On behalf of the joint committee, I welcome the Minister for the Environment, Heritage and Local Government. He will make a presentation and there will then be a question and answer session.
Emissions Trading: Ministerial Presentation.
I thank the committee for the opportunity to present an overview of the important decisions made by the Government on the total quantity of CO2 allowances made available to the emissions trading sector. This decision is central to the Government's participation in the EU emissions trading scheme from 1 January 2005 and is important in terms of Ireland's Kyoto obligations. Ireland was one of the first countries to submit a plan. I thank the EPA and the advisory body led by Dr. Edward Walsh, former president of the University of Limerick. The Government decided the overall figures on the basis of all the evidence available to it and the EPA was involved in the individual allocations. The scheme provides a good balance and it will be important not only for Ireland, but for Europe. Hopefully, the scheme will work extremely well. There will be a learning by doing phase between 2005 and 2007. The committed phase will take place between 2008 and 2012.
This will not resolve all our problems but it provides a balance in terms of Ireland's competitiveness and environmental needs. Our responsibility in all areas is to strike that balance to make sure Ireland fulfils its Kyoto obligations while, at the same time, maintaining competitiveness and jobs that are important to the State.
I thank the Minister for his presentation on emissions. The impact of the Kyoto Protocol is a major concern because it places great pressure on domestic competitiveness while larger countries, which are greater users of fossil fuels and, therefore, greater producers of greenhouse gas emissions, are not making the same effort. Is a mechanism in place internationally to ensure countries that pollute the environment meet their full obligations? If so, what sanctions can be taken against them? Ireland's emissions would be tiny compared to larger countries.
This is an important issue. A total of 120 countries have signed up to the Kyoto Protocol. The ratification by Russia is crucial to triggering its full implementation. The most recent indications in discussions held are reasonably positive in terms of Russia ratifying the protocol. It wants to be satisfied in regard to a range of environmental issues, including the Kyoto Protocol, before it does so. The advantage to the Russians in signing up to the Kyoto Protocol is greater than any disadvantage economically.
The current Administration in the United States will not sign up to the protocol, but it is a misnomer to say nothing is happening in the US. A number of states, which are larger than Ireland and other countries, are taking action that meets and, in some cases, exceeds the obligations of the protocol. The international community generally accepts the scientific evidence on this issue but the methodologies of tackling the problem are at issue.
However, the Deputy is correct that it is extremely important that the balance between competitiveness and our environmental obligations is maintained. The only way forward in this areas is to integrate these issues into all thinking. The days of tackling environmental issues in isolation are over. In future all policies should countenance environmental considerations from day one. As a result, there will be a better understanding and outcome. Equally, more time is created for a more balanced approach with less pressure to deal with the issues immediately. That is the approach Ireland is taking.
All the companies and bodies that interacted during this phase approached it positively. Naturally, they fought hard to make their points but everybody knew what the directive contained. I am confident Ireland has fulfilled its obligations under the directive. In setting out the national allocation plans we are one of the first nine countries to submit plans to the Commission. It will examine all the plans but we are satisfied there is a good balance and that we will have a good outcome. However, that does not solve all our problems but a good liquid market in emissions trading will be helpful to all countries' economic trading, including Ireland.
I apologise to the Chair and the Minister for being late.
The directive required Ireland and other member states to be given 95% of the allocation free of charge but the Minister allocated 98%. Why did he decide to allocate more than was required? Second, when the EPA came to divide up the allocation, it struck me that in dividing up the 98% among specific industries, the amounts allocated to the electricity generating and cement production sectors, the two highest contributors to greenhouse gas, were in excess of the amount they are already producing. If the purpose of the exercise is to get down CO2 emissions, why allocate more to those sectors than they are already producing? One would have thought the maximum allocated would be the amount being produced.
My third question is more general and many people may find it difficult to understand. The overall objective is to reduce the amount of greenhouse gas emissions we produce, an objective we all share. However, the way in which this is being done, as described by the Minister in his presentation, involves the traded and non-traded sectors. The traded sector contains the polluters - the electricity generators, cement factories and so on. They are producing the big amounts of greenhouse gases. For economic reasons, which one can understand, they are getting gifts of free emissions, a licence to continue polluting. On the other hand, the non-traded sector, which includes domestic emissions, is not getting a licence to continue. That sector will be told at some stage that the stick will be applied to get down emissions - carbon taxes or some other method will be used to reduce emission levels.
