I welcome from the EPA Ms Laura Burke, director of the office of climate, licensing and resource use, Dr. Ken Macken, programme manager and Dr. Eimear Cotter, scientific officer. We are here to deal with the issue of emissions projections and we look forward to the presentation.
Greenhouse Gas Emissions: Discussion with EPA.
Ms Laura Burke
I am the director of the office of climate licensing and resource use in the Environmental Protection Agency. We recently released our greenhouse gas projections out to 2020. My colleague, Ms Eimear Cotter, has prepared a presentation on those projections. We propose that Ms Cotter goes through those projections and we will, I hope, be able to answer any questions.
Dr. Eimear Cotter
I will give a brief introduction on the reason for doing emissions projections. I will show the results for the Kyoto period and for 2020 and then conclude.
As to the reason for producing emissions projections, we have a number of requirements at both national and EU level. At a national level, projections allow us to assess if the scope and range of policies and measures are sufficient to ensure compliance with our targets and if this is not so, it allows us to develop an appropriate response by means of additional policies and measures. They inform Ireland's negotiating position so our projections would have played a significant role in the negotiations of the climate change package last year. Previously, projections were required to underpin the first and second national allocation plan and they also inform the carbon budget which the Minister publishes at the end of every year.
At EU level we have a legal reporting obligation to produce and submit projections to the Commission every two years. This year is a reporting year and these projections being presented today were submitted to the Commission earlier in March and published by the EPA. The Commission takes those projections from each member state and collates them to get an idea of how the EU as a whole is doing in terms of meeting its Kyoto Protocol targets and its 2020 commitments. The projections will also feed into our fifth national communication which is a UN reporting obligation due at the beginning of 2010.
The national climate change strategy was published in 2007 and it designated the EPA with responsibility for developing emissions projections. The projections being shown today are the second set of projections published by the EPA. It requires the co-ordination of a large amount of data from many organisations so we are not doing all this work on our own. Most notably, we take data from ESRI, SEI, and Teagasc. We have to produce our projections consistent with reporting guidelines to meet our legal obligations. It is also important to ensure that our projections are consistent with the historical and national greenhouse gas inventory.
To talk a little more about our historical inventory, I have shown an illustrative graph in the presentation. By historical inventory is meant the historical emissions from 1990 up to the most recent year which is 2007. The EPA has long experience in putting together the inventory as we have been doing so for more than ten years, using very well established methodology which has been reviewed many times and most recently by the UN in 2007. We have a great deal of experience in putting our historical emissions together and we are building on this experience to produce our projected emissions. We are building on this well-established methodology to ensure we have a consistent time series over the whole period from 1990 up to 2020. Any differences are noted in our projected emissions as a result of a change in activity rather than a new methodology introduced in the projected emissions or different sources of emissions or a different scope of emissions.
We are taking data from many different organisations. It begins with the ESRI, which produces its macro-economic forecast and medium-term review every two years. That was most recently published in May 2008 and out of that it produces a set of energy forecasts. It runs its models and sees how it thinks the economy will unfold and out of that it estimates the energy demand up to 2020.
SEI contracts ESRI to produce national energy forecasts, so it does not just take ESRI's energy forecasts but imposes its own policy assumptions to produce a national energy forecast. That step is important for us, so only agreed and forthcoming Government policies and measures are included in the national energy forecast. Other, more speculative policy measures that are under discussion are not included. We also take data from Teagasc on animal numbers. It runs its own agricultural models giving an idea of where animal numbers are projected to be in Ireland as EU policy unfolds. We take inventory data, emissions trading unit data, waste data and we work with COFORD on how it thinks the potential for carbon sinks will unfold in Ireland. We bring all this data together, compile it, go through the preliminary calculations, examine select emission factors and see what policies and measures are included to get our final emissions projection. We are taking data from many organisations and it requires a great deal of work to co-ordinate all these data flows.
We are producing projections under two different scenarios in line with our reporting obligations. We have a "with measures" emission projection which is based on all existing policies and measures. We also have a "with additional measures" emission projection which is based on existing and planned policies and measures. The "with additional measures" emission projection is the more optimistic scenario. It includes firmly committed, existing policies and measures and planned policies and measures, meaning measures outlined in Government documents, such as the energy white paper, where targets are firmly agreed and committed to, but policies and measures backing up those targets are not yet in place. Both measures are based on ESRI's mid-term review published in May 2008 and since then the economic forecast has deteriorated. To capture this we have asked ESRI to carry out an economic shock analysis on the two emission projection scenarios. I will go through that in more detail in the next slide.
This slide shows the key assumptions underpinning ESRI's mid-term review, which it calls a credit-crunch scenario. This review underlies our "with measures" and "with additional measures" projections. The two key assumptions relevant here are assumptions on GDP and the price of oil. At last May ESRI projected the economy would contract by 0.5% in 2008 and 2009 and grow out to 2020 and that oil would trade at €100 per barrel in 2010, rising to €120 in 2020. The economic forecast has changed significantly since then. That is always the case with projections, but even more so this year.
To give us a better handle on what this means for our emissions, we asked ESRI to carry out an economic shock analysis and it did that earlier this year, estimating that GDP will contract by a total of 7% between 2007 and 2010. When I show the results there is a "with measures" result and a "with additional measures" result based on the mid-term review, which is a contraction of 0.5% in the short term and an economic shock analysis which is more reflective of what the situation is likely to be, given what we know now. The economic shock analysis is not a full re-run of ESRI's model due to the time limitations we were under but once it produces a new set of data we will work through that and produce a new set of projections.
To clarify, the figures were based on 0.5% reduction, so OCLR has not done the figures on a contraction of 7%.
