies and the ESB would have to compete against states such as Germany; therefore, the possibility of manipulating and dominating markets would become a problem. It is unlikely that it would arise, although it is being suggested that would happen.

The second option is to introduce domestic policies that would migrate emissions from the non-trading sector to the emissions trading sector, which happens via electricity generation. Fossil fuels are substituted with heat pumps in the heating and cooling market and diesel and petrol combustion engines are substituted with electric vehicles in the transport sector. That view has come to the fore across Europe. By migrating emissions from the non-trading to the trading sector, the issue of permeability would be addressed. However, it would be impossible to tackle it head on in legislation as it went through the Parliament and Council.

Questions were raised about the ESB's plans. I do not have the full details of every element but the spend on the network will be similar to that in recent years on the network's renewal, refurbishment and development. Therefore, the rate of spend will not increase beyond what has been the norm.

Deputy Liz McManus

What is the spend per annum?

Mr. Owen Wilson

It is between €1 billion and €2 billion. I will find the correct figure.

The issue is the implementation of planning approvals, not money.

Deputy Liz McManus

The North-South interconnector.

Mr. Owen Wilson

Yes.

Vice Chairman

That is the business of another committee.

Mr. Owen Wilson

Mr. Brennan commented on the feed-in tariffs. We are at the infancy of the technology relating to smart meters. We also must define what we want them to do. They are an element of a package which will include time of day pricing if they are to be effective. They may integrate with energy storage solutions, maximising their benefit. Significant work is ongoing in the development of the IT infrastructure because this not only involves a meter that displays a price in a house. A communications system that talks both ways is needed to be useful. Most effort in the near term will be expended on the development of a robust system. A pilot project will commence shortly to assess and identify all these issues. Work is ongoing in Ireland and a number of other countries. We are at the forefront of the introduction of the more sophisticated smart meter, if not in the lead. I can understand why the Minister may have expressed caution on this issue.

Mr. Joseph Curtin

The reason forestry was removed was the scientific uncertainties surrounding sinks and their potential to mitigate emissions. This issue will be resolved at UNFCCC level, not at European level. If a 30% target is set, the likelihood is sinks will be readmitted under revised rules but that will not happen until 2009. It would be difficult for it to be resolved at EU level prior to the UNFCCC negotiations.

Reference was made to the Government's 3% target. It will equate with what the European Union has set out in a 30% scenario for Ireland and the level of ambition in the programme for Government is similar to what we have now at European level but the problem is how that is to be implemented. It is suggested the level of ambition with which we are faced is impossible but I would turn that on its head. That is what the science is telling us and it has been translated into emissions reduction targets. It is our challenge to translate it into policy; therefore, the argument must be turned on its head and examined from the top up. The issue is how we will meet the target, not can we meet it. That shift in thinking must be made and reinforced. The incremental nature of policy will go nowhere close to delivering what we need. Big ideas are needed. Mr. Wilson alluded to one of the big ideas on the table, the potential of electrification to significantly reduce transport emissions between now and 2020 and, particularly after date. Massive forestry production is another issue to be examined.

Mr. Donal Buckley

Deputy McManus asked about the impact of the revenues that may have accrued to the Government in the light of increasing international fuel prices. Every time they increase, a portion accrues to the Government. Since 2004 we estimate the Exchequer has taken in more than €2 billion in additional revenue. The Deputy referred to a carbon tax. We have had an international carbon tax and some of the money has been recycled. The Deputy mentioned a number of the tariffs but that money has not been hypothecated or ring-fenced.

One of the issues relating to carbon taxation is accommodating the vulnerable. The Deputy mentioned fuel poverty in this regard. However, small and large companies which trade internationally are unable to pass on the price increases. The idea of a carbon tax would be to deal with those issues. The international carbon tax has led to a significant rise in revenue but, unfortunately, no recycling.