When the Government brings in carbon taxes, as it will have to do, how will the Minister explain to the pensioner in Ballyfermot that she will have to pay more for her bag of coal or other form of solid fuel under a carbon tax regime? At the same time, those producing electricity or cement are getting a gift of free emissions from the State.
I thank the Deputy for his questions. He knows this is an area of enormous complexity and it is not as simple as reducing it to one or two points as he has done.
We have been worried about this widow in Ballyfermot from the word go, however.
If members want to take the last matter first, one third of emissions come from the trading sector and two thirds from the non-trading sector. The biggest one, which I was dealing with all morning with the EPA report, is transport, followed by agriculture. One can see that from the EPA report. Those two areas are causing enormous difficulties.
What we have done with the traded sector is to match the real needs, which presupposes that people are not making a profit out of these allocations. It is to cope with the balance between being competitive on one side and environmental obligations on the other. It is a process whereby one learns by doing, which is the whole point of the 2005 to 2008 phase, to see how this works. No one is certain how it works - the allocations, liquidity or price per tonne. Expectations are that it will be about €10 per tonne emitted but we will have to wait and see. This is only the start of the process.
We hope some companies see opportunities in investing in emissions reduction technology, which will be much more attractive than buying in extra allocations in the marketplace. The difference between buying at €10 a tonne and investing in facilities for less, to achieve more, should be much more attractive. It is a way not just for Ireland, but for Europe, to get industry on board and to use this as a mechanism to do so while protecting the competitiveness of the European and Irish economies.
The Government did not involve itself in individual allocations, as members know. While the overall level of allocations was agreed, by the Government, that was the end of the Government's involvement and it was not involved in the individual allocations. It was handled by, the EPA, although there were discussions with the advisory group led by Dr. Ed Walsh and various sectoral industries which interacted with the group. In some industries there were questions of capacity and it was recognised that in many cases plants were under construction, which would cause future emissions and those were taken into consideration when working out allocations.
Not everyone has a high allocation. The electricity sector got approximately 77% of its needs. There has to be an overall balance across the different sectors, which was not easy. Nobody was jumping up and down saying it was great, but there was recognition across the industry that this was balanced and that industry in all sectors would face challenges to reduce emissions. The point is that Irish industry should not look at Kyoto, as it stands, as the challenge. Kyoto sets out a minimalist approach to the challenge for the global communities and the targets under Kyoto that scratch the surface of the potential damage to the environment by 2050.
Irish industry must conduct this debate with a medium to longer term viewpoint and the mistake everyone is making is discussing it in the here and now. Companies look at the figures and the immediate impact on the bottom line, but the consequential opportunities are not being taken into account if the medium to long-term view is not taken. For those who take the long view, the agenda of clean economics and the range of opportunities in technology are massive. Ireland should be examining this in that context.
Regarding the first question, 98% relates to the projected needs for the sector. The total amount is 22.5 million tonnes, at least 95% of which must be allocated free. That is the difference between the two figures - one relates to needs and the other is what we were obliged to allocate free. We have reached almost 98%, but it involved a minimum of 95%.
What was done to reach 98%?
On balance, there were many competitiveness issues. It is a learning by doing phase. It is voluntary in a sense because we want companies to buy into it. They understand their obligations and what the pitch will be like from 2008 to 2012. We want to give them a chance to buy into it. I have given members the figures. I will auction some of the allocation and hold some of it for the future. The Government asked that 1% to 2% of the allowances be reserved for new entrants. The EPA decided to provide for 1.5%. The Government asked that 1% be auctioned to defray administrative costs and the EPA decided that 0.75% should be auctioned. We think the balance is there between the two.
What about new entrants? I accept the environmental argument that new entrants should come in with clean production. If competitiveness is the reason for reaching 98% as distinct from 95%, will new entrants coming into industries where allocations have been made be at a competitive disadvantage?
