On behalf of the committee, I welcome Professor Frank Convery, chairman, Comhar, Mr. Noel Casserly, director, Comhar, and Dr. Lisa Ryan, director of research, Comhar.
Climate Change and Energy Security: Discussion.
Mr. Frank Convery
We are pleased to have been invited to attend the committee. Mr. Noel Casserly will give a presentation on Comhar and Dr. Lisa Ryan will present the substance of our recommendations on climate change.
Mr. Noel Casserly
The main part of our presentation will be about the linking of climate change and economic challenges, particularly in light of building Ireland's smart economy. We have examined the issues of carbon tax, recycling revenue and the recommendations on cap and share, a system of personal carbon trading.
Comhar was established as a multi-stakeholder council in 1999 as one of the key recommendations of Ireland's first national sustainable development strategy. Its mandate and funding comes from the Minister for the Environment, Heritage and Local Government. Its organisational model is based on social partnership, with 25 members representing the five pillars. These comprise the Department of the Environment, Heritage and Local Government, local authorities, the Environmental Protection Agency, IBEC, farming interests, trade unions, the professions, academics and environmental NGOs.
It meets four times a year in plenary session and adopts a three-year work programme at the beginning of each three-year term. Currently, it is awaiting the appointment of new members.
Comhar engages in issues around biodiversity, transport and educational awareness. It is also involved in cross-sectional issues on sustainable development such as governance for sustainability. A key part of what we do is evidence-based policy analysis which informs the recommendations of the Comhar council to Government and, of course, a range of outreach work as well. The two key areas, therefore, include advising Government on policies which promote sustainable development, typically recommendations to the Minister for the Environment, Heritage and Local Government, though not exclusively. We also make recommendations to the Minister for Transport, the Minister for Finance or whoever, as appropriate. Those are just some of the more recent recommendations which we have submitted over the past year or so.
To summarise where we are going, we see that we are facing enormously demanding and legally binding obligations for energy and climate change. The whole agenda is driven by the intergovernmental process, both at EU and UN levels. There is an opportunity for Ireland, a four-year window in which to make the transition to a green economy based on innovation. The three key elements of this transition are getting the prices right, a sense of coherence between policies so that they are working in the same direction as pricing and using this window to radically and permanently reduce fuel poverty, so the whole issue of social inclusion is also a key element of this process. A key objective for Ireland should be to be a leader in Europe in green tech and green collar jobs by 2020 and to convert this challenge into an opportunity.
At this stage I will hand over to Ms Lisa Ryan, who will take the committee through the detail.
Ms Lisa Ryan
I would like to present some of the key recommendations in the area of climate change and energy security. I am starting with a slide. There are some urgent messages we would like to get across and it is no harm, perhaps, to remind ourselves of the policy framework that is driving much of this. The European climate change and energy package was presented in January 2008, where the EU has committed to reducing greenhouse gas emissions by 20% at least by 2020. For Ireland, in particular, the most challenging part of this is the separate targets that have been set out for the non-emissions trading sectors. For the first time there are targets for the emissions trading sectors, ETS, and non-emissions trading sectors. Ireland has been given one of the most onerous targets of 20% reduction by 2020 compared with our 2005 emissions. This pie chart serves as a reminder of the split of our non-ETS emissions. Transport accounts for 32% and agriculture 38% of those emissions. The residential sectors and small industry and commercial sectors account for another 25% of those non-ETS emissions, We can see that there are big challenges in the area of transport and agriculture particularly, but also in residential and small industry.
We would like to link our climate change policy and targets with economic growth, while developing a sustainable economy for the future. As we know a sharp economic decline is in store for Ireland over the next few years. Professor John FitzGerald was quoted in the newspapers on Monday to the effect that there was already a 9% fall in GDP, which brings us to 2005 levels, and this is very serious. We see the sharp economic decline, however, as providing some opportunity to act in the area of climate change. Some of the consequences of economic decline are that we probably can expect greenhouse gas emissions to fall compared to the baseline projects we were given as recently as September 2008 by the EPA. Greenhouse gas emissions are tied very closely to economic growth and that has been the problem in the past. If emissions decrease, our Kyoto target of almost 63 million tonnes may actually be met, or at least we are likely to be much closer to it than had been thought previously. In the event, the money set aside by the National Treasury Management Agency, €290 million, could be freed, so that we might expect some Exchequer savings in this regard. In addition, there are falling energy prices worldwide. Already oil prices have moved downward from approximately $150 a barrel to about $41 today, and natural gas prices, which are closely linked, have halved in the past year or so.