Deputy Simon Coveney

May I refer to carbon tax and the potential for a windfall tax on energy generators between now and 2013? I understand Mr. Buckley's concern that the traded sector should not be taxed twice. However, the immediate concern is that a carbon tax on the non-traded sector would tax households while large emitters would be given allocations of carbon emissions for free. Currently, energy generators are required to factor the price of carbon into their current pricing and have been given allocations for free. A profit margin is being achieved by energy generators, therefore, on the back of free allocations of carbon. The introduction of a windfall tax between now and 2013 would be appropriate because it would limit profit margins on the generation of electricity which are achieved on the back of free allocations of carbon. Once the auctioning system gets up and running, that will not be the case. Revenue from auctioning will be an entirely different issue. However, between now and 2013 there is an opportunity for a windfall tax that could be ring-fenced to fund some of the other changes we are discussing. I agree with Mr. Buckley that once auctioning begins we should avoid double taxation by introducing a carbon tax on top. However, that will be difficult to achieve. If a tax is imposed on carbon fuels at source it will be difficult to ensure the traded sector is not affected by it.

With regard to the buildings and conservation agenda, the Select Committee on Communications, Energy and Natural Resources, of which I am a member, has just completed a long meeting on the departmental Estimates for this year. The cost of retrofitting buildings and even calculating energy ratings is considerable. Will the Government put the necessary budget aside for those purposes? A conservation programme would involve 2 million buildings, of which 1.6 million are domestic dwellings. From the beginning of 2009, anyone selling a house will be required to provide an energy rating for it. This household cost will be heavily subsidised by Government. I am concerned that the necessary financial commitment is not being made by the Department of Finance.

Skills shortage is also an issue. Sustainable Energy Ireland, which is in charge of managing the scheme, says the number of houses to be given energy ratings in each year will be enormous. Will we be able to deliver on the big idea of energy rating buildings and households? It is a very good idea but I am concerned about its implementation.

I do not agree with the delegation's conclusion that agriculture is the largest emitter and the least open to solutions. Agriculture is not a growing sector, although it represents a huge percentage and must be targeted. There are opportunities in agriculture for more dramatic change than is suggested. For example, methane gas could be collected from slurry and methane from grass could be reduced. Cattle produce methane. This is a hugely damaging greenhouse gas but it could also be a valuable commodity if it were be used to replace carbon fuels. This huge problem is also an exciting potential solution and we should see it as that. The make-up of methane is exactly the same as natural gas, which we pay a fortune to import. As well as electrifying vehicles, we could be driving them on methane from Irish farms and industries which produce methane from grass fermentation and so on. We need ambitious thinking rather than a simple attempt to reduce the national herd. Let us capture what animals are letting out of their front ends and back ends, to use diplomatic language, in a more effective way. Those solutions are not easy but we must work with the IFA on this problem. Nothing happens in farming in Ireland unless the IFA supports it. I speak from my experience as a farmer and as a member of the IFA who has clashed with the organisation on a number of occasions.

There is no current incentive for the Government to be ambitious about reducing emissions in forestry because it is not even factored into the calculations. How can we make the case for forestry as part of the national climate change strategy unless its value as a carbon sink is factored into the overall calculations? Otherwise, reduction of carbon emissions in forestry will have no implications for our overall figures. We would be making improvements in forestry simply out of generosity of spirit because we know it is the right thing to do. Calculating carbon sinks for forestry and factoring them in should be a political priority. Ireland's incentive in including forestry as a carbon sink is less than for other countries because we have so little forestry. We are one of the least forested countries in Europe. Other countries could gain massively in meeting targets by factoring in forestry. Nevertheless, if we are to give forestry a kick-start and gain the added value of meeting our emissions targets, we should see that it is included.

It does not surprise me that the ESB is leading the charge in calling for vehicles to be driven by electricity. I do not blame the board for making that case. The shift to bio-fuels has many complications. First, it involves blending fuel. If one drives a bio-fuel only vehicle, there are difficulties with filling one's tank because of the lack of fuel outlets supplying bio-fuel and the difficulty with the transportation of such fuel throughout the country. Added to that is the complication of the argument of the use of crops for food versus energy, another significant issue. The simple solution of electricity-driven cars or buses which can be recharged from the grid at night when excess energy is available seems to make sense. What complications arise in that regard in terms of disposal of batteries? Avril Doyle has done much work in this area. I know there are EU regulations governing their disposal and that the existing complications will be significantly increased if every second car in the country is powered by battery. However, it is an exciting area and Fine Gael would support its promotion along with the use of methane. This is not to say bio-fuels do not have a role to play. They do, but that role has a ceiling.