Dr. Eimear Cotter
We have. We started off looking at a 0.5% reduction and then ran an economic shock on that. It is a sensitivity analysis on the 0.5% contraction, so the economic shock analysis assumes a 7% contraction in 2008.
Are these figures for the 7% reduction?
Dr. Eimear Cotter
No, there is a comment at the end of the page which captures that. The text under the table explains the economic shock.
Ms Laura Burke
The Deputy will see it as we go through the results. Hopefully that will clarify it. It is taken into consideration in our calculations. Dr. Cotter will show the members in one moment when the results are there.
Dr. Eimear Cotter
Moving on to the figures, for the Kyoto protocol limit we have a total limit of 314.2 Mtonnes over the entire Kyoto period, which equates to 62.8 Mtonnes every year. This was calculated as 13% above Ireland's 1990 baseline, which was affixed at 55.6 Mtonnes. For the emission trading sector, 111.4 million allowances were allocated to the ETS sectors, which equates to 22.28 million allowances per annum. So of the 62.8 Mtonnes of CO2 equivalent that is our Kyoto limit every year, 22.3 Mtonnes have been allocated to the ETS sectors. If one subtracts what was allocated to ETS from the total limit of 62.8 Mtonnes, that leaves non-ETS allowable emissions of 40.6 Mtonnes. That distinction between ETS and non-ETS is important in trying to work out what the Government's purchasing requirement might be as we move out of the Kyoto period and work all this out.
Under the "with measures" scenario, which includes only existing and implemented policies and measures, our emissions are projected to be on average 65.4 Mtonnes over the Kyoto period. If one subtracts the Kyoto limit of 62.8 Mtonnes, that shows a distance to target of 2.5 Mtonnes every year.
We must examine the relative contribution of ETS to non-ETS to see what this means for the Government's purchasing requirement. We have broken the 65.4 Mtonnes down into ETS and non-ETS shown in the table on this slide. The ETS is a separate scheme and is put to one side when one considers the Government's purchasing requirement, whether it emits above or below its annual allocation is for it to buy or sell to meet its obligation. When considering the Government's purchasing obligation we need to examine non-ETS sector emissions.
Can we clarify the carbon sinks issue? Are they allowable?
Dr. Eimear Cotter
Under the Kyoto protocol they are allowable.
Under our 2020 commitments in the EU, carbon sinks attached to forestry are not allowable, is that correct?
Dr. Eimear Cotter
They are.
Dr. Ken Macken
The latest climate change final package published in December in the EU indicates a commitment to probably include carbon sinks subject to forthcoming negotiations in Copenhagen. The Irish Government lobbied strongly for the inclusion of carbon sinks to 2020. Because of our large agricultural emissions the inclusion of carbon sinks is very important to try to meet the 2020 targets. We will get to that later in the presentation.
I understand that is not definite.
Dr. Ken Macken
It is not definite.
It depends on this world agreement of 30%, is that correct?
Dr. Ken Macken
It does not depend just on the minus 30, but on an international agreement.
Dr. Eimear Cotter
We are focusing on non-ETS emissions to see what the Government's purchasing requirement may be under this emissions scenario. With projected emissions for non-ETS of 45.8 Mtonnes, this implies a Government purchasing requirement, a need for Kyoto mechanisms or additional domestic action of 5.2 Mtonnes per annum. I have shown along the bottom how we have arrived at that figure. We took a Kyoto limit, took away what was allocated to the ETS, and 40.6 Mtonnes is allowable under non-ETS, and this is the number one compares to the projected non-ETS sector emissions.
Dr. Cotter has lost me on that last calculation. Could she repeat it?
Dr. Eimear Cotter
We have the Kyoto limit every year of 62.8 Mtonnes and of that 22.3 Mtonnes was allocated to the ETS sector——
Ms Laura Burke
It is the blue element at the bottom of the slide.
Dr. Eimear Cotter
If the 22.3 Mtonnes of CO2e was allocated to the ETS and subtracted from the Kyoto limit of 62.8 Mtonnes of CO2e——
——that would leave 40.6 Mtonnes of CO2e.
Dr. Eimear Cotter
That is the figure we have to compare to our projected non-ETS sector emissions.
Therefore, we are 5.2 Mtonnes of CO2e over that target.
Dr. Eimear Cotter
That is taking account of the existing policy measures in place and if nothing is done beyond that. The calculation of 5.2 Mtonnes of CO2e is based on an economy contraction of 5%. If we apply the economic shock to that calculation, our purchasing requirement would reduce to 2.8 Mtonnes of CO2e to 3.2 Mtonnes of CO2e per annum. As our economy contracts, we have less of a purchasing requirement.
I will move on to the "with additional measures" scenario. This is a more optimistic scenario, where all existing policies and measures and all planned policies and measures in, for example, the Government's White paper and energy efficiency action plan would be implemented. The table detailing this shows projected emissions. Emissions are projected to be 61.8 Mtonnes of CO2e. If we compare projected emissions to our Kyoto limit of 62.8 Mtonnes of CO2e, it appears we would be over-achieving on our Kyoto limit. We have to examine and compare the relative contribution of the ETS sector to non-ETS sector; the projected emissions from the non-ETS sector are 44.2 Mtonnes of CO2e compared to the allowable emissions of 40.6 Mtonnes of CO2e. That gives us our implied Government purchasing requirement, or additional domestic action, of 3.6 Mtonnes of CO2e per annum. Applying the economic shock analysis to that calculation reduces the purchasing requirement to 1.3 Mtonnes of CO2e to 1.8 Mtonnes of CO2e per annum. Even if all additional policies and measures were implemented and delivered, as currently anticipated, this would still be our purchasing requirement under an economy contraction of 7%. The main proviso is that all these additional policies and measures will be implemented and will deliver, as we have been told they will deliver. That is an important point to note.
