My research focuses on society-environment interactions and my PhD was the first academic study of the Irish State’s management of gas and oil. Subsequent publication and further research led to my book Gas, Oil and the Irish State. I have conducted extensive research on Irish State hydrocarbon management, which has allowed me to develop a deep understanding of how things work in Ireland and the flaws in the State’s approach.
Before focusing on hydrocarbon management, I wish to situate the Irish approach in the wider context of climate change and environmental degradation, which Professor Sweeney highlighted. Research tells us that human activities, particularly the consumption of fossil fuels, are responsible for climate change through dangerous levels of greenhouse gas emissions. Policies and legislation at international, European and national level seek to reduce greenhouse gas emissions and to transition to a more sustainable future but is this enough? Data on Ireland suggest not. Ireland has the third highest per capita greenhouse gas emissions in EU. This is based on 2013 figures but Professor Sweeney’s submission suggests the performance is actually declining. At the rate we are going we will be lucky to achieve a 1% reduction in greenhouse gas emissions by 2020, let alone the 20% to which we are committed. Radical action is needed and role models for Ireland include France, New Zealand, Belize and Costa Rica, who are leading the way by banning oil and gas exploration on environmental grounds.
My written submission looks at the wider context to enable us to understand Irish hydrocarbon management and why it is problematic. I will highlight some key features. The State’s approach has evolved since 1959 and has been shaped by a variety of social, economic, political ideological forces. Four different fiscal systems apply to oil and gas exploitation, each with varying returns to the State. The licensing system is similar that in fewer than half of the countries which have hydrocarbon exploitation globally. This results in the privatisation of publicly owned resources in exchange for low rates of taxation. These issues are compounded by flaws in licensing, policy and planning frameworks which cause social conflicts as so clearly demonstrated by the Corrib gas conflict.
I have provided a list of current authorisations. Members will see there is an issue related to the length of time submissions are held by companies without bringing the resource into production. The latest report shows that the authorisation for the Barryroe oil find remains a standard exploration licence with no reference to plans to transfer the authorisation to a petroleum lease or a lease undertaking. That allows a private company, Providence, to maintain control over Irish resources without having expressed any plans to bring the resource into production. Of the 18 significant discoveries identified by the Joint Committee on Communications, Natural Resources and Agriculture in 2012, 15 are currently under licence and only four in production. Of the 11 remaining authorisations or discoveries, Providence holds authorisations for seven.
These are small issues in comparison to some of the key issues surrounding the State’s management of gas and oil. The first big problem is Ireland’s choice of regime. The State, which owns the gas and oil, grants licences to and authorises oil companies to conduct exploration and production activities. If hydrocarbons are discovered and produced, ownership of these resources are transferred from the State to companies in exchange for a pre-agreed return. The licensing systems reflect the overall ideology toward privatisation of resources and shows a relaxed attitude towards State management and regulation.
Ireland’s regime is at odds with those of other countries, which use production sharing and service contracts. These represent the most popular approach to resource management globally. Production sharing contracts and service contracts ensure strong State control and that the State retains full ownership while permitting companies to undertake exploitation as a service to the State, for which they are remunerated.
Some of the benefits of production sharing contracts include a higher share of taxes, royalties, associated onshore and offshore activities, and guaranteed supply. These are benefits which Justin Keating sought to achieve in 1975 but are benefits which Norway sought from the very start of its approach to gas and oil management, when it refused to allow the transfer of State assets to private companies with very limited benefit. Under Ireland’s regime, companies are under no obligation to sell produced gas and oil back to the State and if they choose to do so it is at full market prices. The Irish licensing regime for gas and oil does not guarantee security of supply. If oil is produced offshore, the oil can be transported in tankers to other countries. Similarly, plans for the Shannon liquid natural gas processing plant may mean gas supplies are exported to other countries without benefit to the State in terms of access to indigenous gas.
Security of supply fallacies need to be challenged, with recognition given to the weak position the State is in relating to gas and oil. Globally, states are increasingly asserting stronger control and ownership of resources with national oil and gas companies bearing responsibility for production. The Irish State should also reassert control over its resources, with the goal of keeping them unproduced on environmental grounds following the example of France, New Zealand, Belize and Costa Rica, particularly as the fiscal returns to the Irish State from hydrocarbon exploitation are among the lowest anywhere in the world.