Energy prices are falling and this provides an opportunity to stock up on fossil fuels and really look at carbon taxes as a price mechanism in this situation. Reduced carbon dioxide helps prices in the EU emissions trading scheme. It also gives retailers something of a breather in terms of the price of carbon and means that emission prices globally are going to fall. If we overshoot our targets, this means the price the State will have to pay for the credits we may need to buy will be relatively lower. During the period of economic decline there is a four-year window, if we expect the recession to last that long. It presents a good opportunity to make the transition into the innovation-led green economy. Everywhere people talk about moving into a green economy, we have a framework for sustainable growth and this is the time to do it. The time to invest in new green jobs is when old jobs are being shed.
As Mr. Casserly briefly mentioned, the three elements we are talking about include getting the price signals right first. In the context of climate change "prices" here means carbon prices. If the right price signal exists everything else is that much easier to put in place. This is the right time to do it, especially as energy prices are generally in decline. In addition to having the right carbon price in place, one must ensure that the rest of the policies are working in the same direction. There are many examples of where much more could be done with other policies, some of which will need investment while others will just involve a reshaping of existing policies. Green purchasing or procurement is in An Agreed Programme for Government, but as yet we do not have a programme on it, and it is a key mechanism in the public sector for driving the green technology business forward.
Any direct State investment should focus on progressing energy efficiency, greenhouse gas reduction, innovation and support for green jobs. Information is a very important policy measure. Even where there is a carbon price signal, customers when they are choosing products need to be able to make informed choices. They need to know, for example, the carbon emissions attached to different prices. With cars, in alignment with the vehicle tax change that was introduced there is now much better labelling which allows consumers to choose between the different ratings of cars. This is something that should be automatic and pervasive across the board. Research and development is crucial for innovation in the future. Although there are funding mechanisms in place, we need to link better enterprise with innovation. Regulations are also still important. We made a good start with the building energy regulations, but more can be done as regards regulations requiring best available technology across the board.
Any subsidies given should be checked and proofed before they are put in place to ensure they are aligned with carbon and energy efficiency.
The third element is to reduce fuel poverty. It is estimated that 100,000 homes are still at risk of fuel poverty in Ireland. Investment of funds in reducing or eliminating fuel poverty is a good way to ensure that vulnerable groups do not have too much of a burden as a result of carbon tax — it is also a way of providing jobs — in reducing fuel poverty. We are talking here about retrofitting houses and insulation, measures that are already under way but which need much broader funding mechanisms. We are working on all those areas, but I will focus on price signals today.
I would like to convince the committee that fiscal instruments in terms of price signals really work. I want to show the example of Irish vehicle taxes, something we had campaigned on for quite a while, and we were delighted when they were introduced. Not all the design features were incorporated and I will come back to that. As members will know, the vehicle tax system, both motor taxes and VRT, was changed from 1 July 2008, from an engine size based system to a carbon emissions based one. Preliminary data show that in the last six months of 2008 it was spectacularly successful in changing the types of cars people were buying. An indirect effect was that many more diesel cars were bought. While diesel cars produce much less carbon dioxide emissions — this is the reason these have reduced — they also produce much more nitrogen oxides because of the different European standards between petrol and diesel cars. While diesel cars produce significantly fewer CO2 emissions, which is why our CO2 emissions have reduced, they produce a lot more nitrogen oxides, as they have different European emissions standards to petrol cars. Ireland has problems meeting our NOx emissions targets. The Powerpoint presentation shows the standards for a petrol car and a diesel car, which come to 0.8 g/km and 0.25 g/km respectively. Unfortunately, we have inadvertently made things more difficult for ourselves, namely, through increased NOx emissions. It is important to keep in mind that when these fiscal instruments are being designed, we need to take quite an holistic view of them. It would have been fairly straightforward to put a mechanism in the vehicle tax system to make sure that advanced emissions were covered, and not just CO2 emissions.
This data from SEI is the proof of the pudding. It is from the organisation's Energy in Ireland report, published last year. From 2000 to 2008, it shows the different emissions bands of cars that were sold in Ireland. The first column is from 2000 and the light green colour represents an "A" band, which are cars that emitted fewer than 120 g/km. In 2000, no such cars were sold. Over the decade, the number of these cars sold increases somewhat. The last two columns show the numbers for 2008. The second last column shows June and July 2008, while the last column shows July to October 2008, which is the most recent data. We can see the jump in cars sold that have lower emissions, simply as a result of the carbon emissions vehicle tax system. That is very interesting, because it shows the immediate impact these tax changes have had. This is one of the many examples of consumers changing the way they behave, based on a fiscal instrument put in place. Another example of this is the plastic bag levy.
Carbon tax has been on the cards in Ireland for a long time. Much work was done in 2003, but at the time the tax was not introduced. The perceived barrier at the time, which we can refute in many cases, was the argument that most of industry was covered by the emissions trading scheme, so that a carbon tax would be a double taxation. There were arguments that there would be a reduction in industrial competitiveness, that it would not be effective in reducing CO2 emissions. The issue of fuel poverty among low-income households was raised continuously, and that was a big factor for not going ahead with the carbon tax. The inequitable burden on rural dwellers also came up.