I do not understand why the delegates do not have available the calculation for the distance to the Kyoto limit. Surely that is known.
Dr. Eimear Cotter
When considering the distance to Kyoto limit, it is the economy as a whole that is examined.
Right.
Mr. Eimear Cotter
To break it down into the ETS sector and non-ETS sector would imply there were separate targets for those sectors and that would be a little misleading. That is the reason I have shown figures this way. There is no target to compare ETS and non-ETS sectors over the Kyoto period.
Therefore, the global figure is shown.
Dr. Eimear Cotter
It is given in the whole.
I have a pretty clear understanding in terms of how the traded sector works. In the non-traded sector if we do not meet our Kyoto targets, essentially, we will have to purchase carbon credits to make up the difference, which is a way of applying a fine to Ireland. Have the delegates calculated the value of carbon credits in terms of how much it will cost us, or will we come to deal with that later?
Dr. Ken Macken
No, we have not, but it depends obviously on the price per tonne at the time.
Yes, but that has dropped quite significantly.
Dr. Ken Macken
It also depends on when they are purchased whether some have already been purchased or a commitment has been made to purchase them. The National Treasury Management Agency is the body commissioned by Government to make those purchases. It is best placed to answer that question. Typically the prices applying at present are of the order of €10 to €15 a tonne. Prices higher than that and lower than that have applied for periods in the past.
A key point in this respect is that if all those additional measures came in, the country's emissions would be seen to have come in under the Kyoto target, but we would still have to purchase a certain number of allowances to meet our Kyoto commitment. That is a difficult point to grasp because it seems counter-intuitive, but that is the way the accounting works out.
In regard to the cost involved, I do not know if the delegates are aware of research which was the subject of a recent presentation to the committee by Trócaire and Christian Aid. They concluded that the EU was way off in its measurement of the cost involved. Perhaps it is unfair to ask the delegates about this, but have they examined what those agencies have said on this matter? It would be useful to get an overview on whether what they said stands up to scrutiny.
Ms Laura Burke
We have not looked at that specifically, but we can certainly do so and come back to the committee on it. It depends on whether they were considering the cost of purchasing or the cost of mitigation and adaptation, but we can come back to the committee on that.
The delegates refer to additional measures. Do they mean additional measures that have been committed to by the Government, ones that are being talked about or ones which the EPA consider would be useful to implement? To what exactly do they refer in terms of additional measures?
Dr. Eimear Cotter
Additional measures are those that are firmly committed to by the Government. An example is the 33% renewables target. It is committed to in the energy White Paper but there are not firm policies and measures backing it in terms of how that target will be met. Additional measures are those that are firmly committed to but without all the details in place as to how they will be achieved.
Could the delegates give us a list of the differentiation between the two, namely what they mean by additional measures?
Dr. Eimear Cotter
Yes.
This would be interesting for us because many ambitious commitments have been made by the Government, but it seems there is often not much behind such commitments to ground them in reality. The delegates' approach is scientific and that is extremely helpful. If they could explain in writing the differentiation between the measures and the additional measures, that would be useful.
On that last point and to get as much clarify as we can on it, the written presentation refers to the additional measures including the energy White Paper and the revised energy efficiency action plan, but at the bottom of the relevant page it is stated that not all of the targets are currently associated with specific measures. Presumably that is a matter of concern.
Dr. Eimear Cotter
Yes. It is the way we have defined "with additional measures". They are policies and measures where targets have been set and we are awaiting the full details of how those measures will be put in place. That is line with how the EU would want us to do this and how we are obliged to put together our emissions projections. Other countries report on the same basis.
Ms Laura Burke
We can give the committee that information.
Nobody has seen the energy efficiency action plan. Obviously the Department has, but we have not.
It is published.
No, the revised plan is not published. We are waiting on it. Perhaps the Deputy has seen it.
Maybe I saw the original plan.
Yes, that was the original one, but this is the one that was planned from the beginning of the year.
Ms Laura Burke
We will give the committee the detail of what we consider under additional measures.
Dr. Eimear Cotter
That concludes the Kyoto period.
Moving on to 2020 targets and the EU climate change package, when we consider our targets, we are only looking at non-ETS sector. The ETS sector is being managed under an EU-wide scheme. We do not have to consider that when we are examining our 2020 target.
The target for Ireland under the climate change package is to reduce our emissions by 20% in 2020 relative to the levels in 2005. The Commission has calculated that to be nearly 38 Mtonnes of CO2e in 2020 and that will be clarified and verified in the years to come. We are not only aiming for one target in 2020 but will have a series of interim targets between 2013 and 2020 to make sure we are on a pathway to compliance. It is highly likely that forest sinks will be included in our compliance regimes following the negotiations that went on last year and the outcome of that will be more certain following the Copenhagen conference later this year.
The delegates are dealing strictly with the 20% target. I take it they do not have figures if, say, the target was 30%.
Dr. Eimear Cotter
No, not at the moment.
The Copenhagen conference will take place this year. Will it not?
Mr. Eimear Cotter
Yes, that is right.
Ms Laura Burke
Yes, but there were negotiations at the end of last year as well.
In the presentation it is stated it will take place in 2010.
Dr. Eimear Cotter
No, it will be in 2009.
The figures for the 2020 targets are set out in the presentation. The first set of figures is calculated without carbon sinks under each scenario. Our distance to the target is shown in the right column under the "with measures" scenario. If nothing new were in place and we were to carry on with what is in place at present, our distance to target is projected to be nearly 16 Mtonnes of CO2e. Under the "with additional measures" scenario, this would reduce to 8.1 Mtonnes of CO2e. If we apply the economic shock to the "with additional measures", it would reduce to 7 Mtonnes of CO2e. With carbon sinks under the "with measures" scenario, the distance to target is 11.4 Mtonnes of CO2e, applying the "with additional measures" it is 3.8 Mtonnes of CO2e and applying the economic shock it would reduce to 2.7 Mtonnes of CO2e.
