Dáil Éireann Debate, Tuesday - 16 November 2021
246. Deputy Neasa Hourigan asked the Minister for Public Expenditure and Reform the updates being considered to the Public Spending Code; the timeline for these updates; and if he will make a statement on the matter. [56020/21]
Amharc ar fhreagraAs part of ongoing reforms to strengthen existing guidance in ensuring the efficient and effective management of public investments, my Department is undertaking a number of updates to the Public Spending Code. These are described below.
Capital projects
In relation to the Public Spending Code capital expenditure guidance, A Guide to Evaluating, Planning and Managing Public Investment, 2019, the update of the Public Spending Code in 2019 highlighted the need for strengthened assurance of major projects over €100m. There are currently over fifty of these projects in the Exchequer funded element of the NDP. Major projects are usually complex, bespoke, and the risks associated with them tend to materialise. Cost overruns and/or delays on these projects can have a significant knock on impact on the rest of the capital programme. International evidence suggests that the single most effective guard against major project failure is the incorporation of an independent external review prior to project commencement.
My Department is introducing an External Assurance Process for major public capital projects in excess of €100m. This will involve independent expert reviews at two key stages in the project life cycle under the Public Spending Code (Approval in principal and prior to tender). This will allow for robust scrutiny of the costs underpinning major public investment proposals, and the consideration given to issues such as risk, delivery and governance in the business case for the proposal. This change is due to be actioned imminently within November 2021 and has been discussed at Government in recent weeks.
My Department has established a framework of appropriate external reviewers to conduct the assurance reviews at key milestones in project delivery. It is a mandatory requirement for all funding departments to participate in the process for major projects over €100m. This framework is in place and will be utilised once projects over €100m reach the key decision gates for Government approval.
Current expenditure
In relation to the Public Spending Code current expenditure guidance, Guidelines for Evaluating, Planning and Managing Current Expenditure, 2012 my Department has received support from the EU Commission to review and improve the existing process for ex-ante appraisal of current expenditure proposals. The purpose is to strengthen the existing guidance to better align the ex-ante appraisal process with International best practices that are relevant to Ireland and the project also aims to highlight new ex-ante appraisal methods and ongoing evaluation processes stemming from the national wellbeing budget framework.
It is expected that the revised elements of the Public Spending Code relating to the ex-ante appraisal of ‘current’ expenditure will be published in Q1 2023.
Climate Change
I am conscious that it is critical that the Public Spending Code provide a realistic assessment of the likely climate and environmental consequences of public investments.
My Department has a full programme of works for the evolution of the Public Spending Code to ensure that it is compatible with the Government’s enhanced climate ambition. In the first instance, the priority will be to significantly increase the cost associated with any release of additional greenhouse gases into the atmosphere.
Each cost benefit analysis must provide an assessment of the net impact of the proposal on greenhouse gas emissions. These emissions are then priced according to a schedule of values based on the estimated marginal cost society will incur to reach specific climate targets. In other words, any project that results in greenhouse gas emissions must price these emissions at what it will likely cost society to reach our climate targets by adopting an offsetting measure that will reduce emissions. It is expected that my Department will undertake and publish an assessment on the suitability of existing PSC appraisal methodologies (such as marginal abatement cost (MAC) – derived shadow cost of carbon) in light of 2050 statutory target. The expected date for this work is Q4 2023.
In 2019, my Department tripled the price of carbon applied in the Code. This re-appraisal of the cost of carbon was based on the estimated costs associated with achieving a 30 per cent reduction in greenhouse gas emissions by 2030. Since then, the Government’s climate ambitions have been considerably strengthened. Now Ireland intends to cut greenhouse gas emissions by 51 per cent by 2030 and to reach a carbon neutral economy by 2050, with any remaining emissions balanced by the removal of greenhouse gas emissions from the atmosphere. This means that the price applied in the Public Spending Code must be updated to reflect this enhanced ambition. It is expected that a new shadow price of carbon will be applied to all Government investment appraisal, this work is expected to take place in Q2 2022.
In addition, work has commenced with the Organisation for Economic Co-operation and Development (OECD) on evolving further aspects of the Public Spending Code. A new model for assessing the emissions impact of infrastructure investment will be progressed to ensure that the full range of potential consequences for this type of investment are captured and valued appropriately. This work will consider how such assessments are performed at the moment and what reforms might be implemented to improve these assessments. The project will also examine how investments that may be vulnerable to the impacts of climate change should be appraised. My Department plan to publish a study in Q4 2022 that determines whether the climate and environmental treatment of infrastructure emissions is appropriate in the PSC and implement any reforms deemed necessary.
Finally, work will be progressed on understanding the role of an instrument like the Code, in a scenario where net zero greenhouse emissions must be achieved by 2050 and the role that the Public Spending Code can play in the achievement of broader environmental objectives.
Ultimately, the objective of this programme of work is to allow Government to take decisions that are fully informed by the best possible evidence on the consequences of these decisions.
Public Spending Code guidance will be updated periodically as appropriate to ensure that it continues to reflect best practice and best available analysis, remains relevant and is as user-friendly as possible.