We have come up with a proposal on carbon tax, if it is to be introduced in 2010. It would be limited to those sectors that are not in the emissions trading sector. That would eliminate the argument that there would be double taxation, as only small industry, the transport, residential and services sectors would be involved in the carbon tax. The tax level would be the equivalent of the European emissions trading scheme prices, so that would ensure equity across all sectors. It should begin immediately, even though we could have a phase-in stage at a lower level, followed by increases. The potential for direct emissions reductions straight away would be relatively small at 1%, but we can expect further emissions reductions. When a mechanism like this is brought in, it is well documented that the announcement effect causes people to change their behaviour, even if they are not facing a high price rise. If the revenue is used to invest in further energy saving measures, then we would see a further increase in emissions reductions.
The ESRI and Cambridge Econometrics have produced the two models we see in the presentation. Cambridge Econometrics is a consulting company we commissioned last year to look at carbon tax and cap and share. From both models, we can see that the numbers are very small. They show the effect of a carbon tax on GDP, household spending, imports, exports, employment, incomes and CO2 emissions. Both organisations forecast that carbon tax would not have any impact — or possibly a positive impact — on GDP on household spending. If the revenue collected from a carbon tax is put back into the macro-economy, such as reducing labour taxes, or is spent in retrofitting people's homes, then the amount of spend in the economy is increased. Consumers have more money to spend on different things, so GDP rises slightly. In the worse case scenario, it has no impact at all. That is quite interesting.
If we take an emissions trading scheme price of €20 per tonne of CO2, which is the equivalent to about 5 cent per litre of petrol, we would raise between €430 million and €780 million in 2010. That is a significant pot of money, and what we do with that money is very important, because it relates to how equitable and effective the mechanism is. This money could be used to reduce emissions, but as part of the green new deal, it could encourage sustainable economic growth. If the Government explains to the public what it is doing with the money, the public mistrust of Government use of funds will be reduced. If the Government does not explain this, and tells the public that the money is just being collected, there will be resentment. If the Government explains that the money is going to be invested into the future of the economy, then there will be a much better acceptance of any deal. Many areas need investment in fuel poverty, and this is something on which the Government could spend the money. Energy saving schemes also need further investment.
We believe that there could be gains in political capital, if the revenue is recycled from a carbon tax in a targeted manner. This will increase public and sectoral acceptability. The money should go back to small business and energy saving mechanisms should be introduced for those sectors that have paid the tax. If the carbon tax revenue was to be split up, we estimate that about 40% would be given back in labour taxes and in compensation for low-income groups, 30% would be invested in energy saving activities, and about 15% to 20% would be used in eliminating fuel poverty.
We did much work last year on the cap and share scheme, which is an alternative scheme for the residential and transport sectors. I believe committee members have received a report that was commissioned on the scheme. It is a pretty hefty report, and we made recommendations to the Minister for the Environment, Heritage and Local Government on it. The scheme works as follows. The Government sets a cap on fossil fuel emissions. This cap is divided by the number of households in the country, and each household is essentially given a certificate equivalent to the average emissions per head. The fuel importers will be passing through. The households are facing a carbon tax, but they get compensated for the increased cost. Emissions are reduced, because if a household emits more than the average, it will not get the equivalent compensation. If it emits less than the average, it will gain financially.
The advantages of this scheme are that it gets the public engaged, which increases acceptability, and because lower income households spend less money on fuels, they will gain the most. The scheme is more acceptable than carbon taxes. If we are talking about reducing emissions by 20% in 2020, then we are talking about carbon taxes of €200 per tonne. When we get to those levels, a cap and share scheme is much more acceptable. It is relatively simple to operate, when compared with other personal emissions trading schemes that were explored in places like the UK.
There are weaknesses to the scheme. Transaction costs are potentially high, but this is something that we have asked the Minister to examine, because he would have to see how it can be organised. The other significant disadvantage is that the carbon tax that the Government might be spending on energy saving activities would be given back to each household. Therefore, there is a utility loss.
The next slide shows numbers which explain the modelling from the cap and share scheme. The first row shows the target reduction. Cambridge Econometrics did this modelling which demonstrated what it would mean if there was a 30% cut in emissions by 2020 under a cap and share scheme. It would mean one would give each household an allowance of almost 12 tonnes of CO2 emissions per annum. Under this modelling regime, the value of that allowance would be €3,500. Effectively, we would be setting a carbon price of €300 per tonne and one would be giving each household approximately €3,500 which it can spend as it sees fit on energy. If one's increased costs go above €3,500, that will obviously cost more but if one is below that sum, one will make a windfall gain. If one compares this with the carbon tax, the price is approximately the same.
