JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES debate

Energy Regulation: Presentations.

Chairman

I welcome the Commissioner for Energy Regulation, Mr. Tom Reeves. Members will recall that at last week's meeting of the joint committee, it was agreed to invite officials from the Commission for Energy Regulation to attend a meeting of the committee to discuss press reports that suggested that electricity prices will rise by 36% in 2006. I remind members that today's debate is confined to that issue. The committee will have a further meeting with the regulator to debate the energy modules before it completes its business. This afternoon, it will receive presentations, as part of its review of the energy modules, about how Ireland's international and EU obligations under the Kyoto Agreement will impact on policy. The price and cost side economics of energy generation, importation, use and consumption will also be discussed this afternoon. The committee will hear a presentation from the regulators, which will be followed by a question and answer session.

I draw everyone's attention to the fact that members of this committee have absolute privilege but this same privilege does not apply to witnesses appearing before it. The committee cannot guarantee any level of privilege to witnesses appearing before it. Further, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I ask Mr. Reeves to introduce the new commissioners.

Mr. Tom Reeves

Unlike the last time I attended a meeting of the joint committee, the Commission for Energy Regulation now has three members. Mr. Michael Tutty, who works on the transmission and distribution side of our business, and Ms Regina Finn, who joined us last February are with me today. Ms Finn is primarily concerned with the retail end of the market. I look after the other parts of the market and generation. Ms Cathy Mannion, who is the commission's director of retail and consumer affairs is also here. It might be appropriate for Ms Mannion to answer any detailed questions about such matters.

Chairman

I am sure Mr. Reeves is aware that the purpose of the delegation's appearance at this meeting is to clarify a number of media reports, which suggested that the Commission for Energy Regulation is planning to increase electricity charges by 36%. Deputy Durkan, who is busy in the House at the moment, is Fine Gael's spokesperson in this area. He asked for the delegation to be invited to clarify the situation as a matter of urgency, before the Dáil adjourns for the summer on 1 July. Therefore, we had to ask the commission to send representatives to this meeting at short notice. I thank Mr. Reeves and his officials for making themselves available to the joint committee at such short notice.

Mr. Reeves

The Commission for Energy Regulation is pleased to attend this meeting of the joint committee. I understand the committee's desire, as expressed by the Chairman, to talk about the price of electricity, on foot of a newspaper report last week that indicated that the price of electricity is about to increase by 36%. I assure the committee that the report was somewhat misleading. My officials and I will give an overview of how electricity prices are determined and indicate what is in store for us in this regard.

The Commission for Energy Regulation approves the end-user prices for electricity for the ESB, which is the public electricity supplier. The commission publishes a draft decision on prices in September of each year. Final user prices are decided following a public consultation period, which continues throughout September. The prices determined apply for the following calendar year. This process is important for a number of reasons, not least because it sets the market price against which the independent suppliers must compete.

In setting the prices, the commission must balance a range of objectives, some of which conflict with each other. Security of supply in the long and short terms is a crucial issue for the economy that affects end-user prices. In the interests of national competitiveness we should try to set low input prices. If prices are too low, however, they can damage the reliability of the electricity system, which in turn would damage the reputation of the country as a place in which business can be done. A further consideration is the need to reduce greenhouse gas emissions. If we do so by charging for carbon dioxide, however, we will increase the price of electricity at a time when industry is seeking lower prices.

The Commission for Energy Regulation needs to balance the long and short-term interests of the economy and electricity consumers. The price of electricity has four components — generation, transmission, distribution and supply. On average, generation forms approximately 55% of the final price, transmission accounts for approximately 10%, distribution accounts for approximately 30% and supply accounts for approximately 5%. This combination varies somewhat depending on the 11 different customer categories.

Electricity in Ireland is generated using a variety of fuels, such as gas, coal, oil, peat, hydropower and wind power. Minor contributions are made by some other renewable sources. In 2004, gas was the most predominant of all the fuels — it was used to generate 44% of Irish electricity — followed by coal, which was used to produce 26% of electricity. There have been significant reductions in the use of oil, to 12.5%, and peat, to 5% for the production of electricity. Hydropower, which was once the most important source of electricity, is now used to produce just 2.5% of electricity. Renewable sources are used to produce 3.5% of our electricity. We imported approximately 5.5% of our power from Northern Ireland and Scotland in 2004.

Gas, coal and oil are purchased on the international market, in dollars and sterling, at prices entirely outside our control. Gas is bought and sold in sterling at the national balancing point in Britain. One can buy gas at that point for delivery on the same day, or in three or four years time. I have distributed material to the joint committee to demonstrate how the price of gas has increased over the past year. Members can see graphs that indicate the price curves for the first quarter and winter of 2006. The graphs indicate that the price of gas in March 2004 was approximately 30p per therm. If one bought gas in March 2004 for delivery in the first quarter of 2006, one would have paid 30p. If one were to buy gas now for delivery in the first quarter of 2006, one would have to pay well over 70p. The graphs also give details of the price of gas for delivery in the winter of 2006. The graphs indicate that the price of gas has increased significantly. The price is so high because the UK, which is our main source of gas — more than 80% of our gas comes from there — is now a net gas importer, with gas coming into the UK via the interconnector to Europe. Continental and world gas prices are linked to oil prices, which have increased significantly and with which I will deal later. There is a higher demand for gas world-wide, particularly since gas has become the fuel of choice for electricity generation. A number of new power stations in Europe are now being built which use gas.

There are infrastructural deficits in the UK, even though according to a recent report from Britain's national grid Transco Company, it should have sufficient gas for a normal winter but, if there is a severe winter, there could be difficulties with supplies. By the end of 2007, there should be a second continental interconnector in place. A new Norwegian gas field is under development and it should be on-stream, and the Liquified Natural Gas, known as the LNG terminal, should also be available. There are plans for two of these terminals in Pembrokeshire. Some of these infrastructural deficits will disappear, but we are not sure how the price will develop as a result.

Coal prices have levelled off recently, as members will see from graph 3, but they are still at twice the level they were in 2002. This is without the impact of carbon, to which I will refer later. This is just the wholesale international price of coal.

We all know that oil forms a useful headline figure, because other fuel prices tend to follow it. This time last year, we were speculating what would happen if crude oil prices went to $50 a barrel. Now it is well over $60 and the dollar has recently strengthened against the euro. The ESB uses low sulphur heavy fuel oil, not crude oil. This is now priced at $270 a tonne, compared to $160 in 2004. Graphs 4 and 5 show the trends in the international price of oil in dollars. Crude oil is sold in barrels and fuel oil is sold in tonnes.

As well as the increasing price of fuels, we must deal with carbon dioxide. As members will be aware, under EU agreements and the Kyoto agreement, there have been various allocations by the Environmental Protection Agency to industry as to their carbon allowances. The power sector must purchase approximately a quarter of the CO2 it emits. Carbon was trading at €10 a tonne late last year and early this year, and it has more than doubled to more than €20 euro a tonne as indicated in graph 6. Of all the fuel mentioned, coal is the largest emitter of carbon.

Under the public sector obligations order made by the Minister, output from peat generating stations is charged to ESB public electricity supply at the best new entrant price. This is a special price members will have read about in the newspapers, as are renewables. If the ESB buys peat, it is deemed to be a best new entrant price, which is lower than the actual price of peat and the actual price of renewables.

The newspaper article to which I referred mentioned the CER published estimate of the best new entrant price for 2006. This figure is calculated every year and it is the estimated price at which the most efficient new entrant generator in the best location in the country could produce electricity. It is used to calculate the top-up price in the wholesale market, that is the price at which the ESB power generation sells power to the market. It is also used to fix the baseline for the calculation of the public service obligations charges.

The BNE estimate for 2006 has increased by 36% over 2005. The main input into this is the increase in wholesale gas costs, which was 58%. Other costs, including capital costs, have remained roughly static or declined. This best new entrant price has nothing to do directly with the ESB's final price of electricity to ordinary consumers. However, it is more or less the price a new power station would require to give a reasonable rate of return to investors.

The BNE increase in the price we have determined is due solely to the increase in the wholesale cost of gas. The ESB has a portfolio of fuels, as I mentioned earlier, and these have not all increased by the same amount. Also, generation accounts for approximately 55% of the end user price, and the other 45%, which is made up of network and supply costs, has certainly not increased by 36%. I am satisfied that end user electricity prices will not increase anywhere near 36% in 2006.

On transmission and distribution, every five years the CER undertakes a fundamental review of the ESB's network business. We review all its operating costs and proposed capital investment programme. We are currently carrying out this five-year review and expect to have it finished over the next few weeks. This element comprises approximately 40% of the end user tariff and is the part of the electricity supply chain that remains a natural monopoly. Therefore, it is particularly important that we review these costs carefully and ensure that only efficient and necessary costs are being incurred. At the same time, it is essential that Ireland has a first world electricity infrastructure to support our economy.

There has been a major expansion in capital expenditure networks over the past five years. This has been one of the factors in the price adjustments. At the same time, network operations have improved significantly their efficiency.

The Public Electricity Supply, PES, business buys its power from ESB Power Generation, Edenderry Power Limited, which is a peat station and under the various alternative energy requirement schemes for the renewable sources. From next year, it will also buy its power from Tynagh Energy Limited and Aughinish Alumina. Along with other suppliers to electricity consumers, PES must pay the cost of using the transmission and distributing systems. Together with their own supply costs, which are small enough, these are the four factors that make up the total costs, namely, generation costs, transmission, distribution and its own supply costs.

I will let Ms Finn come in on this in a moment. It is difficult to compare prices exactly, but one can compare on average. According to the latest publication from the EU dated 1 June, the average price increase to households in the 15 member states was approximately 5% and the industrial and commercial price increased by approximately 7%.

