I welcome Professors John FitzGerald and Richard S. J. Tol to the committee's meeting today.
Climate Change Policy: Discussion.
Professor Richard S. J. Tol
Thank you, Chairman, it is an honour to be here. Some members will have read my paper, The Carbon Tax for Ireland. I hasten to add it is not entirely my own work as six colleagues also worked on it.
Ireland's emissions of greenhouse gases are insignificant. It is a global problem and, from a natural sciences perspective, whatever Ireland does for its emissions does not matter. Cutting emissions would only work for moral leadership.
Why would Ireland want to impose a carbon tax to reduce emissions? I believe it is because Ireland has international legal and moral obligations to help solve the problem. There are also national obligations to reduce greenhouse gas emissions in the programme for Government. We cannot go overboard believing the introduction of a carbon tax in Ireland will solve the problem. That is a nonsense.
A carbon tax is the cheapest way to reduce emissions. It has better properties than tradeable carbon credit permits. Carbon tax works better under uncertainty; uncertainty is quite large in this area. It is not obvious to everyone that a carbon tax is the cheapest way to reduce emissions. The cost of a carbon tax is transparent. If a carbon tax is imposed that is high enough that everyone switches from diesel to bio-diesel, its cost can be pinpointed. Another alternative would be to ban diesel and everyone must use bio-diesel. That would not have an obvious cost that could be pinpointed but the effect is the same. The reason a carbon tax has lower costs than other methods of reducing emissions is simply that a uniform price is installed across the board. This also allows the Government to reduce emissions cheaply without having to second-guess the tradeable carbon credit market. Another reason is that a uniform tax treats all emissions in the same way. It does not take into account that carbon dioxide created by agriculture is different from electricity generation or home heating. Everyone gets the same price which they are forced to pay. This is a basic principle of fairness to treat like cases alike.
That is Professor Tol's interpretation of fairness with which I would argue.
Professor Richard S. J. Tol
A widely agreed principle of fairness is to treat like cases alike.
We can explore that issue.
Professor Richard S. J. Tol
We can discuss it further. Those are the reasons for a carbon tax. The economic efficiency principle is clear and the fairness principle is clear - everyone should pay the same tax.
The question of the level of the carbon tax arises. A substantial portion of emissions is already regulated by the European trading system, which is a permit market for CO2. This includes emissions from power generation and cement and aluminium manufacturing, which are the most significant sources in Ireland. This implicitly means a tax or a price on carbon has already been set. We should not yield to the temptation to tax emissions already regulated by the EU ETS for two reasons. First, because of double regulation. If something is already regulated there is no reason to impose more regulation as this only creates inefficiencies. A more prosaic reason is if one were to tax these emission as well, one might reduce emissions in Ireland. However, because the cap in the EU ETS is Europe-wide, for every one tonne reduction of emissions in Ireland, the same tonne would pop up in Germany, Greece or Portugal and at a European level there would be no change in the level of emissions. However, distorting the permit market produces higher costs in reducing emissions. This is a complicated way of burning money, without any environmental benefit. Those emissions should not be taxed.
There is a price of approximately one third on one type of emissions. What price should other emissions face? Essentially the same price. The only way to create a level playing field across all emissions is to simply set the domestic carbon tax equal to the permit price in the EU. In the paper we suggest this should be the future price. In September, October, or December the price for the following year could be announced. The exact price selected is a matter for political deliberation. Some people have said the tax should be varied day by day, but I believe this is too much of an administrative burden. However, it should roughly track the EU permit price.
The European Commission expects the permit price for CO2 will be approximately €20 or €25 per tonne in 2010. At present it is approximately €26 per tonne. What degree of revenue would this deliver? If we impose this tax only on CO2 emissions not already covered by the EU ETS, it would yield a tax revenue of somewhat more than €500 million per year at 2010 rates. As the permit price and consequently the tax is expected to rise to approximately €40 per tonne by 2020 and approximately €50 per tonne of CO2 by 2025 the revenue would rise by 8% per year. This is significantly faster than any other revenue, which should be kept in mind.
The question of what to do with this money arises. It represents a tidy sum and one could think of many ways to use it. We do not believe it is a good idea to earmark tax revenue and it is certainly not a good idea to do this for climate policy. This is because the carbon tax already stimulates energy efficiency and fuel switching. If the revenue generated is used as a subsidy to further stimulate change, the uniform price principle is broken and again there is double regulation and inefficiency is created. Another reason against the earmarking or hypothecation of taxes has to do with the general principle that earmarked or hypothecated taxes are simply bad from a fiscal perspective. Essentially one ties the hands of government. If I give somebody a pot of money, that person can use it for X. If I give that person a pot of money he or she must use it for X, the person might think it is the same thing but two or three years down the road, if that money can only be used for purpose X, even though it is a good idea to do that in 2010, why would one in 2015 still want to be bound by what was a smart thing to do in 2010? It would need an explicit decision of the Dáil to break the earmarking. It is much easier to just have it as general revenue and do with it whatever is best at that time.
On what to do with the €550 million, the economy needs a boost in consumption this year because it is slowing down; we are not consuming enough. However, we are not talking about a tax reform in 2008 but in 2010 and, therefore, the current concerns of the economy are not important in the design of this tax reform. We should look at what we need in the medium term and in the long term. All economists who know about Ireland say that what we need in the medium term is lower labour costs or higher productivity. In the medium term we can work on lower labour costs and in the long term we should work on higher labour productivity. This is what the revenue should be used for.
That position is borne out in the next graph, which concerns what would happen to the private part of the economy if we were to impose a carbon tax that begins at €20 per tonne of CO2 in 2010 and rises to €40 by 2020, and we recycle the tax in a budget-neutral way. In the two bottom parts of the graph on display, we use the money to buy CO2 permits from abroad and we use the tax revenue to reduce the cost. Because energy becomes more expensive, we see that the economy actually slows as a result. In the purple line in the middle of the graph, we use the money to send a cheque to every household to recycle the revenue, which has only a slight stimulant effect on the economy. In the green line that begins positive and ends negative, we spend the money on health and education by hiring teachers and nurses. In the beginning, this has a slight positive effect on the private part of the economy but in the end it essentially erodes the tax base and erodes competitiveness as a result, and would have a negative effect on the private part of the economy.
In the top two lines, we use the money to do two things. In the red line, we reduce income tax and in the light green line, we reduce PRSI. In this way, while we would make energy more expensive and this would reduce the competitiveness of the Irish economy, which slows economic growth, we would then use that money to reduce labour costs and this would increase the competitiveness of the economy and more than offset the decrease in competitiveness due to higher energy costs. What we see is that because of this ecological tax reform, the economy grows faster than it otherwise would have. That is a fairly positive outcome and I would suggest it is another reason to introduce a carbon tax.
The next question that may be asked is what happens to income distribution. What we are looking at in the next slide are the effects measured in euros per week per household, with the households equivalised for the ten income deciles, with the poorest to the left and the richest to the right. In the green area, we are looking at the negative effect of a carbon tax and we can see that it is fairly regressive.
The richest households pay only a little more than the poorest households and are, of course, much richer. The difference in this regard is approximately one third, that is, 30% higher for the tenth income decile than for the first income decile, whereas the income difference is approximately eightfold. Consequently, this is a fairly regressive tax. However, with fairly simple and small measures, one can more than compensate households across the income distribution. While the aforementioned paper contains four examples, I have shown only one, which perhaps is the most equitable, in this presentation. The pink-shaded parts of the income distribution bars demonstrates an increase in social welfare by €2 per household per week. Members should note it is not increased by €2 per person per week. In addition, the graph shows an increase in child benefit by 80 cent per child per week and an increase in tax credits by €104 per year. The latter increase is represented by the red-shaded parts of the income distribution bars that are visible. The shaded bars in the middle of the income distribution bars show the net effect of the increased tax credits and increased benefits minus the carbon taxes. What can be seen is that households across the income distribution would benefit. The ones who are hardest to reach are those in the fourth income decile, who are the small self-employed. They do not receive many benefits and do not pay much tax. They simply are very difficult to reach by any sort of tax or benefit reform. However, even these people would not suffer as a result from this proposal.
I will return to emissions, which is the reason people are contemplating a carbon tax as its purpose is to reduce them. I will do something slightly cheeky in this respect. We have a target that was imposed by the European Commission to reduce greenhouse gas emissions by 20% relative to 2005 by 2020. One may ask what carbon tax is required to meet this target. Opinions vary widely. If one believes the impact assessment of the European Commission, we need a carbon tax that starts at €20 per tonne of CO2 in 2010 and ends at €40 per tonne in 2020. If one believes a recent Cambridge Econometrics study, the carbon tax should go up to €400 per tonne of CO2. While we did not succeed in meeting the target in our model, we think the tax should be in the order of €4,000 per tonne of CO2.
Is the professor serious?
Professor John FitzGerald
Our point is that one cannot meet the target in any realistic way. We do not propose a tax. As we are not serious, the Senator's incredulity is understandable. We do not suggest this and I would hate a headline to appear to the effect the ESRI is suggesting a tax of €4,000. Our point is that our research leads us not to believe this target can be met in any realistic way.
Professor Richard S. J. Tol
Essentially, the message of the aforementioned three figures is that the closer one moves towards real knowledge of the economy, the higher the tax becomes.
In layman's language, what would that mean in terms of an increase in the price of a litre of fuel?
Professor Richard S. J. Tol
A tax of €40 per tonne of CO2 would cost 2 cent or 3 cent per litre of gasoline. Thereafter, as the increases are linear, a tax of €4,000 would mean an increase of €2 or €3 per litre of gasoline, in addition to the current price of gasoline.
I am somewhat confused in this regard. Is the Professor discussing using a carbon tax as the way to reach the 20% target?
Professor Richard S. J. Tol
Let us go back to the beginning. Unless we reach our targets through a carbon tax, we will be obliged to reach it through some other means. A carbon tax is the cheapest way to get there. If one achieves this goal in another way, while one will not have an explicit carbon tax of €4,000, one will have an implicit carbon tax that is greater than €4,000.
This is based on the presumption that carbon tax is the cheapest way.
Professor Richard S. J. Tol
Yes. In respect of how to get out of this slightly political conundrum, what I would suggest, which is a bit cheeky, is that if we believe the European Commission and its impact assessment that in solving the carbon crisis it starts at €20 and ends at €40 in 2010, we will have reached our target in expectation. It is its target. We follow its best assessment of the economy and its energy. We implement what it said was a good plan. We may miss a target but how could we know? As I said before, this is fairly cheeky but if one follows this route, we have a credible story to tell the European Commission because, essentially, it would have to admit that its impact assessment was a load of nonsense, which it may not be willing to do. In our calculations, we would missing our targets by a fair margin.
So far, I have talked about carbon dioxide which, essentially, comes out of transport and home heating. Those are the two major sources that are not already covered by the European Union emission trading scheme, EU ETS. There are other greenhouse gases. Methane is the most important one in Ireland and mostly comes from agriculture. I started off with the principle that everybody should pay the same tax and that CO2 is CO2 or a greenhouse gas is a greenhouse gas.
That would imply that one would also have to impose the carbon tax on agriculture. What would happen? To translate this into farmers' terms, a carbon tax of €20 per tonne of CO2 would equal a dairy tax of €47 per head a year and a tax on beef of €23 per head a year. The reason is they are on a different diet and are of a different age. Gender has nothing to do with it in this case. If one does this for a herd of 100 cows, one can see what it would mean to a farmer.
The issue with methane from agriculture — the same is true with the HFCs that come from semi-conducting manufacturing and pharmaceutical companies — is that this is a domestic tax. Farmers abroad are not taxed. This means that the world price of dairy and beef does not change. If one imposes a carbon tax domestically like this, farmers will essentially have to take this as a hit in their income. That is the only way they can absorb it. Presumably, a few farms will close and production will shift abroad. Instead of emitting methane in Ireland, we will eat Brazilian beef or drink Dutch milk and the methane is emitted there. The global problem has not changed. What we have done is simply close a few companies and farms in Ireland. This is perhaps not the way to go.
Therefore, I think, although some of my colleagues disagree with me on various points, that, in this case, the carbon tax should not be placed on the producer but on the consumer. If one places the carbon tax not on the cow but on the milk and beef, one automatically treats imported, exported and domestic production the same. If one is talking about a tax on milk, such a tax will be very unpopular because milk is good for one. Perhaps one would want to tie this in with a wider introduction of syntaxes to do with health. It is a different story with beef because red meat is not good for one so this would automatically be a syntax as well. Some people would disagree with me but most doctors would agree.
A Deputy
Some would disagree with Professor Tol such as McDonalds.
Professor Richard S. J. Tol
True. I would then use the revenue to incentivise emission reduction, namely, return the money to the farmers by giving them some sort of subsidy to buy better feed or keep their cows outdoors for longer.
The issue is significant. The simple solution is to address it across Europe rather than domestically. All of the problems would go. If Dutch farmers face the same methane taxes as Irish dairy farmers, competitiveness would not be an issue. Brazilian beef is a different story, but checks are already in place and we need not worry too much. It is a difficult matter. We are discussing approximately 30% of emissions.
The next slide sums up. A carbon tax that equals the EU permit price should be imposed on all non-ETS CO2 emissions and preferably on non-CO2 emissions embedded in products. Most of the revenue should be used to increase social benefits and tax credits and approximately one third should be used to reduce PRSI contributions, thereby simulating economic growth in the medium term and compensate households for the carbon tax across the income distribution scale.
I thank Professor Tol. Before I invite speakers, it appears as if we will not meet our CO2 emission targets. Will we need to buy credits to satisfy our requirements? If so, will we not use all of the money raised via taxes? Am I missing something?
Professor Richard S. J. Tol
If one were to set the carbon tax equal to the permit price, one would retain 70% of the money because our reduction target is to reach essentially 70% of our baseline emissions.
The European Commission's proposal is that we should reduce our emissions by 16% by 2020. Given that we are already high above the 1990 level, we are facing considerable cuts. If we do not reach the targets, we will need to go to the market.
Professor Richard S. J. Tol
That is true, but we will not spend all of the money doing so. The reason is simple in that we will need to reduce our emissions by approximately 30% of the would-be 2020 levels. If we tax the emissions at a price equal to the price at which we will buy permits on the international market, we will only spend all of the money if we must offset all of our emissions. Given that we will only need to offset approximately 30% of our emissions, we will only spend 30% of the revenue.
Is Professor Tol suggesting that, by imposing a carbon tax, we will force a reduction in emissions in addition to gaining revenue?
Professor Richard S. J. Tol
Yes.
Professor John FitzGerald
It will produce some reduction in emissions.
What will be the approximate reduction?
Professor John FitzGerald
A few percentage points, a small reduction in the timescale in question. One cannot turn the economy around within one decade. However, if one does not start now and tell people to buy well-insulated new houses, nothing will occur in 20 or 30 years time. One would expect to see significant gains in the subsequent decade. If one does not start now, it will never occur. One must decide whether it will be worthwhile.
We have made a suggestion to the Government on the purchase of permits, which it has proposed at EU level. Governments should be allowed to buy permits if meeting targets proves very expensive or to sell permits if meeting targets proves easy. This would ensure that the cost of compliance to Ireland would be no higher than the cost to Poland or Germany. It would be very expensive to meet the target set for Ireland within that timescale. If it is cheaper for other countries we could have a serious problem. We need a flexible mechanism whereby we do our best but if that is not good enough we can buy permits. The reason we cannot move very fast is that, given that much of the emissions will come from household heating, the stock of houses is built. I hope there will be some more built in the coming decade but it will be small relative to the existing stock. One moves slowly in this way.
It is similar with cars. If electric cars come along early in the next decade, it will be ten or 20 years before a significant proportion of the car stock is replaced. That is why this is a long-term process. We must send a signal to everyone, businesses and consumers, that this is coming their way and if they do not do something about it now they will find it more expensive in the future. Trying to do it in a short space of time is not realistic.
The figure of €550 million looks attractive but, in effect, it might not all be available to redistribute because we have to purchase the permits.
Professor FitzGerald might recall the budget of 1981. The country was in turmoil and we proposed to increase VAT rates. To compensate we increased social welfare benefits to help the less well-off. The increase in social welfare was 20%. Unfortunately, we lost the budget, the VAT increases disappeared but the 20% increase remained. It does not always work out that redistribution in this way will be acceptable.