The third option we considered was a hybrid scheme, where there was a cap and share scheme on residential households and also a carbon tax on small businesses that are not in the emissions trading scheme. The graph shows that households would probably only get about half the allowances because the other half of the allowances would be given back to businesses so they could engage in more energy saving activities. There is a lot of detail in this and I am happy to take questions on it if members are interested.
How would it be policed?
We will take questions later.
Ms Lisa Ryan
For the information of committee, the recommendations we made to the Minister were that we think the best option is for a combination of a cap and share and a carbon tax scheme to be considered in the medium to long term. A carbon tax should be implemented immediately, and this does not negate that, but there are some issues that need to be resolved and examined more carefully. We recommend a working party or some kind of committee to look in more detail at how one would integrate a cap and share scheme with other policies, particularly with Northern Ireland policies, and how this would impact on issues such as fuel tourism, for example. It should consider whether rural dwellers and other vulnerable groups would require additional compensation and one would also need to assess the administrative requirements and costs of such a scheme. It would be based on a PPS system, which seems the best option according to the recommendations.
On the next steps for the work of Comhar, we estimate that the emissions trading auction, which will happen post 2012 for the other powergen sectors to begin with, will see another €230 million to €600 million coming in. If one takes the carbon tax and the emissions trading system revenue together, approximately €1 billion annually will be available. Perhaps 70% to 80% of this money should definitely be earmarked to invest in the green economy and 15% to 20% should be used to compensate low-income groups. With fiscal measures, there are always winners and losers and one needs to be very careful about the losers. However, this is a problem that can be solved with the amount of money that will be coming in.
Finally, we need to eliminate fuel poverty, which will also provide jobs while it is being done. We would like to consider in more detail the areas where we should be investing this money, the potential for employment in these areas and what sort of policy instrument mixes are needed to achieve that.
In conclusion, economic and climate change challenges mean new sources of revenue which we need in any case to stimulate long-term sustainable economy. There are opportunities for change at this time. The focus needs to be on getting the price signals, the policies and equity right, which should encourage the growth of a green economy.
The three of us are happy to take questions. I can give the committee members our e-mail addresses and our website is where we publish all of our reports. We have also provided a handout which contains a list of all outputs.
I thank the witnesses for their presentation. I was interested in the point on motor vehicle emissions. I am sure every Deputy is coming across a major problem in the motor trade at present in terms of the very serious downturn in the number of transactions. While it is understandable there would be an initial burst of activity in regard to people's behaviour patterns post 1 July, which is reflected in the graph and with which I agree, from a ministerial perspective I cannot understand why we only took into account new vehicles purchased after 1 July 2008 given that the driver file contains information going back to 2004 for second-hand cars. There are a lot of problems in Border counties in regard to imports.
Is there a proposition that Comhar could put to me that would make even greater strides in regard to reducing greenhouse gas emissions by backdating the initiative to include cars going back to 2004, and would perhaps include how we treat imported vehicles? It would not only level the playing field, which would assist the motor trade and assist behavioural patterns, but would also do an enormous amount of good in terms of greenhouse gas emissions.
I thank the witnesses for attending this useful discussion. I have some comments to make on price signals, which was the main emphasis of the discussion, and how we use price signals to change consumer and business behaviour in terms of emissions and energy usage.
I always get slightly frustrated when people start talking about carbon tax and do not actually reflect the reality that consumer households are already paying a carbon tax in terms of the cost of carbon on their electricity bills. In 2008, this has added approximately 10% to everyone's electricity bill, whether for a business or a household, but nobody knows they are paying it. The price signal that is there is irrelevant for consumers because they have no idea they are paying it and the bill is not itemised. It is money that is simply a windfall profit for energy generators, 50% of which goes to the ESB and 50% to others.
To be fair to the ESB, it has given a significant rebate this year to try to compensate consumers for high prices. However, that is an example of an introduction of a policy that is about trying to change behaviour in energy generators in terms of giving to people who are not producing emissions while producing power to competitive price advantage at a wholesale and retail level, when, in effect, there is no retail competition anyway. Consumers are paying more to try to facilitate a change in behaviour in industry. I have a problem with this, particularly in the context of where Ireland is now, with many consumers on their knees and a huge competitiveness problems in business.
I am all for a price signal and I have a very strong commitment to building a genuine green economy in Ireland, changing consumer behaviour, moving away from imported fossil fuels and all the rest. However, I am only willing to buy into the concept of charging people more to drive them down a different alleyway in terms of their behaviour, if people have that choice. One cannot raise prices for people if they do not have an alternative, which is what we have been doing in terms of factoring in the price of carbon into energy bills. We must not do the same in the transport sector by simply slapping on a carbon tax.