Deputy Broughan

Where is Ireland on the league table?

Mr. Reeves

It depends on which category one picks. I am not dodging the Deputy's question. In the households, we are close to the average. For example, Belgium, Germany, Italy, Luxembourg, the Netherlands, Portugal and Sweden are more expensive than we are in regard to households.

The market has been open since February and it is difficult to see any benefits. There is only an expensive regulatory system and much higher prices.

Mr. Reeves

The cost in 2003 for 2004 on average was 5.09% and domestic charges went up by 5.02%.

It is a policy matter for the Minister.

Chairman

When Mr. Reeves returns to his office will he advise the committee whether he communicated formally with the Minister on this matter?

Deputy F. O’Malley

The regulator might write to the Minister now setting out his views.

Senator Finucane

I have one final question on which the other questions hinge. Mr. Reeves indicated that he disagrees with the suggestion of a 36% increase but that he cannot say what the potential increase will be next September and so on. Has he any indication in his own mind because he has made several calculations, whether it will be 15%, 20%, 25%, or would he prefer not to speculate on the basis that the Oireachtas will be in recess in September? The announcement of a 20% or 25% increase in ESB prices will appear in the media then and everyone will kick up a fuss about it.

Mr. Reeves

I will not speculate on the price because we have not completed all our work yet.

Senator Finucane

It is worrying if Mr. Reeves says best entrant price is 36%. If that is correct I estimate there will be a large percentage increase for the consumer in September, between 25% and 30%. I speak from the point of view of a layman, reading Mr. Reeves' document.

Mr. Reeves

It will not be anywhere near 25% or 30%.

Chairman

Mr. Reeves is not helping this committee. I am disappointed with his presentation. He is not comparing our situation with what is happening in Europe as a result of all these prices about which he is talking. He has not given us any documentation. I am disappointed although I am satisfied that end user prices will not increase to anything like 36%.

I remind Mr. Reeves that the members of this committee and this House represent the public at large. We are concerned at the sharp increase in energy prices over the past 18 months.

Mr. Reeves

Deputy Eamon Ryan

Deputy Eamon Ryan

The commission has a best new entrant price of 7.3 cent per kilowatt hour. I thought a ten-year contract was agreed, for example, for the station at Tynagh at the price of best new entrant.

Mr. Reeves

The graphs relating to the costs of both coal and oil go in only one direction. Wind is the only free form of energy and this country is ideally located for its generation. In this context, it is disappointing that those charged with overseeing the security of energy supply seem always to set forth the reasons that we should not develop wind energy. We are all surprised at how quickly the price of oil has gone up. In those circumstances, it is imperative that we begin to adopt a positive attitude to what is a free energy resource.

In Britain, OFGEM's recent announcement that it will auction off gas on a daily basis represents a risk to this country's energy supply. In such circumstances we will have no guarantee of supply. We must take part in that auction but there is no guarantee we will get what we need. Much of the capacity generation that has been developed has involved gas. There seems to be a single-minded pursuit in this regard. That may be a little strong but there is certainly a significant favouritism towards gas.

The CER's performance in regard to strategic planning is disappointing in the context of the crisis which faces us. Will Mr. Tutty comment on how we will secure energy supply now that we are faced with a daily lottery as a consequence of recent changes in Britain? I see Mr. Tutty shaking his head in disagreement with what I have said.

Mr. Reeves

I will deal with the questions on wind energy and Mr. Tutty will answer those relating to gas. Wind energy is free at the point of delivery but it is not free in terms of capital costs. The major cost in regard to the generation of wind energy has always been the building of the windmills.

Deputy F. O’Malley

The cost is no more than that in regard to other forms of energy generation. Oil prices are rising.

Mr. Reeves

This is the beauty of the carbon issue. I have always said that if we had managed to price carbon fully, we would have made a significant contribution towards the economics of renewables. As long as we give thermal power stations three quarters of their carbon for free, renewables are disadvantaged. That disadvantage will persist until such time as the full cost of carbon is reflected in the market.

Wind energy is free at the point of delivery but not in terms of capital costs. The bugbear for some years in regard to wind energy generation has been the expense of building wind farms. Moreover, there is a limit to the amount of any fuel that can be put on the system. Another difficulty is the variable nature of wind energy generation. We produce a snapshot of the system every Monday morning. For example, last Monday, wind was producing only 34 MW of energy whereas the figure for the previous week was 190 MW.

That drop of almost 160 MW has to be made up from the power stations. Wind energy has a contribution to make to the security of energy supply. However, each successive megawatt contributes less than the previous one and a limit is eventually reached where one contributes nothing. That is a long way away, however. Wind energy has a part to play, therefore, but it is getting towards what is its optimum amount.

Deputy Eamon Ryan

The delegation was correct in its observation that there are many forms of renewable energy apart from wind, tidal wave energy being one such example. Biomass is another which seems to have major potential.

I acknowledge Deputy Fiona O'Malley's point about the importance of securing the energy supply. Three issues must be considered in regard to energy — security of supply, environment and competitiveness. In terms of security of supply, there is little evidence of long-term planning on the part of the CER. The commission must be the champion for wind energy, which already plays a significant part, as well as biomass, tidal and other forms of renewable energy. How does biomass fit into the CER's plans? What does it predict in terms of energy generation in 20 years' time? What percentage of our energy consumption will be accounted for by gas, wind and other forms in 2020?

Mr. Reeves

Again, it all depends on price and how the environmental costs are applied. Biomass is currently quite expensive in that the materials must be grown and burned and this requires a significant amount of land. There are some cost constraints in regard to all forms of renewable energy. There is no reason, however, that renewables should not account for 20% of supply.

Work is ongoing in this regard in various Departments. Developments are linked to developments in agriculture in the next ten to 15 years. Renewables will have an increasing part to play in this context but there are issues to consider. For example, I had thought there was significant capacity for tidal power throughout the country but that is not the case.

Chairman

The aim of most states is that 15% to 20% of the supply should come from renewables. We are aiming to reach 13.2% by 2010. We are therefore behind developments in this area in countries throughout Europe and as far away as Chile and Argentina.

Has Deputy Fiona O'Malley's question been answered?

Deputy F. O’Malley

What does the CER propose to do about the proposed changes in Britain in regard to gas supply?

Mr. Tutty

I will answer that question. I assume the Deputy refers to the proposed gas exit reforms. They do not mean we will be forced to buy on a daily basis but rather that capacity will be optioned out for three to eight years. Where there is spare capacity, one can buy on a day-to-day basis.

The proposed reforms caused some concern among Irish buyers. We have spoken to OFGEM about this matter a number of times, most recently two weeks ago. OFGEM decided last Thursday to delay those reforms for two years, until September 2007, in order to leave more time for discussion. We endeavoured to make sure the arrangements in place at Moffat, which is our exit system from the British system, would not be damaged by these proposals. We will continue our discussions with OFGEM to ensure we have a system that suits the Irish situation and recognises that this exit point, which supplies gas to the Republic, Northern Ireland and the Isle of Man, must be dealt with on a different basis than other exit points.

The proposals are off the table for another two years but OFGEM is considering the transitional arrangements that must be put in place. Even if it had come in, it would not mean we could buy only on a day-to-day basis. If we are ready to have long-term contracts to take gas from those exit points, the facility will be there.

Deputy F. O’Malley

Is CER anxious about the situation?

Mr. Tutty

We are anxious to ensure that the arrangements will not damage security of supply here. Some anxieties arose over the proposal that people other than those supplying gas to Ireland could book capacity at the off-take point in Moffat and transfer it elsewhere later. We want to ensure that these concerns will be addressed in the reforms. We are glad the reforms are being delayed and that more time is being allowed for discussion.

Chairman

Despite all the wind and talk about wind energy, no coherent plan exists here. Based upon the figures supplied by Mr. Tutty in terms of people waiting on gate 2 applications, which represent a total of 2,000 MW, it is possible that the proportion will by then have increased to 13.2%. In September 2005, when the gate 2 applications are to be embraced, the required percentage may have been achieved. These applications are waiting in the queue in the anticipation that they will be accepted. They may not be accepted. Most of these applications are being submitted to local authorities and receive permission. As I speak, applications on wind energy projects are being submitted for approval by my county council. People spend a great deal of money on the planning application process. They are being put through hoops by the local authority regarding all kinds of questions and environmental impact statements.

The question must be asked as to why we hold these meetings when the last Order of Business of the session with the Taoiseach is on at the same time. We will see much of the Taoiseach on our television screens. He will make all of the announcements he made last summer and the summer before.

Chairman

Deputy Durkan requested this meeting and, as Chairman, I accept what the members stated.

Deputy Broughan

I cannot see how we can carry out business when the last primary plenary session of the Dáil before the recess is also taking place now. I apologise for missing the delegation's presentation. I know it was comprehensive.

The Commission for Energy Regulation's remit is to bring competition to the energy market. Our constituents are aware of the €61 price per barrel price and are fearful of a price of €80 to €100, particularly in light of what it would certainly do to our economic growth. The Celtic tiger would definitely be back in its cage. Does the delegation have a key responsibility to do whatever is necessary to bring a competitive edge to the market? That does not exist while we have a dominant incumbent.

The Taoiseach and Deputy Durkan spoke on the energy Bill in the Dáil this morning and the former stated that the Bill would be published. Does the commission have much of an input into that? Although I did not have an opportunity to question the Taoiseach on this, I understand that a White Paper on energy will be published. What is happening in terms of overall policy?

Deputies Eamon Ryan and Fiona O'Malley and Senator Finucane have articulated that this committee is conscious about conservation. Does Mr. Reeves see households being made aware of their daily carbon usage and the impact it is having, on a micro level, on the energy market?