My final comment relates to public sector performance generally. It is correct to say that everyone can now quantify the challenge in terms of where we need to be in 15 to 20 years' time. However, not many people have given real leadership in terms of how much this will cost, how we will get there or how it will be implemented. Neither have they flown the necessary kites to encourage people to think about the sacrifices that need to be made. There are opportunities in this regard for green collar industries.

When the Department of Transport made its presentation to the committee, its entire presentation dealt with quantifying the problem, mainly where the emissions come from and fuel tourism or migration. We challenged the Minister and asked whether he would tell the public sector, for example, Dublin Bus and Bus Éireann, that all new buses must be carbon neutral. Until we get that kind of direction from the Minister, organisations such as Dublin Bus and Bus Éireann will deliberately cut corners because they have not been provided with a definition and an exact requirement in legislation. All public transport providers must be told that any new bus ordered must be carbon neutral, whether electric, methane-driven or driven by some other form of bio-fuel if we are to get the radical change we need. I am interested in hearing comment on that.

Vice Chairman

Mr. Brennan is earning his money today.

Mr. Peter Brennan

I will take some of the questions and ask my colleagues to respond to the others. There are two dimensions to the carbon tax, one of which is its rate. The more important relates to its design and how it will be applied. Will it be an X% increase in excise duty and will it apply when diesel and petrol leave bond? If that is the case, every sector of the economy will be affected. In other words, the farming sector, households and businesses will all pay more for their fuel. On the other hand, will we have a modulated design targeted at certain sectors to affect behaviour? The rate is one issue. A higher rate will have an impact on behaviour and the reduction of carbon emissions. However, how the rate applies across the economy is as big an issue. We have not gone into that level of detail but it is a critical issue. Every sector of the economy will be affected if the rate is applied at bond when fuel leaves bond. In that case everyone is affected and it is like an extra excise duty.

There is a consensus at national and EU level that the emissions trading scheme will not be taxed because the allowances from auctioning will be paid for and, therefore, any further tax would be a double tax. The European Commission does not propose a tax. Also all the literature and what I have heard from within the Institute of International and European Affairs suggest we cannot have double taxation on emissions trading because it would be unfair and does not make economic sense.

We share members concerns and agree there is an issue with regard to how the building energy regulations, BER, will apply. The problem is we have a target for the residential sector to reduce its emissions by X% by 2020. The Government must explain how that will be done. The debate now is not the analysis, which in a way is complete, but the challenge of implementation. This is a significant issue for the construction industry sector and those with expertise in building energy ratings. Approximately 700 people are registered and have BER accreditation.

The question now is whether we have the facades necessary, the most cost-efficient solar panels, equivalent lighting to that used in other European countries, cladding, tiles and insulation materials in sufficient quantities and sufficient skills to put these into housing to improve energy efficiency. I suspect not. This is an issue we cannot fudge because we cannot set A1 BER standards, which is what we need to do, if we do not have full commitment from the construction industry and advisory sector to achieve this at as quick a pace as is required under the new national climate change strategy. There is a significant buy-in and engagement requirement for all players to ensure the legally binding reductions with which we must comply take place as quickly as possible.

This commitment applies also to Government funding. It is not for the Institute of International and European Affairs to tell Government how to apply its taxation policy. The institute does not make policy proposals; it identifies issues and talks about strategy. We are, however, aware of precedents. If, for example, it costs €25,000 to retrofit a building and the Government then gives everyone a subsidy, the cost will rise to €40,000. There is an issue, therefore, with how best to incentivise the products that are to be used, the households and those who will install the products. This issue must be discussed. Sustainable Energy Ireland has the most expertise in that area and should come up with a practical, cost-effective and value for money scheme.