I thank the Chairman. This is an interesting area but not one with which I am au fait. I presume Professor FitzGerald will make a presentation to the Joint Committee on Finance and the Public Service. This would be worthwhile.
Professor FitzGerald made the point that carbon tax is the cheapest way to reach our target on carbon emissions. I am perplexed by this because I have not heard the evidence. Recent experience tells us that this is not necessarily the case. Fuel prices have increased greatly, the VAT take has increased greatly and doubled but people are not driving less because most of them do not have an option. They are not spending money on other things, they are spending it on fuel. It does not automatically follow that if we raise the price or tax something heavily, people will no longer avail of the service. The options are not available.
Presumably, a carbon tax is one measure in a range of measures and must be funded. Professor FitzGerald states that the Government should not be required to spend the money gathered for any particular purpose. I cannot think of more magic words to give the Minister for Finance. He has a serious problem in the tax shortfall and he can blame the Green Party for a carbon tax that will shovel money into the coffers and he can spend it any way he likes. This does not make much sense in terms of meeting our targets. If someone is on a very low income and a disproportionate amount of it is spent on fuel, he or she is not in a position to do anything about it. Many people die from hypothermia in Irish society and we must recognise that. These people are living in houses with no insulation, with windows and doors that leak.
If there is no support in terms of measures that can reduce consumption, imposing a carbon tax is just taking money for the Government to spend. I am not an economist and can barely count but I have a problem with the approach being presented here.
With regard to permits, I take it the witnesses are talking about permeability between the traded and the non-traded sectors, an issue which has come up at this committee before.
I welcome the representatives of the ESRI to the meeting. The point of having this discussion is to find ways to meet the targets set in conjunction with our European Union colleagues. The ESRI has put forward the proposition that we would need €4,000 per tonne of carbon dioxide to achieve the EU target set. While the proposition was made somewhat facetiously, it concentrates the mind on the fact that we have not a hope in hell of meeting those targets. The question, then, as Professor Fitzgerald said, is how we do the best we can. It will be a "do the best you can" scenario in the context of the economic situation. What other options should we consider, apart from a carbon tax, to help us to meet our targets?
Professor Fitzgerald mentioned incentives. Instead of giving the money back through the PRSI system, as advocated, would it not be better to give people an incentive to do the right thing when building new houses, to improve the existing housing stock, to adopt newer technologies in the motor industry and so forth? We know the extent of the problem in such sectors, so should we not target people with specific initiatives to give them an incentive to take action, rather than spreading the money accrued through carbon tax thinly across the board, through the PRSI system?
I am surprised at the lack of emphasis on energy efficiency. Some of the money collected through a carbon tax should be used to invest in energy efficiency measures that would reduce emissions. If a methane tax on food arising from agriculture will be politically difficult to sell, will the main burden of a carbon tax fall on the motorist and the residential and enterprise sectors?
I thank the professors for a most interesting theoretical discussion. The theory of economics is wonderful but how much of this will actually run? While I do not mean to be rude, we have to live in the real world and must come up with solutions people will buy into and that they can afford.
The professors argued that a carbon tax is the cheapest way to reduce emissions. However, when one goes through the detail of the presentation it becomes clear that this is not the case. The ESRI states that a carbon tax alone will not enable us to reduce our emissions to the extent required to meet the targets set.
The presentation asks at what level a carbon tax should be set. It is argued that the emissions that are already regulated by the EU permit system should not be taxed because lower emissions in Ireland would be exactly offset by higher emissions elsewhere, while compliance costs would rise. It became somewhat clearer during the presentation. Must the permit system and carbon taxes go hand in hand or have they corrupted the system? The best things in life are straightforward but matters become complicated when there are two ways to deal with an issue. Today's presentation demonstrated that. The presentation on agriculture was theoretical. There is no way we will be happy to end farming in this country. The Chairman is a great person for highlighting the fact that the European Union faces not only the problem of climate change but the challenge of providing food for the community. Ireland makes a laudable contribution in that regard through agriculture.
The macro implications graph provided by the ESRI indicates that adding a tax will stimulate the economy. Economics, like statistics, tell us what we want to hear. It is a fact that applying economic surpluses to reducing the tax burden on individuals and businesses stimulates the economy, so the ESRI assertion is surprising. In regard to the comment that Ireland cannot introduce carbon taxes exclusively, to what extent are we working as a unit within the European Union? The witnesses referred in their presentation to the fact that we need to harmonise the tax burden throughout Europe. Is that possible given that we are interested in a viable and competitive economy? Adding an additional tax burden does not appear to support that but there is greater potential if we introduce measures in a European context.
Professor John FitzGerald
Deputy McManus spoke about the negative impact on poor households and, in particular, older people who use solid fuels. We suggested in our paper that some of the money should be used to increase benefits. We may also want to follow the example of Northern Ireland by improving insulation of social housing stock. The Northern Ireland Housing Executive has implemented this programme because it realises that its duty as landlord is to make its housing stock energy efficient. Tenants have neither the money nor the incentive to improve insulation. Something similar should be introduced in this jurisdiction. One area of particular concern is old people in rural areas who burn solid fuel. We are not calling on the Government to impose a tax and let the world get on with it because the implications for certain areas will have to be considered.
Deputy Hogan asked about other options. We need to introduce further measures because the tax will not do everything. If we introduce a regulation which requires, for example, all firms to reduce their emissions by 10%, some will find it easy to comply while others will go out of business. The problem about regulation is that the regulator needs to be God. The Government is not God. No Government knows what the costs are for each firm or individual. The people who will find it easy will save the tax and do something, and the people who will find it difficult will pay the tax and will not change. Governments do not know the answer for every individual and that is why a carbon tax is better. In the case of insulation where one is dealing with old people on low incomes we will need other measures. Housing regulation is another area. The improvements in housing regulations which have unfortunately come a decade too late will make a difference in the decade after 2020 but it will have limited effect now.
It was claimed the extent of the problem in individual sectors is known. However, we do not know it in sufficient detail. We must allow the market to work and allow for people to decide if it is efficient to make the change or not rather than imposing regulations all over the place. All the studies on energy efficiency show there is a great deal to be gained from it, but what do Governments do about it? They say, "Polluting is more expensive; savings can be made but it is over to you". In respect of older people in poor households on low incomes one may want to intervene, but for business in general, business knows best. Government cannot know what to do.
The agricultural area is complicated and we do not have an answer on this. The initial answer is that if it was imperative to meet the target, the cheapest thing to do would be to get rid of all our livestock. This would be lunatic because it would not do anything for the world; they would just be grown in Brazil or somewhere else. If that is the cheapest solution then we have a real problem. My concern in respect of agriculture is that at the moment we are making it more attractive to have livestock and we are putting obstacles in the way of forestry and biomass, which might be used for heating purposes. We should be neutral in the agriculture sector. What one is likely to see with the higher price of carbon is that farmers will gradually, instead of growing cattle on marginal land, may well grow pollard willow and sell it to heat homes. Rather than the State saying, "We are going to get in there", at the moment the State is saying, "We are going to make it difficult for you because we do not consider that a real agricultural activity". Be neutral and one will probably see agriculture emitting less and working to save emissions. When we had a conference on this in 1997 Jim Devlin of the IFA spoke on it and he could see that if one gets it right there are opportunities for farmers that could be good for the environment and for farmers. One would try and design a scheme like that, which would be more likely to be successful.
I will leave the issue of double taxation to my colleague. I have already said something on agriculture. On stimulating the economy by imposing a tax, we are not saying one stimulates the economy by imposing a tax, one actually deflates the economy. We are saying if one tax is imposed and the money is used to cut other taxes, that is, tax on income, one stimulates the economy.
Ireland is not good at producing energy intensive goods or services. We have specialised out of that area. Industry is not energy intensive. Between 1% and 2% of the total industrial manufacturing output is energy. Somewhere between 10% and 20% is labour. What is needed are jobs, not people who want to consume energy. If one increases the tax on energy and reduces the tax on labour, firms will employ more people and consume a bit less energy. That is good for the economy. The mix of substituting one tax for another is not new. We published my first report on this in 1992 and I am afraid we are like a record stuck in a groove, although records have gone out. The groove is still there. It is the same as it was in 1992. It would have been even better then because taxes on labour were so high. They are much lower now.
The final point I wanted to address was to what extent this is an EU issue. It would be better if we had a harmonised carbon tax affecting everything in the EU. That is what the EU proposed in 1991 and 1992. That is why we did the study in 1992. Unfortunately the Government opposed it, along with the British Government, because they saw this as tax harmonisation and they were opposed to tax harmonisation. However in this case the most efficient, cost effective and best method for Ireland of meeting the target would be a harmonised tax applying to everything across the EU.
If there was a harmonised tax on emissions would there be any danger of other taxes being harmonised? This is something we are concerned about in Ireland.
Professor John FitzGerald
That is why the Government opposed it. It was unwise to do so. We still need unanimity and we could agree unanimously to harmonise this one and disagree strongly on harmonisation on something else. It is not something in which I would want to get too involved.
Professor Richard S. J. Tol
I completely agree on that final point. The best way to solve this is to come up with a Europe wide tax. If that does not work — it is likely it will not work for the next ten years or so — it would be best to extend the ETS to cover all emissions in Europe. Given that those solutions are politically unlikely and that the current Government has promised a carbon tax domestically, that is what we are looking at not because we think this is a particularly smart solution.
All three committee members referred to the carbon tax being the cheapest way of solving the problem. Perhaps I miss-spoke there; perhaps what I should have said is that the carbon tax is the least expensive way of getting there. I am not saying it is cheap but that other options are more expensive. This was a relative scale not an absolute scale.
I would not argue with Professor Tol. If it works it may well be, but what happens if it does not work? In many ways we pay high prices but do not change our behaviour. We pay increased tax to keep doing whatever it is we are doing, perhaps because very often we do not have any options and the fuel price is the classic example. We are paying much more tax as a society on car fuel but it has not stopped us using our cars. It may be cheapest in theory but that does not necessarily mean it changes behaviour.
Professor Richard S. J. Tol
The reason high fuel prices do not stop people from driving is that they place a very high value on mobility. It is as simple as that.
They have no other means of getting there.
That is exactly my point. We also like to eat and keep warm and do all the things that people do and go on holidays.
Professor John FitzGerald
The research evidence suggests that the last thing we will use fossils fuels for is to fly and the second last thing is to drive our cars. In the area of electricity we can substitute renewable energy much more easily so that there is a hierarchy. If a tax is imposed, there are some areas where there will be lots of action and little or no action in others. Ireland has moved into central heating in the space of 15 years and into gas central heating in urban areas. People reacted by saying they could be more comfortable at a cheaper cost by using this technology. That is an area where a higher price would eventually lead to more fuel efficient boilers and whatever. The area of motor vehicles where we would see a change and not because of action on global warming is in the combination of decent public transport and congestion charging. A charge would be imposed not because it is bad for the environment but it is bad for us all because of the congestion. In that case we would see a reduction in car usage, which would bring about a reduction in emissions. In the transport area raising the tax alone——
Is that not a much fairer way to do it?
Professor Richard S. J. Tol
For many aspects there are alternatives. People who live in Dublin can cycle to work but they do not because they value car transport higher than the cost of the fuel. There is no physical limitation on these things; it is what people want to do.
Deputy Hogan raised the question of how to meet the targets if it is not done through a carbon tax. The targets the Irish Government accepted from the European Commission and agreed to are fairly strict. A very high carbon tax would help us achieve that. If we are talking about two or three euro per litre of gasoline, most people would cycle or walk to work because we cannot expect Dublin Bus to drastically expand its network in that timeframe. That is one way of meeting the target. Instead of imposing a carbon tax we could forbid people driving to work, particularly if they live in a city or large town. That is a fairly draconian measure that will not be popular.
As Professor Fitzgerald suggested, we could shoot all the cows. That would also help. If we shoot all of them we would be rid of the 30% of emissions we should get rid of. These are particularly dramatic targets because most of these emissions are in sectors that have a very slow turnover of capital. Most cars are on the roads for ten or 15 years. If we want to significantly increase the fuel efficiency of cars in 2020, we must ensure that all cars sold in 2010 meet these targets now. Cars are fairly short-lived compared to buildings where we would be talking about a lifespan of 40 or 80 years, or even longer.
The same goes for power plants. Moneypoint has been operating for 30 or 40 years and it will be around for another ten years. That is the lifetime of these plants and therefore setting targets for 2020 in energy efficiency or in carbon emissions is like setting targets for tomorrow. It is very short term. That is the major problem with these targets and the reason we are talking about fairly dramatic measures to reach them.
The alternative is to miss the targets and pay a penalty. If emission permits could be purchased from the rest of the European Union it would be much cheaper because the expectation of the European Commission at least is that the price of permits would increase to €40 or €50 per tonne of CO2 in that timeframe. Instead of paying a tax of €4,000 per tonne of CO2 we could buy permits at €40 per tonne of CO2 and perhaps buying those permits or paying the penalty or fines would be the cheaper way of reaching the targets. That is another reason a carbon tax is the cheapest way of doing that.
A third issue related to this is that as soon as we start exempting certain sectors from emission reduction while keeping the same overall target, the other sectors will have to work harder. If it is decided that agriculture is off limits and we will not shoot the cows, the alternative is to shoot the commuters because for every tonne we do not reduce in agriculture we must reduce an additional tonne in transport and home heating. It is as simple as that. If one significant sector, agriculture, is responsible for 30% of emissions and it does not co-operate, the other 70% must work proportionately harder.
The same applies to transport. If it is decided that transport is too difficult to deal with and it is excluded, and if agriculture is excluded, all the reductions will have to come from home heating. That is the simple calculus; it is nothing to do with economics, it is simple arithmetic.
I wish to make a point concerning fuel poverty, which is a major issue, and it is not related to the introduction of a carbon tax per se. What we propose is the introduction of a carbon tax and an increase in benefits to compensate for the distribution of complications, as it were, particularly an increase in the benefits for the poorest to compensate for higher fuel costs. Such a tax would increase fuel poverty perhaps by a significant amount. My understanding of the fuel poverty issue is that it is not an issue of current expenditure but one of capital expenditure. Fuel allowances are given to the poorest to cover the cost of their fuel, but the problem is not that they cannot afford fuel but rather that they cannot afford to insulate their homes and install central heating. They are living in poorly insulated houses and heat them with inefficient technology. If the Government is concerned about fuel poverty, it should use the money allocated for bonus fuel allowances to insulate homes and install better equipment in those homes. The Government should switch from an expenditure programme to a capital programme. Such a measure would be completely independent of climate policy.
With due respect, that proposal is barmy. One does not abolish the fuel allowance; one does not take from the poorest in order to invest in their houses. That is a crazy proposal.
Professor Richard S. J. Tol
That is what the Government should do if it was starting from first principles. If we could do this overnight, that is what I would propose. The Government cannot abolish fuel allowances at present because that would hurt many people, but it should gradually introduce a capital expenditure programme for home insulation and the installation of better equipment in those homes. The people who receive those benefits should no longer be given fuel allowances. There should be a gradual shift from spending on fuels to spending on energy efficiency and home insulation. That is a fuel poverty problem that has little to do with climate policy, were it not for the fact that if people were to be encouraged to move from a dependency on peat and coal for home heating towards a dependency on gas, it would save considerable CO2 emissions and many people who are living in less than comfortable homes would find their homes much warmer in the winter. That is a separate reform that is only indirectly related to climate policy.
I wish to address the issue of the earmarking of funding and there are different ways of doing that. It can be written into law that such money can only be used certain purposes. That would be a bad idea because essentially it would tie the hands of this and subsequent Governments. While it may be expedient to tie the hands of the next Government in that respect in so far as one might not trust it in that one does not know who will be elected to office, it is not the way to proceed. One can also earmark funds in a political sense by simply agreeing that for a period of this Dáil, the money will be used for such purposes; that would be a political deal, but it is not written into in law. The Government can make it politically palatable that it is raising such money and promises to do it in such a way, but it is not writing that into law.
California is the worst example of earmarking funding. Some 70% of the Californian budget is earmarked. Governor Schwarzenegger can only dispose of 30% of the taxes raised for whatever purposes he considers useful, the remainder of the budget must, by law, be spent on certain areas. That means that in California certain areas are overfunded because there is stacked revenue that must be spent on them, while there is a lack of funding for other areas because only a small proportion of revenue from taxes in the general budget is disposable. Legal earmarking would be a very dangerous route to take.