Fuel usage in Ireland, whether petrol or diesel, did not dramatically reduce when people were paying high prices when oil was $147 a barrel last July. Instead, it remained more or less the same. What the witnesses correctly alluded to in their presentation is that when the taxation system around vehicles is changed, and people have a choice and can choose three or four different options, and they choose the one that makes financial sense for them and which also happens to be the environmentally responsible decision, then it works. However, we must not introduce a carbon tax in a way that does not give people choices. This is my concern with the proposal.
When we have an option of an electric car, bio-fuel vehicle, hydrogen powered car or otherwise, when people can make genuine choices, then I have no problem with increasing the price. However, we must be careful in this regard, particularly at a time when the ability of consumers to bear increases in general expenditure is not as robust as it was some years ago. The delegates are correct that there are opportunities in recession. One should never miss the opportunity of a crisis. However, while price signals sometimes work, in other cases they are simply a revenue-raising exercise. That is my concern in regard to this issue.
I recently attended an interesting presentation by Comhar on the detail of the cap and share proposal. My concern is that while such a scheme represents a fantastic idea in theory, in reality it would require every household in the State to know how it works in order for it to be effective. This would require a major educational exercise before its introduction, which is a significant limiting factor. In theory, it offers a much more exact way of controlling emissions and rewarding those who create energy efficient homes. However, in the real world, it may not work so effectively. People might install a turbine at the bottom of their garden, for example, and factor that into the share they are given. There are many grey areas that must be clarified with reference to the cap and share scheme. Nevertheless, the principle behind it is something that should be given further consideration.
I thank the delegates for their presentation. In one sense, carbon taxes are already in place. In regard to electricity consumption, for example, there is a specific carbon tax of which people are not aware. Similarly, one pays a considerable amount of tax when purchasing petrol. As Deputy Coveney observed, unless alternatives and choices are offered, a carbon tax will not work to change people's behaviour. For example, the steep increases in petrol prices last summer did not change people's behaviour. It is not that people are stupid or do not want to save the environment. The reality is that they simply do not have transport alternatives. The notion of a congestion charge, for instance, is wonderful in theory but in reality, people will have no alternative means of getting to work. In this context, the only way to proceed is by way of a targeted approach.
I am pleased the delegates raised the issue of fuel poverty. I am extremely concerned at the lack of Government action in this regard. It is important to spell out the situation. We have one of the highest rates of winter deaths in Europe, more than 40% of which are caused by poor accommodation. People are literally dying as a result of fuel poverty. A certain amount of lip-service is paid to this issue but there has been little effective action. The warmer homes scheme, which is operated by a non-statutory organisation, is attempting to assist people. However, anybody who applies for that scheme will be obliged to wait in line behind the hundreds or even thousands of applicants ahead of them on the waiting list. My experience is that the operators of the scheme are extremely frustrated because they do not have the capacity to meet the level of need.
The Government gave a commitment to introduce an insulation programme and, in line with this, a significant sum was allocated for that purpose in the budget. However, it has not materialised, notwithstanding the introduction of a pilot scheme. I was hopeful we would see swift action in terms of grant aid for the provision of insulation in qualifying applicants' homes. However, if one telephones Sustainable Energy Ireland, one is simply placed on a waiting list. The defining feature of these measures is the waiting list.
Ironically, we all know that a national insulation scheme could be established next week which would be revenue-neutral and would provide employment for thousands of construction workers. It would release funds in bank accounts which are returning a poor rate of interest and which their owners would like to use to invest in their homes if they could receive some type of assistance. That assistance could be provided in the form of a tax break, even over a period of years.
The current situation is bizarre. The bulk of people waiting in dole queues to receive social welfare benefits are construction workers. These people could be put to work next week. There is something disturbingly lethargic about our response in terms of providing insulation. Retrofitting may present some difficulties but in terms of construction and the materials involved, it is essentially a simple matter to insulate and improve the fuel efficiency of one's home. There is a benefit both for the individual householder and for the nation as a whole. People are eager to improve their homes particularly when, as in the current market, fewer are seeking to move home. Such a scheme must be a priority. Although it does not deal with people living in fuel poverty, it could include a provision whereby funding is allocated to those persons. There must be a targeted approach. Low incomes and substandard accommodation, whether private accommodation or accommodation provided by local authorities, often go together.
The delegates emphasised the importance of education and public awareness. Does it make sense to have two very expensive websites, one operated by the Department of Communications, Energy and Natural Resources and the other by the Department of the Environment, Heritage and Local Government, which essentially perform the same function? Regardless of which Department assumes responsibility, this grossly inefficient duplication should be eradicated.
How can we put in place a structure to ensure we deliver on our commitment to achieve a reduction of 20% in greenhouse gas emissions by 2020? This target will be slightly less onerous as a result of the economic downturn but it still requires a major shift in terms of how Governments manage their business. The Labour Party recently published climate change legislation which deals with the question of how to embed the entire process in such a way that no Government can avoid its responsibilities. I accept there is good will on the part of the Government in regard to this issue. Nevertheless, the results are not impressive.