It is a long period from 2013 to 2020 and to anticipate a negative rate over such a long period must be very difficult.
Dr. Eimear Cotter
We rely totally on the ESRI for that. It runs its macroeconomic model of the economy.
These predictions could be totally out. While I know the EPA must do this, I am sceptical about the economic shock figures.
Dr. Eimear Cotter
Yes.
Hopefully, the growth rate will have improved.
Dr. Eimear Cotter
The economic shock is looking at a contraction in the short term and the economy then recovers again to 2020. It would have a strong element of growth out to 2020 once we get out of the short-term situation.
The short period covers 2007 to 2010.
Dr. Eimear Cotter
Yes.
Post 2010, therefore, it is back on the growth curve. Give me a loan of that crystal ball.
Dr. Ken Macken
In regard to carbon sinks, we are applying this on the assumption that the 20% target stays static when that comes in. There is a possibility that during the negotiations towards the end of this process the burden of our effort for 2020 could become slightly higher if carbon sinks come in. This is not something we are particularly drawing public attention to because it will mean a negotiating position as Ireland goes forward. However——
They will give with one hand and take away with the other.
Dr. Ken Macken
They may have to because if they are trying to achieve a net reduction of a certain amount and if they give us something better, it is a zero sum game. It is something to keep in mind, that we are applying this off the existing——
Not really. This is about the calculation. If they are ignoring carbon sinks, they are ignoring a mitigating factor for emissions. If they are accepting carbon sinks, they are accepting them as a mitigating factor. However, it is not a zero sum game. One is either deciding to ignore a positive or one is not. It is not something we should accept if we get the advantage of a measurable benefit and, all of a sudden, they increase the target in terms of emissions reductions. I just——
Dr. Ken Macken
I would solidly support the points the Deputy has put forward and I hope we would use those in our negotiations. I was trying to alert the committee to the fact that, even with a fairly solid line of argument, it is not a certainty that everything would remain static if we got that.
There are 36 countries to deal with.
Are we adding the economic shock to the "with additional measures" or to the "with measures" in this table?
Dr. Eimear Cotter
To the "with additional measures".
It is on top of everything.
Dr. Eimear Cotter
Yes.
Are we taking into account the additional cost of planting to bring the forests up to the level that would be required to give us the extra benefit with the sinks?
Dr. Eimear Cotte
No. COFORD runs a sophisticated model but the economic side is not included in that model, which is more a scientific——
Our understanding is that one would need 14% or 15% more afforestation.
Dr. Eimear Cotter
Its assumption is that afforestation continues at 8,000 hectares every year to 2020 to deliver approximately 4 million tonnes in 2020, which is the difference between the two.
I come from the agricultural end. How is it intended to achieve those targets and what incentives will be put in place?
Ms Laura Burke
We are here to talk about the scientific calculations. We are not qualified to give an answer as to the how or the incentives. What this highlights is the importance of carbon sinks for Ireland. We have a significant challenge to hit the 2020 targets, particularly because it is only in the non-ETS sector, of which agriculture is 40%. We are highlighting the challenge and, presumably, this will be looked at with regard to policies, measures and incentives to achieve developments such as the carbon sinks.
It is only hypothetical unless we reach it.
Ms Laura Burke
Absolutely. These are projections based on the scientific information we have.
Have the witnesses factored into their calculations, for example, the Government's target of 10% of transport vehicles being electric by 2020? There is a permeability issue here between the traded sector and the non-traded sector. If one is powering vehicles from turbines and from Moneypoint, and Moneypoint is very much in the traded sector, which is totally separate in terms of the Government's targets, one is actually transferring a burden from the non-traded sector out of the Government's hands and into the traded sector, which takes care of itself. Is this part of the EPA's additional measures? My understanding is that approximately 8 million tonnes will come from cars by 2020. Some 10% of that is close to 1 million tonnes which will be transferring from the traded to the non-traded sector. I would be curious as to whether this is part of the EPA's calculation.
Dr. Eimear Cotter
The straight answer is that it is not part of it at present. For the "with additional measures", we are working within the confines of the energy White Paper, on which SEI bases its energy forecasts, and the revised national energy efficiency action plans. That measure was under discussion as the underlying data were being put together so for the next round of projections, we would expect that this measure in particular would be included and we would have a better handle on the impact it will have.
With regard to the issue of afforestation, the Government and the civil servants who went to negotiate it certainly progressed the case. This committee was very helpful in that regard and a certain debt of gratitude should be acknowledged.
With regard to cost, it seems we will have to do dramatic things or else live in an economy that is dramatically worse off than at present. The witnesses talk about advanced measures, carbon sinks and economic shock. If all those are put together, we are nearly there, but we are not at that stage. It seems we need to look again at the Government strategy in regard to meeting our commitments to measure this.
It is very useful that we have this scheme. We might concentrate on this area, which is obviously our primary concern, but we also must consider the traded sector and how it will perform in regard to this scheme. Perhaps the witnesses will address the ETS in terms of the EPA's role and how far it has progressed in this regard.
In terms of the period to 2012 and beyond, I am still not clear who does the auction and how it works. The EPA is obviously very close to it so perhaps the witnesses will give me a grasp of it. I can understand what has to be done in public policy terms in regard to the various sectors, but in terms of the private sector, we also have to see from the EPA's projection what is required. Will the witnesses comment on that?
Ms Laura Burke
Dr. Macken is the expert and I am sure he will be able to explain.