I welcome Professor Tol and Professor FitzGerald and thank them for their contributions. I also thank them for their contributions in the past in respect of other social and economic issues. It is important that politicians be challenged and provoked. We must listen to people with rounded views, particularly in the context of this debate.
Professor Tol stated that Ireland's level of emissions is insignificant in European and global terms. Everyone wants to do the right thing in respect of climate change and dealing with environmental issues. As politicians, however, we must ask whether we are being asked to sell something which is right but which will have little impact. People who are moving in the right direction as regards emissions, etc., want to ensure - particularly when one considers what is happening in China, the US and other major economies - that their contribution will have an impact. I am concerned with regard to Professor Tol's use of the term "insignificant" in respect of this matter.
The subject of emissions from the airline industry arose at a recent press conference held by Michael O'Leary. There is a view that sections of this industry will be hammered and that there will be major job losses. People are concerned about this matter. How would our guests respond to what was said at the press conference to which I refer? Is Michael O'Leary just spinning another fairytale?
I agree in principle with taxing the product, not the producer. However, we must ask whether consumers are again being asked to bear the burden in this regard. The broader issue of a tax on emissions arose in the context of the debate on the Lisbon treaty. An impact will not be made in respect of this matter unless action is taken at international level. I am of the view - I remain to be convinced otherwise - that some of the major industrial powers such as Germany and Britain will not come on board when it comes to imposing a tax on emissions. I am concerned that we will try to do the right thing and that countries such as those to which I refer will walk all over us.
It is ironic that I find myself agreeing with our guests on tax harmonisation because I advocated a "No" vote in respect of the Lisbon treaty. It must be remembered that some Irish people — I am among their number — are reluctant to give up their autonomy or transfer responsibility for taxation policy to Europe. Professor FitzGerald made the point that when issues of this nature arise in the international arena, we should consider and make decisions in respect of them on their individual merits. That is a matter with which we must also deal in the context of the political debate.
Our guests stated that the revenue accrued from a carbon tax should be used to increase social benefits and tax credits and reduce PRSI. That is a fantastic idea, with which I completely agree. Such revenue could also be used to assist economic growth in the medium term.
The economy needs a boost as far as consumption is concerned. A problem exists in this regard at present. Our guests made important points about lower labour costs in the medium term and higher productivity in the long term.
The issue of methane gas may give rise to political difficulties because the burden of tax in this regard will be borne by motorists and those in the residential and enterprise sectors. Many of us are of the view that these sectors fuel the engine of our economy. Will the burden of taxation relating to methane fall on those who continue to make a massive contribution to the development of the economy?
Are our guests stating that Irish farmers will be obliged to accept lower incomes? There are those who are concerned that farmers will be forced out of business. Even though I represent an urban area, I am sympathetic to the needs of those in the farming sector. I am concerned about the impact developments in this area might have on society. Will they have to take a hit? I have no political axe to grind but, looking at this objectively, they are being hammered and I would not like their incomes to be reduced further.
This is a thought provoking debate. When taxes are mentioned, the mind is concentrated on how to spend or collect them. A total of 1 million houses in Ireland do not meet the energy rating standard. It is costing the Exchequer a significant sum to support the less well off to heat their houses and so on. Ireland could reduce its fuel imports by 30% if housing was properly renovated and heated to meet the energy rating standard but this must be done anyway. This will result in a great saving to the economy and in increased employment with those losing construction jobs being picked up to carry out the renovation work.
We need to think outside the box. Many people conduct their business on computers. If it was decided that everyone should work one day a week from home rather than the office, fuel would be saved and that would make a major contribution to meeting our obligation to do our bit for the environment.
Taxes can be spent every day on different projects but how productively are they spent in the context of the environment and the economy? We could spend taxes in a way that will create problems for the environment. This issue has not been examined in great detail. The debate has opened up new areas in which we, as politicians, must be to the fore in meeting our European obligations. As Deputy Finian McGrath said, Ireland is a small player in the overall context but that should not prevent us from taking the correct action to ensure when we import a barrel of oil, we generate more value out of it and it does not go straight through the roof or out through the door. This is an area in which we could improve significantly on what we are doing.
I thank the professors for their presentation. When it is stated that revenue generated by carbon taxes is not earmarked, I am reminded of the early days of the lotto, the proceeds of which were intended to be used for community and sports development but ended up in a deep slush fund. The principle of spending revenue generated by these taxes does not have to be absolutely nailed down but it must be linked to carbon emissions reduction and so on.
Senator Butler referred to the retrofitting of houses. I regard this as an economic stimulus in itself. Due to a slow-down in the construction industry, workers in that industry will be faced with either emigration or the dole and they could be gainfully employed in this sector while achieving a carbon reduction. Savings made in other areas could be used to fund this.
On the point about working from home, I recommend the roll-out of third generation broadband because even though this is not directly related, it could play a significant part. There are times when I wish I lived in India when I hear the poor cow being threatened with extinction by execution and when it is mooted we should consider withdrawing from the Bóthar project in Africa. This project is the best way of helping families in very poor parts of the world to gain some form of food independence. It is not affluence but it certainly provides sustainability.
If we were to establish a benchmark for carbon output of food production, Ireland could be one of the best in the world in that regard. This country produces approximately 20 million tonnes of carbon which can feed 36 million people. In Europe, agriculture produces 477 million tonnes of carbon for approximately the same number of people and it is not completely efficient. This country is therefore twice as efficient at producing food as the Europeans. Leaving aside all the other aspects of farming and agriculture, if we are going to import food from a less efficient country, we will reduce the planet's food supply. We must broaden out this discussion beyond the simple parameters. We must establish a benchmark of what is efficient food production from a carbon perspective. Rather than reducing herd numbers, for instance, the money from a carbon tax or carbon savings should be used in research and development in order to reduce the carbon output which can be achieved scientifically. That knowledge could be transmitted to the people who produce the food.
I agree with the point made about marginal land being used for forestry. If forestry is to be allowed as a carbon sink, it is probably the easiest and most efficient way for us to use marginal land to produce forestry which does not compete with the food producing land. This would allow us achieve carbon credits in whatever way it comes, achieve a national target on afforestation and create another industry.
On the issue of transport, private transport will be the most difficult aspect. We need to have public transport in towns and cities which runs on renewable energy. This is a fascinating area and it is becoming more complicated and confusing but we need to make sense of it.
I ask the delegation to give an indication as to whether the tax will be inflationary and, if so, by how much. What would be the delegation's best estimate of the likely revenue arising from the auctioning of allowances? Has any work been done on this aspect?
The third thing I would like to say follows on from Deputy Doyle's comments. We are talking about agriculture all the time. Some 28% of Ireland's emissions come from agricultural sources. The average figure across Europe is 9.2%. Some of the EU's agriculture policies, such as the intervention, butter and beef mountain and set-aside policies, failed because they did not make sense. The EU sold food cheaply to Russia. Food prices are increasing because food is becoming more scarce.
The EU's failure to deal with climate change is linked to its failure to introduce a proper agriculture policy. It is absolute lunacy to set a common target across Europe. Ireland, which is supposed to be the food base of Europe, may be forced to do something stupid in the agriculture sector in order to meet the targets set by the EU. Any proposal to reduce our production of food, at a time when it is expensive, would be stupid. When this committee produces its report, I hope it will give Ireland's negotiators information that they can use.
We need to deal with European Commission's list of proposals. I hope this country's politicians, through the Government, will take up some of those proposals as well as other ideas, such as afforestation, which are not mentioned in the Commission's list. As I understand it, just 9% of Ireland's land is afforested. When we were in Sweden recently, we learned that 50% of that country is afforested. We seem to be struggling to look for ways to meet targets which are not necessarily in line with the overall targets of the world, Europe or this country.
I am not convinced by some of the arguments in favour of a carbon tax. I am delighted that this debate is taking place. People should be able to make their case at this committee. It is unfortunate for Professor FitzGerald and Professor Tol that we do not have a live television broadcasting service that would allow the public to watch our proceedings and hear what people have to say on both sides of the various arguments. We get very little coverage from the media.
Many of them think we are on 11 weeks holidays.
Yes. I am thrilled with this morning's debate. We will have to consider the proposal to introduce a carbon tax. We have not overcome a certain difficulty in that regard. According to the best estimate, a carbon tax would reduce emissions by just 1%, 2% or 3%. It would not deal with the problem of emissions, although it would raise money. We need to debate what we would do with that money. We have to find ways of reducing our emissions. The Government should scrap the existing climate change strategy and develop a new one. It should set targets up to 2050 and motor on from there. It should set the public transport authorities, such as the CIE Group, a target of reducing all emissions from public transport by 50%. Similar targets have been set in other countries. We need to put a proper public transport system in place. Such things need to be done at local level if we are to achieve reductions. Do Professor FitzGerald and Professor Tol believe that a carbon tax would have an inflationary effect? What is the best estimate of the income that would accrue from the auctioning of allowances?
Professor John FitzGerald
I will deal with the agricultural issues and the Chairman's suggestion that the carbon tax proposal would have an inflationary effect. If the money raised from the carbon tax is used to cut income tax or social insurance contributions, its benefits will be shared between employers and employees. Wage rates would decrease in such circumstances. The effect on prices of that reduction would more than offset the effect of the higher carbon tax. Therefore, it would be deflationary, rather than inflationary, in the long run. Fuel prices would increase and that would be evident. The problem is that one would not see that after two or three years wage rates would be a bit lower because people's income tax and PRSI bills would be much lower. Because wages would be lower the price of a cup of coffee or whatever else would be lower. As economists we can see that, but it is difficult to convince a wider public.
The points raised on agriculture are important and it is useful from my point of view to talk to the committee. If the approach is to tax the hell out of farmers, that will not get us anywhere. However, from an economic point of view that is not the issue. Currently, farmers are given an incentive to produce things in a certain way but discouraged from producing other things such as forestry. If one could get the balance right so that a decision was made not to subsidise but to allow farmers to make as much money as they could, what one would see if one removed the restrictions on forestry and other areas is that they would end up making more money doing things that were environmentally better. It is not necessary for farmers to take a hit. Farmers could do well.
I visited the farm of John Gilliland, president of the Ulster Farmers Union, to see what he is doing. He is a grain farmer in Derry and he also grows wood for biomass. He makes a significant amount of money from wood and he has moved from grain — we do not want too many people to move from grain at the moment — into that area because he can make more money out of it.
Is that element of his business subsidised?
Professor John FitzGerald
It is a complicated business. I do not want to say it in public but he does receive a subsidy. I do not know if he really needs the subsidy to make money. I do not say that everybody can make money in the area but if the price of carbon goes up elsewhere farmers will make more money from wood, especially on land that is marginal, as Deputy Doyle indicated. I worked with Teagasc on the area in the mid-1990s. Different kinds of farms were examined and it was amazing how little money farmers were making from rearing cattle on some of the marginal land. It is a question of allowing farmers to make more money.
What is the problem? First, the problem is in the Commission. A senior official from the environment DG came to Ireland several years ago and Professor Frank Convery from UCD and I raised the issue of whether he had ever talked to DG agriculture on the matter. He had not, and that is still the case. The fact that they will not address the issue at a European level or accept that part of the solution to the environmental problem is getting the incentives right in agriculture is a big issue for us but not for others in the European Union. The second problem is that the Department of Agriculture, Fisheries and Food is a Department of cattle not of agriculture or land use. It is only interested in growing cattle, but from talking to the IFA it is clear that farmers are interested in making money. One can construct a scenario where farmers and the environment would be better off. We need to consider that, especially in terms of milk production where Ireland has a comparative advantage. We are much more efficient than anywhere else in the world other than New Zealand perhaps. If the milk were produced somewhere else it would be bad for the environment, world food and Irish farmers. That is not what we are talking about. We must get the incentives right. With a carbon tax the price of home heating would go up if one used oil or gas and gradually people would realise that they would save money if they used wood chips, and therefore farmers would grow the wood chips. That is one of the areas where a carbon tax would work. It would also allow farmers to make money rather than the sheiks in Arabia.
The balance is to not jeopardise food production.
Professor John FitzGerald
That is where working with Teagasc was interesting because on some of the marginal land where cattle and sheep are grown the productivity and therefore what farmers are earning is peanuts. There is land that is doing nothing and there is land that is not productive in its current use. Farmers should be encouraged to make better use of the land resource.
Professor Richard S. J. Tol
We estimate the revenue from auctioning the carbon permits in the ETS would come to €400 million in 2010 and would rise to €800 million in 2020. Returning to ear-marking at the risk of boring the committee, it may be believed that these are moneys the Government can spend. The European Parliament is busily trying to tie the Government's hands on how this money can be spent. If the European Parliament has its way, the €400 million by 2010 and €800 million in 2020, could only be spent in certain ways. This is the other side of ear-marking when someone else does it.
Several members came up with their favourite policies to reduce carbon emissions. All the suggestions are good such as more telecommuting, better insulation of houses and more public transport and should all happen. If a carbon tax were introduced and the cost of commuting went up, people would want to work from home and lobby for better broadband. The beauty of a carbon tax is that the Oireachtas does not decide what people should do but leaves it to people themselves. For some people, working from home is an absolutely fabulous option. For others, it could be incredibly difficult. If the Oireachtas came up with a law that says, "Thou shall work from home one day a week", it would not work.
I accept what Professor Tol says that a carbon tax could force a change in attitudes and habits. Why has this not been built into the estimate for the reduction of emissions?
Professor Richard S. J. Tol
We have included it.
This is only about 1% or 3%.
Professor Richard S. J. Tol
That is because these changes will take place slowly. If significant carbon taxes were introduced, in 30 years people would work from home much more. It cannot change in a week.
This refers then to the immediate benefit.
Professor Richard S. J. Tol
Yes, and that goes back to the plea for long-term targets. This is a long-term problem and we are talking about significantly changing the behaviour of people and technology. Trying to achieve this in a ten-year timescale is unrealistic and beside the point.
Members also raised the point that there are silly policies, such as agricultural regulation, that get in the way and there are smarter ways of reducing emissions. The point was made about fuel allowance where people are subsidised to burn fuel rather than insulating their homes. There is also the priority dispatch for peat in power generation. It is the dirtiest fuel but it must be burned for electricity generation at our peat-fuelled stations. Doing away with them would save 5% or 6% emissions in electricity generation. There are a range of policies that force people into behaviour that increases emissions. A rationalisation of policy in this regard would help.
Deputy Finian McGrath referred to airlines. We did not discuss airlines in the paper on the carbon tax because they will be part of the European system on tradeable permits. There are a few points one could make about that. First, the scary stories we hear from the airlines are probably completely overblown. Our estimate is that including the airlines in the European trading system will have a minimal effect on air fares and will slightly change prices, but not by much. So, for the airline industry as a whole, this is actually a fairly small issue and not something to worry about.
Two issues should concern us. One is that Ireland is more vulnerable than other countries because it is an island off the coast of Europe, so there is little alternative to flying, whereas if one is in France, one can drive or take the train. As a result, there will be a slight shift of tourism, for example, from Ireland to countries like France and Germany, although this will be small and is not something to worry about.
What is much more of a concern is the way this is being regulated. This is part of the European trading system and in the first instance the permits will probably be grandfathered or grandparented and given away for free. That is essentially a transfer from all the people on the planet, who own the atmosphere, to the airlines. The way this has been set up is that this will be done with reference to past emissions, which means that the inefficient airlines that do not grow very fast will get a bigger subsidy than the efficient airlines that grow fast. This is essentially a transfer of money to British Airways, Lufthansa and Air France at the expense of Aer Lingus and Ryanair in particular. Michael O'Leary does have a reason to be angry in this regard, although he expresses himself in a very peculiar way and he completely mis-targets his response. Ryanair will lose in competitiveness because of the way the transfer of permits has been set up.
There are two more issues. One concerns who will actually pay the price - whether it will be consumers or producers who will be hammered. It is a difficult issue. One can put the tax on producers and they will pass it on to their clients; one can put a tax on producers and they will pass it on to their owners, which is essentially you and me - I can probably say that in this audience; or one can put the tax on consumers, which, again, is you and me. We cannot really say that a carbon tax would hammer consumers or producers. Everybody would take a hit. One could put the direct burden in some places but the economy will shift it to another place, so one cannot say it is an either-or situation because both will share the pain.