The second issue with gas and oil management is the uniquely low tax terms. The 1992 licensing terms apply to the Corrib and Seven Heads petroleum leases, six frontier exploration licences and two standard exploration licences. Hydrocarbons produced through these authorisations are subject to a 25% tax rate against which all costs are offset.
This rate of taxation is one of the world's lowest. Johnston's study of 45 fiscal regimes put Ireland's terms at the bottom of the list with the nearest terms resulting in 40% tax. Following public outcry about these low tax rates, the 2007 terms were introduced. These also apply a 25% tax rate with an additional between profit resource and tax of 5% to 15% which is applied to larger fields after costs have been offset. There are two lease undertakings, 12 frontier exploration licences and four standard exploration licences which are subject to the 2007 terms. A further two lease undertakings are also being considered on these terms and have been under consideration for a lengthy period as illustrated in the table provided.
In an international study of government take, which is the revenue states receive from their resources, I examined research on 153 fiscal systems and found that Ireland had the second lowest rate of return of the countries studied. Of the countries studied, 79% demanded government take of at least 50%, which is twice the rate applied in the 1992 licensing terms and higher than the returns demanded under the 2007 terms. The generosity of the State to oil companies is evidenced in a report of the Oireachtas Library and Research Service from 2011 which found that Ireland had the most generous tax and royalty regime. A review of Ireland's regime in 2014 resulted in an increase of taxation for authorisations granted after 2014. The 25% corporate tax regime rate remains joined by a petroleum production tax which can result in taxation up to 55% after costs have been accrued. One frontier exploration licence, 31 licensing options and 18 petroleum prospecting licenses have been granted under those terms. We have 79 outstanding authorisations at varying rates of take up to a complete maximum of 55% after costs have been offset. That is not 55% of the value of the oil and gas, it is 55% potential tax. Johnston estimated government take globally at approximately 70%, which is nearly three times the rate of government take under the 1992 terms and significantly higher than the 2007 and 2014 modifications. The tax terms for Irish hydrocarbons remain low by international standards and eliminate the economic benefits from hydrocarbon exploitation. As such, they cannot be used to justify continued hydrocarbon exploitation, in particular when one considers the environmental damage caused by hydrocarbon exploitation. In the interests of sustainability, resources should be invested in renewable energy sources that would support Ireland's transition to a low-carbon economy. Such changes must take place sooner rather than later if Ireland is to have any hope of meeting greenhouse gas reduction targets.
A third key issue involves the flaws in licensing policy and the planning framework. Flaws in the Irish model of hydrocarbon management are further compounded by weaknesses in the licensing policy and planning frameworks as violently articulated through the Corrib gas conflict. Deficiencies in Ireland's licensing policy and planning frameworks include a disjointed approach to sustainability, the facilitation of project splitting, the exclusion of communities from decision-making and the prioritisation of short-term economic interest over long-term societal and economic well-being. A further issue surrounds the contradictory roles of the Department of Communications, Climate Action and Environment, which is tasked with promoting hydrocarbon exploitation, managing hydro-carbon activity, functioning as a resource owner and also, somehow, environmental protection in circumstances in which the production and consumption of hydrocarbon are associated with environmental degradation and contribute to climate change. In other words, the State body responsible for responding to climate change also promotes hydrocarbon exploitation and transfers public resources to private interests, undertaking conflicting roles which do not correspond to any notion of sustainability.
My submission demonstrates that there are a range of interconnected issues surrounding hydrocarbon exploitation, consumption and climate change. Given these interconnections, we must choose a pathway which is conducive to long-term sustainability. That will involve complex topics and challenging decisions. Ultimately, long-term sustainability will entail structural change. In addition to the issues I have articulated in my written submission, decision makers must be cognisant of carbon lock-in which will make decarbonisation more difficult and, possibly, more expensive in the long term. Indeed, some estimates suggest that continuing to invest in carbon-intensive technologies could increase long-term investment fourfold. We are at an important crossroads and we need to take radical action to create a sustainable and healthy society for this and future generations. Current production and consumption patterns cannot be sustained. I have outlined in the table provided some of the interconnections to which I refer and will not go into detail on them. I want to touch on a few brief issues before I conclude.