Dr. Ken Macken
I hope to answer the Deputy's question. For the period from 2008 to 2012, the European emissions trading scheme is fully up and running. Most of the companies throughout Europe have been given free allocations of significant percentages of their expected emissions and this will continue all the way through to the end of 2012. At the end of that period, they will have to finalise what is known as the Kyoto period. They then move into a new period from the beginning of 2013, which is the period covered by the new climate change package that has just been published, agreed and finalised by the European Commission and the European Parliament. Under that new regime, the entire ETS ceases to be 27 separate national schemes with national allocations, instead it becomes one EU-wide scheme with an EU-wide allocation process. The allocation process will differ depending on which sector of the ETS one is in.
After 2012, we will no longer refer to an emissions trading scheme but to an emissions trading system. What will happen is that the allowances earmarked for the power generating sector will be auctioned entirely to that sector. In the non-power generating sectors, which include cement and lime, refining, steel, other combustion, brick works and so on, there is a commitment by the Commission to move increasingly from a free allocation towards an auctioned allocation. The rate at which that change occurs will depend upon what is known as carbon leakage. This refers to the vulnerability of European industry to its production moving outside the European Union to countries not covered by a cap and trade scheme. If there is a significant risk of carbon leakage, those sectors will be given an increasingly higher amount of their allocation free during that period.
Will that put an additional burden on the State in terms of the non-traded sector?
Dr. Ken Macken
No, the two sectors become entirely separated. The European Union provides the allowances for the entire scheme and will arrange the auctioning through the member states. I understand some 87% or 88% of the total revenue will come back to each member state, on a pro rata basis. Member states are constrained in what they can do with this revenue. Half of it must go towards particular types of usage as laid out in the directive. There are some eight or ten categories that must be looked at.
The amount that will go to the emissions trading system will decrease each year from 2012 by 1.74%. This precise reduction will allow the European Union to reach its target by 2020, of a 20% overall reduction in emissions compared with 1990. This is the famous minus 20% commitment, which may become a minus 30% commitment in the event of an international agreement whereby other developed countries undertake to do the same. The 1.74% per annum reduction in the cap for the emissions trading sector is structured such that this sector will deliver a proportionately higher part of the reduction target than the non-traded sector is expected to deliver. In other words, a slightly higher burden is being placed on the traded sector. For the non-traded sector, there will be a series of 27 separate member state caps which will be worked out as we move forward.
Does it make any difference whether a reduction in emissions is a result of the downturn in economic activity or of good practice by a company?
Dr. Ken Macken
No. Effectively, we are looking at an accounting system which simply adds up the numbers. A company with excessive emissions must purchase additional credits, while a more efficient company will be in a position to sell excessive credits. The market price will reflect demand. As emissions increase, we can expect the market price for allowances to increase proportionately. As the price increases, companies will be more inclined to take measures to reduce their emissions. There is a dynamic balance within the system based on economics.
The ceiling of carbon credits for the traded sector will decrease by 1.74% each year. This is what will determine the price in that as credits become more scarce and therefore more expensive, companies will be incentivisied to move away from emissions-intense forms of production. To clarify, is Mr. Macken saying there will be two pools of credits, one for the energy sector and the other for everybody else in the traded sector?
Dr. Ken Macken
It is beginning to look like the energy sector will have to purchase its allowances through auctions.
Will it be the case that auctions will take place at the beginning of the year and those companies with excessive credits can sell them on?
Dr. Ken Macken
Many decisions remain to be made as to the nature and structure of the auctions. There will be a series of auctions which will have to be co-ordinated in some way and undertaken according to similar methodologies. There will undoubtedly be ongoing auctions. The non-power generating emissions trading companies will most likely be given a free allocation, certainly in the early years following 2012. What happens after that depends on the carbon leakage issue and how well that pans out.
Does this mean ESB bills are likely to increase once more?
Dr. Ken Macken
I cannot say.
We are already paying for the cost of carbon in our ESB bills even though that company is in receipt of a free allocation. That is the total unfairness of the system we are stuck with.
We are only stuck with it until 2012.
The cost may go up.
After 2012 the cost will remain the same for the consumer but instead of companies making a windfall profit, they will have to use that money to purchase credits at the auctions.
It will depend on the price of the credits.
Yes. At the moment, windfall profits are not as high as they were six months ago because the value of carbon has gone down. I am still not clear how one can take credits out of the system if they are needed. There cannot be a situation where a company cannot purchase a carbon credit and therefore be obliged to stop producing power.
Dr. Ken Macken
That is where the economics of it comes into play. As the scarcity increases, the credits increase in price and businesses begin to assess their options. If a credit costs €10, for example, a company may decide that the options available to reduce emissions are too expensive and will therefore choose to purchase credits. However, if a credit costs €20 or €30, options to reduce emissions become more desirable.
I presume that will also work vice versa. If companies are able to sell into the system, they will make money. It works both ways. There is money to be made for efficient companies.
Dr. Ken Macken
Yes.
Presumably, if we press ahead very quickly with maximising wind and wave power so that we reach a point where most of our energy is generated by the use of renewables, the companies involved will have credits to sell. Is that what is envisaged?
Dr. Ken Macken
Not if they have to purchase them at auction. They have a choice at that stage as to whether they buy them to speculate or whether they do not buy them because they do not need them, in which case companies who need them will be able to buy them at a cheaper price because there will be less demand.
From whom will they purchase them?
Dr. Ken Macken
The details of the auctions have not been worked out. However, let us assume they are on-line auctions where companies make their bids using a website. If a particular company does not need credits, it simply does not purchase them. This means the companies that need to purchase credits will find the price has reduced.
However, in a situation where we become terribly efficient in the production of power, the income to the State accruing from the credit auctions will reduce.
Dr. Ken Macken
Revenues accrue to member states in any case because it is a Europe-wide pool of auction. For example, if the European Union was to auction 1 million units, thereafter it would take the revenue accrued and divide it among the 27 member states. That is my understanding as to how it will be done.