In the current economic climate, we must concentrate on moving towards the creation of new-generation jobs. The Government must take a proactive approach. Research and development, training and education, particularly third level education, and enterprise are the areas on which to focus. I am not sure who should drive this endeavour because it encompasses responsibilities of several Departments. I remain to be convinced of the benefits of a cap and share scheme.
I thank the delegates for their presentation. Ms Ryan in particular showed great enthusiasm and evidently enjoys her job very much. Will the delegates explain how Comhar is financed? Some of my other questions depend on the answer to that.
Mr. Noel Casserly
Comhar is financed by the Minister for the Environment, Heritage and Local Government under the environment fund. It is largely financed from the proceeds of the plastic bag and landfill levies.
How much of Comhar's funding is drawn from central Government funds?
Mr. Noel Casserly
Most of it comes from the environment fund. Three staff are permanent civil servants. The research staff, of whom there are four, are on contract and funded from the proceeds of the environment fund.
It strikes me, in the context of the downturn, that Comhar's work is similar to that of SEI, Science Foundation Ireland, to a certain extent and the Environmental Protection Agency to a lesser extent. Why does Ireland have so many organisations which in many ways deal with the same objectives? This point is somewhat similar to the one made by Deputy McManus on the duplication of work within Departments, of which there is a great deal. In the current climate what streamlining must be done? Comhar is one of the quangos which have proliferated and on which members must keep an eye. The delegates' response should outline how they could settle in, were all the aforementioned agencies to come together. Do they believe Ireland's commitments to climate change measures and reaching its targets would be any poorer for it?
Ms Ryan made a point about the ring-fencing of resources, a question which has been answered to an extent. I do not believe in ring-fencing resources because circumstances change and targets or issues that once may have been enormously onerous often can fade in either priority or relevance. This is the reason I do not consider ring-fencing to be a good idea. Mr. Casserly has mentioned how Comhar essentially is funded from the proceeds of the plastic bag levy. Does this not constitute an example of ring-fencing, in that the proceeds of plastic bag levy must be used in this way? While that was fine in the days of plenty, they now are gone. I do not like Comhar's argument on ring-fencing. The Government must be free to apply resources as it perceives fit. However, I do not disagree with Comhar's argument on incentives in respect of moneys raised. The Government shows its commitment to an issue by providing sufficient funding.
I refer to Comhar's presentation on the cap and share scheme and the various scenarios produced for it by Cambridge Econometrics. How does one police this? Other members have touched on the point that although such schemes are wonderful in theory and everyone wishes to be the best and most environmentally sound, it raises questions as to how this can be achieved. While I admit we must extend the tax revenue base, ultimately all that will happen is that people will be penalised, rather than change being met. There must be a way for those who are trying their best to be greener citizens. There is no point in introducing a burdensome measure if it cannot have the desired effect.
How many other countries, if any, have introduced carbon taxes? What can Ireland learn from them?
My final question pertains to competitiveness, a major issue for Ireland. I certainly would not agree with any measure that would further jeopardise its competitiveness. My question pertains to the cost of carbon which fluctuates like the price of any other commodity. Comhar's presentation states the price will be between €15 and €25 per tonne. The difference between the two is massive. One either budgets at €15 or €25; there are few other items for which one would experience such a massive differential. I refer to the price of oil which has risen and fallen, as well as the price of carbon which effectively has collapsed from that which was anticipated. How can a degree of stability be secured in the price of carbon? How can systems be organised to achieve this? I doubt whether it is possible to do so.
I will allow the delegates to respond to all the questions posed before we proceed further.
Ms Lisa Ryan
There were many questions, for which I thank members and I will take them chronologically.
Deputy Hogan raised the issue of vehicle taxes. I agree there are problems in that the vehicle tax change only affects new cars. At meetings I attended before its introduction the Department of Finance raised the problem of imported cars and how the change could be applied to imported cars and second-hand cars in general. The problem is that under EU legislation, CO2 emissions for cars produced before 2001 were not measured. Therefore, one does not have an official emissions figure for cars made before 2001. Consequently, the change cannot be applied to old cars. As VRT should be paid on all imported cars, the new regime should be applied to them. It is a matter of enforcement to ensure VRT is paid on such vehicles. While motor tax on such vehicles is a different question, VRT is the hefty one and must be enforced correctly. I understand the motor industry is talking to the Government about the issue.
Deputy Coveney asked many questions and I completely agree with him on many of the items he raised. Electricity bills include a carbon price because electricity is part of the emissions trading scheme. The problem is that as this carbon price is not itemised, customers cannot make choices based on it. Moreover, private customers generally do not have the choice to seek a renewable energy supplier. It is difficult for such customers in respect of electricity, which is the reason we propose a carbon tax for the non-emissions trading scheme sectors. It also is the reason we think information is the key to this issue. One cannot introduce a carbon tax or any other fiscal measure without proper information because otherwise, as Senator O'Malley noted, it constitutes an additional cost people will face without giving them the requisite power to do anything about their behavioural choices.