Mr. Reeves

I hope I can recall all of the questions asked. Marginal pricing has a specific meaning in the wholesale electricity market. It means that as demand increases, the price in the wholesale market is higher because one uses stations not used all of the time. Average pricing is, more or less, what we engage in at present. Who knows how it will pan out.

I welcome Mr. Tom O'Mahony, assistant secretary, Department of the Environment, Heritage and Local Government; Mr. Frank Maughan from the same Department, and Mr. Ken Macken, Ms Maria Martin and Mr. Conor Barry from the Environmental Protection Agency. We have decided to meet the two groups together. Each will make a ten minute presentation, following which we will take questions.

We realise Mr. O'Mahony normally appears before a different committee but I am sure he appreciates the work of this one overlaps with that of his Department. I have no doubt his presentation will be helpful to the committee which is engaged in consultations on its energy module. Carbon tax and emissions trading are very important issues, as is the cost of fuel.

I draw attention to the fact that while members of the joint committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

Mr. Tom O’Mahony

As copies of my presentation have been circulated to members, I will try to summarise it to keep within the ten minutes allocated. I thank the joint committee for giving us the opportunity to appear before it. The whole point about the national climate change strategy is that it requires action in all the sectors to implement it. The energy sector is one of the most important. I am very pleased, therefore, that the committee is taking an active interest in the matter.

In 1992 the countries which met at the Earth Summit in Rio de Janeiro adopted the framework convention on climate change. Its ultimate objective is to stabilise greenhouse gas concentrations in the atmosphere to try to prevent dangerous man-made interference with the climate system. While industrialised countries were expected to take the lead, the convention did not contain any legally binding emissions reduction targets. As a consequence, the Kyoto Protocol to the convention was agreed in 1997. It provides for individual legally binding targets for industrialised countries, with an overall reduction of 5% on 1990 emissions levels of a number of greenhouse gases over the period 2008-12. Within this 5%, each party has a different target which depends largely on the economic conditions which pertained in 1990.

The protocol left it to national governments to develop strategies which suited their particular circumstances. In addition, it provides for three mechanisms for parties to cut emissions more cheaply abroad than at home. The joint implementation mechanism allows industrialised countries to implement projects which reduce emissions in other industrialised countries. The clean development mechanism is designed to generate investment in developing countries and enhance the transfer of environmentally friendly technologies to generate emissions reductions. The final mechanism provided for is emissions trading, at which we will look in more detail.

Each country has individual reduction targets while some, including Ireland, have been allowed an increase in emissions on the 1990 base year figures. For Ireland, the aim is to achieve an emissions target of 13% above the 1990 base year figures during what is called the Kyoto commitment period, that is, 2008-12. This figure was negotiated and agreed at EU level as part of a burden sharing agreement between EU member states which took into account a number of factors, including the economic conditions which pertained in 1990.

The trend in Ireland throughout the 1990s showed a significant increase, peaking in 2001, at which stage emissions were 31% above 1990 levels. Thereafter, it started to decline. The latest figures available are those for 2003 which show emissions at about 25% above 1990 levels. There are a number of reasons for this reverse in the trend, including the closure of the IFI plant in Arklow, reductions in the size of the national herd and the switch to less carbon intensive energy sources such as gas and renewables. Put in simple terms, if we index our 1990 emission levels at 100, we had a figure of 131 in 2001. We got this down to 125 in 2003 but need to get down to 113 in the period 2008-12. This means we need to cut our emission levels by a further 10%.

The largest increase in emissions has been in the transport sector where there was a 130% increase between 1990 and 2003. Emissions in the residential sector have actually decreased, primarily due to a shift from coal and peat towards gas for domestic heating. In the energy sector, which is responsible for approximately one quarter of all emissions, emissions increased by just over 39% between 1990 and 2003, although they had started to come down because they were at 46% in 2002. The two new combined cycle gas fire power plants commissioned in 2002 have given rise to that reduction.

In terms of how we will meet our Kyoto target, in 2000 the Government agreed a national climate change strategy as a broad framework for achieving greenhouse gas emissions reductions. It includes measures for the various sectors but I will focus on two, namely, the energy and transport sectors. The main measures in the energy sector are fuel switching, partially through added penetration of natural gas, more efficient use of fuel through combined heat and power production and generating more of our energy requirement from renewables, mainly wind.

The main measures in the transport sector are: that using VRT and motor tax to favour more fuel efficient cars — for example, apart from the fact tax rates rise substantially with engine size, there is also favourable VRT treatment for hybrid cars; and investment in public transport to bring about a shift away from commuting by car.

A number of the measures set out in the strategy have subsequently been superseded by, for example, the introduction of EU legislation and specific Government decisions not to proceed with certain measures such as carbon taxation or the switching from coal use at Moneypoint. Due to the introduction of the EU emissions trading scheme, our emphasis has shifted somewhat to the potential to reduce emissions in the sectors of the economy which are not participating in emissions trading, that is, the non-trading sector. Given this change in emphasis, the national climate change strategy is currently under review by the Department and the cross-departmental official level committee which is charged with overseeing its implementation. A key purpose of this review will be to ensure the existing measures are adequate to meet our Kyoto targets and to develop additional measures to the extent to which we need to do so.

In that context, the current estimate of our distance from target — in other words, the extent to which we will exceed our emissions target if no steps are taken — is 9.2 million metric tonnes. At this stage, measures are in place, or are being put in place, to account for approximately 8 million tonnes. These include 4.3 million tonnes to be achieved by the trading sector — by a combination of emissions reduction and the purchase of allowances and also allowances in respect of a approximately 3.7 million to be purchased by the Government for the non-trading sector. The main imperative for the review of the strategy is to identify additional measures to help meet the shortfall which we estimate at 1.2 million tonnes.

I will briefly refer to the EU emissions trading scheme but I will not go into detail because the Environmental Protection Agency will look in more detail at how it operates. However, I wish to make some general observations about it, particularly in terms of how it relates to the energy sector. The idea of the scheme is that a limited number of allowances are allocated to participating firms. There is a market similar to a stock market and if a firm does not need to use its allowances and if it can make savings on its emissions, it has this asset which it can sell. Equally, if it has excess emissions, it can purchase allowances. However, because the overall amount of allowances is capped, it means the emissions impact is quantified in advance.

The Irish installations, based on the allocations by the EPA for the pilot phase of the scheme, account for approximately 33% of total emissions figures. This was introduced on a pilot basis from 1 January of this year and the European Commission is currently surveying stakeholders on their experience of the scheme to date. It is envisaged that the results of this will be presented to the Council and the European Parliament early next year.

Although the pilot phase only commenced in January, member states must submit the national allocations plans for the Kyoto commitment period, that is, 2008-12, to the EU Commission by the end of next June. The Department has already commenced the process of updating its emissions projections for 2008-12 so that the overall allocation to the trading sector will be as robust as possible. The allocation will be decided by Government at the end of this year, following which the EPA will begin the process of making installation level allocations for 2008-12.

I wish to look specifically at the energy sector. For the purposes of calculating emissions, this sector comprises electricity generation, oil refining and gas production, transmission and distribution. We get emissions from three distinct sources. There is carbon dioxide and small amounts of nitrous oxide from fuel combustion in electricity generation. There is carbon dioxide and negligible nitrous oxide from oil refining and then there is methane from leakages in the natural gas pipeline and carbon dioxide from flaring and transmission of natural gas. Of these sources, carbon dioxide contributes 97% of the sector's total emissions and electricity generation accounts for a similar percentage of the total sectoral emissions.

In the 1990-2002 period, emissions of carbon dioxide per unit of GDP in Ireland fell by almost 40%, which shows that we have been making considerable reductions in the carbon intensity of the economy. However, since the economy has been growing so fast, this has been greatly overtaken and overall we have had an increase in emissions, although we have got some benefit from the commencement of the two new combined cycle gas fired turbine plants in 2002.

Emissions from the sector are still projected to increase by another 15% to 2012. Across Europe, it is projected that approximately 700 GW — which is the same as the currently installed capacity — of electricity generating capacity needs to be installed by 2030. Given the lead time for planning decisions for such infrastructure, it is likely that the investment decisions taken over the next few years will determine the carbon emissions for several decades.

A central feature of any future energy strategy for the EU will be cost effective energy efficiency improvements and energy savings. The Energy Commissioner has made energy efficiency one of his priorities and recently published a Green Paper on it that lists a number of options which could save 20% of energy consumption by 2020. That would result in savings estimated at €60 million. If nothing is done, however, current EU-wide trends point towards a 10% increase in energy use in the next 15 years. Half of the proposed savings could be reached by full implementation of already adopted legislation on energy efficiency in buildings, domestic appliances and energy services.

This year's spring meeting of the European Council at Head of State level concluded that developed countries should consider reducing their greenhouse gas emissions by between 15% and 30% by 2020 as part of global efforts to reduce emissions. It also committed the EU to leading other developed countries in meeting this target. If one juxtaposes this commitment against the required investment in electricity generating capacity, it becomes clear that further investment in clean energy is likely to take precedence. The establishment of a market value for greenhouse gas emissions through the EU emissions trading scheme means that the costs of carbon dioxide will now be factored into production and investment decisions thus providing a further incentive for investment in clean technologies.

I emphasise the importance of the link between our energy policy and our climate policy. Indeed, one of the core objects of Ireland's energy policy is environmental sustainability. One will find the interfaces very clearly in the national climate change strategy, in the Green Paper on sustainable energy and in the co-benefits of specific measures, such as emissions trading, renewable energy supports, energy efficient and demand reduction measures. How the energy sector develops over the next few years will affect Ireland's progress towards meeting its Kyoto targets but we also must have our sights on the time beyond the first Kyoto period after 2012, when more ambiguous emissions reductions are likely to be required. As I mentioned earlier in the EU context, the decisions we take in regard to energy policy over the next few years are, therefore, likely to have long-term implications for Ireland's ability to address future climate change commitments.