Will it be divided equally?
Dr. Ken Macken
On a pro rata basis. There is a calculation based on historical emissions from member states.
We should get back the money our consumers are spending.
Dr. Ken Macken
There is that, but a member state will receive money regardless. It does not have to be its own industry that buys.
Ms Laura Burke
It is from the pool.
What about the refunds? Dr. Macken has suggested the funds coming from the energy sector will be divided. I refer to the problem with leakage in the non-power generation sector. Dr. Macken has stated the rules guiding redistribution are contained in a list. If the power generation sector is achieving reductions, while the other sector is not, can the refund money be used? The problem is that as that graph is pushed up and people are obliged to take actions, there is a danger they will relocate.
Dr. Ken Macken
No, essentially the money will be transferred from the emissions trading sector which will be buying at auction. The money will be distributed to the governments of member states which essentially are in the non-emissions trading sector. Such governments can use the money for various purposes, 50% of which is constrained under certain headings within the list under the directive. There is movement, in that instead of windfalls to emissions trading companies, they actually will be paying for it. As members have correctly noted, the customer will pay through purchasing the product but 87% of the revenue accrued will go to the member state governments for distribution.
Can such revenue be divided along the same lines as the sectors, that is, based on the manner in which credits are auctioned or between the energy and non-energy sectors? Will the money to be redistributed form one pool or two?
Dr. Ken Macken
The money only will arise from the auctioning of allowances. It does not matter whether such allowances are being auctioned to the power generation sector or, as the years progress, to some other sectors involved in the scheme. Any money from auctioning will be reapportioned to member states.
On the leakage question in the non-emissions traded market, will the decisions on leakage be made collectively by the European Union or by individual member states? The proposition for a concrete company in Poland bordering Ukraine differs greatly from that facing a concrete manufacturer in Ireland because the relocation costs across the border in Poland are different from those that would obtain were one to move from Ireland. Consequently, the concerns of member states differ greatly, depending on what industries they have. I do not see how one can make collective decisions on leakage.
Dr. Ken Macken
My understanding is there will be an EU-wide decision on the methodology and approach to be adopted in this regard. The European Commission will set up a working group later this year to examine the issue, which will take recommendations through its committees such as the climate change committee and so on. It then will make an EU-wide decision in this regard. I have no idea whether that EU-wide decision will identify regional matters. However, in so far as I understand it, an EU-wide decision will be made and that member states will not make this decision.
Dr. Cotter should proceed.
Dr. Eimear Cotter
I am about to conclude by returning to the Kyoto Protocol period and summarising the Government's purchasing requirement. Ireland's requirement for additional domestic action is 5.2 million tonnes per annum under the "with measures" scenario, that is, 26 million tonnes in total over the five years. The requirement reduces to 3.6 million tonnes or 18 million tonnes in total under the "with additional measures" scenario. If one applies the economic shock analysis to the "with additional measures" scenario, the requirement is reduced to between 1.3 million and 1.8 million tonnes per annum or between 6.5 million and 9 million tonnes in total over the five years. I again have included a note on the slide to stress that the "with additional measures" scenario and the economic shock analysis made on it is predicated on the assumption that all the planned policies and measures will be adopted and fully implemented on time and deliver the emissions reductions anticipated.
I will turn to the 2020 target. Our projected distance to target, including carbon sinks as it appears highly likely that they will be included, is 11.5 million tonnes under the "with measures" scenario. The distance to target reduces to 3.8 million tonnes under the "with additional measures" scenario and 2.7 million tonnes when the economic shock analysis is applied to the "with additional measures" scenario.
The final slide provides an overall conclusion that our emissions are projected to decrease, which reflects the downturn in the economy. However, this should not lead to complacency. It is important that Ireland should decouple its emissions from its economic growth and activities in order that once it emerges from the recession, it will be able to grow in a low-carbon way. The role of carbon sinks will be extremely important for Ireland in meeting its 2020 targets. As carbon sinks are projected to deliver approximately 4 million tonnes in 2020, a significant portion of Ireland's distance to target will be made up by them.
As for individual sectors, energy, agriculture and transport are key sources of emissions. The latter two are particularly important when one considers exclusively the non-ETS sectors.
I thank the delegates for this extremely useful presentation. It is a yardstick by which members can judge policy, as well as delivery and implementation of such policy.
I wish to raise two issues, the first of which pertains to afforestation and carbon sinks which now can be considered as part of the solution. My understanding is the afforestation amount set by the EPA — 8,000 hectares — does not appear to be sufficient. Evidence from the forestry sector apparently suggests this level would be insufficient to meet the need and achieve the result outlined by the EPA. I presume that when Dr. Cotter referred to carbon sinks, she meant carbon sinks other than afforestation. Perhaps she could discuss briefly the role of Bord na Móna in this regard. Heretofore, members considered that afforestation would not be an issue as we could not get it on the table in respect of the calculations. As the position has now changed, Dr. Cotter might discuss how the EPA's figures relate to the arguments of the forestry sector and COFORD regarding future requirements.
My second point pertains to the 30% reduction target. If a commitment is made at Copenhagen to the 30% reduction target, it will change everything. I hope the EPA will revert to members with a broad assessment of what it would mean. It seems the figures provided for members by the delegates are stretching us to the very limit of our understanding of what can be done and how bad things can get in the economy. As I noted, the imposition of a 30% limit will oblige us to think very differently. The delegates should revert to the committee at a future date to provide members with ideas regarding the 30% scenario. That would be extremely helpful, as is this set of figures.