Petrol and diesel prices did increase and people can argue there was no effect. It is difficult to know whether this is the case because it raises the question as to what would our driving behaviour have been like had prices remained at $30 a barrel. Perhaps they would have been much worse. Both Dublin Bus and Luas numbers increased, which probably was related to the cost of driving. However, the big difference between a fossil fuel price increase and the imposition of a carbon tax is that when oil prices rise, the only gain is by the multinationals which provide the fossil fuel. If a carbon tax was to be imposed, such revenue would be collected by the State. Therefore, there is a difference between these two price mechanisms.
However, in the case of the former, more tax is collected by the State from the sale of petrol.
Ms Lisa Ryan
Yes, more tax is collected. In the case of a general price rise, the Government collects more VAT revenue. However, excise duty which constitutes a substantial part of the tax take does not change. Only VAT revenues change when prices increase. However, with a carbon tax, one would have a fixed revenue stream coming into the Government.
Senator O'Malley referred to expanding Ireland's tax base which is exactly what one would be doing with a carbon tax. Some members also referred to alternatives, particularly in respect of transport, and stated one could not impose a carbon tax on transport unless people had alternatives. Comhar has undertaken much work in respect of transport and I agree Ireland has a big problem, especially in rural areas. This is a substantial risk, on which we are doing much work, because something like 75% of all greenhouse gas emissions from private transport are in rural areas and, in general, the people concerned do not have many choices. We must tackle the issue of rural transport, regardless of the price instrument to be used. This will require significant funding. The Fitzpatrick report of a number of years ago showed that it would be expensive to provide a better public transport system in rural areas. How would it be funded? One method would be a carbon tax or road pricing scheme that transferred money from drivers with transport choices to better infrastructure in other areas.
I am glad that Deputy McManus raised the fuel poverty issue, a matter on which we all agree. It can be acted on quickly and we will continue to press it.
On carbon tax, how can one convince the public to accept another tax, given Dublin Bus's announcement that it will withdraw buses, and the lack of apparent improvement in traffic management within the city? To get the public's co-operation, one must show them that positive measures are being taken to assist them, but there is not even an integrated ticketing service. If I am to try to sell the concept of a carbon tax in the interests of reducing CO2 emissions, I will be immediately asked about whether anything is being done about proper public transport or an integrated ticketing service. We are contemplating these measures in dreamland.
While I do not mean to be party political, I was shocked when I learned that Dublin Bus was allowed to contemplate reducing the number of buses. Every fortnight, the committee tries to meet people like our guests to develop a profile of energy efficiency and climate change, but we are then kicked in the teeth. No one seems to be telling Dublin Bus not to do what it will do. We asked CIE what it would do to move heavy goods from roads onto rail, but nothing came of it. We have asked that public transport be the first sector to use renewable fuels, but nothing seems to be occurring in that regard. The chances of introducing a carbon tax in the current conditions will make our guests' lives and ours ten times more difficult. It will be seen as another attempt to remove money from people's pockets. The purpose of the exercise is to reduce CO2 emissions. I apologise for interrupting Ms Ryan.
Ms Lisa Ryan
It is fine.
I feel sorry for groups, such as the one before the committee and the committee itself, that are making genuine efforts to meet targets, change habits and so on. We produced a Bill on offshore renewable energy, but we are fighting to have it considered by the Government. I often ask myself whether we are serious about this issue.
Mr. Frank Convery
I will contribute on that point. Contrary to Senator O'Malley's opinion on ring-fencing, all of the evidence is convincing in that, unless one presents people with a credible package outlining what is paid and what will be given in return, it cannot be done. In the current fiscal climate, the credible, national insulation programme to which Deputy McManus referred and that we favour strongly is not achievable without serious income accruing from a carbon levy. There is a great deal of symmetry. The number households that are in fuel poverty, an estimated 100,000, will increase as incomes fall. A €2,000 decrease per house will amount to an overall cost of €200 million. We should look after fuel poverty in terms of its magnitude and the numbers involved. The public would respond and insulate 20,000 homes per year for the next five years. A large amount of the money in question will go towards doing that.
There would also be a return on the expenditure.
Mr. Frank Convery
Yes. Deputy McManus made the point that the construction industry is on its knees, but a strong stimulus fiscal package is necessary. I do not agree with Deputy Coveney, who stated that the price effect gets lost. While it is true that we effectively pay large carbon taxes on transport fuels, the evidence shows that Europe is approximately 40% more efficient per kilometre travelled than the US when adjusted for income and other variables and when our behaviour is compared with that in the US. This is the case because of the large tax wedge that we pay and Americans do not. A focused tax would be better, as people should know that the carbon element in every purchase is separate.