The final issue I want to raise is the insignificance of Irish emissions. Ireland's emissions are about 1% of global emissions so if we reduce our emissions by 1%, we have not contributed anything to solving the global problem. In that sense, Irish emissions are insignificant. Ireland is not insignificant in that it is one of the 27 member states of the European Union and it is one of 192 member states of the United Nations. This is a global problem so everybody should help solve it and, in that sense, Ireland is not insignificant.
However, if we think we will solve the climate problem with this, we can forget it. Whatever we in this country do will not solve the problem unless, because of whatever carbon tax we decide to install, some clever Irish bloke or girl invents a new wonder fuel that is carbon neutral, abundant, cheap and so on.
The real solution to the climate problem lies in technological progress. If, in some way, we can stimulate technological progress in Ireland, that would help to solve the problem globally as the Chinese do not wish to burn coal. While they want cheap energy, they do not wish to burn coal and if one can provide them with an alternative that works just as well, or better, from their perspective, we will have solved the problem. Technological progress is very important. That said, Ireland does not have a proud tradition in energy technology research. It is not something at which we are particularly good. It would be betting on the wrong horse to suggest that Ireland will solve this problem for the rest of the world. In that sense, we are insignificant although we have a moral and legal obligation to do something about it.
I apologise to Professors FitzGerald and Tol for not being present throughout the presentation. I have two questions, the first of which is very simple. Would the tax of €47 per head on dairy cattle and €23 per head on beef cattle be payable for an animal's lifetime or on an annual basis?
Professor Richard S. J. Tol
It would be annual.
I had assumed it would be for the lifetime of the animal.
Professor Richard S. J. Tol
For beef cattle, it does not make much difference.
One does not carve off a steak per year. Although my concern pertained to dairy cattle, it is not such a great amount if one considers the milk output.
A more interesting question arises from the ESRI's graph on income distribution, the examination of which is interesting. Presumably, the ESRI made a decision to allocate the carbon tax proceeds to social welfare, child benefit and principally as a tax credit. What criteria were used? I ask this question because I believe it would make sense to allocate a proportion of this funding towards the upgrading of existing building stock in particular and certainly, in the short term, to consider extending the season for fuel allowance and improving on it. While I take the point this would not get to the heart of the problem, difficulties will arise for those on lower incomes in particular. One must provide them both with economic security in the short term and with the longer-term upgrading of their building stock. It seems likely that such people will not have the wherewithal to upgrade such building stock themselves. Perhaps more money should be spent specifically on the warmer homes scheme, which is targeted at those on lower income. Clearly, the ESRI has made a judgment call, principally in respect of tax credits, followed by increases in social welfare and child benefit. The witnesses should discuss this issue.
I wish to make an observation about today's proceedings. I am rapidly coming to the conclusion, based initially on Professor Tol's provocative presentation in which he mentioned a carbon tax of €4,000 per tonne to meet our targets, that the issue of carbon tax will not contribute anything to reducing our emissions in the manner in which members were led to believe. It appears it will make little contribution towards meeting our targets and that we have been engaged in a theoretical notion that it might. From a political perspective, members cannot countenance the placing of an additional cost of €3 per litre on fuel. As a policy instrument, taxes are supposed to be able to influence behavioural change. On foot of the discussions the joint committee already has had across various sectors, I do not see such change.
I was highly surprised that the ESRI's contribution on where the money collected would go focuses on issues such as labour taxes and PRSI. I have been politically active for long enough to know that if one wishes to achieve an objective and is raising money to that end, one spends it on programmes that will help achieve the targets or objectives one has set out. Theoretically, as Professor FitzGerald emphasised, reducing labour taxes might be good for the economy and might be helpful in terms of being deflationary. However, if one attempts to achieve climate change targets by raising money from carbon taxes, one must spend it on incentivising people and investigating new technologies. With respect, such money should be recycled into energy efficiency measures, such as those pertaining to the homes mentioned previously. I refer to the lost opportunity represented by the 500,000 homes that were built in the past ten years. Building regulations should have reflected some of the measures and matters that were discussed earlier. I put it to the delegation that we will have no impact with the introduction of a carbon tax in meeting our climate change targets. That is the conclusion I have reached arising from this discussion. Does the delegation accept this point?
Professor John FitzGerald
We will not make a huge difference before 2020 but if we do not introduce it now, we will not get anywhere by 2030. If it is introduced now, one will see significant change in the following decade because one has a completely new stock of motor vehicles and all the central heating boilers in the country will have been replaced at that stage. It is a long tail problem but if a carbon tax is not imposed now, nothing will happen in the following decade and it will be another decade before something happens.
How are we going to get cars off the road and drivers into the newer models? How are we going to get the boilers into the houses without incentivising people?
Professor John FitzGerald
The way one incentivises it is that it becomes cheaper. I have been investigating replacing my central heating boiler. I can get one which is 20% more efficient but I was told that I must replace all my pipes if I did it. The pipes must be replaced at some stage and when they do, I will have a more fuel-efficient boiler. One is dealing with a stock of 1.5 million houses and it takes a long time. When one comes to replace one's central heating boiler, one then makes a decision because one is spending——
If the choices we can make are politically palatable and are equally or maybe more important in terms of achieving our targets in ten, 12 or 15 years' time, I suggest that we are likely to achieve those through incentivising people rather than reducing across the board.
Professor John FitzGerald
My problem with incentivising people is that one must raise the money to pay the incentives. If one just raises the carbon tax and uses it on subsidies to households or businesses, one will see a major loss of employment and output in this country because one will have made it less competitive. One will have raised the costs for everybody and consumer prices. Wage rates will rise because consumer prices have gone up and jobs will go to other countries. That is the problem.
One could ask why we would impose a carbon tax rather than raise income tax and use it to pay for incentives. The problem is taxation tends to be bad for competitiveness. One could use it for that purpose and if they were incredibly effective incentives, it might be worth while doing.
Looking at the incentives put in place to date, it does not look as if we have got good value for money from the relatively small amount of money we have spent on incentivising people. The problem is that if one raises the tax, one does not have the money to cut other taxes and has lost competitiveness. As the committee has seen, I do not rule out that there are certain targeted areas where that may well work.
I apologise for interrupting Professor FitzGerald but this is an important point. In respect of the money raised, the €550 million estimated initially, I accept Professor FitzGerald's argument that it will have benefits down the line. Initially, I do not think that €550 million will be around to distribute to anything because it will be required to purchase permits.
We will not get away with not achieving our targets between 2010 and 2020. We will have to pay up. This money will not be a bonanza in respect of which we will all be scratching our heads as to what we will do with it. Let us be frank and honest about it. I accept what Professor FitzGerald is saying as a long-term solution to a very difficult problem. It is one of the long-term solutions on which people have their own opinion.
In the short term, if the message went out that we will have €550 million to play around with, ignoring the fact that we will have to purchase the credits because we are not achieving our targets——
It is still an income for the Government.
It is an income that is only going through the books and out the other door.
It is better than no income.
It is going out the door on permits.
Instead of purchasing credits as an off-set, could it be used to stimulate the economy and to reduce our output? We would need to buy credits. It is a little bit——
What about long-term policy?
One would reduce output and the credit burden by using some of the money in the initial stages. Once houses are proofed and insulated, they are done. It is a one-hit wonder. The economy will be stimulated without an inflationary effect. One must spend the money one way or another.
Professor Richard S. J. Tol
I apologise for correcting the Chairman on the purchase of permits, but his calculus is incorrect. We will spend between one quarter and one third of the money on purchasing permits. Money will remain.
It will depend on the price.
Professor Richard S. J. Tol
Yes. The question of how we decided on the benefits and fuel allowances was asked. Our presentation displayed just one way to recycle the money for distributional purposes, but the paper outlines four ways. We tried a range of measures, including lowering the lower band income tax rate, the higher tax rate, shifting the boundaries, changing tax credits and so on. We picked tax credits because energy consumption is stable across households. A tax credit is the easiest way to reduce a tax burden in an equitable way.
We chose child benefit because energy consumption varies depending on households' sizes. We did not choose an increase in fuel allowances because they only comprise a bit of money given to a household. If this is the case, why give it a specific name? The income tax system is beautifully simple, but the benefits system is complicated. The relevant ESRI experts argued that, instead of giving fancy names to the money we give people, we should just give them the money. Irrespective of whether the benefits are generic or specific, people are being given money. What it is called does not matter. One could call it a carbon allowance. We moved away from fuel allowances for administrative purposes.
Does Professor Tol accept that incentivising a particular scheme might lead to an overall reduction in energy consumption more quickly than would be the case were it a social welfare scheme? I am considering, as we do in the political world, that average individual who is in danger from high energy costs and might not be stimulated into changing his or her behaviour if he or she receives money into the hand, but who might be stimulated if the scheme involves his or her door being knocked on so that a foot of insulation can be placed in the person's attic.
Professor Richard S. J. Tol
Before Deputy Cuffe's attendance, I argued for a gradual reduction in fuel allowances, to the dismay of some. They would be replaced by investment in insulating homes and in buying more efficient home heating systems. It would be a shift from current expenditure to capital expenditure. At a psychological level, providing a fuel allowance stimulates people into buying fuel instead of doing whatever they want with it.
I thank both of our guests for a stimulating discussion. It was exceptionally worthwhile. The openness, frankness and honesty of the witnesses contributed a great deal. Often, as politicians, we do not like to hear facts that do not suit our way of thinking but these are to be considered. The role of the committee in providing an opportunity for the debate will contribute to the decision that will be taken next year or the year after. The witnesses have done much research for this. I thank the two professors most sincerely for their attendance and contributions.
The joint committee went into private session at 12.15 p.m. and suspended at 12.45 p.m. until 2.30 p.m.
I apologise for the delay. I welcome the witnesses and I look forward to their presentations. I call Mr. Oisín Coughlan.
Mr. Oisín Coughlan
I thank the Chairman and the committee members for inviting us to make a presentation on the EU's proposed energy package. The Irish Environmental Network comprises 28 national environmental NGOs, five of which are represented today. Three of us will present and all five of us will take part in the discussion.
The committee is central to Ireland's effort to forge an adequate response to the climate challenge, which has been referred to by Ban Ki-Moon of the UN as "the defining challenge of our age". We very much look forward to deepening the dialogue we are commencing today on the EU package and on how Ireland responds to that challenge. EU policy has been a key driver of Irish climate change policy for the past ten years and this package is the most significant development in EU climate policy since the Kyoto burden sharing deal ten years ago this month. The analysis I will summarise on behalf of Friends of the Earth is very much in line with that of our colleagues at the European level such as Friends of the Earth Europe, the World Wildlife Fund, Greenpeace and a specialist climate action network of NGOs that includes GRIAN.
I will refer to the overarching issue and specifically to the three elements of the package - the effort sharing agreement among member states, the European emissions trading scheme and the renewable energy directive. Friends of the Earth welcomes the Commission's publication of the package but, unfortunately, it is not adequate to do Europe's fair share to prevent dangerous climate change, which is EU policy. The emissions targets are inadequate. In Bali last December, the EU was very clear that it wanted the intergovernmental panel on climate change's targets included in the negotiating mandate post-Kyoto. According to the targets, industrialised countries need to reduce their emissions by between 20% and 45% by 2020, yet the EU's own package only proposes a 20% reduction by 2020 with the possibility of an increase to 30% if there is a satisfactory international agreement. That is not enough to deliver the EU's own policy, which is to limit global warming to no more than 2° centigrade above pre-industrial temperatures. Our first recommendation, therefore, is that the EU package be designed to deliver reductions of at least 30% by 2020 in Europe.
The compliance mechanisms are not strong enough to ensure the delivery of the proposed cuts. We have failed in Ireland to deliver on the first round of reductions under the Kyoto protocol up to 2012 and there are not adequate compliance and enforcement mechanisms within the European family to ensure adequate policies are put in place. A study for Friends of the Earth has found that the most adequate and satisfactory compliance mechanism should take its inspiration from the milk quota levy, which is a direct penalty system that allows the Commission to take action quickly when member states are out of line.
I will move on to discuss the effort-sharing decision in a little more detail. The national member states have reached agreement on how they will share the burden of meeting the EU target. We accept that the proposed method for deciding on each country's share is a relatively fair and balanced compromise between 27 competing national interests. I will comment on what that means for the Irish target in a moment. In general, we believe that the effort-sharing decision could be strengthened in a number of ways. As I said already, we should aim to achieve a 30%, rather than 20%, reduction by 2020. We should be allowed to buy external credits only if they help us to contribute to our target above the 30% level. We should seek to meet the 30% target domestically. Good standards need to be set when making decisions on qualification for external credits. The clean development mechanism gold standard should be the minimum standard for external credits.
The package puts a legal obligation on member states to deliver annual emission reductions. We think that is a good provision as it will lead to progressive step-by-step policies. It will ensure that we start to deliver cuts now. One of the mistakes that was made under Kyoto was that Ireland did not start to deliver cuts until it was way too late. We must make sure that the legal obligation for annual reductions is not watered down as this package proceeds through the EU institutions. There is a need for much more effective compliance and enforcement procedures.
A few observations are made in the study that was done for Friends of the Earth, which I mentioned earlier. The study is available on-line. I can make it available to the committee if it wishes. The study makes it clear that penalty procedures need to come into operation swiftly when people are found to be out of line. At present, cases of this nature can drag on through the European Court of Justice for many years before member states are reprimanded for their failings. Strong penalties, for example, of €100 for each tonne of carbon dioxide by which one exceeds one's target, need to be directly applied in such cases to incentivise countries to meet their targets.
There needs to be some flexibility between periods as this target goes forward. We suggest that a 1% level of flexibility would allow countries to manage their affairs. Reporting needs to be done quickly if this is to work. At present, it can take 18 months for the EU to publish the figures for a year's emissions. Reporting needs to happen more quickly if we are to keep this process on track over the next ten years.
I will specifically address Ireland's reduction target, which caused some controversy when it was announced in January. The EU said that Ireland will be set a target of reducing its 2005 emissions levels by 20% by 2020. I suggest that the EU's proposal, far from being discriminatory or punitive, will let Ireland off the hook somewhat. Any other plausible way of calculating a national target would deliver a figure at least as tough as the 20% target. The EU's decision to replace the existing 1990 baseline with a 2005 baseline has wiped away our Kyoto sins. Ireland has exceeded its Kyoto target significantly over recent years. We should recognise we are being let off the hook by being asked to start from 2005, rather than 1990. It is advantageous for us. There is a limit. Every member state will be asked to make an effort to reduce emissions by 20%, with the exception of some developing countries in Europe which will be allowed an increase of 20%. If those limits were not in place, Ireland's target would be tougher than it is now. We might have to aim for a reduction of 25%. This approach has helped us.
The issue of GNP, as opposed to GNP, was raised when the target was published in January. Ireland is unusual in that its GNP is lower than its GDP. It is a red herring. If one examines closely the figures published by the Institute of European Affairs, one will see that Denmark has also been set a 20% reduction target under the EU proposals. The GDP of Denmark is about the same as the GNP of Ireland. If Ireland was to campaign for GNP to used, rather than GDP, and the Commission was to recalculate the target on the basis of Ireland's GNP, it is likely that Ireland would be set a 20% reduction target anyway. We should not waste our political capital and our debating time at EU level on trying to change the 20% reduction target. It is the best we can get. We need to get on with putting in place the policies to deliver it.
I would like to speak about some other aspects of the package, such as the emissions trading directive. We welcome the proposal to reform the emissions trading system. It is a move in a positive direction. It makes much more sense to set the cap at EU level, as opposed to nation state level. It is much more efficient, administratively and from a market perspective, to have a single EU-wide cap rather than separate national caps. We also welcome the move towards auctioning permits from 2013. The manner in which this was done during the previous phase - they were "grandfathered", or given away for nothing - distorted the price signal and gave large windfall profits to many power utilities across Europe. There should be 100% auctioning in all sectors from 2013. The longer we wait, the more difficult it will be and the more open we will be to lobbying by special interests. It is better to start from 1 January 2013 and to say now that there will be 100% auctioning in all sectors.
We welcome the 20% target for renewable energy in the renewables directive. We recognise that the national targets are challenging but we think they are doable. There should be a firm commitment to achieving those targets within the European Union, as that creates more certainty for investment and will boost energy efficiency. The better one's energy efficiency, the less energy one has to produce renewably to meet one's target and that would boost renewable energy itself.