Dr. Eimear Cotter
On the issue of forest sinks, we take data for COFORD on the potential of forest sinks. As I mentioned, the data assume 8,000 hectares of afforestation every year up to 2020. However, much of what forests are projected to deliver is coming from forests planted since 1990. It is important to keep in mind that what we will get in 2020 will not simply be from forests that will be planted in the future, as it also will be derived from what already is in place. Consequently, we are not completely reliant on our projected figure of 8,000 hectares every year. The reason COFORD chose a figure of 8,000 hectares as the rate to maintain in the future was it was in line with afforestation levels in recent years, which have reached 6,000 to 7,000 hectares in the past three or four years.
Only afforestation is included. When we refer to carbon sinks, we mean afforestation and forest management to provide the most optimal sink. At the moment, no land use change is included in this model.
Dr. Ken Macken
The situation is complicated because, in the event of a minus 30, the question is whether the Commission would use the same methodology as it would in respect of a minus 20, how many sinks would be involved and so on. Our figures are predicated on the 2020 target, which is contained in one of the slides. The EU Commission is working from an indicative non-ETS target for Ireland of 37.9 million tonnes by 2020, which represents a 20% reduction. A 30% reduction would lower us to approximately 33.2 million tonnes, a further reduction of 4.7 million tonnes. It seems that, judging from this simplistic calculation, the distances involved in the 2020 targets would worsen by approximately 4.7 million tonnes. We cannot be more accurate, as certain factors are not yet available to us. This rule of thumb is probably the best we can do this early.
Even had we plenty of money, the purpose of this is to highlight to people the importance of saving money. If we take the additional measures as outlined and our guests' assumptions, costs will be incurred by the State. At a time when we are seeking cuts and savings, we could use the €270 million for other services instead of paying it over because we are failing to meet targets. This highlights the importance of adopting renewable energy production, such as wind and wave power. We should get ahead, not hold back. We referred to electric vehicles. All of these will save us considerable amounts of money in the long term.
Given the current price of carbon and assuming that we will need to buy, should the National Treasury Management Agency, NTMA, purchase in advance while the going is good? Can it be done?
Ms Laura Burke
It is a question of judgment and depends on whether the price of carbon will increase or decrease. That is the NTMA's expertise, not ours. According to the projections, the recession means we must purchase less than we would have estimated at this time last year. The national climate change strategy was based on a target of 3.6 million tonnes, but the new target could be significantly lower. We do not have the expertise to say whether the NTMA should purchase now. It is a risk.
Regarding the projections, we must decouple economic activity from carbon emissions. When economic activity decreases, carbon emissions decrease. We are calling for a low-carbon recovery because we do not want emissions to increase automatically after the economy has recovered. In terms of purchases and so on, we would be left in a worse situation. In these difficult times, it is important that the eye not be taken off the ball.
The research side of our house conducts a considerable amount of research. We are preparing a paper on innovation in green technology. If this is of interest to the committee, we will happily return to discuss it.
Very much so. Recently, we produced an offshore renewable energy development Bill in the hope that the Government would take it on board. We must modernise legislation to attract investors.
The last point on agriculture, energy and transport being key sources of emissions is true. From a land use point of view, however, they are interlinked in certain ways. The committee has received presentations on alternative uses of land for methane production for the transport fleet via harvesting animal waste. We have never taken into account the fact that grass, for example, is a sequester of carbon. If one tills land and grows crops in the conventional way, carbon is released. If ruminant production is considered without this factor, perhaps the overall emissions figure is not as drastic.
While this matter ties into transport, it has a bearing on energy. If we have a comprehensive land use policy or consider it differently, we could carry out a more accurate and fairer calculation of agricultural emissions. It might also help the other sectors. When the point was made, I did not know whether the suggestion was that those sectors should be examined. They are key sources of emissions, but our guests are not making recommendations on what should be done. Perhaps it is not their role.
Ms Laura Burke
With regard to agriculture, a significant amount of research is occurring. While none of these considerations is easy, the question of agriculture is particularly difficult. We do not recommend that cattle, the sources of methane, be moved from Ireland to elsewhere. It would be of no benefit to global emissions. Like us, Teagasc is conducting research on this matter and considering the various purposes for which land is used and methane emission reductions via conventional systems. However, that is probably a different discussion.
Since it is all in the non-traded sector, it has significance.
Ms Laura Burke
Absolutely.
We should apologise in advance to our visitors in the Gallery for our rather turgid and detailed discussion of carbon emissions. Of most importance in the presentation was the conclusion that we must prepare for low-carbon economic growth. This represents a step change. As Deputy Coveney introduced his report on electric vehicles, we watched General Motors go to the wall. This significant change in world economies is an historical moment and a wake-up call for our own.
I have four brief questions, the first of which is on the economic shock assumption detailed on page 2 of the Powerpoint slides. Our guests are assuming a GDP decline of 7% between 2007 and 2010, but we will probably reach that figure this year. Depending on where we go in the next 12 months, it may be a conservative estimate. I welcome our guests' comments in this regard.
Forestry seems to be more important than ever. We should use this get out of jail free card to the maximum, but I suspect that we are not reaching the targets mentioned. Perhaps we need to apply incentives.
Is there or will there be a trend of high carbon activities leaving the EU? Given the lead taken by the Union in the climate change debate, will high carbon activities relocate to other areas?
My final point concerns a carbon levy or taxation. Is this not built into any of the scenarios? Could this lead to significant changes in emissions?
Ms Laura Burke
Dr. Cotter can address the economic shock and carbon taxes. Dr. Macken will address high carbon activities.
Dr. Eimear Cotter
The research on economic shock was carried out in January by the ESRI. The figures must be reconsidered to ensure they reflect the most recent forecast. We return to the ESRI all the time to get the most up-to-date data. It is difficult to keep up with because it is changing so rapidly. Once the ESRI produces a new set of data, we will use it as the basis of a new set of projections.