Mr. Ken Macken

Following on the presentation from Mr. O'Mahony, I wish to outline where the emissions trading scheme has been implemented in Ireland and how it is being done. I will go through the slides I have circulated. The paper document, which has also been circulated, is a supporting one and there is a publication which summarises the entire process.

The slide entitled "Kyoto Protocol" summarises what members have heard from Mr. O'Mahony.

The protocol applies to six greenhouse gases. Technically, this is important because only carbon dioxide is included in emissions trading even though our national greenhouse gas emissions total is achieved by adding up all six gases and weighting them in equivalence to CO2.

The top of the second page of our document shows the current position with regard to Ireland's emissions. It is clear that we are approximately 10% higher than should be the case. The current emission level is approximately 67.5 million tonnes per annum. Our target is approximately 61 million tonnes per annum. We must reduce from our current position by approximately 10% or 6.5 million tonnes per annum.

The bottom of the second pages shows the Kyoto mechanisms. These assist cost effective reductions. It is not important from the global perspective where a reduction is made as it is a global problem. All that is important is that the reduction is made. In implementing the Kyoto Protocol, the parties to it identified that they wanted to achieve making reductions in a cost effective way. They also wanted to arrange technology transfers to third countries. The joint implementation and team development mechanisms apply to projects and are being introduced more slowly than emissions trading, which the EU has already introduced.

Emissions trading under the Kyoto Protocol does not come into play until 1 January 2008. The EU has decided to act ahead of this date and introduce a three-year pilot scheme, from 1 January 2005, before moving into the Kyoto scheme. The pilot scheme is to allow European countries to develop an understanding of how the scheme works and to iron out some of the problems that may become apparent before dealing with the more serious reductions envisaged in the real scheme.

This is a "cap and trade" scheme that applies to CO2 only. Within each member state, each national authority must apply a ceiling level of gases assigned to emissions trading. This is the cap and it is distributed to each of the companies covered by emissions trading. These companies are listed on a schedule of industry types in the EU directive, as implemented by Irish legislation.

Once a company has been awarded its allocation, it is free to emit greenhouse gases provided it records those gases. At the end of each year, the company must surrender allowances to cover its emissions. If it has emitted more than it was issued free, it must buy on the open market to make up the difference. If it managed to reduce its emissions, and have some left over, it can sell. This gives rise to trade. If one company can make energy reductions more cost effectively than another, it will do so and will sell its allowances, while companies facing high costs to make reductions will buy. A market mechanism will ensure that reductions are made in the most cost effective way.

The allowances distributed are determined from a cap reached by way of a governmental decision. The Environmental Protection Agency is responsible for distributing this to all of the installations within the scheme, of which there are more than 100. This involves drawing up the national allocation plan. The scheme also encompasses significant penalties over and above the payment of current market prices. If, at the end of the year, a company does not have allowances to cover its emissions it faces a €40 per tonne penalty during the pilot phase. It also has that number of tonnes reduced from its allocation for the following year. That penalty increases to €100 per tonne in the main scheme.

On page three, members can see the structure put in place in Ireland to implement the emissions trading scheme. A national advisory group — comprising the chief executives of our senior nominees, Forfás, the Commission for Energy Regulation, Sustainable Energy Ireland and the National Treasury Management Agency, under the chairmanship of Dr. Ed Walsh — was established to advise the EPA. The director general of the EPA is also a member.

The Government decided the total amount, which was then allocated to sectors and installations by the EPA. We did that by way of consultation with those involved. We took advice from the advisory group, drew up a plan indicating how we would do it, put it out for review and completed various levels of consultation. It also had to be approved by the Commission. The document shows that process, including stages of consultation, review and adjustment from July 2003 to the current position in more detail. A final decision was taken on 8 March 2005, reflected in the blue publication I have distributed to committee members. It indicates the actual allocation to each of the approximately 100 installations for each of the three years.

On the bottom of page four of our document members can see the methodology used. We based the allocation on the 66.96 million tonnes we were given by the Government for the three-year period. We were directed by the Government that at least 97% had to be allocated free initially. We decided, in the first instance, to allocate to each sector. We divided each of the groups into sectors, based on the divisions already contained in the directive. We worked on an historical basis of what those sectors had emitted and we proportioned the amount we were given into those sectors. We then examined the companies within the sectors. Again, we decided to allocate to them on an historical basis. Certain exceptions were made for companies that had only recently started because we had to have recourse to other means. We used projections and recent emissions.

We also established a set-aside or reserve for new entrants. We put aside 1 million tonnes for the three-year period. We also introduced a number of measures to increase and promote energy efficiency. We established a CHP set-aside, taken from the powergen sector, of approximately 500,000 tonnes to cover the three-year period. This is to cover the electrical proportion of combined heat and power plants and is a stimulus to encourage what is widely recognised as a poor uptake of CHP technology in Ireland.

We adjusted the sector allocation to the electricity sector, to allow for meeting the targets under the RES-e directive for increased use of renewables generating electricity because generating renewable electricity means fossil fuels are not used. A proportion of the national electricity would not require those CO2 allowances. We also put aside 500,000 tonnes to cover the operation of the scheme that would be auctioned.

On page 5 we see the breakdown of allocation of the 66.96 million tonnes. Existing installations get approximately 65 million tonnes, new entrants get approximately 1 million tonnes and CHP and auctions get approximately 500,000 tonnes each. The impact of this on Ireland's projected emissions of greenhouse gases is also shown on a graph on page 5, which may be difficult to follow. The grey shaded part represents the impact of the emissions trading scheme. One can see that in the first three-year period, the impact is foreseen as relatively modest, rising to a greater impact in the second, or Kyoto, phase.

On page 6 one members can see that we are moving into the second national allocation plan. We must submit this by the end of June 2006. The final decisions on allocations must be made during the latter half of 2006. Some legal differences exist between the first and second phase. In the first phase at least 95% had to be allocated free. In the second phase, only 90% must be allocated free. Some countries opted-out certain sectors with which they had private agreements. We will not be allowed do so in the second phase. There is a provision for opting-in additional sectors and even other greenhouse gases if member states wish to approach the Commission. There is also a need to set a limit on how much the other mechanisms are used. Again, the Government will decide the total amounts for emissions trading and the Environmental Protection Agency will decide how to allocate to individual sectors and installations. We will be advised by the national allocation advisory group.

All of this is reflected in the national registry, whereby people's allocations are recorded in an on-line web-based system. It is almost like a banking system. Individuals who are given allocations are provided with passwords which they can key in and see their allocation in the scheme. If they sell, they can transfer that on the web-based system to the buyer. If they purchase, the seller will transfer the credits to them. At the end of each year, they must send a certain amount of their allocation to the EPA to balance what they sold.

The registry is not a trading platform, it merely records what one has in one's account. If one wants to set up a trade, one arranges it through meetings or other arrangements. One does not arrange trades through the registry. The software system will go live within the next few weeks in Ireland.

It is already live in a number of member states. The most recent data I saw indicated that nine of the 25 members states have the registry live, while the other 16 states, like Ireland, are working on putting one together.

The emissions trading scheme is to be thought of as simply a mechanism to allow reductions take place in the most cost effective way. It relies on the cap that is given to it as part of the national strategy.

Deputy Durkan

I congratulate the Department of the Environment, Heritage and Local Government and the EPA on their submissions. This is an interesting subject, for which they have particular responsibility and on which they have an impact.

Mr. Macken referred to greenhouse gases being a global problem and that reductions should be implemented everywhere. There are benefits from that in terms of gas emissions trading. From an economic point of view, however, and depending on the scale of the economy comparative to the economies of other countries in the world, we would quickly run out of credits in that area. For example, mention was made of the reduction in the national herd being beneficial to reducing emissions. That is true but the national herd here previously stood at approximately 8 million animals. The national herds in the UK, Argentina and Brazil are 14 million, 70 million and 158 million, respectively. We must recognise that we have a part to play in reducing emissions and exceeding the target set for us but we should also remember that Ireland is a relatively small player in the field and that we do not have to make all the sacrifices. We could eliminate all emissions here but that would not affect emissions globally. We must remember that, lest somebody gets the notion that we will address the entire problem. The latter is not the case.

Regarding the destruction of the rain forests, that is not our problem but we continue to complain about it and expect that somebody should do something about it. We will shortly have to come up with a strategy because there is little point in lecturing the people who live in those areas. If they want to recognise the full economic viability of their terrain, we must, just as we did in respect of the African countries under the Lomé 1 and 2 agreements, do something. If we are to make a serious impact on emissions, we must begin in the area where there is a major issue that can be dealt with but only in a particular way. In that context, it must be dealt with economically.

I have referred to the emissions trading scheme, which is useful. I congratulate all involved in the achievements to date. We have not achieved our targets but it appears that we are moving in the right direction.

Mr. O'Mahony referred to conservation and energy conservation, in particular. That is extremely useful and much more can be achieved in that area than was the case in the past. Two issues arise in that regard. Regarding insulation of houses, offices, factories, etc., I find it difficult to understand the reason that foundations of local authority houses are currently being poured in the knowledge that the new regulations will come into place in 2007. They are not being applied currently but it would be good economics to do that now and build up that credit, so to speak. It is somewhat similar to somebody saying they were travelling within the speed limit. One does not have to travel at 60 km/h, one can travel at a lower speed. In the same way, we do not have to wait until 2007 when this measure becomes legally applicable. We should apply it now and I ask the Department of the Environment, Heritage and Local Government to do that because, in my constituency and several others, foundations to which the new insulation guidelines do not apply are still being poured and instructions have been given to that effect.