The directive needs to be improved in a couple of ways. More to the point, it needs to be defended from some countries that are trying to weaken it, notably the UK because of some matters that relate to trade. The current text proposes the creation of guarantees of origin, GOs, that are certificates of each megawatt of power produced that can be traded within member states. We accept some flexibility in trading among member states would be good because not every country has the same potential to develop renewable energies. There could be advantages for Ireland as we could trade our surplus renewable energy if we exceed our targets.
If there is unlimited trading between member states, it undermines the strategic objective of producing more renewable energy in all European countries and that would interfere with the development of a coherent super grid to transport renewable energy around Europe, which could discourage investment in technologies that are not yet market-ready because everybody would flock to the cheapest alternatives. Trading should be limited to 20% of one's national target and it should also be confined to member states rather than companies. This is not a companies trading system - that is the UTS - and it should be about encouraging renewables.
The UK wants to introduce trading from outside the European Union so that it can invest in renewables somewhere else entirely and get guarantees of origin to trade within the EU. We do not think that is appropriate in the circumstances, as it would not have the desired effect of boosting renewable energy in Europe. It would also slow us down in de-carbonising the European Union. We do not think the purchase of renewable energy certificates from outside the EU should be included in the directive. The interim targets must remain legally binding. If we want to do that, it must be taken step by step and encouragement must be provided along the way. Compliance and enforcement need to be substantive and not tokenistic.
It is a good idea for the European Union to support offshore wind farms in an active, financial manner rather than just tacitly in order to create a super grid to connect up offshore wind. The idea has been pioneered by Eddie O'Connor and his former company, Airtricity, and we think it deserves support here and in the European Union.
The draft also proposes that renewable energy's share for transport alone must be at least 10% of energy demand for the sector by 2020. In theory, that could be met by solar PV panels on cars or by electric cars run from the grid but the Commission is clearly thinking of biofuels and has said as much. A growing body of research has exposed the numerous economic, environmental and social problems of the dash to biofuels, including the various studies to which I referred in my submission. Last week, the European Parliament recognised that and proposed an amendment to reduce the target from 10% to 4% by 2015 and then subject it to a review. It has not been subjected to the equivalent of a strategic environmental assessment and that should be done. In the meantime, Friends of the Earth believes that the 10% target should be left out of the directive for now as it would have perverse consequences.
Energy efficiency is the missing link. The Commission has said that is the way we can deliver a 20% reduction in business-as-usual energy demand most cheaply and effectively, yet it is not in the package that was presented in January. There needs to be legally binding requirements around energy efficiency because otherwise it will be forgotten because it is not as sexy as the new technologies. At the latest, the Spring Council next year should introduce a binding mechanism around energy efficiency.
We need to support mitigation in developing countries. We have a responsibility for having caused climate change and we should help countries not just to adapt to it, but also to mitigate it. The obvious place to source funding for supporting adaptation in poor countries is from the proceeds of auctioning the ETS credits. The position of Friends of the Earth and Climate Action Network Europe is that at least 50% of the revenues from auctioning from ETS should be ploughed back into supporting adaptation finance in the developing world. I will stop without a peroration and allow my colleagues to contribute.
I call on Mr. Ian Lumley from An Taisce.
Mr. Ian Lumley
I want to focus on the national implications for Ireland of the EU climate change package, particularly with regard to the non-emissions trading sector. Ireland got away with overshooting its Kyoto targets of over 25% rather than the 13% cap by 2012 without any financial penalties. Under the EU package, targets will be different both in the traded and non-traded emissions sectors. The overshoot of targets will result in compensatory measures which will affect Ireland's economic competitiveness and trickle down to affect the consumer. There must be a balanced focus in all sectors.
Agriculture is the largest contributor to Ireland's CO2 emissions, mainly due to methane, some 27.7% of the national total. This is driven by heavily subsidised and export driven beef and dairy production. That industry is facing a range of other pressures from imported fertiliser costs and animal feed costs. Fertiliser is produced in Asia at a high cost in natural gas and feed costs are affected by world grain prices. There is an opportunity for diversification in the agriculture sector. To achieve emissions reductions, no punitive measures should be taken against the beef and dairy sector. Diversification in agricultural activity must be encouraged which would also enhance food security.
Ireland is very dependent on imported food stuffs. While there already has been a significant increase in grain production in the past year, over 80% of grain used in Ireland is imported. The international trends present an opportunity for Irish agriculture to diversify its activities and meet emissions targets. Marginal land can be used for the production of biomass to replace peat and coal consumption for electricity generation. Biomass can also be used for home heating systems as the domestic sector is dependent on oil and gas-fired central heating.
Particular challenges will emerge for transport, as it has had the highest annual increase in its emissions in the past 15 years. Since 1990, emissions have increased by 165%. That has been the highest sectorial increase in the EU. Of that, road transport constitutes 97% with road freight trebling.
Nationally, no political party has opposed Kyoto or EU targets. However, it has not been translated into the direct decision-making actions by members of the same political parties at local level in individual local authorities. We are seeing the continued ignoring of the provisions of the national spatial strategy of 2002, which sought to implement climate and spatial policy by having development which would be more public transport-accessible, less car-dependent and would favour less urban sprawl. Recent amendments, made in the past few weeks, to the Mayo county development plan have been in diametric contravention of that objective.
Zonings continue to be facilitated, almost unanimously in many cases, by elected members, such as in recent cases in County Waterford concerning land outside Dungarvan and Carrick-on-Suir. There have been three major recent examples in County Meath where development of major business parks has occurred on unzoned, non-public transport-accessible, greenfield locations. These contravene all the national policies on spatial development as well as the regional policies for the greater Dublin area and for the regions generally with regard to orientating major new transportation demand on public transport corridors and public transport nodes, while at the same time rail freight continues to be run down.
The principle transport investment of the national development plan has been a massive inter-regional motorway dual carriageway programme between Dublin and the major regional centres, which is contractually committed for completion over the next few years between Dublin and Belfast, Galway, Limerick, Cork, Waterford and Wexford. This strategic investment to reduce travel times between the regions and encourage competitive investment in and accessibility to the regions is being undermined by sprawl and by the filling of those roads, particularly the access points to them and ring roads in and around urban centres, by commuter and shopping traffic.
There is no evidence that this issue is being grappled with because it is showing up in transportation figures where new housing and retail and business park developments are being built, fuelled by free out-of-town car parking spaces for retail and business use, which is exacerbating this trend. All of the projections are that the current adjustment to VRT taxation rates, or even the major public transport investment currently proposed for Dublin, will not achieve the reduction in transport emissions because of the inherent car-dependent nature of development and mobility in Ireland.
Irish NGOs have also been very critical, as, curiously, has Ryanair — it is probably the one point of agreement between Irish environmental NGOs and Ryanair — of the inappropriate and unnecessary continued subsidy of internal air travel between Dublin and Knock and the other five regional airports, which is a perverse subsidy of carbon-intensive travel when the subsidy would better be directed to low carbon or zero carbon inter-regional travel. While all policy is to favour a significant share from private passenger cars to public transport, as well as more efficient vehicles, public transport is still predominantly dependent on diesel both for rail and bus so there is equally a need to invest in de-carbonisation of public transport to get the most fuel-efficient rail and bus system.
We have set out a number of practical measures on page 4 of the document. The current public expenditure review of funding and spending priorities should allow the opportunity to review and reassess current spending priorities in aviation development and increasing runway capacity, and in road development, which is simply increasing car dependence and HGV road-dependent capacity rather than promoting alternatives. At local level, An Taisce is working with the Department of Transport and the DTO on local mobility plans for schools to reduce car dependence. This is an initiative that needs to be extended to all sectors, including the public and private sectors, to reduce car dependence. Where public transport or cycling is not viable, this includes promoting car pooling schemes.
On the residential sector, the particular challenge facing us is the poor quality of the housing stock that has been built in the past decade, which is way behind European standards, and the long-fingered implementation of the building performance and energy directive. The investment priority now must be to retrofit the existing housing stock and in particular, to target the local authority housing stock because that income group will be most affected by the knock-on effects from increasing fossil fuel costs in the future.
During the 1974 oil crisis, a significant increase took place in the extraction of sod peat from the non-Bord na Móna land ownership. All the indications are that this already is happening on foot of fossil fuel price increases and as the projections for such increases are likely to accelerate, it is likely there will be highly significant increased pressure for sod peat extraction in addition to ongoing Bord na Móna briquette production. Bord na Móna's production capacity is limited because at present it is engaged in extraction from 55,000 hectares of land and does not propose any additional extraction. It seeks to diversify into wind energy and co-fuelling its peat-burning power stations.
I included some details in the document I provided to the joint committee that I will mention briefly. In respect of the current national calculations, the six headings provided by the EPA for our national emissions, at more than 67 million tonnes, do not include land use impacts or, in particular, extraction of peat for horticulture and for burning. While figures are available for the combustion of peat in the domestic sector, such figures are open to question because although accurate figures are available for Bord na Móna production levels for briquettes, there is no accurate quantification of the impact of sod peat extraction and burning.
However this does not pertain simply to sod peat as in parallel, major extraction of peat for horticultural use takes place outside of Bord na Móna lands. The available figures are 2.5 million cu. m, 90% of which is exported to the Netherlands and other countries, which are restricting or banning peat extraction on their remaining peatland areas. This is not subject to any planning permission or, in most cases, to a licence from the EPA. It is completely unregulated, which is the reason none of the regulatory authorities have any information as to the nature of the quantities. In many cases, it is being carried out in an environmentally substandard manner without any control, thereby creating potential problems in respect of drainage, flooding, pollution, as well as biodiversity loss.
As bogs have accumulated over thousands of years, they represent a carbon and methane sink. The extraction of a peatland area releases that carbon and methane and therefore adds to our real impact and constitutes a significant element of Irish greenhouse gas generation. Until this is quantified properly, which is not being done under the current land use, land-use change and forestry, LULUCF, heading, we are not working to adequate baseline figures as to what are our real climate emissions.
I wish to communicate strongly to the joint committee the need for immediate action to calculate and to factor in the emissions that are being caused by both horticultural and fuel extraction from both Bord na Móna and non-Bord na Móna peatlands. Thereafter, policies must be put in place to address what inevitably will be the pressure for increased peat sod extraction, particularly in the midlands and west of Ireland. The obvious alternative is to incentivise and support local biomass which, subject to ecological appraisal would comprise willow or alder growth programmes, to provide an energy crop to meet local energy needs in the most efficient manner. This would involve closed burning systems, rather than allowing highly environmentally damaging open fire sod peat burning to increase in an uncontrolled fashion. Equally, peat burning in closed systems, such as kitchen ranges, is inefficient.
Moreover, a perverse trade is being accommodated by Ireland and promoted by the Departments of Enterprise, Trade and Employment and Foreign Affairs in trade missions. There is a major sustainability question regarding the continued export of horticultural peat from Ireland. A total of 90% of it is exported, most recently in a trade deal involving the export of Irish horticultural peat to South Africa announced a few months ago. There are serious sustainability questions.
However, there are practical alternatives in managing our existing peatlands. The European emissions trading regime does not allow forestry or peatland to be considered as a carbon sink. Our overall policy should be to maintain our peatlands as a carbon sink simply for good environmental land drainage and management reasons and to focus on providing renewable energy targets and crops that do not conflict with agricultural use or biodiversity as an alternative.
An Taisce's entire approach to this global challenge is to come up with the best practical solutions at national level to deal with our particular needs and requirements. We would very much welcome constructive engagement with the committee and all sectors in advancing that.
Mr. Pat Finnegan
I am very pleased to be here this afternoon on behalf of GRIAN. I thank the committee for its invitation. I had meant all year to submit a request for a hearing of our own but I have been too busy working on this package and how it relates to what we consider to be the vital mission of a global agreement secured by all participating parties to a UN agreement and that the world fulfils the EU objective of limiting global warming to less than 2° above pre-industrial levels.
There has been a slight slip-up in the messaging between us. What I received here is the pdf I sent over yesterday rather than the PowerPoint presentation I intended to bring today so I ask the committee to bear with me. I have dropped a few slides overnight and replaced them with, hopefully, a more useful one. I will work off this one.
In conjunction with the comments from my colleagues, let me say that I have read most of the minutes of nearly all of the committee's previous meetings. I am relying on and working with its previous hearings. Mr. O'Mahony gave the committee a very good background of the sort of context in which he sees as part of his responsibilities. It is also the context in which GRIAN seeks to operate.
Basically, there are three levels to this. They are the local, the regional and the global and they must fit together. The way we see this is that the global framework must be capable of limiting warming to less than 2°. We see this package is a vital possible component of a global deal to do that. The reason I am pleased to be here this afternoon is because the whole thing falls asunder if the 27 EU member states do not collectively organise in order to make the EU package stick in sufficiently robust terms to help ensure that the Bali roadmap for a global ambition for warming of less than 2° can be delivered. This is basically the context as put on this first slide.
This slide is for those who need even more detail on the context and to try to lay to rest a few misapprehension about which GRIAN is concerned despite the fact that we are very pleased that there is increasing awareness of the threat from climate change. One of the difficulties here is the messaging and the results one gets from it. This is from the IPCC's fourth assessment report last year. Basically, the message here is that in order to fulfil warming of less 2°, one only has a category I mitigation scenario that will deliver that at about 40% possibility.
One of the main messages I want to get over to the committee this afternoon is that, as Mr. Coughlan mentioned, there are two levels to this package. It is currently drafted as a default -20% reduction for all member states with a proposal to migrate to -30% pending the global agreement. The message I would like to convey is that members should be careful in what they wish for. My wish is for a global agreement that limits warming to less than 2° Celsius, a minimum of -30% in the package. There is no room for manoeuvre. Even the -20% would place us in category II. While some believe that there is a chance of reaching 2° Celsius, there is an equal scientific chance that it will go over 4° Celsius, which is not a prudent envelope in which to manoeuvre.
The next slide details the mathematics to convey my message in numerical terms. A category I mitigation scenario involves, at best, a 2° Celsius increase. The mid-range is 2.2° Celsius. If that is for the world, the temperature in Europe will be 3.2° Celsius on average and 4° or 5° Celsius in Mediterranean countries. Part of Ireland's problem is that we are close to the global average. In this light, I am anxious that Irish policy makers grasp the responsibility and divorce themselves from our lucky draw, that is, an ocean-moderated climate.
A category I mitigation scenario needs emissions to peak by 2050, of which there is practically no chance. No one would argue this point. There is room for manoeuvre as a late peak can be clawed back with stronger decarbonisation efforts. GRIAN has worked with EU rapporteurs and CAN Europe is working across Europe to try to convey the message that the EU's ambition to reduce global emissions by 50% from current levels by 2050, as outlined in the text of the directives, corresponds to 2° Celsius, which is optimistic.
The next slide details the mandate stemming from the January 2007 spring Council. I have highlighted the 30% ambition. The second paragraph recounts the main message of GRIAN and the Commission, namely, that it can be done. If it must be packaged to be sold to the public, it should be a question of transforming Europe into a highly energy efficient and low greenhouse gas-emitting economy.
We can gloss over the next slide as there may be too much detail. I have spent eight months of the past seven years in this arena. In reverse order, a message comes from a UN agreement and Europe, which is required to devise implementation measures, requires Ireland to develop them. Feedback can be provided.
To fulfil the less than 2° Celsius objective, the 30% cut by industrialised countries is at the bottom end of the range required by science. Mr. Coughlan has mentioned the supports for developing countries.
For those who have read the package's impact assessment, the next slide details the key message. I will not spend long on it. Early this year, NGOs feared that member states would squabble about the package's fairness. The Commission's graph makes it clear that a great deal of thought has been given to this issue. The resulting line is visible. The following slide shows the same line in terms of the 2020 target using the 2005 baseline. If members do not mind, we will scroll over the next two or three slides rapidly. The previous slides have been sent to members and there is much detail in them.
The work GRIAN has done on this has been instrumental in convincing other sceptical Governments around Europe of the fairness of this package. There is not time to elaborate here but members can ask us back if they want further detail on this. Despite the fact that Ireland is in the frontline of the EU package, the result of the decarbonisation rate implied for Ireland, which is very relevant to the Irish Government's programme, is only 1.5% per annum if delivered between 2008 and 2020. As Mr. Oisín Coughlan has stated, GRIAN and Friends of the Earth are not proposing a 20% target. The rate must be higher.