I agree ambitious thinking is required in the area of agriculture. Agriculture accounts for 41% of our non-traded emissions, a significant sector that amounts to 17 million tonnes of our 70 million tonnes. Teagasc has done and is doing much work in the area. There is significant consciousness within the farming community that climate change is an issue that will not go away. It is correct to say that techniques could be practised in the area of animal husbandry and the use of fertilisers that would reduce, slowly but surely, the volume of emissions of methane from that sector.

Equally, there are opportunities within the sector. Deputy Coveney indicated that methane can be a valuable resource. Waste to energy use in the agricultural area is something at which Teagasc is looking. Positive approaches are being taken, but as with the transport, construction and residential sectors, a significant buy-in is required in the agriculture sector to get everyone up to speed and engaged in discovering the challenges and finding out what practical changes can be made. There is no point in setting a 4 million tonnes reduction in agriculture if it cannot be done. We must be practical and remember that setting a policy target will not make things happen. We must set a realistic policy target and there must be significant do-ability, so to speak, within that target setting. Market feedback suggests herd numbers will rise rather than fall. There is strong demand for agriculture products, especially milk products. This will result in increased numbers in the short term. This will, potentially, result in a increase rather than decrease in emissions from the farming sector in the short term.

It is correct that there is no real incentive to do anything on forestry. As Mr. Curtin explained, for scientific reasons the UN has taken the view that in the context of the Kyoto Protocol, and subsequently, forest sinks should not be taken into account. The debate will change. If the EU took a view to the international negotiations that there should be a review of the use of forest sinks, this would have an impact. This is a decision that will not be taken at EU level but at UN level. We have articulated that view in the earlier question and answer session. We recognise and share the committee's concerns that this is an area with huge potential.

Deputy Simon Coveney

Just on that point, the final decision will be taken at UN level but we need an EU position first to carry that into the UN.

Mr. Joseph Curtin

Carbon sinks are permitted under the current rules but the problem is there is nothing about carbon sinks in the proposals for 2012. I think the EU is holding back and waiting for the issue to be resolved at UN level.

Mr. Peter Brennan

In Ireland there is an acute awareness of the potential for forestry to be used to significantly reduce the national carbon footprint.

With regard to public transport, if rail projects were subject to the current value for money assessment required by the Department of Finance, they would come out with a certain rate of return. If the price of carbon is factored into that equation, and this has not been done before, it would probably result in a different rate of return. Carbon will have a price in the future and the transport sector like every other sector has to reduce its carbon. Looking at public transport investments and factoring in the potential price of carbon at perhaps, €20, €30 or €50 a tonne, one would probably get a different type of profile of public transport and a different cost return. One could even argue the hypothesis that if one tried to take 50,000 cars off the M50 through the use of public transport and so reduce 50,000 car movements a day, how much carbon reduction could be achieved by reducing private sector use of car through the substitution of public transport. If the CIE group has the same statement as the ESB which is that we need to get 5 million tonnes of carbon out of the public transport system or out of the transport system, that would show the scale of the challenge. This is the sort of thinking that is required. As in the case of agriculture, really ambitious thinking is required because the challenges are so difficult.

Transport 21 as it exists at the moment will have a very limited impact on reducing carbon emissions and this is the Department's view. However, we need to look to the period up to 2020 and beyond in terms of looking at the reconfiguration of public transport, particularly around the greater Dublin area which accounts for most of the emissions.

My final comment before I hand over to my colleague relates to the public service. Our main focus today is the January package which is a 20% reduction in carbon emissions in scenario A, 30% in scenario B - which is that there is an international agreement. The report which is under way from the Institute of European Affairs is looking to 2050. It is predicted that in 2050 most European countries are already looking at target reductions of 60%, 70% and even 80%. The 20% target is literally the first phase. If one is taking a strategy on agriculture or transport, one cannot just look to 2020 but must raise one's strategic ambition and look to the economy becoming carbon neutral at the least practical disturbance to the entire economy. This is where we are looking. Our report is a much more strategic report as it does not look specifically at the EU emissions trading scheme proposals; it takes a much wider, longer view and says how the economy needs to migrate to this carbon neutral situation in 2050. One of the stated ambitions of the ESB is that it will become carbon neutral by 2035. If the ESB could become carbon neutral by 2035, public transport can become carbon neutral by 2035 and maybe agriculture after that but everyone can move in that direction. What the institute has tried to do in its work to date is to raise everyone's ambitions in terms of where we need to be and to identify the path we need to take. As Mr. Curtin and others have correctly said, the issue now is how we do it. Everyone knows the science and the numbers and the metrics but the question is how one takes 10 million tonnes out of the non-ETS sector in Ireland. This is the rub at the minute. It is not an easy question and we are still grappling with it, to be honest.