Reference was made to methane gas. The only one Mr. Macken failed to mention, probably in deference to the Department of the Environment, Heritage and Local Government, is that which emanates from the various sewage treatment plans throughout the country, of which there are quite a few. In some areas the countryside is permeated with gas emissions from malfunctioning or inefficient sewage treatment plants. There is one in my constituency. Any tourist to the constituency who has travelled on the M7 between Naas and Newbridge will have had occasion to inhale the unmistakable odour that emanates from the Osberstown scheme. There is also one in Dublin Port. It does not extend to my constituency but I have met people, some of whom are sitting beside me, who have met individuals who have had that experience. To deal with the issue before it becomes a problem, it should and must be possible to improve the efficiency of the plants from the outset in order to eliminate such emissions. There is no necessity for such emissions because the technology in this area is well advanced. Such emissions occur throughout the city at certain times of the year. I ask that what I proposed be done with a view to making a contribution towards all such plants.

I mentioned conservation and I will not return to it because I am aware other members want to contribute. I would like more information on the forestry programme, which is complementary to this sector with respect to sequestration. I have asked a question on that programme previously. The forestry development programme is important because it can be complementary to the conservation area in particular and extremely beneficial to the environment in more ways than one. There is the visual impact, the provision of wood for construction and many other purposes. More emphasis must be placed on bringing the forestry industry into the picture with a view to identifying the precise impact its development could have. I hate to bore members but the impact that can be achieved depends on the type of trees planted. Much more effort must be put into planting. My colleague on my right does not agree with me on this but planting trees has been a pastime of mine over the years and one learns much from them in terms of the way they grow.

Chairman

I thought I cemented that crack.

Deputy Durkan

We are still working on it. Amazingly, in the United States and in Canada people tap into the maple and make alcohol from it. Imagine what it would do for our economy if we were able to achieve that. To be serious, there are a number of trees that are enormously beneficial to the environment in terms of capturing carbons. More emphasis must be placed on that. I am aware that some environmentalists are opposed to the planting of the same species of tree. We must make up our minds one way or the other. If we do not want to plant sitka spruce or western red cedars, we should decide that we will sacrifice those even though they are excellent for trapping carbons. We should decide that we do not want them because somebody else is of the view that they give off nutrients and so on.

On the question of oil based electricity production, I realise that the representatives are not responsible, except in regard to emissions, for that area. There is, however, a huge knock-on effect in terms of electricity price hikes. At present, a relatively small amount of our electricity is generated from that area. People blame oil price hikes on the oil portion of electricity production but that is not true. If the representatives want to comment on that, we would welcome hearing from them.

Chairman

We will bank the questions. I will call Deputy Eamon Ryan, followed by Deputy Fiona O'Malley. We will then take answers to the questions.

Deputy Eamon Ryan

The Minister for Foreign Affairs said last night, in response to our Private Members' motion which had a climate change element to it, that the meeting of experts from different countries as part of the 2012 renegotiation of the Kyoto Protocol in Bonn in May had been very positive. I know it is only the first meeting and that we must wait for the proper negotiating process to begin but is there an initial sense as to the reason the meeting was positive? What is the long-term outlook post-2012? Mr. O'Mahony referred to the spring European Council agreeing to cap the reduction at plus 15% to 30% rather than capping it at plus 13%. Does that include Ireland or are we again exempt because of our need to grow the economy?

With regard to a particular hobby horse of mine, has the Government considered or taken a position on a renegotiation of Kyoto post-2012, on which negotiations are to begin next year? What sort of preferred allocation system do we want? The one I have tried to push for is based on a per capita carbon allocation throughout the world, with a trading system linked to that. Has the Department done any work on considering such systems before entering the negotiations?

Why does the Department consider the issue of energy as one of electricity generation? I thought a consideration of energy would include electricity generation, heat generation and transport. I am sure the Department is considering heat and transport but it is probably best if we all sing from the same hymn sheet and, therefore, when we talk about energy, we talk not just about electricity generation but also about heat and fuels. It makes sense to an extent because the fuels are often interchangeable or can be used in different sectors. It is better to keep them together.

The figures provided by Mr. O'Mahony were interesting. He stated we would need a reduction of 8 million tonnes of carbon, 4.3 million tonnes of which would come, some by emission reductions and some by the purchase of allowances, from the traded sector. Of that 4.3 million tonnes, how many will be obtained by the purchase of allowances? The energy regulator attended the committee earlier and made the point that the electricity sector currently has to purchase approximately 2.5 million tonnes of carbon per year at the emissions trading price of €23 per tonne. That would add a price tag of approximately €50 million to the electricity bill if it is not brought forward. Does that tally with the Department's estimate? Are those 2.5 million tonnes part of the traded sector to which Mr. O'Mahony referred?

I have a question for the EPA representatives. I have spent three years trying to understand the virtual markets, which are complicated and not easy to understand. I take the point that the Department simply provides the registry and does not deal with the trading. How is the €23 per tonne price set for Irish companies that trade? Mr. O'Mahony stated that companies can sometimes work between themselves in direct trade. However, it is a central European market system that sets the price of €23 per tonne. It would ease my mind if Mr. O'Mahony could explain this.

I noted with interest that clean development mechanisms, CDMs, are allowed from 2005. Have any CDMs been processed here or are any about to be processed? What level of tonnage is involved and how many have been done in the context of joint implementation? Is there a tendency towards one or the other yet, or has it all been emissions trading to date?

Deputy F. O’Malley

I welcome both groups and thank them for their interesting presentations. I also have a query about the trading platform. It is a new market or a new resource. Like Deputy Eamon Ryan, I question the mechanism for the moving and monitoring of the trading platform and how prices are set. Does the value increase and decrease? I am also concerned about what parts of the process are real because in a way it seems virtual, with people running around behind closed doors and talking to each other rather than having a proper trading mechanism.

Mr. O'Mahony referred to operating the carbon trading system mechanism in a cost efficient way. Would it be fair to suggest this seems to be the motivation rather than the reduction of emissions? The giving out of free permits does not incentivise a producer of carbon dioxide to decrease output because the permits have been issued and will be reissued. Where is the incentive for people to deal with cleaning up carbon dioxide? I was concerned when Mr. O'Mahony admitted that the priority seems to be to make the trading system cost efficient rather than effective in terms reducing carbon dioxide emissions.

The Department's presentation seems very positive and suggests that we are on the right road. The decline on the graph is going in the right direction in terms of trying to reach targets. However, does the graph represent a blip due to the closure of the IFI plant and the introduction of the two gas generators? Is it just fortunate that the graph shows we are going in the right direction? Is there a long-term strategy for the period beyond the 2012 targets in the Kyoto process?

I have a query for the EPA delegation. I did not understand a point on the national allocation plan and the new CHP set-aside. Are certain manufacturers of waste exempted or are all treated equally? What did Mr. Macken mean when he referred to installations deemed to have closed?

Mr. O’Mahony

There are quite a few questions. I will leave the emissions trading questions for the EPA to address. With regard to Deputy Durkan's questions, it is understood that Ireland is a small country in this and cannot be expected to address the entire problem. However, we operate very much as a member of the EU. This explains the point touched on by Deputy Eamon Ryan, namely, that while the EU as a whole is committed to a reduction, for the first period we are actually allowed an increase over and above the 1990 levels. This is because our partners in the EU recognise that in 1990 Ireland was far behind other member states in terms of its industrial development and so on. One of the points of Ireland being a member of the EU is to bring ourselves up to the average level of development, although the extent to which we might exceed that level was not foreseen. It was recognised that to achieve this would inevitably generate substantial emissions. If one likes, in this burden sharing arrangement we were given a degree of relief to allow for the economic development that was taking place.

However, we still have to reduce our emissions from their current levels. Obviously, what will happen in the 2012 period and what Ireland's share will be is a matter that will have to be negotiated and agreed with our EU partners. The world level negotiations on this will commit EU member states to a particular reduction and that will then be distributed among the EU member states. Given Ireland's level of development, we would not expect to get the kind of favourable treatment we previously obtained.

Regarding speeding up the process of energy conservation, there is a degree of phasing. The building regulations for new houses were amended at the beginning of 2003 and these reduced energy use in new houses by 23%, with more reductions to take place in 2005. Under the energy performance in buildings directive energy efficiency assessment and labelling for all buildings on the market is phased in over three years from next year. It is a phased process.

Deputy Durkan

Why phase it? We have decided what we will have in 2007 and there is no reason we cannot have that now. What is the problem? Why not say that every new house from now on must comply with regulations and have 2007 as a deadline?

Mr. O’Mahony

It is not unusual to phase in changes that will have significant impact on industry. That is the arrangement that has been made.

It also reflects the uncertainty on how precise one can be on what is necessary to achieve a 2% reduction. That is not an exact science.

It was pointed out that I honed in on one particular aspect of energy. That is correct and I did not go into detail on transport although I did refer to it in the presentation. This was my interpretation of the brief for today. The national climate change strategy goes across the entire economy. It considers home heating in terms of the power generation aspect but also in terms of building standards and insulation. Most of Deputy Fiona O'Malley's questions related to emissions trading. She also asked whether the reduction in emissions was just a blip. We had a reduction in 2002 and another in 2003. The closure of the fertilizer plant in Arklow was significant in that regard, but there are other factors. The national herd is growing smaller and——

Deputy Durkan

We will be left with a by-product from that. We will have to build incinerators to burn the meat and bonemeal, so I am not sure how beneficial that is.

Mr. O’Mahony

Is the Deputy referring to the closure of IFI? The need for incinerators is another issue. Apart from the closure of IFI, other significant factors are that the national herd is reducing in size and that within the national energy sector there have been shifts in power generation technology.