The Deputy is correct that these new companies must look to new technologies. In the medium term, it will give them a huge competitive advantage. If they make the correct decisions now in terms of fuel and energy sources, they will be at a big advantage in the medium to longer term. A small percentage of some projects were committed already and we held back a small amount. This had to come out of the existing allocation pool. It was not an extra amount we could find somewhere else. These allocations were not made, they were held. It is a generally held view that new entrants into the market ultimately will be the ones with the bigger competitive advantage because they will have to look at all the newer technologies available to achieve their potential in the future.
When will the bad news come for the non-traded sector?
The Deputy knows that the Minister for Finance has been engaged in a very lengthy public process, which I welcome. There are complex issues involved, one of which the Deputy raised and to which I subscribe. This relates to people on lower incomes. If we go down the road of green taxes, there will be social implications. Like it did in regard to the concerns raised by industry, the Government must balance the social impact green taxes may have to ensure the weaker in society, those on lower incomes, will not be penalised. This is a crucially important point. This is a major concern with which we must deal, which is why the issue is so complex.
It will not take great imagination to consider the different mechanisms that might be used in this regard. All of this is currently on the table. We await a formal memorandum to Government from the Minister for Finance to see what his assessments are of all the proposals. I am not suggesting there are easy choices. The consequences for all taxpayers in eight or more years time if we do not deal with the issue now is that we could have to pay much more than if we take the decisions now. Ireland could have fines imposed for not participating. Information from the international community is that Russia will ratify the agreement and, therefore, the legal basis for Kyoto will be solid.
While we accept there must be a cap on emissions levels, there is an agreement with countries such as Brazil, Malaysia and Indonesia, where there is a huge timber logging industry. Is account taken of the efforts made by countries with regard to afforestation, tree planting and the impact this can have on what are known as greenhouse gas sinks? Is there any mechanism in place to deal with countries where plenty of tree planting and reafforestation is taking place? Brazil, Malaysia and Indonesia are deforesting at a phenomenal rate, which is having a knock-on effect and puts these countries at an advantage.
There are two answers to the question. The developed world is the polluter, not the developing world or the under-developed part of the world. The greater responsibility is on the developed world to take on the responsibility in this regard. The Deputy made an important point. A central part of the Irish Presidency of the EU is to look at the JICDM linking directive which relates to developing countries and the bilateral relationships to gain credits either by investment or looking at sinks and afforestation. This has happened and it will add liquidity to the market from next January. It is the view of countries like Ireland, and Europe in general, that we will look beyond 2008 when the formal international markets will open up. Up to then, trade will be within the EU. All of these issues will begin to kick in from 2008.
The Deputy made an important point, as did Deputy Gilmore. We all have these debates at home. Our children come home and talk to us about the ran forests being decimated and so on, which is correct. However, it is not just the economic responsibility of the countries where these huge assets for the whole globe are located; it is a world wide responsibility. We must be seen to do our bit to encourage these countries to do their bit. In other words, stop deforestation, show the benefits of doing so and give them an economic advantage to keep the forests. The potential economic advantage of keeping them will be through the JICDM directive. When there is a global trading market, potentially they can be very powerful players.
Will carbon taxes be dealt with before the Finance Act 2005?
That is the intention.
What about before the budget?
I will not speak for the Minister for Finance. The Minister said that is his intention. The Deputy knows it is a very complex issue. We must achieve a balance between the environmental demands, which are crucial, and putting a mechanism in place to ensure the less well off will not be penalised, which was the core of the Deputy's question.
Very much so.
The Government's position and Fianna Fáil's position on that is absolute and on the same lines, but when one is in Government one has responsibilities and one must make decisions. One does not have the same luxury as when one is in opposition.
Is Fianna Fáil rediscovering socialism again?
No, it is not. When this issue was first mentioned, I was the first to refer to social proofing as one of the key elements, so I have not come to this position lately. There are enormous complexities involved, however. In recent weeks, I attend a number of conferences, one of which, the OECD's, I was greatly honoured to chair. I was glad to see the United States and all the other players were there. The big issue for all of us was how to cope with the transport problem. Cars are the big issue and constitute a growing problem. Investment in public transport makes a contribution to alleviating the problem but it does not come anywhere near to resolving it.