Deputy Simon Coveney

So are we.

Mr. Joseph Curtin

I will go through some of the points raised. Mr. Owen Wilson will disagree with my views but I think there was a certain logic to what Deputy Coveney said about windfall profits. There has been a great deal of literature to suggest that powergen companies have availed of windfall profits under the current rules for the allocation of permits. Mr. Wilson will completely disagree with me on that one and I await his reply.

The agriculture sector presents quite an intractable problem. In the case of methane from slurry, the Irish herd is an outdoor herd so it is very difficult to see how that methane can be harvested. We need to look at agriculture and to have a specific report on agriculture to see where the emissions reductions can be made. CAP reform might not be a popular subject but the WTO negotiations may lead to some reform in agricultural emissions.

The issue of fuel tourism was raised by the Deputy and the Minister also referred to it. It is a red herring. In terms of marginal abatement cost curves, considering the loss of revenue that elimination of fuel tourism would cause, and the cost of such elimination, it would be something like €100 to €150 per tonne of carbon. One could argue that fuel tourism is of benefit to the economy rather than being a problem.

Mr. Owen Wilson

In response to Deputy Coveney's point about batteries, significant research is being carried out on the issue of batteries being used to power electric vehicles, the safe disposal of such batteries and the use of non-toxic materials in them. The batteries proposed for electric vehicles in 2020 and 2030 will not be the same as those we use today which are lead acid batteries. It is not envisaged that the same type of disposal problems will arise with those batteries.

On the point made by Deputy Coveney about the need for a tax on windfall profits, it is true various studies have been carried out in the EU over phase one of the emissions trading scheme as to the impact of carbon market on electricity prices. They have shown varying results with some average figure of about 30% recovery, the free allocation during the first period. However, the bottom line is that it comes down to the profitability of each generating company and the extent to which investors expect return and the scale of that return. To a large extent and increasingly so, one sees the benefit of the free allocation offsetting other costs within the industry--

Deputy Simon Coveney

As I understand, that is not allowed under regulation; one cannot reduce the price of producing electricity and supplement it by carbon costs.

Mr. Owen Wilson

The Deputy is correct. In terms of the bid into the market, the full cost of carbon must be included but the generation cost is not the full cost of electricity. The overall profitability of companies will not be significantly greater as a result of this mechanism over the period to 2012 as the Deputy fears. The net effect will be to increase electricity prices, not to generate or recover revenue for Government because investors will still expect the same level of return.

With regard to forestry, Ireland has the biggest potential in terms of the benefit from forestry because the measure is from some base line from 1990 onwards. The fact that most of Europe had significant forestry in place in 1990 means the benefit to them of including or excluding forestry is pretty minimal, whereas it is of significant benefit to Ireland that forestry would be included. This relates back to the point that the EU is now proposing legislation for the period post-2012, when no UN framework is in place and until such time as a UN framework is put in place.

Deputy Andrew Doyle

I thank the members of the delegation. I would like to respond to the last point that was made about forestry. I accept that there is a policy of not offering derogations at present. In light of what has been said, is there a case for seeking a derogation to bring us up to the EU average? We could accrue some benefit from such an approach. I agree with the suggestion made at the outset that one size does not fit all.

The economy is slowing down and jobs are being lost in the construction sector. Is there scope for retraining and regrouping workers in that sector, especially in the context of the point that has been made about the need for retrofitting, so that skill levels can be increased? There is a void in the employment market at present as fewer new-builds are taking place. Surely the money that is increasingly having to be used to make dole payments to people who are no longer in work, to be blunt about it, could be invested in providing a new skills base. The skills in question are not dissimilar to the existing skills of these workers.