These are the conclusions, which I hope I have covered. I had to skip over the baseline issue, to which Mr. Coughlan alluded. I suggest we revert to this matter if members would like me to. The conclusion remains that the package does not come near the 2° ambition unless the high range opportunities are embraced. That is the effort sharing component of the package.
Regarding the RES directive, I will leave the list for members to come back to because we are running out of time. There are six issues and I will skip over the first three, to which Mr. Coughlan has alluded. GRIAN has a slightly different perspective to Friends of the Earth regarding the no loopholes matter. It involves an Irish input and I suggest members come back to me on that for further details. It concerns large wind projects. It is not an Irish problem but members of the Climate Action Network are concerned about loopholes appearing as a result of positive action, which may be from Ireland.
In the current draft version of the renewables directive, Article 2, on definitions, is also a loophole. Colleagues in Europe tell me that there are forces inclined to have peat classified as a renewable energy source, based on the current draft definitions in Article 2. GRIAN believes that peat is a non-renewable energy source. The problem is that it is not usually classified as fossil.
Bio-fuels, a big issue, have been alluded to and I will come back to that subject. I have some good news. To reinforce the case I am making, the calculations I did on foot of last year's report on global wind capacity show that Ireland is fifth best in the world in terms of wind capacity per head. Portugal just pipped us to fourth place last year so we are arguably fourth. I wish to give good news but also to encourage policy makers here and elsewhere. We are at the start of our wind installation programme in Ireland. It already has us at joint fourth in the world and we could be first in the world.
I have skipped over the thornier issues in the effort sharing segment because they are covered in the legal basis provided by the ETS directive. The baseline issue is complicated and we can return to it. Supplementarity, to which Mr. Coughlan has alluded, is a major issue. GRIAN, CAN and Friends of the Earth have a similar position on this. Supplementarity concerns the conditions in the Kyoto Protocol, which say that the Commission's trading should be supplemental to domestic action. GRIAN has been among those trying to drive a formal position for the Climate Action Network. A good way to tackle this existing ducking and diving on the matter, in Ireland and elsewhere, is to get a definition of supplementarity adopted. This could mean 51% and 49% but we are more in favour of a two to one ratio. We would say that 30% domestic reduction would give access to 15% credits.
Hopefully, members can see clearly how that stacks up. It gets one on the books in terms of the 45% reduction that the IPCC argues is necessary.
I understand that the issues of leakage and permeability have come up a lot at previous meetings of this committee. However, I am running short of time and do not want to disrespect my colleagues. We have done a lot of work on this area which I will sum up by saying that there is fairly widespread agreement that there are issues to be dealt with in terms of leakage. I do not concur with some of the views this committee has received on the leakage issue. The problem has been mentioned in previous sessions and one of the best solutions is a global agreement that is truly global and truly measurable, reportable and verifiable. Many of the leakage problems can be made to disappear. The current proposal which requires the Commission to report back on the matter is adequate.
I wish to speak about permeability because I can see that it has come up a lot. It may be of interest to the committee to know that I have not heard this issue raised anywhere else in Europe. It seems to be a uniquely Irish concern and may be symptomatic of the development of an incorrect view of how the system and the climate work.
The auctioning process and auctioning revenues are a vital part of the package. Mr. Coughlan mentioned the main NGO demands on this and what they amount to. CAN's current proposal has been moved on and refined. On the sinks issue, Ireland is showing up in Europe as wanting to have sinks included in the flexible mechanisms. However, there are very good, comprehensive and persuasive reasons that is not a good idea, which is why sinks are not included.
The slide before members is a graphic illustration of the implications of taking the weaker end of the package of proposals as against the stronger end. The stronger end calls for a 30% domestic cut, with which CAN agrees. However, CAN further proposes, and has submitted as a formal amendment to the directive, that with the 30% cut which must be up front, promised and delivered, financing and technology support for developing countries in the order of 800 million tonnes per year would also be provided.
Mr. Coughlan mentioned energy efficiency and I have included the McKinsey chart in our presentation for the information of members.
Carbon Capture and Storage, CCS, is a component in the package. GRIAN would argue that it is not very relevant to Ireland or indeed elsewhere because it is a long way off. However, as part of the global framework, it is important to have CCS included. Given that it is a long way off, it is proposed that an allocation be taken from the new entrant reserve and made available on a planned basis for a number of pilot plants.
The issue of bio-fuels needs to be clarified. GRIAN and its colleagues have had to clarify this with the Commission since 23 January. The proposed article 3.3 of the RES directive states: "Each Member State shall ensure that the share of energy from renewable sources in transport in 2020 is at least 10% of final consumption of energy in transport in that Member State." The European Commission has not made it sufficiently clear that bio-fuels are not provided for in the draft article. This has given rise to a great deal of confusion when compared to previous guidance on bio-fuels.
The directive means what it says on the tin, that is, a target of 10% renewable energy in transport. In GRIAN's view, this opens the door to real solutions which, pleasingly, Ireland and the ESB appear to be considering. We would reap a number of benefits from providing transport in electric vehicles powered by renewable energy resources. It would allow us to reach the target set out in the directive and would provide for permeability across the two sectors. It would also deliver real greenhouse gas abatement measures. GRIAN's interpretation of this wording is that it is thoroughly achievable. However, our colleague organisations in other member states are concerned that the wording as it stands leaves the door open to nuclear energy for transport. My assumption is that Ireland is not going to take that route.
Ms Siobhán Egan
On behalf of Birdwatch Ireland, I thank the committee for inviting me to appear before it. I invite members to read our position statement on addressing climate change sustainably. The statement deals primarily with the renewables directive and the public benefits to be derived from natural systems and enhancing our ability to cope with climate change. It also discusses the Stop Climate Chaos coalition, to which most people in this room are signed up.
Birdwatch Ireland strongly supports what has been said thus far by other members of the Irish Environmental Network. We are keen to emphasise the problem which article 3.3 presents in regard to the 10% renewable energy target. We are also concerned about the directive's focus on bio-fuels. The directive's sustainability criteria should apply to wind energy generation as well as to bio-fuels but that is not the case at present. These criteria should apply at national, European and global levels but the emphasis at present is on global measures. Guidelines are also needed on standardisation among member states if we are to ensure greater consistency at national level.
The key issue is integrating the natural environment with mitigation and adaptation strategies. That is the thrust of Birdwatch Ireland's submission.
Mr. Richard Korowicz
I thank the Chairman and committee members for their invitation to address them. If asked, I will speak about carbon taxes and cap and share but I would also like to put certain matters on the record. We are not facing a climate crisis, an oil crisis, a food crisis or a macro-economic crisis. We are, however, facing a systemic crisis. As can be seen from the current high oil prices and the attendant increase in food and commodity costs, these matters are interlinked. Unless we deal with all these factors in some form of interactive perspective we will not be able to deal with any of them individually. For instance our ability to address putting in renewables is dependent on the embodied energy in the renewables and the setting up of networks. It is dependent on the functioning market and the ability to access debt financing, on the interactions between renewables and the global economy, particularly if oil starts to decline and risks to our gas security become manifest which is likely. Many of those reference points we take for granted at present will not be there and for that reason I would say there is, in a sense, another committee that must meet, that has not yet been meeting, that has not been aware, or has not been articulating an awareness of these things. The fact is that we face a serious and probably imminent systemic crisis. That is something I would like the members to consider. I have some documentation and I shall leave it at that.
Mr. Korowicz has presented us with a great deal of food for thought and I thank him for coming before the committee. The material was very condensed and it will take us a while to go through the details. If there are specific proposals or amendments regarding the directives it would be useful for the committee to have such from Mr. Korowicz. I know some were dealt with in the presentations.
The point highlighted concerning 20% and 30% targets seems to me anomalous. On the one hand, we all talk about a 20% goal and yet the indications are that the goal is actually 30%. If there were to be, as I hope, a global agreement, the whole system of pre-planning and planning would have be addressed again intensively because we have all been working on targets of 20%. Perhaps the way to do it is to aim for 30% and if that target cannot be achieved then it would be easy to return to 20%. That makes sense to me. Otherwise the 30% target should be relinquished. However, it should be one or the other rather than continuing the current approach.
I have a question about the direct penalty scheme. I understand the thinking behind it but have concerns about it. We must take responsibility for what we do in sovereign terms and must manage it for ourselves. This morning we heard from the ESRI that it would be better if a carbon tax were in place right across the EU. That means we are talking about an EU penalty system. In a sense that means we do not have to think about the matter because somebody else will wield the big stick. I have concerns about that. I prefer the idea of having legislation here and the Labour Party has supported and promoted this approach. I know this matter is not in the Government programme and I regret that. If it is possible to have good robust legislation, that is the way to deal with this. Perhaps Mr. Korowicz might comment on that.
Regarding permeability and the idea of flexibility and letting us off the hook, I submit that we are coming from so far behind that it seems to me that we will have to avail of opportunities which, while they may not be the best, will at least give us a chance of ensuring that we live up to our obligations. My fear is that we will simply not live up to these obligations. Flexibility, which I would have thought to be second best, at least allows for us to reach the targets that were set for us.
Concerning bio-fuels, Mr. Finnegan made an interesting point about the different emphasis in the directive. The difficulty I have found about bio-fuels relates to information. The targets in question must be altered because there is absolutely no traceability. If anyone tries to raise such issues it is always either the WTO that is causing problems, or the EU with its free market rules. That matter must be addressed. Even if we reduce bio-fuel targets and adapt, these issues will still be there and the pressures, particularly in the developing world, will still exist to some extent. We must know what is the origin of the bio-fuels and how they are produced, the raw materials and all the rest of it. Traceability is an essential part of any discussions.
Regarding forestry and the idea of forest sinks being included in measurement for carbon off-sets, we are again coming from very far behind. It would make sense for us to do this and we have justification in arguing the case. I would like to hear Mr. Korowicz's views on that.
The current position of the Government on wind power and generation of electricity is that 33% of generation should come from renewable sources by 2020. However, we know from the grid study that we could achieve up to 42% and surely that is a simple thing that could be done. When I ask parliamentary questions of theMinister for Communications, Energy and Natural Resources, Deputy Ryan, he reiterates the figure of 33% but we could aim for the higher figure. It is a very unambitious approach and if we can set 42% as the goal it is feasible. We know this because all the scientific work has been done. We should simply set that figure as the target and then off-set the credit gained against areas in which we will undoubtedly fail, in agriculture and transport. By off-setting we can achieve what we are capable of in a way that might ameliorate the problems we face.
Mr. Finnegan mentioned the possibility that agreement may be reached in Copenhagen in 2009 on a global framework for de-carbonisation of the world's economy and energy systems. How likely is that, given that the US still appears to be dragging its heels and that other large players in the global economy, such as China, do not seem to be willing or ready to sign up to such a framework?
Regarding the setting of targets for reducing greenhouse gas emissions, that is, if one likes, the easy step. Translating those targets on a state by state basis into implementation measures seems to be where the real challenges lie. Mr. Finnegan made the point several times that Ireland appears to have got away during the existing stage of the Kyoto agreement without any significant penalties for defaulting. Does he have any suggestions on how, for this round of Kyoto, different sectors such as transport and agriculture might become involved in the process of agreeing the implementation measures? Those sectors might sign up as part of meeting the overall national target as agreed.
Carbon capture and storage were not really discussed today but those issues seem to be gaining increasing currency. What do the delegates think of that approach and that technology? Is it the solution it appears to be?
In the adversarial political system we have in this State it is very difficult to have a cross-party approach to agreeing targets and implementation measures. If the parties of Government attempt to introduce certain implementation measures it appears that the function of the Opposition is to oppose them. With issues as critical as meeting our climate change targets and considering our responsibilities in this area a cross-party approach might be the way to go. Perhaps some of the speakers might comment on these points.
There is much talk about targets given to us by other bodies such as the European Union. What do the delegates think about scrapping the present national climate change strategy and having us set our own targets, up to 2050, for instance? What is it possible for us to do within the country? How can we change things? If we set our own targets we would automatically reach any targets set elsewhere. Rather than worry about who sets what targets for us we could do it ourselves. Consider our public transport companies, for example, the CIE group. Someone should a target for it to reduce emissions by 50% over the coming years. In Stockholm the sides of the buses indicate they are bio-fuel powered. CIE may argue that some of its buses are run on bio-fuel but nobody knows about it.
We do not seem to be doing this by ourselves, instead we always worry about who sets what targets for us. If we do this of our own accord we will automatically reach any required targets. If we plant more trees and create carbon sinks it will help. We should not seek agreement from Europe, we should just go and do it. A different approach is necessary because we are wondering if the target set will be 20% or 30%, or if permitted emissions will be based on levels from 2005 or 1990. Let us look forward and commit to achieving our own targets.
It was a pleasure to visit Sweden and listen to the people there discuss targets. They do not worry about instructions from the EU. This is a matter of having the appropriate mind-set. The people have proven they will respond if they are encouraged to do so. Consider the levy on plastic bags and the development of recycling. People would recycle more if given the opportunity by the local authorities. These are the approaches necessary and I would like to hear the comments of the delegations on these matters.
What are the views of the delegations on a carbon tax or moneys deriving from auctioning and so on? How do they feel the money should be used? A delegation from the ESRI was before the committee this morning and suggested the funds should be channelled towards facilitating more disposable income for people by reducing levies and taxes. I would like to hear the delegations' views on this matter too.
I thank the delegations for the presentations. The wording emerging on renewable energy is better. A challenge facing a high level of provision of renewable energy is the amount of conventional energy it is necessary to have in reserve, either in the form of storage or capacity. I would like to hear the delegation's view on this point. I presume the answer would have to be considered on an EU-wide basis and involve an interconnector, which becomes a dual carriageway as opposed to one way traffic.
We probably could not consider peat as a renewable energy at the levels Bord na Móna harvest. The idea of that company's co-operation with wind and renewable energy firms or with Coillte or others is probably valid. On the other hand, if we allow for peat bog regeneration at more traditional levels it is renewable, as with harvesting of rain forests at certain levels. At lower production levels there is no damage and there is scope for refilling of bog holes which creates new reserves of peat.
On the question of what is happening in Sweden, I make the somewhat caustic point that it has a unilateral agreement with Brazil to source its ethanol which comes from sugar cane. I do not know what this does to save the planet. It might save Sweden's emissions, but results in a greater number of rain forests being harvested. When our sugar beet industry was demolished it was on the premise that sugar production was becoming cheap because of sugar cane supplies. This has not manifested itself. A continuing sugar beet industry, although perhaps not in the same locations, would have had the capacity to produce renewable energy as a by-product or second generation fuels. It was not mentioned today but the second generations fuels sector is increasing. The amount of marginal land used for forestry could be examined, rather than always competing with land used for food production.
I made some points earlier on the use of benchmarks to examine the efficiency of agriculture production from a carbon perspective. Ireland is among the top three countries in the world for carbon efficient production of food, based on figures I have seen. This is an area where effort sharing must be examined. Other countries will have advantages and challenges just as we do and perhaps effort sharing should encompass that.
With regard to transport, the fleet transport sector whether rail, road, buses, or agricultural machinery has the greatest potential to quickly switch to renewable energy, because in this sector fuel is supplied at production level, rather than a car going to a forecourt to fill up.
To address the remarks of Senator de Búrca, the committee has at all times tried to work on an all-party basis to try to propose a recommendation to the Government on the position Ireland should adopt on the climate change issue. The last presentation and the questions posed by the Chairman related to our targets to deal with the systemic challenge. We should put this on the agenda for the Government to examine. It is restrictive if we confine ourselves to EU targets, depend on an international agreement, or if we confine ourselves to a programme for Government. It is better if we take a long-term view of where we want to be in 2050 and consider all the challenges, including the demands of society, transport, food production, or the environment.
We have one more contributor, Deputy Michael Fitzpatrick. I will then ask the delegations for their remarks.
Mr. Lumley from An Taisce mentioned that measures introduced recently may not have the desired effect, can he explain this? He mentioned the reduction in beef and dairy production. Such a reduction in Ireland would probably mean an increase in beef and dairy production in England, Scotland or elsewhere. We are a very small country and an island and we need a beef and dairy industry. If we are to do without animals and take up alternative agriculture, traditional production will set up elsewhere. We are simply moving the problem elsewhere.
What is the view of the delegation on the national spatial strategy? The delegation suggested it has failed, it has not been implemented and local authorities have failed. I do not wish to discuss rural housing, although I understand that is the matter to which the delegation referred when discussing the breach some of targets.