Deputy Eamon Ryan asked, with regard to the contribution from the emissions trading sector, how much of it would come from purchases and how much from reductions. That is not clear. It is part of what the scheme leaves open to individual companies and installations. They have choices whether they make a change in their process, efficiency or equipment versus purchase. The advantage of making a change is that once it is made there is no ongoing annual cost to continue purchasing. If a company decides to buy itself out of trouble this year or next year, it must still buy itself out of trouble the year after and so on. Companies must make the call. As the scheme progresses and technologies improve, people will find more efficient ways of doing things. That is what the scheme is supposed to do. It provides an economic driver to encourage the development of energy efficient technologies.

Deputy Fiona O'Malley mentioned combined heat and power. This is a technology that in its own right does not necessarily have anything to do with waste. Combined heat and power is the way whereby, if one must generate hot water or steam in an industry, one burns fuel to do so. However, this can only be done at a certain level of efficiency. Alternatively, if one must generate electricity or if one uses electricity in the industry, one does so by burning fuel and one can only get a certain efficiency.

There are pieces of equipment, called combined heat and power plants, whereby one generates the electricity and the hot water or steam together and this equipment gives a very high level of efficiency. For example, a modern power station might get up to 55% or 60% efficiency. That is the best a modern power station will do, but a combined heat and power plant can get up to 80% and 90% efficiency. Therefore, one gets extra efficiency from one's fuel. This can be done with the normal traditional fossil fuels, coal, oil and gas etc.

Sometimes, as with any fuel-burning appliance, one can decide to introduce waste, but we are not introducing it in this context. The combined heat and power incentive that we are giving is in the context of traditional combined heat and power. If people want to burn a waste fuel, that is an added dimension. They could do that without using combined heat and power. Waste burning is an extra add-on and will not arise in most cases. Most people switching to combined heat and power plants do so using whatever fuels they have been using.

The Deputy also referred to closures. We were directed by Government, as part of the directions on the total quantity for emissions trading, that whenever an entity closed it would not get future allocations for the years ahead. That was part of our initial three-year plan. Obviously, that issue can be revisited as part of the next plan. That direction has both advantages and disadvantages. It is a difficult call to make and we received several submissions on it.

Deputy F. O’Malley

I mentioned that the position vis-à-vis farming does not incentivise farmers.

Mr. Macken

Chairman

It has been a long day. We have been here since 10 o'clock this morning. Many of us have not had much of a break.

Mr. O’Mahony

All new cars must show information on carbon emissions. Such information must be labelled in the showroom. Deputy Durkan is aware that draft planning guidelines on wind energy have been developed. When local authorities produce development plans, they will have to indicate areas of significant wind energy potential. The guidelines are in their final draft form and will be published fairly soon.

I can inform Deputy Eamon Ryan that we are at the early stages of the post-2012 implementation process. We will be guided by the overall approach adopted by the EU. It is obvious that Ireland makes an input into that process, but it is just one player among 25.

Mr. Macken

Some questions were asked about market pricing and the clean development mechanism. I ask Mr. Conor Barry to speak about the matter on behalf of the Environmental Protection Agency.

Mr. Conor Barry

We were asked how real the price could be identified and how trading actually occurs. Like any market price, the price in this instance is the price somebody actually pays for it at a given point in time. If an oil price of $50 or $60 a barrel is quoted, that price is the West Texas Intermediate price of oil on the New York mercantile exchange, which is considered to be the benchmark. When one is commenting on changes in the price of oil, one can also quote the European Brent price of oil, which is always slightly lower.

The five exchanges which are involved in the trading of carbon emissions operate in the Nordic energy market; in Paris, for the French energy market; in Leipzig, for the German energy market; in the international petroleum exchange, which is where Brent operates; and in Amsterdam. It expected that a sixth exchange for the Spanish market will be opened in the coming weeks. Carbon emissions are also being traded in brokerages on a daily basis. A number of information companies publish indices on a daily basis.

The price of €23 per tonne that was mentioned refers to the price of an allowance that was traded for delivery in the first week of December 2005. Different prices are used because there are four different types of this commodity. As the interest rates trade at a slightly higher price, it is obvious that prices vary depending on whether the allowance can be delivered immediately, or in March or December of next year.

Each of the different exchanges and news agencies comes up with a different estimation on a daily basis, although they are usually within a few cent of each other. It also depends on whether one looks at the closing price or the price over the day. The two prices also tend to be quite similar. If one follows the prices over approximately six months on a daily basis, even within a fairly thin market, one will find that they match each other to within a few cent.

If a market is to operate, people trading on different exchanges need to be aware of the prices on other exchanges. That is important if balance is to be achieved. It seems to be operating at present on the basis of quite a low spread between bids and offers, which is usually a good indication of liquidity.

I was asked whether the clean development mechanism and the joint implementation programme are operating. No joint implementation projects are registered because joint implementation cannot start before 2008. The development of some projects is ongoing, but no joint implementation credits are being given. Credits under the clean development mechanism can be given under the so-called prompt start system. Any emission reductions which have occurred since 2000 can be credited under the clean development mechanism to incentivise technology transfer from the developed world to the developing world. That is a very important part of the Kyoto Protocol.

Very few projects have finished the registration process. Three or four projects have been formally registered. They will be issued with certified emission reductions, with credits arising. These credits cannot be transferred into the Irish registry until a UN transaction log is up and running, which is expected in 2006. These credits can then be used under the European emissions trading directive for compliance with companies' obligations. It is expected that there will be a very marginal contribution to compliance during the pilot phase in 2008-09 or so.

Chairman

Mr. O'Mahony, before we finish, given the impact on the environment and so on and the Common Agricultural Policy, is it timely to have a common EU energy policy? Is the commission to which Mr. O'Mahony referred earlier moving in this direction? Given the impact on the environment and so on, perhaps we should have a common energy policy to examine renewables, savings on energy and different types of energy.

Mr. O’Mahony

I do not know. From my perspective, I do not think I am well equipped to answer that question. A number of energy issues would go far beyond my area of expertise.

Chairman

I wish Mr. O'Mahony luck in his job. I do not know where he is going after this, but I wish him luck and hope he will have a view on other issues that will get him to where he is going.

I thank Mr. O'Mahony, assistant secretary at the Department of the Environment, Heritage and Local Government, and Mr. Maughan, Dr. Macken, Ms Martin and Mr. Barry for attending on behalf of the Environmental Protection Agency.

Representatives of the ESRI and IBEC have been waiting for some time. I have no doubt they will have some comments to make on the presentations that were made, which will add further to the debate. We will suspend the meeting for five minutes while I ask the two groups to come in. While we will have the same format, we recognise that the two groups will have two different points of view.

Sitting suspended at 3.32 p.m. and resumed at 3.38 p.m.

Chairman

I welcome Dr. John Fitzgerald from the Economic and Social Research Institute and thank him for coming at such short notice. I welcome also members of the climate change working group from IBEC. I understand the group comprises Mr. Donal Buckley, Mr. David Manning, Mr. Owen Wilson, Mr. John Reilly and Ms Paula Nielan. We recognise the two groups are different with two different points of view. We thank them for being present during the earlier debate. We will hear a presentation from both groups, followed by a question and answer session. I thank the representatives for submitting their submissions to the committee. As we are in the middle of an energy module, the views of the representatives will be much appreciated by members of the committee before we conclude our report.

I draw attention to the fact that members of the committee have absolute privilege, but the same privilege does not apply to witnesses appearing before it. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair members should not comment on, criticise or make charges against a person outside the House or any official in such a way as to make him or her identifiable.

Some members of the committee are engaged in other parliamentary work. This is the last week of the Dáil session so it is a hectic week for the Oireachtas. It is not true, as the press would have people believe, that we have three months off. I call first on Dr. John FitzGerald.

Dr. John Fitzgerald

The job of policy makers in the energy area is particularly difficult. There are many different objectives such as minimising costs, making sure the country's lights do not go off and meeting environmental objectives. The overall objective must be to simplify decision making.

The job of the energy policy maker is to minimise the cost of providing energy, subject to two constraints. First, the Department of Environment, Heritage and Local Government or the EU sets out the environmental objectives to be met. The second relates to security of supply. For instance, it might be an objective that the lights do not go off for more than eight hours a year. Subject to those, the aim must be to provide energy at minimum cost.

Ideally there should be one policy instrument for one policy objective. If there are several it becomes very complex for the regulator, for the policy maker and for those who are being regulated. It also becomes very expensive so a minimum number of instruments is desirable.

The EU means well but it is utterly incoherent in the way it puts its policies in place. What it is trying to achieve in terms of the Kyoto agreement is admirable but the way it is going about it is not designed to achieve the targets at minimum cost. If the emissions trading regime was designed correctly it would be effective and efficient. However the EU has also introduced renewables obligations. If the emissions trading regime worked there would be incentives to have the optimal deployment of renewables in Europe. Putting the two together, however, makes for a mishmash.

Research and development is hugely important. It was announced yesterday that the world is going to spend €8 billion on research on nuclear fusion. If a tiny fraction of that were spent on research in other areas of energy, energy efficiency and other technologies, we would see results. At that level the EU is doing something positive although it has spent a disproportionate amount on nuclear research over the past twenty years.

The policy on emissions trading should work, although what may be described as the 'grandparenting', identified by Deputy Fiona O'Malley, is a huge problem. As governments do not get revenue from selling a permit they cannot offset the costs for society as a whole. A study published by the EPA last year showed that it would have been better for the Government to have auctioned the permits and used the revenue to cut taxes elsewhere. If it was done correctly, going back to what Deputy Durkan said earlier, there would have been a reduction in emissions and a higher level of GNP.