Ireland is committed to making significant carbon credit purchases in the future. Given what has happened with the ESB, and in light of what Mr. Brennan said about investment, I suggest that we should invest in making an insulation package available to every house. If we are to spend €50 million on schemes of this nature - I am picking figures from the sky for the sake of argument - we should be able to say that it will save us €50 million in carbon credit purchases each year. We should look on it in that vein, rather than saying it is a double whammy. While it might not involve a saving this year, it will save us money in the long run.

I would like to speak about transport and the "fleet first" approach. Deputy Coveney spoke about the network of distribution. I assume that domestic cars do not account for even 50% of this country's transport bill I could be wrong, as I do not have accurate figures in that regard. I honestly do not know, so I could be way out. Significant savings could be made with our public transport fleet - buses and trains - as well as with trucks. This committee received a presentation from Dr. Jerry Murphy from Cork about the use of methane from grass to power buses. It could be also used to power the agriculture industry fleet, which would be quite significant. The various blends of renewable sources of energy which are to be introduced should firstly be accommodated within the existing distribution network.

As someone from an agricultural background, I agree that the scientific community is being challenged. The most significant challenge is probably the challenge of controlling the bovine diet without reducing one's herd. The output of methane from bovine herds can be reduced by up to 20% purely by focusing on diet, without reducing the size of the herd. The research that is ongoing in NUI Maynooth and elsewhere needs to be resourced. Such investment will not be recouped tomorrow or next year, but it will be recouped over the years to come. We need to invest in research and development.

I would like to speak about waste energy. There is huge potential in the carbon capture sector. I assure Mr. Curtin that a significant amount of winter storage continues to take place. It causes all sorts of problems. If an efficient system of methane capture could be implemented before such material is spread on the lands, we would see the benefit. Similar potential exists in some of our domestic waste treatment plants. That material can be used as a fertiliser and as a fuel.

The figure of 24% that was mentioned can be explained by our lack of a significant industrial base. It is such a high percentage because agriculture accounts for such a high percentage of our GDP. Industry accounts for a higher percentage of national output in the UK because it is a more industrialised country. Agriculture accounts for such a large proportion here because we do not have huge industry. Perhaps the figures are slightly warped in that way. However, I believe the figure of 24% or 25% can be reduced. I am sceptical enough about the notion that we should agree to the WTO reduction at a time when the G8 and the UN are talking about food security. Feeding our people is the bottom line. This country has the potential to feed 36 million people. That is the capacity of this country's agriculture industry. We have to bear the agriculture sector in mind as a valuable resource. Some of its potential benefit needs to be used to mitigate our carbon output.

Is it not a little simplistic of Mr. Wilson to suggest that one can plug in one's energy? It depends on where one is getting one's energy, from a power point of view. We will continue to rely on some kind of fossil fuel unless there is a significant shift in the way wind is allowed into the national grid. I want to make the point that it might be going indirectly into the car or the bus.

Mr. Peter Brennan

This country's carbon fund is operated by the National Treasury Management Agency. A budget of €270 million has been provided under the fund for the purchase of carbon. It will have a similar role after 2012, when it will have to go to the marketplace to buy credits if we do not meet our domestic requirements. The taxpayer will have to spend between €100 million and €300 million, potentially, to buy credits overseas if we fail to do what needs to be done domestically. We have an incentive to take domestic measures. The view we have taken is that it will be better for the economy if we try to internalise these costs and to carry out abatement and reduction measures in this country. There is quite a challenge across all sectors. If we do not do exactly what we have to do in the non-domestic environmental technology and services sector, the carbon fund will step in. It will be expensive for us to buy our way out of our legal requirements.

The Deputy made a fair point about construction. I welcome the decision by the Government to introduce high building energy rating requirements at a time when the construction industry is encountering severe difficulties. Like the Deputy, I do not know why the output of the construction industry is decreasing so quickly at a time when it is challenged with retrofitting this country's existing building stock. One would imagine that process would give a huge fillip to the building industry. Over 2 billion buildings need to comply with the highest energy standards possible, which are to be imposed on us at EU level, over the next ten or 15 years. It has to be said that the reductions in question are to be welcomed. There is a huge opportunity. Having spoken to representatives of the construction industry, I understand they are fully aware of this point. There is a mismatch between the incentives which are required, the skills gap and the drive. These targets have not been agreed yet. They will not be agreed or applied for another three or four years. There is no immediate incentive for anyone to do anything. One could bring forward the investment programme. There is also a cost. We will have to wait to see the outcome of the EU negotiations.