We are not discussing households and electricity, but we strongly favour time-of-day metering, for example. As soon as people know that turning their dryers on between 6 p.m. and 7.30 p.m. would cost five times as much as doing so earlier or later, people will still dry their clothes, but there will be a considerable adjustment in behaviour. We must start somewhere and real resources are necessary. We do not know of any other way of achieving what is desired. Everyone agrees that it cannot be done unless the package is credible and is relevant to most people, especially the poor.
I am a significant user of the N11. Most days, I take the bus. It is a great service, but one out of every ten buses changes driver in Donnybrook, leaving the passengers to sit for 20 minutes until someone shows up, at which point the drivers spend another ten minutes chatting. One notices that many buses are labelled "Out of service". I am not convinced that the number of buses is the critical constraint.
That is a matter for management.
Mr. Frank Convery
Yes, but the solution may lie somewhere other than in investing in road stock.
The idea of a 46A bus travelling from Dún Laoghaire along the N11, through Donnybrook, up O'Connell Street, around Parnell Square and back down the other side of O'Connell Street with no one on the bus from O'Connell Bridge until it returns to that point is daft. One need not be a scientist to work it out. A bus could make twice the journey by bringing it to a certain point and providing a free hop on, hop off service within a one mile radius of the city centre. The high number of buses passing through the city centre is one of the matters that annoy the public.
If one buys 50 litres of petrol, one cent per litre of the bill should go to a fund for proper public transport or so on, the details of which would be audited and published at the end of the year. This would be more practical than a tax about which no one knows. If people see that they must pay one cent per litre for a designated, audited and efficiently administered purpose, most would not notice it. It should be separately shown on a receipt. This sort of thinking would make more sense.
Ms Lisa Ryan
That is what we are discussing.
Provided it is used for its purpose. The language we use to encourage people means a great deal. Besides efficiency, CO2 emissions would be reduced. Much of what we talk about is efficiency, but efficiency needs to be properly managed. I apologise for interrupting Mr. Convery.
Mr. Frank Convery
The variability issue raised by Deputy O'Malley certainly is an issue on the market. At present, the price of carbon is approximately €12 per tonne. It was at €34 or €35 per tonne six months or so ago. A benefit of the trading scheme is that one can buy allowances today to cover emissions in 2020. In other words, one can hedge and there is complete fungibility across the entire spectrum of the market.
Is there much activity in buying and hedging carbon because of the volatility?
Mr. Frank Convery
At the moment the price is decreasing so most people are trying to sell. One of the good things about the market is that in some areas businesses are struggling and as their emissions fall they have the facility to sell the allowances released by their reductions and obtain cashflow. It is quite supportive in competitive terms at present. Generally, the carbon market will not be more volatile than the energy market. They go in tandem. All the hedging mechanisms in place for them will apply to it. There is less volatility with carbon tax but it raises other issues.
With regard to our quango status, the distinctiveness of our outfit as it stands at present is that in effect our board is made up of the partners from the five pillars. We spent a great deal of time trying to mobilise evidence to bring the partners along to a shared view of what the problem is and how to address it. Nobody else fills this space. We put much emphasis on trying to mobilise evidence and perhaps we are a little more independent in how we do this. I am the chairman and my legal status is as an independent chairman so I can speak independently. Our view is that we provide very good value for money. At the same time, we want to be completely comfortable collaborating and working with whatever structure seems cost effective. This is the nub of where we are at.
To be chauvinistic with my UCD hat on, UCD has an ambitious project to combine all its talents in science and engineering and across the spectrum, including economics and law into an earth systems institute. We are determined to turn this huge resource into a public service vehicle that will drive the innovation economy, as we have not done as much as we could have in this area, and to help in every way we can to promote the achievement of the climate change and energy targets. We have made a conscious decision on this. At present, the PRTLI 5 has a big research fund and we are mobilising the university to move into this area. As part of this we have a talk every Friday at 12.30 p.m. in the Royal College of Physicians and one of our staff speaks about a facet of climate change.
Is that open to the public?
Mr. Frank Convery
It is open to the public. As it happens I will speak about emissions trading this Friday so this is cheap huxtering for my talk. It is a nice opportunity to get the best people in Europe to speak about various aspects of the issue.
We are more than happy to respond to individual or collective requests for help. We believe this is important. It is partly why we exist and the committee can be sure we will respond quickly with as much rigour as we can and in as helpful a way as we can.
I thank Mr. Convery, Mr. Casserly and Ms Ryan. I apologise I interrupted Ms Ryan.
Ms Lisa Ryan
That is fine.
I thank the delegates for the detailed presentation. It is greatly appreciated.