My Department has, in recent years, worked with the Economic and Social Research Institute (ESRI), through a Joint Research Programme (JRP) to advance Ireland’s macroeconomic and fiscal analysis of climate change using the ESRI’s I3E model.
Through the JRP, significant analysis has been undertaken regarding the economic and environmental impacts of the carbon tax, in addition to other climate-focused Government measures. The analysis conducted using the I3E model examines the effects of policy changes on a number of variables, against a ‘Business as Usual' (BaU) scenario, where no such policy changes are introduced. As regards the price of carbon, it is important to bear in mind that the estimates within the model’s projections are a function of the underlying assumptions for international energy prices, as well as the impact of any policy changes. The relevant papers examining the potential impact of increases in the carbon tax are available on the JRP website: www.esri.ie/current-research/joint-research-programme-on-the-macroeconomy-taxation-and-banking.
The most recent analysis using the I3E model is a working paper entitled the ‘Impacts of Electric Vehicles (EVs) and Retrofitting on the Irish economy’ published by the ESRI in December 2021. In addition to modelling Government commitments in regard to uptake of electric vehicles and heat pumps, this working paper analysed the economic and environmental impacts of the Government’s commitment to raise the carbon tax to €100 per tonne by 2030 through graduated annual increases. The paper is available at
www.esri.ie/publications/the-impacts-of-electric-vehicles-uptake-and-heat-pump-installation-on-the-irish.
Some of the findings of the most recent working paper were that, at the macroeconomic level, the effects of the carbon tax on activity would mean that GDP would be around 1.36 per cent lower by 2030, compared to the BaU scenario for 2030. However, with heat pump and electric vehicle adoption, this reduction is significantly abated to just a 0.2 per cent decline compared to the BaU scenario.
Overall, the work published by the ESRI finds that the combined policies contribute to a fall in economy-wide emissions of 21.6 per cent, when compared to the BaU scenario. Specifically, the carbon tax is responsible for a 15.9 per cent reduction in emissions, or 8.3 million tonnes of CO2, when compared to the BaU scenario.
In addition to the analysis undertaken by the ESRI, through the JRP, my Department has currently published updated estimates of the impact of inflation on energy prices over the medium term as part of the recently published Stability Programme Update 2022.