There are issues happening on the other side of the equation, as the Deputy is aware. Car manufacturers are now beginning to take modern technology seriously. We can see interesting products coming onto the market that are now being sold in greater numbers than ever before. Instead of trying to reinvent the wheel, big manufacturers are licensing some of the inventions from manufacturers that have them. There is a much greater sense of urgency within the transport sector, particularly from the manufacturers' point of view, that they have a big role to play in using new technology.
My point about competitiveness and opportunities is that Ireland should be taking the medium to long-term view. We are in a better position to do so successfully than many other countries. However, if the debate remains in the "here and now" mindset, we will never resolve the matter. We must open up our minds to the possibilities in the medium to longer term, by which I mean 2015 to 2030. The international community is already seriously engaged in the post-Kyoto phase. The British Prime Minister, Tony Blair, is chairing the G8 summit next year and they have put these Kyoto issues and targets on the agenda. Mr. Blair has engaged with the business community to go beyond the existing targets. Therefore, what is happening in the international community is not notional. Irish business should ask itself why economically powerful countries are doing this and I suggest the answer is simple - future competitive advantage.
It should be recalled that many states within the United States are now doing the same thing for the same reason, that clean economics will be the hallmark of the future. Ireland is in a good position to be the world leader of the clean economics agenda. Tough choices must be made in order to get there and I am not denying that there will be some pain along the way. We must think in the medium to long term in order to achieve the desirable outcomes.
I thank the Minister for his comments. I wish to apologise again to you, Chairman, and to the Minister for having misread the notice.
The Department is available to assist the Deputy.
As regards the issue of hybrid car engines, would having a different VRT regime be of use? One can levy carbon taxes on petrol and diesel, but where is the evidence that more tax reduces fuel consumption? We have been hiking excise duties in every budget on products, which we tend to consume more of than others.
I can only go by the international evidence. I have spoken about this matter to the leading Green in Europe, the German Minister, Jurgen Steen. The evidence is that, at one level, the imposition of green taxes alerts people to the fact that energy should be used carefully, rather than being abused. People's habits must change so that televisions and other appliances will not be left on all the time. A carrot and stick approach produces some results in that respect, but I would not present it to this committee as a panacea because it is not.
There seems to be no carrot, it is all stick.
No. The carrot applies when one uses energy responsibly in that it will not cost half as much. In some cases, people are paying much less, even though taxes are imposed because they are using energy sources more efficiently. They are not leaving lights on at home or water running or the central heating on when they go out. They begin to manage these systems more efficiently than they would have done in the past. That is part of the reason for doing this, but it is not simple and I am not presenting it as such. It is complex in terms of the mechanism used and getting people to understand this and change their ways. It is a challenge for the world. I am not an expert in this area and have never presented myself as being one but, having been exposed to much of this internationally, I have come to learn that we must take this seriously.
I apologise because I had something else on and I just saw the monitor. I am glad to hear the Minister say that he is taking the issue seriously. Has the Department looked beyond Kyoto to any extent in facing the prospects of the post-Kyoto scenario? Compliance is obviously a major headache but perhaps the Minister could outline where the Department sees not the end game but the longer term game concerning compliance and emissions' trading.
I appreciate that the Deputy was doing something else. We were just talking about this matter, which is the message I have been giving. Coincidentally, I spoke early this morning to an IBEC conference on the same issue. I have repeated the point here that one of the challenges is to regard all these issues in a much more medium to long-term timeframe. It is fruitless to debate it in the here and now, although people must be conscious of current aspects. The international community, including Ireland - I was heavily engaged in this recently - is involved in discussions on the post-Kyoto phase. There is no doubt about that matter. The international community, including our nearest neighbour, the United Kingdom, is pushing hard beyond this point. They have set it out for the G8's agenda next year, which the UK will chair. We are involved at an official level because the EU is examining the post-Kyoto phase.
The real impetus will come when we get the Russian ratification. Europe is not waiting around for that but it would give the protocol a global, legal framework in which to operate. The industrial sector, along with the various Departments, must be alert to the medium and long-term aspects of the post-Kyoto phase. There are no choices in that regard.
I thank the Minister for attending the committee and giving us the benefit of his wisdom.