Allocating the permits free instead of auctioning them causes serious problems. It introduces distortions into the market and these will affect the all-island electricity market, a matter to which I will return. If one country has one policy and a second country another, distortions are inevitable.

Deputy Fiona O'Malley's economic analysis of the problem is correct. If the permits were only given out once the incentive would be to either shut down and sell the permit or continue in business. If somebody has a dirty plant such as a coke plant in Yorkshire — let us not get personal — and it stays in business until 2008 they will get another allocation of permits which, because they are free, they will be able to recover through the price. It incentivises a dirty plant to stay in business for multiple rounds. Similarly, if in 2008 people feel they will be in another round after 2012 they will continue to stay in business.

One of the reasons the price is rising so much is that it does not pay anyone to shut down because they will get an allocation of permits the next time. Furthermore, if somebody built a new combined cycle gas turbine power station in Yorkshire and obtained permits for it they would be able to sell those permits on for a higher price. It is a subsidy for the development. If they built a windmill in Yorkshire they would not receive a subsidy. It provides a large capital subsidy to dirty plant which is causing a disadvantage to the use of renewables. If the policy was right it would incentivise renewables.

Ireland, as I understand it, has been more on the side of the angels in this regard, pressing for more auctioning while the British Government, for all that it proclaims its commitment to the environment, sabotaged at the last moment what the European Parliament wanted, which was more auctioning of permits. We need to look behind what people say.

Domestic policy is incoherent when it comes to implementing the environmental requirements but not nearly as incoherent as the UK policy. One area where it is incoherent is that of peat. At the current price of carbon, and certainly if it goes higher, it would pay Ireland to shut down the peat stations and just pay everybody off, in spite of the fact they are only opening this year. That would be the cheapest way for the Irish to meet the requirement of reducing our emissions. However, the policy has been to promote peat.

Ireland has made the best of a bad job in terms of emissions trading. The national allocation plan seems to have been implemented very efficiently, given the parameters that were set. I do not see renewables as being beautiful but as a means to an end. It is necessary to get the price right but the emissions trading scheme does not provide the right incentives. In some ways it advantages fossil fuels over renewables in the form of the capital subsidy in the first round. Some instrument is needed to offset that. If emissions trading was made to work properly in the next round I do not think a special renewables policy would be needed, although renewables bring other advantages such as security.

The all-island electricity market is due to be active from 2007. Emissions trading is going to cause problems. This time, the Irish and British Governments had similar policies so there was not much distortion. If in 2008 Ireland was to offer permits for new plants opening but the British were not then all the new power plant would locate south of the border and we would have to lay numerous wires to the north. There is a potential for distortion and there is an imperative for greater co-ordination in the context of the all-island electricity market. I am a member of the Northern Ireland authority for energy regulation and my experience is that nobody in London realises that Northern Ireland is part of the UK. They seem more inclined to realise that the Republic is separate so they engage more readily with us.

The UK has an incoherent renewables policy and provides a huge subsidy for wind power. In view of this, all the wind operations are likely to migrate north of the border. It would, however, be inefficient for it all to be located in the same area. The answer is not for us to do the wrong thing but for the British to do the right thing, but that is the job of the Government.

Carbon tax will have a small effect on transport because tax is already so high. The main environmental issue in transport is congestion. If congestion is tackled first it will solve the carbon problem or go a long way towards it. The solution is to be found in investment in urban public transport to make sustainable cities. Congestion charging would be part of that. There would be a much greater emissions reduction from doing that properly than there would be from carbon taxes. The EU can make a real difference. When California said "jump", the US motor industry jumped to improve their emissions. If the Government said "jump", the car industry would tell Ireland to walk but if the EU said "jump" there would be a big difference. The entire world would produce cars to meet that standard.

With regard to carbon taxes, emissions trading only covers one-third of emissions. It would be exceptionally inefficient if all the burden was put on the electricity, cement and other sectors while the rest of us did nothing. A carbon tax is needed. It is all very well telling people to be good. I refer to my own children. If one child was beside me and I asked him or her to be good, there would be a chance of progress. However, if three of them disappear out of the house, there is no chance they will always be good. Telling the public to be good rather than giving them incentives will not work and, therefore, a carbon tax is needed.

Mr. Donal Buckley

I thank the committee for the opportunity to make a presentation. I am part of a delegation representing the IBEC climate change working group. Climate change is a significant issue for society and, in particular, for business. Climate change and energy policies are inextricably linked and the measures taken will impact on prices. We are worried about the detrimental impact on competitiveness and, therefore, economic growth.

It is a difficult background against which to construct a climate change policy, given the increase in fuel prices, energy demand and competitiveness within the EU. At international level, there is a global problem, which requires a global solution. With regard to competitiveness, significant trading partners such as the US, Australia, China India and Brazil do not have targets. That is an issue and post-2012 the inclusion of all countries is very much required. If that happens and the playing field is level, the issue of competitiveness will be mitigated substantially. As Deputy Durkan stated, neither Ireland not the EU can do this alone. Ireland contributes a reducing portion of the EU's emissions and, therefore, the global aspect to this issue is important.

Ireland has a 13% target and it was mentioned that we were set an allegedly generous target. We experience significant disadvantages relative to our EU trading partners. Ireland imports a significant amount of energy, it is dependent on fossil fuels, it has a large agriculture sector and so on. Significant changes have occurred since 1990 and Ireland is a much different place but we are working on the 1990 level.

I refer to the equity issue. The business sector and, in particular, the trading sector, as stated by Mr. O'Mahony, has made a significant contribution to reductions thus far. The burden is still being placed on that sector and we seek equity by involving other sectors. The sectoral breakdowns have been mentioned. Since 1990, Ireland has experienced large increases in energy efficiency and it has one of the most energy efficient economies in Europe following large reductions in intensity. Because of that, it must be recognised there is not significant room for improvement in many sectors. That is important in the context of emissions trading.

The business sector has positively and proactively engaged. I refer to the figures for 2002 and 2003, the latest year for which figures are available. There was a reduction of 14% in emissions by the energy and industrial sectors, which represents approximately 3.82 million tonnes. People have said various fertiliser plants are responsible for that but this must be put in context. These plants were responsible for approximately 1 million tonnes. Fuel switching has been adopted and many efficiency gains have also contributed, which should be recognised.

The primary mechanism for reducing emissions is the EU emissions trading scheme. I agree with Dr. FitzGerald it is not perfect, although we may not agree on what is imperfect. However, it covers only a number of sectors and the trading sector cannot be overburdened. If there are cutbacks, given how energy efficient Ireland is, costs will be added, which will impact on competitiveness and, possibly, jobs.

I refer to the issue of grandfathering, which one of my colleagues might address later. A good analogy to that is if somebody has a house and somebody else says he will give that person 90% of his current house for free and every five years he will give him less than 90% back for free, he must consider whether that is a burden or an allocation. The incentives depend on the allocation mechanism as we move forward.

Solutions were mentioned by Deputy Eamon Ryan. Many mechanisms are available and we need to use those that are economically and environmentally efficient. Dr. FitzGerald mentioned a tax but given the small emission reduction it would account for and the amount it would raise, it would not change behaviour and, therefore, we do not consider it to be environmentally or economically efficient. An equitable allocation must be made to the trading sector. The difficulty is if we only have one significant policy mechanism, which is emissions trading, we need to be careful we do not put all our eggs in one basket. We must be aware that sector has taken a significant amount of the pain and, therefore, other sectors must share the burden equally. This issue is critical in terms of research and development and many alternatives are available. Ultimately, a change is needed and research and development and the alternatives will provide that. A greater level of public education is needed so that people are aware of the challenge facing us.

This is a critical issue, which must be addressed. The business sector has played its part and will continue to do so but other sectors must engage and share the burden equitably. Environmentally and economically efficient measures are needed. A number of key decisions will have to be taken by Ireland, some of which are coming up soon. It must be ensured these decisions are pragmatic and sensible and Ireland continues to prosper as an economy and a society.

Chairman

The committee has a good idea relating to a common energy policy in the EU, which would cover renewables, biomass, biofuels, transport, all forms of energy, education and public awareness. The Common Agricultural Policy has been in place for some time, for example. Does Dr. FitzGerald have a view on that?

Dr. Fitzgerald

The EU has an energy policy in terms of liberalisation and emissions trading. However, the Union needs more coherence in what it does. The problems facing the island of Ireland, for example, in electricity generation are completely different from those facing much of the rest of the Union. Some of the measures in the Union's policy on liberalisation are not sensible for Ireland. I would be reluctant to see the EU going much further in some areas in terms of a common policy. Currently, the Union has common principles, which need to be implemented through policy in different ways in different countries.

Deputy Eamon Ryan

The committee is examining short, medium and long-term energy policy and the question of the long term was raised. As Keynes said, in the long term we are all dead and by 2050 a few of us will be biomass in the ground. Given the overlap between environmental and energy policy and the comments made by the Department of the Environment, Heritage and Local Government, the long-term projection is that by 2050 our emissions will have to reduce by between 60% and 80%. Efficiency may increase or decrease in particular activities but national energy usage will have to decrease by a similar amount in that period. Is it plausible to set 2050 as the long-term date and taking some of the environmental assumptions about reduction in CO2, to work back from that date? Are we stupid to start thinking about 2050, although some people blushed when I made the point that it is only as far away as 1960 if one looks in the opposite direction. Some people here can remember 1960.

Deputy Durkan

Vaguely.

Deputy Eamon Ryan

The term "rephrase objective" could also be rephrase energy policy. We have not really had an energy policy for the last 25 or 30 years. This could create a clause stating that the policy should be to minimise costs of energy subject to specified objects and security in the environment. The best analysis, however, is one which looks at total primary energy requirements by fuel in the country, before breaking it down by uses.