The delegation mentioned the increase in private sod production, which is a concern. I live in a rural area and I know of substantial areas of bogland. Peat production in the east is not an issue and I wonder from where these facts and figures come. It is clear that Bord na Móna has almost gone out of existence.
Has Birdwatch any interaction with second or third level colleagues to discuss its work or promote awareness of climate change? This question is for any of the delegations present.
I call on the delegations to respond to the various points.
Ms Siobhán Egan
I will start with Deputy Doyle. He raised the peat issue in particular and emphasised that this was not really a renewable resource, although it did renew itself over time. It is important to clarify this.
There are two levels.
Ms. Siobhán Egan
The statistics on this are lacking and it is important to have more information. I have heard, although I do not know the reference offhand, it takes about 12,000 years to produce something that can be burned in 15 minutes, such as a peat briquette. That kind of information needs to be investigated further to say whether or not something can be called renewable. It is a huge concern because at the moment the condition of our peatland resource is very poor. When there are reports produced by the National Parks and Wildlife Service documenting that less than 1% of the peatland resource can be seen as favourable or intact it is quite alarming, and that is country wide, not just in protected sites.
It is reckoned that in less than 1,000 years the upper lake in Glendalough will be a peat bog; it will disappear because of timber growing underneath it. There are other places being created. We will lose our tourism industry then.
Ms Siobhán Egan
I do not see any point in going around in circles. We need to quantify what our peatland resource is. I will come back to the Chairman's point on our national climate change strategy and our targets with regards to the European Union. Some review of the national climate change strategy would be welcomed. One part of it that is lacking is incorporating the natural environment into our coping ability for climate change; there could be an amendment or addition to that. As I have detailed in my submission, there is a role for the natural environment, and that is not emphasised enough and needs to be incorporated into how we deal with climate change in terms of adaptation as well as mitigation measures.
The European Union has a role in respect of targets. It is important to have targets to achieve, not only our own but wider targets. There is still scope for Ireland to make its own targets and lead the way in best practice. I would not see the two being one or the other. We have a history of waiting to be told what to do; it would be a positive thing to change that, to lead the way and guide the other member states as to what is best practice, perhaps in the way Sweden does.
In response to Deputy McManus's points on bio-fuels, traceability, certification and robust sustainability criteria are key asks we would call for. The sustainability criteria should be wider than what is currently in Article 15 of the draft directive for renewables.
Regarding carbon sinks, there is scope for forest sinks but it is more important to develop a strategy to stop eroding our current sinks, such as our wetlands and peat resource. If we can stop eroding our current sinks that would be a good start, and then if there was a strategy that incorporated the creation of wetlands, and other large scale habitats including forestry, that would be a positive thing to do.
Mr. Pat Finnegan
I have identified a way of packaging these questions and we will try and answer them accordingly, including the particular ones addressed to myself. The package is to do with targets and how one reaches them. I outlined GRIAN's position on this and identified how closely NGOs agree on the need for extensive decarbonisation. That is the language in which I prefer to put it. Rather than seeing these as targets to fear, it is a process we must undertake. This process is called decarbonisation. I am picking up on one of the Chairman's points which I will come back to.
Deputy McManus had a question on targets of 20% versus 30% and the fact we are so far behind. GRIAN has adopted a position on foot of work I first sent to Government ten years ago, which I included in this morning's presentation. That was a package we sent to the Department of the Environment, Heritage and Local Government in July 1998 with the first consultation on the first climate strategy, making the case that Kyoto could be a huge opportunity for Ireland given our renewable resources. This is why we are called GRIAN, because we can do this with the solar resources we have.
Let us be clear. We have solar resources, but wind, wave, biomass and, arguably, tide are secondary solar resources. GRIAN's basic position is we could be 100% decarbonised. The question concerns the timescale. On the related issues, Deputy McManus also identified bio-fuels. GRIAN's view on this, as sent to the European Commission in a consultation last year, which I hope the clerk to the committee forwarded this morning, has been, to put it in popular terms, to go steady. Do not do anything until one has the information. That information means research on the entire fuel chain and full life cycle analysis. Do the appropriate research and draw the appropriate conclusions. Our take on these conclusions is if that was done, most of the current bio-fuels would not be on the agenda. I agree with colleagues when they say they are deeply problematic.
The sinks issue is more of an accounting issue. GRIAN wants forests preserved as much or more than, anybody else, and above all tropical forests. The problem is the accounting. Let me put it this way. Ireland probably has a state-of-the-art sink inventory. I understand that this year, we are the fourth richest country in the world in terms of per capita income. We have been able to find the resources to compile our sink inventory. That sinks inventory ticks all of the EU reporting boxes, all the IPCC guidelines and all the requirements regarding a common reporting format. It is a state-of-the-art sinks inventory.
I, and possibly members of this committee, happen to know that the background to this was Ireland had to find a certain amount of money allocated through the EPA to certain researchers to measure what are known as the carbon fluxes. That took a fair amount of time and money. Based on that work Ireland has finalised its sink inventory. If one looks at the research carried out it was excellent but Ireland's sink inventory is based on five or six flux measurements, run over a maximum of two to three years, of selected sites in Ireland. Anybody, for example Deputy Andrew Doyle and myself, with a country background who knows the way forests work and anything about carbon fluxes, know that is a very poor picture of what is actually going on in terms of greenhouse gasses exchanged between land based sinks and the atmosphere. The problem is it is state-of-the-art. This is what is largely underlying much of the reticence about including sinks in the flexible mechanisms in the EU package. They are part of national accounting and that is the main problem in this regard.
Will I take the Chairman's point or Senator de Búrca's question to me on the Copenhagen deal? The logical sequitur is the Chairman's point on the self target and the reference to the Swedish context. I think the Chairman has a case there. First, Sweden has a self identified and declared target to be 0%, that is, 100% decarbonised by 2025. A sequitur of that is the sort of action being talked about in terms of the notices being seen on buses in Stockholm. There is a lot to be said for setting an ambition and producing the policies and measures, which I have abbreviated as PAMs in technical IPCC and UNFCC jargon, which will fulfil it. That much is agreed. That seems to be what is underlying much of the reticence about including sinks in the flexible mechanisms in the EU package. They are included as part of national accounting, which is the main problem there.
I will now deal with the Chairman's point about the self target in the Swedish context. The Chairman has a case there but Sweden has a self-identified, self-declared target to be 100% decarbonised by 2025. The sequitur to that is the sort of action the Chairman referred to in terms of the notices one sees on buses in Stockholm. There is a lot to be said for setting out an ambition and producing policies and measures that will fulfil that ambition. That much is agreed. However, an alternative interpretation, akin to the US approach to the international framework, is self-targeting. There are two ways of approaching this. I would suggest that a target is a target but what really matters is its implementation and delivery. The question on auction revenues relates to that but I wish to respond to Senator de Búrca’s question before dealing with that point.
I probably did abbreviate too rapidly. I referred to CCS, which is carbon capital storage. If the Senator did not hear my point on that, basically I said that we have made recommendations on the way that should be handled within the package. If the Senator needs further clarification, I will be happy to oblige.
Deputy Doyle's point about agriculture has come up at previous meetings. There is no question that Ireland has always been perceived, and indeed still perceives itself, to be an agricultural nation. That is not meant in any pejorative sense but simply that agriculture is part of who we are and what we do. In terms of carbon efficiency in agriculture, I am not disputing Deputy Doyle's point but wish to suggest a different way of looking at the issue, namely, a wholesale accounting perspective. I am not providing the committee with any prescriptions here but simply expressing a view that must be borne in mind when considering this matter. Agriculture is responsible for 4.5% of our GDP but produces 30% of our greenhouse gases. If one was to take a very objective cost benefit analysis of this to determine whether we are getting value from agriculture vis-à-vis the impact it has on the atmosphere, one would have to say it is very poor value. To some extent, that cuts across the perception of who we are, what we do and what we would like to preserve. There are a number of ways of remedying this but it would require another session to tease out the detail of that.
In short, there are plenty of solutions, some of which the Chairman has already alluded to and indeed, they have come up before. They can all be filed under the term decarbonisation. Conventional agriculture in Ireland is very greenhouse gas intensive. It is possible, however, for Ireland and Irish farmers, to earn more by taking a decarbonisation perspective. One average hectare in Ireland, for example, would provide approximately 2.5 beef animals per year, which equates to one livestock head per year, given that most Irish beef cattle are slaughtered after two years. In essence, we have one hectare of Irish land producing one beef carcass for slaughter every year. I can see no good reason a farmer in search of value and an improvement in his or her standard of living could not also have wind turbines on those hectares of land and get extra value from the wind power generated.
That would not take away from the existing value of the land and would be a first step towards decarbonising one's farm. One could gradually migrate from beef to renewable energy income. Then one gets into the question of biomass and sinks, which offer great opportunities and value.
The auction revenues are absolutely crucial but I will leave that issue for Mr. Coughlan to deal with. It is not that GRIAN does not have strong views on the matter but rather that we have absolute confidence in our colleague's ability to deal with the matter.
Mr. Ian Lumley
It is fair to say that the environmental NGO movement would very much endorse what the Chairman suggested in terms of following the Swedish model and adopting targets beyond those set by the EU and UN. The Swedish comparison is very relevant and I understand some members of the committee have been in Sweden, where per capita emissions are half that of Ireland’s. There are a number of reasons for that, including the fact that they do not have agricultural emissions from beef or dairy herds and they have nuclear power.
The Swedes started dealing with this issue in the 1970s, so we are at a slight disadvantage.
Mr. Ian Lumley
Yes, and they have been European leaders in energy efficiency and energy standards, whereas we have a disastrous legacy of allowing the building lobby to long-finger the implementation of energy conservation over the past decade.
As the Chairman pointed out, the main issue is to devise an implementation strategy. We have a good model for that in Ireland with the partnership structure that evolved in the 1980s. We should consider using the partnership model to bring all of the players in the individual sectors together - that should be most achievable with the transport and agricultural sectors - to work out the issues, the interactions, to define the targets and determine how they can be achieved.
At the moment we have a serious lack of joined-up direction. We have individual State agencies like the NRA, which has a specific remit to develop the road infrastructure and to improve road safety, but no brief to mitigate carbon emissions. When one asks the NRA how the climate issue will be dealt with, it responds that the solution lies in vehicle efficiency. The NRA is not addressing the fact that increased vehicle numbers are negating any benefits from improved vehicle efficiency, nor is it addressing increased travel distances or urban sprawl generated by roads.
Similarly, individual sectors like the State transport sector have not been given specific targets to switch their diesel fleet to renewable battery power, for example, that could be fuelled by surplus night time electricity and so forth. There is a serious problem with the fact that State bodies themselves are not acting coherently. Bord Gáis has a remit to develop the gas infrastructure and to accommodate increased imports of natural gas to run power stations, which is a direct contradiction of our carbon-reduction targets.
At local level, Government policies on spatial planning, which are accepted by all of the political parties, are not being reflected in the local decision-making process. This is not just about the 17,000 one-off houses that are inherently car based and being built annually. What is equally problematic are the commuter housing estates that are being built in non-public transport accessible locations and the commuter belt housing that has been built in smaller towns and villages around Dublin and other large urban centres. That issue is not getting the attention it deserves. Another important issue is the fact that we are building so many of our new employment-generating locations, such as business parks, in non-public transport accessible locations and providing free car parking in such locations. The vitality of urban centres such as Limerick, Waterford and Clonmel are under threat because of out-of-town retail outlets with free car parking. None of these locations has the proper public transport system needed to strengthen the town centre.
The Chairman hit the nub of the issue in terms of the need for a joined-up implementation strategy that brings all sectors together. The partnership model is the way to proceed at national level. It was envisaged in the 1992 Rio agreement that environmental NGOs would become involved in partnership processes and we welcome the increased engagement allowed to us, part of which is reflected in our participation in this committee meeting.
We will only achieve progress if we bring all the partners and agencies together. As Deputy McManus noted, the UK Government is proposing a climate Bill to incorporate a specific 3% target. NGOs are very much in favour of introducing a similar measure in Ireland. Such a move should be uncontroversial because it is already part of the programme for Government. It should also be specifically reflected in a changed remit for the relevant State agencies so that when it is incorporated into legislation the policies are reflected in their operating mandates.
Deputy Fitzpatrick spoke about the bottom-up approach of engaging with the educational sector. An Taisce has been involved in the international green schools project for a number of years and Ireland is now regarded as an international model in terms of the numbers of schools involved and the progress that has been made in achieving change. We are currently working with the EPA in developing the green homes project and are introducing it to an increasing number of schools. In conjunction with the DTO we initiated a pilot project on school transport which is now being extended into schools nationally with the support of the Department of Transport. This represents a positive way in which Irish environmental NGOs are engaging in direct and practical bottom-up actions.
In regard to the status of forestry as a carbon sink, forests can only be guaranteed as carbon sinks if their biomass is properly maintained in perpetuity, for example, as a nature reserve. Forestry in Ireland, which predominantly comprises Sitka spruce plantations maintained by Coillte and an increasing number of private landholders, produces a bio-crop for pulp. That would not qualify as a carbon sink. The type of plantation now being advocated in Ireland can be both an appropriate use of marginal land and an important carbon neutral bio-crop to substitute for oil and gas and reduce pressure on peatlands. Crops such as willow would be grown for biomass burning by Bord na Móna in order to meet its co-firing requirements under the climate change strategy or by individual domestic burners. However, these are carbon-neutral products at best and should be treated as crops because the biomass produced is subject to perpetual cutting and burning. It is not truly carbon neutral because the transport and processing costs must be factored in. We hear magic phrases about the switch to carbon-neutral crops but many bio-crops require heavy carbon inputs for processing and transport.
In regard to peat, there has been a significant change in areas where Bord na Móna does not operate, in that peat extraction is taking place for horticulture as well as sod production. This is a heavily mechanised process. In several sites we studied in the midland, west and north west, we found complete removal of peat over relatively large areas, unlike the sporadic nature of turbary cutting which allowed for some degree of regeneration. This extraction results in the loss of a significant carbon sink and has other downstream impacts on biodiversity and drainage. The amount of regeneration that takes place in areas such as Glendalough in no way compensates for the extraction currently taking place. Peat extraction accelerated significantly during the 1974 oil crisis and similar trends are already apparent in the midlands, west and north west. To meet an anticipated increase in next winter's demand for sod peat, harvesting is being expanded on an unlicensed and unregulated basis. This harvesting is not subject to planning permission because it claims to rely on turbary exemptions from the days of hand cutting but these are not applicable to the large mechanised sausage machines in current use. Parallel to that trend is the massive increase in horticultural extraction for the export trade. A large proportion of the labour force are eastern European and the extraction brings few economic benefits to Ireland because it is almost entirely for the export market.
The partnership process which we recommend includes engaging with landholders in all sectors with a view to protecting peatland areas as carbon sinks and biodiversity reserves. With a changing climate we will be subject to wider seasonal rainfall variations, so bogs will be increasingly important as rainwater sinks. The removal of peatland areas, which is currently happening in a sporadic and uncontrolled manner when compared to the carefully controlled nature of Bord na Móna's extraction, is resulting in a loss of rainwater absorbing areas and has downstream flood impacts. Apart from climate concerns, there are several other reasons for protecting peatland areas.
Mr. Oisín Coughlan
I will ask Mr. Korowicz to address the question of carbon taxes in more detail. Friends of the Earth and the Stop Climate Chaos coalition are clear about the need for a price on carbon. It is one of the clearest ways of providing incentives and information to people.
A carbon tax has a role to play in that regard. Friends of the Earth would be supportive of such a tax but we realise it will not suffice on its own. However, it is ready to be introduced and is generally understood from a political perspective, so we should proceed with it. We would concur with the ESRI's logic that a carbon tax should be applied at the same rate as the expected ETS credit price for the following year because it makes sense to have a single carbon price across the entire economy. It would not be enough at that price to deliver on targets but it could have a significant impact in terms of information. I remind members of the press coverage that changes in the vehicle registration tax received, even though the Government does not expect a massive impact from them. The education effect of that change has made it worthwhile. Carbon tax and other more targeted taxes can, therefore, play a role. The lesson from vehicle registration tax and the plastic bag tax is that people respond to taxes they understand and which are not hidden behind a veil of jargon. I am aware that economists would argue that such a patchwork approach is not as efficient as a single economic instrument but the real world seems to indicate that a mix is the most effective approach.