A carbon tax is not included in the emissions projections because we were working within the confines of the White Paper and the energy efficiency action plan. Potential agreed policies and measures have not been factored in. I cannot say whether a carbon tax would deliver savings because it cuts across so many sectors. Assessing the impact and when it would occur would require the ESRI to assess this in detail and use their models. I cannot comment on the impact of a carbon tax.
Dr. Ken Macken
The trend of high carbon industries leaving the EU is why the carbon leakage issue has been a feature of the climate change package and the latest emissions trading directive revision. There is recognition this could happen but no indication that it is happening. The implication is that steps must be taken to ensure it does not happen. Industry has been quick to point out the vulnerability of certain sectors to this. When carbon leakage is addressed, hopefully it will be dealt with in that way.
I referred to forestry. I do not know if we are meeting those targets. I do not have current data to hand.
Dr. Eimear Cotter
All we have is the most recent set of data. At the time of the COFORD data we were in and around 6,000 to 7,000 hectares of forestation every year. That is the only way of knowing what we have been doing historically. Whether we will continue to reach those targets reflects the danger of projections but we hope to continue as we have been doing.
Ms Laura Burke
It is absolutely key, particularly if we can get the carbon sinks into the package for 2020.
On carbon taxation, presumably the ESRI could model different levels of carbon taxation and see the effects.
In the course of this committee's scrutiny of the proposals for 2012 to 2020 we went to Europe to stress our unique situation. With nearly 40% of emissions coming from agriculture in the non-traded sector, we are supposed to be the bread basket of Europe. There is a danger in having a 20% level across all countries. The Commission should take into account the unique circumstances of individual countries and the contribution a country is making towards the production of food for Europe. If we do not do it, someone else must do it. A real danger is that we will have imported foodstuffs in Europe. Apart from the quality issue, there will be an increase in price and a shortage of food. To save money and reduce emissions by reducing agricultural activity seems to be counterproductive in respect of other areas of European policy. Does the delegation have views on this? We tried to stress that, because of our unique situation, forestation should be allowed.
Dr. Ken Macken
We are aware of the large disproportionate position Ireland finds itself in with regard to the agricultural production of carbon in our non-ETS emissions. This being some 40% of non-ETS emissions puts us way out of line with any European member state, even the most highly agriculturalised members states, which come in at approximately 20%. Our agricultural emissions are twice as much.
We do not see any benefit in penalising our agricultural sector if, in other countries not covered by ETS, they end up growing animals there rather than here. There is no net global benefit in that. These matters are more complicated in an international forum. The point made about not applying minus 20% to all countries is relevant. I did not address the figure of minus 20% when asked about minus 30%. It is a more complicated animal, if members will excuse the pun while we are talking about agriculture, than all countries being minus 20%, which they are not.
The way the EU devised a minus 20% target was to divide it between ETS and non-ETS. It eventually concluded that it wanted to apply a figure of minus 14% based on 2005, the equivalent of minus 20% based on 1990. The minus 14% was divided between ETS and non-ETS, with minus 21% for the ETS and minus 10% for the non-ETS. That minus 10% was divided between all member states, depending on GDP at the time. Out of that they allowed some member states to grow and others to shrink more than minus 10%. A band of plus 20% to minus 20% was devised. Ireland was one of three member states that ended up on the minus 20% level, based on our GDP. I gave a very simple answer when we talked about a minus 30% target but there is no certainty that with this complex methodology we would go from minus 20% to minus 30%.
There could also be a change in economic circumstances.
Dr. Ken Macken
Yes, and because of the way it must be apportioned between member states in terms of emissions trading and non-emissions trading. The figure I gave is an indicative figure and is not by any means an accurate figure.
In the agricultural context, the area identified as most promising was to try to involve afforestation and other carbon sinks. Also, we should try to involve trades between member states of non-ETS target achievements and the use of credits from the project mechanisms discussed at an earlier meeting. These include the clean development mechanism. There may need to be a composite package to help us meet these targets in a way that is not disproportionate. The Chairman is correct to identify that the burden of meeting the agricultural target is a problem for this country.
Presumably we can differentiate between different types of agriculture, between beef, dairy and tillage, and examine rates of return. It is not as if beef cattle is the only game in town.
Ms Laura Burke
That is something on which Teagasc is working. It is examining the biggest hits in certain areas. It is not only beef cattle.
Beef is the biggest in terms of profit but in terms of manpower employed it is at the opposite extreme.
If we do not produce milk, who will? If we do not produce beef, who will? If we do not produce lamb, who will?
The key is that this becomes a carbon leakage of its own accord. Until there is a system of calculating and measuring food unit output on a global level — the amount of carbon per food unit — one cannot calculate whether there is a global net gain by allowing it to be produced elsewhere. I know for a fact that this country is one of the most carbon efficient in producing milk, beef and other foods. If this is let go for the sake of achieving a figure on the bottom line, nothing will be achieved.
I will give a simple example. Last year we visited Sweden which has a large recycling rate. However, it buys ethanol from Brazil which is produced from sugar cane. More of the forest is being cut to provide land for cattle and to create space to produce more sugar cane for the market. The Swedish figure is brilliant but the global one is no different and certainly no better because forestry is being lost to facilitate extra sugar cane production. It is never that simple until all of the figures are put down. It is the same with carbon leakage in other sectors. That is why it is important to have a universal way of calculating the net value of hitting a target, particularly in Ireland with regard to agriculture, as perhaps one achieves nothing in the long run.
I thank the delegates for coming before the committee, their professionalism and the comprehensive report they presented to us. I have no doubt we will be in touch on many occasions in the future.
Ms Laura Burke
We will be delighted to provide any information we can give; please do not hesitate to ask.
The joint committee adjourned at 4.50 p.m. until 2.15 p.m. on Wednesday, 22 April 2009.