A clever way to look at energy policy on a broad basis is to see the objectives in terms of security of supply or the environment, given that fuels are interchangeable. That method also takes into account the remarkable waste of energy up Moneypoint and every other generating chimney. In electricity generation 60% of the fuel is wasted heat so looking at primary energy supply is the right way to look at it from a policy viewpoint.

Everyone's first reaction to the Kyoto protocols is to say we are not the only ones at fault, and what is to be done about the Chinese and Americans. We all agree that for something to work everyone must be involved. The only system that can be agreed is a per capita allocation of carbon to each person on the planet which has the benefit of equity and enables countries to set up trading systems that are not too complex.

It avoids questions such as whether the Iranians are using the proper certificate procedure or whatever. At least one knows how many Iranians there are and how much carbon Iran has to trade. It also benefits Iran in development terms because there could be significant reallocation of funding from the developed world to the poorer world which might get the Taoiseach off the hook in terms of trying to achieve 0.7% of GDP in development aid.

Those are three large questions for Dr. Fitzgerald. I might have questions later for Mr. Buckley.

Chairman

Did Deputy Durkan have questions for Dr. Fitzgerald?

Deputy Durkan

I was going to do them all together.

Dr. Fitzgerald

The allocation of emissions per head seems to be the only just solution to dealing with the Kyoto protocol. We published an OECD paper in 1992 modelling this at world level. It did major work on this subject between 1990 and 1992, led by an Irishman, John Martin. The paper showed this system could work and the developing world would have much to gain from it, particularly China and India. China, however, is growing so rapidly that it may look different now.

In terms of buy-in from non-OECD countries there is a clear attraction. It is possible and I would support it politically. The Deputy however is seeking my expert opinion. The committee members are the experts on what will run at a world level.

I was a member of UN Framework Convention for Climate Change delegation examining Belgium's compliance with the climate change protocol. We met the Belgian department of foreign affairs which was privately incandescent with rage at the idea that the payments made by the developed world to the developing world to buy permits should be counted as development aid. It viewed that as a case of the developed world making life easy for itself and maintained that development aid should be additional to that. It is a strong argument. There is an issue therefore as to whether this should be included as aid.

In regard to the 2050 target, I agree that one should look at total primary energy. Anybody planning for the future needs to plan for a world in which carbon will be much more expensive than it is now. It is necessary to signal that to the market and that is why I favour a carbon tax. Research and development takes a very long time.

The significant improvement in energy efficiency which took place as a result of the oil price increase in 1973-74 and 1979 did not occur until 1986 when the oil price plummeted. It takes at least a decade.

The former Taoiseach, Charles Haughey, chaired a conference on wind energy in 1992 where he was very cross that I, as an economist, said it was not the right time to invest in wind energy. It was about 10-11 cent a unit at the time. He said I had no vision. However, had we invested then what we are investing now in windmills we would have a lot of expensive electricity. The way to proceed is to invest when the technology has reached a plateau of efficiency. We need to incentivise the research and development now. Wind is quite efficient now although the price may fall a little.

There will be new technologies such as tidal and biomass. There is much research and development to be done in that area but one should not invest heavily until one is ready. We need continuing efficient fossil fuel generation probably for the next decade. The Commission for Energy Regulation in its best new entrant calculation assumes that plant will be written off over 15 years. Plant may last 20 not 40 years, given the rapid rise in carbon use and it might not last that long for peat.

Deputy Durkan

The energy industry is not co-ordinated in any particular way. Every sector has its own idea as to what it can do but there is no overall co-ordination. Dr. FitzGerald already referred to that. It is a significant chink in the armour of the industry.

It should be possible at a glance to figure out the cost per megawatt or litre instantly. It should not be necessary to spend a week doing research in order to establish that. Once that is established it becomes a matter for competition between the various service providers to compete with one another and be of benefit to the consumer. Otherwise it does not happen.

I strongly support the promotion of research and development which has been inadequate. There should have been much heavier investment in that area heretofore. We cannot do anything that will cut the power, for want of a better expression in the short term because we might never reach 2050 if the chill sets in before then.

We need short, medium and long-term plans. The long-term energy philosophy may well change as a result of developments in the meantime. Hence the need for very precise investment in research and development to achieve the mid-term forecast first in order to invest properly in the long term.

The emerging Chinese and Indian markets will have a significant impact on energy consumption. We should not forget however, that the Chinese and Indians have nuclear power. The Chinese were the first people ever to produce a rocket, thousands of years ago. Those peoples will not be sleeping while these negotiations proceed.

I am sorry to disagree with Dr. FitzGerald on the congestion tax. It exists for no other purpose than to make money for governments. I apologise personally to the Chairman for saying this because he has an interest in the Government. The congestion tax in London, and penalty points, serve no purpose other than raising revenue.

Deputy F. O’Malley

I doubt the City of London would agree with the Deputy.

Chairman

The Deputy should confine himself to asking questions.

Deputy Durkan

That is a question and an answer, and it is a comment at the same time. For example, why should a village of 1,000 houses in the middle of the country have a traffic jam? There should be no traffic jam there. Energy is being wasted left right and centre.

Chairman

Does Deputy Durkan have any specific questions for the visitors?

Deputy Durkan

I do but the Chairman is wasting my energy by interrupting me.

Chairman

The Deputy is wasting his own energy.

Deputy Durkan

I want to mention the fact that we need alternatives in the shape of renewable energy. We also need alternatives regarding traffic, which is having a great impact on energy consumption. We need more underground metros or whatever the case may be. I do not mean bringing trains onto the streets when they are already crowded.

We want to be fair to the two groups that came before us.

Deputy Durkan

We can come back. That might be the fairest course of action to the groups.

Chairman

We will suspend until after the vote, which will take 15 minutes at most. The witnesses can go upstairs and have a cup of coffee. It would not be fair if we did not give them a chance to answer some of the questions and put their own views.

Sitting suspended at 4.13 p.m. and resumed at 4.31 p.m.

Deputy Broughan

On a point of information, I draw the attention of members to the news that five citizens from the Erris area of north County Mayo were sent to prison earlier today. Mr. Justice McMenamin said in his ruling that they could not take the law into their own hands. These five men, Philip McGrath, William Corduff, Vincent McGrath, James Philbin and Micheál Ó Seighin, were taken to the Bridewell Garda station and thenceforth possibly to Mountjoy Prison. I understand our colleague, Deputy Cowley, who represents Mayo as an Independent, is with them.

This committee's remit includes issues of energy and natural resources. It is deplorable that these five citizens are in prison tonight. The latest phase of the Corrib gas development involves the laying of a pipeline across north Mayo. I understand there was no consultation with local people in regard to this development and that their environmental concerns were not addressed. It is also deplorable that Statoil and Shell have seen fit to allow the situation to escalate in this manner and did not engage in the type of thorough consultations with local residents that might have avoided this appalling outcome.

We have discussed this matter many times under the natural resources and energy section of this committee's portfolio. All members are anxious to ensure the outstanding deposits of our north-west coast will benefit the Irish economy and become a key resource for our future energy projections. It seems many commentators on this subject may even have underestimated the level of energy available from this resource.

Deputy Durkan

Another vote has been called in the Dáil.

Chairman

I am willing to stay on if somebody will pair me, as agreed by the Whips. I ask Mr. Fitzgerald to respond to Deputy Durkan's questions.

Dr. Fitzgerald

In regard to the issue raised by Deputy Durkan about co-ordination, I agree it is important to have an energy policy. We must bring together a range of different elements in terms of how we design the electricity and gas markets, deal with environmental issues and so on. I also acknowledge the Deputy's point about the need for simplicity. This is a complex area and we must try to use simple instruments and minimise the number of complex issues with which policymakers must contend. There is much to be said for that.

Mr. Buckley

If there are questions the delegation feels it did not have sufficient information to answer, it may send it on as clarification to the clerk.

Professor Fitzgerald discussed introducing carbon taxes for every household and voter in the country. What if the other EU member states or trading blocs within other EU member states do not follow suit? Does Professor Fitzgerald suggest that Ireland lead the way?

Dr. Fitzgerald

First, a number of member states have already led the way. This is not new. To answer the question, yes, I would suggest it. The Department of the Environment, Heritage and Local Government stated that current policy means we will buy permits for 3.7 million tonnes to cover the sectors not covered by emissions trading, in other words, households. At current prices, the best part of €100 million will leave the country to buy permits. If, instead, a tax is imposed to reduce the emissions by 3.7 million tonnes, all that money goes to the Government which either gives it back to reduce taxes or as expenditure and no money leaves the country. One can see this policy of buying permits seems cheap but that is because nobody values the money that goes to the Government. I believe taxpayers' money is important, and that the tax which would accrue to the Government is valuable either to allow a reduction of taxes elsewhere or to pay for expenditure. It may be a short-term policy; it may seem the cheaper route but it is not a cheap route for the nation in the long term.

Chairman

I thank Professor Fitzgerald from the ESRI for attending today. I apologise to everyone for the interruption. I thank Mr. Buckley from the climate change working group within IBEC and his colleagues for attending today's meeting. It was a most useful presentation that has given us a clear understanding on a number of issues and will be helpful to us in our deliberations.

The clerk has circulated a draft report on the consideration by the joint committee of the motion regarding the criminal law framework for enforcement of law against ship-source pollution. Is the report agreed? Agreed.

I thank committee members for attending the meeting. It has been a long day and I apologise for having so much on.

The joint committee adjourned at 4.55 p.m. sine die

JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES debate - Wednesday, 29 Jun 2005

Energy Regulation: Presentations.

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JOINT COMMITTEE ON COMMUNICATIONS, MARINE AND NATURAL RESOURCES debate -
Wednesday, 29 Jun 2005