Some of the revenues should be recycled by reducing other taxes, ideally indirect taxes. Carbon tax will be an indirect, regressive tax so we should try to reduce other indirect regressive taxes as a direct swap. The obvious candidate is VAT. This may or may not be possible under EU law. In a recessionary environment it might be worthwhile to reduce labour taxes. Some of the income will also have to be used to ensure any regressive effects are counterbalanced and the ESRI has, over many years, shown that fuel poverty can be combatted by increasing social welfare benefits to ensure the poor are protected. Mr. Korowicz of Feasta has more radical, innovative and effective ideas to tackle that problem so I will let him talk about them. We support those ideas and they can work together with taxes. A cap and share system could be put in place for transport while a carbon tax could be imposed, set at the ETS rate.
The experience with bio-fuels in recent years has shown the dangers of believing there is a silver bullet for these issues, and of going into something without due research such as a cost-benefit analysis or an assessment of the impact, both positive and negative. Mr. Paul Wolfowitz of the World Bank, not an institution NGOs tend to quote with approval, said recently that 75% of the rise in world fuel prices was attributable to the dash for bio-fuels. In an earlier statement the IMF stated the figure was perhaps 30%. We do not know the precise figure but it is large.
The situation in which we find ourselves derives not from the package of targets set by Europe but the State of the Union address by President George Bush some years ago in which he said the US was addicted to oil so had to develop bio-fuels as the cure. He was not prepared to think about changing people's lifestyle in the US. According to the President, Americans needed to continue to travel in big cars and, as oil was no longer suitable, they needed to develop another fuel for that purpose. The consequences have been dramatic.
In the US the rising oil price is prompting a shift away from SUVs and large cars. Petrol has reached $4 per gallon and there has been a reduction in driving as a consequence. A reduction in anything in the US is remarkable but driving is reducing in response to prices, showing that prices can have a real and positive impact on behaviour.
A question was asked about the global agreement. Members may think we in the environmental world are in the business of doom but I am optimistic about the politics of the issue. If Mr. Finnegan had remembered to comment on it he would have said the same.
Mr. Pat Finnegan
I forgot.
Mr. Oisín Coughlan
The US is already by the side of the table but it will eventually come back to the table, whether represented by Mr. John McCain or Mr. Barack Obama. Mr. John McCain has been a pioneer of climate change for longer than Mr. Obama and has advocated a legislative framework in the US. However, the Democratic Party policies have now been fleshed out and are more in tune with the requirements of science. Both, however, are serious about the issue and until the US is on board and takes its responsibility there is no way we can credibly get China or India on board. That was the essence of the deal done in Rio and that deal remains in place. When the first world takes responsibility for its historical role in creating the problem by making the first move we can then expect China and India to come on board. Soundings taken from people who were in Bali suggest China is becoming more serious about the issue.
Ireland must not make the same mistake it made ten years ago when it signed the burden-sharing agreement for Kyoto. I have a suspicion that the Government which signed it on our behalf assumed the US would fail to sign up and that we would not have to do anything about it. Now, ten years later, we should not engage in wishful thinking that it will not come to pass. Climate change will not go away and we need to plan now, not just for the modest steps in the Kyoto Agreement but the longer-term targets. Bodies at sub-Presidency level in the US, namely Congress and the various states and cities, are all pushing ahead with demanding policies. The US will come on board and there will be a global agreement, I hope, next year. We should prepare for targets of at least 30%, rather than 20%, and I agree with Deputy McManus's analysis in that regard. We should prepare for 30% and if we are only able to agree on 20% then so be it. If we prepared for 20% and then had to go back and raise the target to 30% we would negotiate with vested interests twice, which seems preposterous.
I also agree with Deputy McManus that the wind energy target of 33% needs to be revised. The initial figure was 40% but the grid study suggests that 42% is possible. One of the major players in the electricity industry recently suggested that 33% was the limit of our ambition and that we did not need to go beyond it. If a target becomes a limit, however, it should be scrapped and we should aim for at least 40%. I agree with the Chairman that we need to be careful about adopting a particular mind set. We tend to talk too much about being forced to accept things by the EU and that causes the public to react negatively. This is a challenge for humanity and one to which we need to rise. The Irish have a very strong reputation for rising to global challenges, whether poverty, hunger and so on. We should be positive about it and see it as a challenge, rather than something imposed on us.
The national climate strategy is, at best, out of date and certainly inadequate and we should already imagine more ambitious targets to be achieved in the future. Ireland is the sixth most climate-polluting country in the world per person, a statistic which usually shocks people. If everyone polluted like we do, it would require three planets to survive, as verified by recent EPA research. Even if we stretched ourselves to the limit we would still only contribute our fair share, as identified by the EU, the IPCC and the Bali process. Because of where we are now, we will always struggle to contribute our fair share. We can be world leaders in terms of our attitude and application to the task but we have missed many targets over the years.
An all-Party approach was suggested on the basis that people work better together. This committee is a serious step forward in that regard. Some 91 Deputies signed the stop climate chaos call to action and, while it is easy to sign a petition, it is a clear statement that a majority in all parties want serious action on this issue. That the committee has a Chairman from the Opposition is unusual and represents a serious contribution to that effort. Similarly the partnership mechanism can help by involving the various sectors in the debate. The Irish Environmental Network is on the doorstep in terms of entering partnership as a pillar to bring the perspective of environmental sustainability to the table in a coherent way.
I have not mentioned the law yet because I wanted to focus on our brief and it deserves a session of its own, perhaps in the autumn when we see the emerging best practice in other countries coming into law. A legislative framework is required, not just for targets but for carbon budgeting, which was tried out by the Government last year but needs to become much more rigorous. The budget is the one time everyone pays serious attention to public policy making and is prepared to talk about numbers, which normally makes journalists and others turn off. As December is a month for focusing on numbers, the opportunity should also be taken to focus on carbon numbers with a comprehensive carbon budget that mirrors the financial budget. All of this should be underpinned by legislation as this is how to ensure that we act. Implementation is the challenge. If we had put not just our Kyoto target but a climate change policy framework in law ten years ago the building regulations would have been changed eight years ago, VRT changes would have been made seven years ago and we would not now be celebrating the fact that these things have just been done. We would have got on with measures if domestic incentives and drivers had existed.
However, this is not incompatible with a European enforcement and compliance mechanism as this would focus our minds. The two are complementary. In theory the EU package would be legally binding in a way but Deputy McManus is right that we should put it in our own law and take responsibility ourselves, rather than blame Europe for things we do not like. We must play our part in rising to what Ban Ki-moon has called the defining challenge of our age.
We should not under estimate the willingness of the Irish people to do things, though I am not suggesting that Mr. Coughlan is doing this. If they see it is well organised and properly presented with an opportunity for them to participate they will do so. The plastic bag levy was a small gesture but people flocked out to buy reusable shopping bags like in the 1950s. People respond to issues like waste and recycling. One need only visit the facility in Ballyogan in my area to see hundreds of people bringing things with them for recycling. Given the opportunity people will participate but they were never given an opportunity before; the facilities were not there. People respond when the facilities are there.
I will give one example on drink driving. I put down a parliamentary question on the topic and last year there were 489,000 mandatory breath tests. Of those 489,000 only 5,200 people, around 1%, were found to be over the limit. Of those 5,200 people, 3,600 were charged when taken to a Garda station. In other words, from a sample of 489,000 people, 99.3% were found to be alright and that is a remarkable response. These are Garda Síochána figures, they are not from the top of my head and they prove that people respond. People will respond in areas like this if they are given a chance. It is worth putting these things on the record because we sometimes under estimate the Irish people.
Mr. David Korowicz
I wish to talk about a number of things and will start with something that has been referred to by the Chairman, namely, what we can do and the importance of it. It is always a good motivator to have someone watching over one's shoulder.
As I mentioned in my preamble, we must not only decarbonise but lower energy consumption in a measured, thoughtful way. The highest quality energy sources, in terms of oil and gas, will start to decline. There is consensus that oil production will begin to decline within five years by between 3% and 8% per annum. A significant driver of the current rise in oil prices is demand being constrained by flat production. Imagine what a drop of 3% to 8% per annum will do. An ineluctable fact about civilisation is that it can only grow and be maintained by increasing inputs of adaptive, high quality energy. This relates to thermodynamics, not economics; it is part of the laws of physics and is something we cannot argue with. This is something that will be done to us and is not a matter of what we will do.
There is a strong argument for Ireland to acknowledge that this is not something that can be done from elsewhere. It is something that must be done now, in terms of taking responsibility for our energy security, food security and climate. The faster we move on these matters, irrespective of international commitments, the better. There are other reasons for this. Any infrastructure we put in, for example, carbon capture and storage, wind turbines and solar panels, will be constrained by the rate at which we can produce it globally. At the moment there is a wait of about four years for offshore and onshore wind turbines. This is where things are now. Solar panels are very energy intensive and the wait is similarly long; prices for them have been rising. This may not be what we expected or wanted but increased demand leads to higher prices. This is how things are because energy is so important to the maintenance of our civilisation.
There will be a revolution in agriculture regarding where wealth is created. Wealth will move to land and farming because farming provides two of the most important things we need - food and the potential to produce energy. The relative balance in economics between farming and manufacturing will shift dramatically in many cases. We want farmers to anticipate this as soon as possible and move away from high energy inputs. Many more people will work on the land but at the moment much of agriculture is based on things like fertilisers, which are tied to natural gas prices. Machinery and many other goods used in agriculture have a high fossil fuel intensity. There is a great opportunity for agriculture, particularly in terms of integrating it into our food security.
Food security is not only an issue for poor countries - it affects all of us and there is a clear example of this. Some months ago we all received a booklet on emergencies in our homes and it explained what to do in case of a nuclear event and so on. In the case of a pandemic we were advised that we should stock up on more than a week's food. In such an instance most people would go to the supermarket and get as much as possible but there is not more than three day's food in our system. Most of our food is shipped through vast networks and is stored in the lorries that cross the world to reach us. If there were an emergency there would be a massive rush to the supermarkets, stock would be gone and the poor, the old and those without a car to transport food would be left without enough food. This is a measure of how our risk management planning stands. My point is that food, climate and energy are integrated.
It is now generally agreed that tax is a good way to signal and reduce emissions - it can be economically efficient and people understand it. However, the question is how big a tax should be placed on carbon emissions to achieve the required reduction. I believe the committee had a presentation by the Economic and Social Research Institute, ESRI, this morning and it published a report suggesting there should be one economically efficient carbon tax in Ireland, rather than an emissions trading scheme, ETS, tax. It modelled such a tax and found not much difference in our emissions by 2020. They then used the model to suggest the size of the reduction that would result from an increase in carbon taxes to between €160 and €300 per tonne. I refer to the time between now and 2020. The result was that emissions would be reduced by about 7%, which is considerably off target. However, that would be equivalent, in a rough calculation, to adding between €75 and €150 to a barrel of oil. Let us think about that in the context of the recent rises in oil prices and their effects around the world. Do members think this would be politically acceptable? If we are to introduce a carbon tax, we must be quite clear on what we are saying. Are we doing this to achieve a goal? The strength of economic tools is that they allow price to act as a signal. It is not a metaphysical signal that somewhere within the cost of a good there is a sliver that might signal carbon intensity. Thus, there is a question over how we use an economic tool to reduce emissions and how we can do it without causing widespread rioting. Again, we must remember the results of the recent oil price rises.
Even the International Energy Agency is now coming on board with regard to oil prices. The agency is to conduct a review after the US general election and will most likely scrap the old estimates of oil availability, which were based on the figures of the US Geological Survey. The fact is that energy prices will get higher. This is of profound importance. They will stop getting higher when demand starts being crushed - in other words, when economies start to crash. Feasta has proposed a cap on emissions, similarly to the ETS. One thing we know is that a cap will reduce emissions. There is a cap that can be seen and that is what is measured. That cap would be reduced by a certain percentage per annum - in the case of the Irish Government, it might be 3% per annum. It is not incompatible with a carbon tax or other types of tax, but it is a tool that can result in real and meaningful reductions.
The question of revenue has been alluded to by the Chairman. What does one do with it? What we suggest is that the revenue should go directly to citizens, for several reasons. One of our reasons is a more philosophical one: that the right to pollute in an atmosphere with a finite capacity to accept pollution should be seen as a human right. In that sense it is individualised. It does not have a status and is not nationalised. We emphasise a certain type of equality by doing that. In addition, however, there is a buying-in aspect. We are suggesting that importers that bring fossil fuels into the State or into Europe must have sufficient emissions permits to cover the fuel they are bringing in and their eventual emissions. As individual citizens, we would get a booklet a couple of times per year with permits in them. We would sell those permits, mediated through banks or the post office, to firms bringing fossil fuels into the country. There are only about 100 fossil fuel importers in Europe, so from a bureaucratic point of view it would be easy to manage. Because the cap would decline, fossil fuel importers would pay larger amounts for these permits, which would be added on to the fuel price. Thus, the price of everything in the economy would rise, but differentially, so that more carbon-intensive items would cost more. However, people would get real cash. That is the real incentive. Rather than hoping people will reduce emissions, we would give them a cash incentive. Because the prices of carbon-intensive items would rise considerably and individuals would get a certain amount of money, if they contributed emissions below the average amount they would make money, while if they contributed more they would lose overall. Thus, there will be a real incentive for people to reduce emissions. In addition, there will be an incentive to reduce the cap, because people who are low carbon users and who know how things are going will call for it to be tightened. They will not complain because they will get more revenue.
In Feasta we try to do as much systems thinking as we can. We are moving towards a highly volatile economic situation in which our currency will be under threat and our monetary system may not even survive any appreciable energy contraction in our economy. The system we suggest would form the basis of a type of national income. It is based on commons rights to the atmosphere and it will alleviate fuel poverty and so on. That would be another type of system. Mr. Coughlan mentioned that in the United States high energy prices are already causing use to drop. However, this is only to a level of about 1% and it is causing real trouble to the economy. Thus, we must have an awareness of where we are going. Oil prices will continue to rise. Systems with some integration are the ones that are most likely to last. If energy prices rise and the Government adds a tax, people will cry "Stop". They will think it is trying to kill them. We need an incentive. That is the tax side of things in the nutshell.
There is also the question of infrastructure: namely, the grid and how much we can put on it. The capacity in the grid for renewable energy is up to 42%. That depends on particular network arrangements and system distribution. It is about how we are playing off geographically and in terms of technology, including wind and solar energy. It is a very energy-intensive and therefore financially intensive investment. We will be competing with every other country in the world in this regard. We know about the four-year waiting period. We should be mindful of that.
I thank Mr. Korowicz. Unfortunately we must vacate this room by 4.45 p.m. I thank the witnesses for their various submissions and for their advice. If any of the organisations represented wish to make a written submission with regard to scrutiny of the three directives they are welcome to do so. Submissions and any observations may be forwarded through the clerk to the committee. We intend to produce a report for the Government with recommendations for possible changes. The organisations are more than welcome to make submissions.
Mr. Pat Finnegan
I thank the Chairman for the invitation, to which we will respond. I was aware of the report. Could the Chairman give us some detail on the time scale for drafting the report? That would be of assistance to us. Second, there are international contexts - both the EU and the UN contexts - of which we must be continuously aware.
We hope to have a draft available for our meeting on 3 September, so any observations should be received by mid-August.
Mr. Pat Finnegan
Does the committee have a date by which it is obliged to report back?
No, we are just setting our own dates.
Mr. Pat Finnegan
One of the points I skipped over was the time scale, which is very important. It has been mentioned in previous hearings. This package must get through the European process before Parliament rises. NGOs are doing much work across all member states and through the entire inter-service process to ensure the package gets through. It is difficult for us because, as members will realise, we have a strong ambition for it. We are caught between really wanting to get it through the process and being time-limited.
That is why we set ourselves a meeting date of 3 September. We hope negotiations will be ongoing and it is a matter for heads of state to decide at which meeting they will finalise this matter.
Mr. Oisín Coughlan
There are key marks in October in both Parliament and at Council meetings, where amendments will be considered. The committee's time line fits with that. It would be good to get it out there in advance so that our Government can consider it.
We welcome any suggestions or proposals that delegates may have. I thank them for attending.
The joint committee adjourned at 4.45 p.m. until 2.15 p.m. on Wednesday, 3 September 2008.