The Deputy was right to suggest that an enormous amount of retrofitting work needs to be done. There are huge retraining and reskilling requirements. Even if one has skills and training, one has to have products. There is no point in having everyone highly skilled in installing the latest solar panels, lighting, facades, slates or insulation materials if such products are not available. The construction industry is aware that the entire industry needs to meet certain requirements. I am sure the representatives of the industry, as one of the stakeholders in this process, will be pleased to give their views on climate change to the committee. They have contributed extensively to the work of the Institute of European Affairs on the construction dimension of climate change. I ask my colleague, Mr. Wilson, to respond to the other questions.

Mr. Owen Wilson

Deputy Doyle's final comment related to the impact of the type of energy input into electricity generation on the use of electricity for transportation. This is a peculiar accounting element of the new regime that is being put in place by the European Commission. As the electricity sector works within the emissions trading sector, which is capped at EU level, all incremental electricity produced is produced with zero net emissions, in effect. It is produced from zero-emission fuels - nuclear or wind, for example - or else people in the emissions trading sector reduce their emissions to accommodate the increase in electricity production.

It is a strange peculiarity of the regime being put in place that, in effect, electricity produced and used in the transport sector - a new market which needs an incremental amount of electricity - will result in no additional emissions arising in the European Union, irrespective of the form of generation used, whether fossil fuel, nuclear or renewable energy. However, there is an advantage to the electricity sector in using renewable or variable renewable energy, specifically wind. This arises from having a large tranche of batteries available with smart meters. As these can be controlled, energy can be stored as it is produced intermittently by wind. This allows for greater penetration of wind energy and greater utilisation of the network and generation assets. Therefore, significant synergistic benefits for the electricity sector would arise from the electrification of transport.

Mr. Joseph Curtin

I fully agree with Deputy Doyle on the issue of carbon credits and the need to take a long-term approach. I did not intend to suggest I supported developments in the agriculture sector at WTO level. I am examining the trends and suggesting what might come down the track from those negotiations. With regard to the position of agriculture in the economy, it is impossible to address this question without a tough examination of agriculture which produces 41% of our domestic sector emissions. The sector is 11 times more carbon intensive than any other sector per unit of GDP produced. This is a major challenge which should be borne in mind.

The essential point the Deputy makes is that we need to square the circle and try to find solutions without necessarily reducing the national herd. A number of organisations, including Teagasc, are examining the scientific approach to reducing emissions. Another approach being examined by organisations such as Feasta is to use the soil as a carbon sink. While I do not propose to discuss this issue in detail, it holds considerable potential. We need to assess the potential of all these scientific and other approaches.

Mr. Donal Buckley

Deputy Doyle made some very good points on agriculture. The objective of our efforts is to try to abate rather than relocate carbon emissions. Businesses, particularly some of the heavier industries, are concerned that some of the policies being adopted by the European Union would force them to migrate and that their products would be manufactured elsewhere. The same argument holds for agriculture. If the goods are not produced in Ireland, they will be produced elsewhere. We need to consider the issue from the perspective of food security and our overall objective of trying, through renewables, to reduce emissions rather than move them around the world. The latter option would not have an overall benefit. The issue of food security is important, given that Ireland feeds 22 million people in Europe. Decisions need to be taken on these matters.

Deputy Andrew Doyle

The elephant in the room which I had not intended to mention is GM. Science and research are key issues because they offer potential for significant natural output and food security. This issue must be addressed.

Vice Chairman

I thank Mr. Brennan, Mr. Curtin, Mr. Wilson and Mr. Buckley for their presentations which were among the most interesting and realistic to be made before the joint committee.

The joint committee adjourned at 4.25 p.m. until 2.15 p.m. on Wednesday, 14 May 2008.