Four year plan: Energy and environment

Overall, the four year plan repeats many of the things that we have seen before. It is not a new strategy. It is more of the same. The broadening of the tax base and the pension reform are steps in the right direction. Strikingly, there is no culling of quangos and no privatization. There will be a poll tax rather than a property tax. R&D will be stimulated by abolishing the tax exemption for patent royalties.

On energy, there is little to say. Essentially, the intention is to continue to pump billions of euros into renewable energy with the intention to make energy more expensive.

The carbon tax will be doubled between now and 2014, but coal and peat are apparently still exempt, and the subsidies for insulation and renewable heating remain. Doing away with exemptions and subsidies would bring in roughly the same amount of money, and would remove distortions in the economy.

Water charging will be postponed to 2014. That probably means that DEHLG still plans for a 3-year, top-down programme to roll-out water meters, paid by the NPRF! A system with a flat-water-charge-unless-you-install-a-meter-yourself can be up and running in a year.

Tax reliefs will fall for pollution control on farms. REPS payments will fall too.

No specific announcements for waste or transport (but see Hugh Sheehy’s comment #8).

From the perspective of energy and the environment, this four-year plan is the tired repetition of moves.

62 thoughts on “Four year plan: Energy and environment”

  1. @Richard
    “On energy, there is little to say. Essentially, the intention is to continue to pump billions of euros into renewable energy with the intention to make energy more expensive.”

    This is simply bonkers – how can we continue with a policy of making ourselves more uncompetitive. I note they also propose to raise the carbon tax to EUR30/t which will also make things worse. As you correctly state our electricity bills will continue to rise.

    The plan states “As noted in Chapter 2, these investment plans will be continuously critically assessed in order to avoid excess capacity and excessive cost.” – I have yet to see a critical analysis of our renewable program.

  2. @Richard,

    Many thanks for this. I commented in a similar vein (on energy) on the previous thread. I didn’t catch the press conference. Was there something about consideration of state asset sales when Colm McCarthy and his colleagues have reported at year-end?

  3. Protect high pay and pensions for senior public servants and politicians, protect high energy & waste costs, protect quangos, abandon the poor to their fate ..

    No surprises. When they said “national interest” we knew what to expect.

  4. @bazza

    There’s always hope.

    It seems, though, that most of the plan was written before the IMF arrived and before the Greens left government (or did they?).

  5. Generally the plan is a pile of cr*p. Vague, non-specific, and often downright unhelpful. If I’m reading page 96 correctly then hydrocarbon exploration off the west coast will probably stop dead, to take one minor point.

    Also, more environmentally, I note that the move to CO2 based taxation on motor vehicles has produced exactly the anticipated effect. People have bought lower tax cars which has driven revenue down, so tax bands will be “reviewed”. I look forward to the introduction of electric cars seeing exactly the same pattern. Initial tax advantages will be very rapidly clawed back.

    As usual under all modern tax systems, whatever else you do, don’t do the right thing.

    Here’s the section from the plan;
    “The Government revised the vehicle registration tax and motor tax systems on cars to be based on the CO2 emissions of the vehicle, rather than on engine size, with effect from 1 July 2008. This change has been highly successful in encouraging people to purchase lower emissions cars. However, the change in purchasing patterns, combined with other factors, is having an impact on revenue yields, especially in the case of motor tax over the medium term.
    During the Plan the current CO2 bands and rates structures will be examined in the light of the overall reductions in CO2 emission levels being made by car manufacturers and the standards set internationally with a view to adjusting the bands in line with technological advances on 1 January 2013.”

  6. Richard Tol is on target.
    Indeed, the 4-year plan is the kind of damp squib that could explode in the government’s face, if I may mix my metaphors. It could all have been written six months ago.

    Was it for this that half Oirland remained glued to the box for the past week?
    Was it for this that the sons and daughters of Kaitlin Ni Houlihan …..?

  7. What they are increasing VAT so everybody will shop in north. Property tax of €100 is hardly worth collecting because of the compliance issues and cost of administration.

    Come on get real. The IMF/ECB will just tick their little box and won’t even bother to read it. Another delusional document from a deluded administration.

    An by the way Mr. Rehn some of us kind of like that word democracy and to tell off the opposition that they need to pass a budget and rubber stamp a delusional plan that takes no account of the reality that Ireland will be unable to pay the additional €10 bn in annual interest payments to the U.K. and German bondholders is not a good idea. We are not an errant county council although I have to say Lenny seems to have been taking all his commands from Frankfurt. Now he was a good little boy wasn’t he!

  8. Hey let’s look on the bright side environmentally speaking: the lower paid half of the country won’t be able to afford to have cars this time next year and more jobless will mean less people travelling to work too.

    @OMF – “Too late to make a withdrawal now.”

    Just to be on the safe side, I went to the ATM at lunchtime to have a few bob to be kept in the back of the wallet.

  9. Did I miss the part where Government ministerial pay and expenses are going to be cut? What section is that in?

    Why on earth would this Four Year Plan give any sort of stability to this country? How can you have minimum wage cuts and take more money from the lower income earners, and then grow the economy by 2.75%?

  10. Just joined a couple of more dots. The NPRF (with some other investors – presumably Irish pension funds) will finance €550m investment in water meters. The Government accepts it will need a Water Regulator. Just what we need. Another CER gouging consumers.

  11. @Richard,

    I expect they envisage using the water regulator to set water charges and to ensure recovery of the investment in the water meters in the same way as they use the CER to set excessively high prices to finance the implementation of silly and expensive policies while absolving themselves of any direct responsibility.

  12. @Tecumseh,

    Thank you. I was aware something was afoot on this front, but the NRP is quite explicit about the NPRF agreeing, in principle, to put up the dosh.

  13. @ Tecumseh,

    Yeah, I thought of that example as well. However I suspect the Siemens offer would have fallen foul of the Tendering process for Govt contracts.

    Offers have to be invited from a number of sources, tenders studied and then contract offered etc etc, (I’m sure you are aware of all this etc etc).

    So even if they were offered a gift horse, they would still have to undergo the tender process as per procedure.

    Thats my reasoning of it anyway.

  14. @ Tecumseh

    Isn’t that nice of them?

    @ Richard

    You proposed setting a flat charge for all unmetered properties a few times before. Do you know what kind of level that would be at? What I’m thinking is that the cost of having a meter installed might be significant enough to eliminate the savings. I realise the idea is that the ones for whom cost<saving will go first and drive the flat charge up, but surely if the cost is relatively prohibitive that would dampen the incentive quite a lot? I’m not saying I don’t like the idea; I’m just curious about the moeny involved.

  15. How much closer does this “plan” bring us to outright insolvency?

    The “plan” looks more like a recipe for further unwinding of state finances into chaos. Every time the politicians try to dodge the real issues they bring Ireland closer to outright default and the people who think they have “escaped” this time are guaranteed a more chaotic outcome in the near future.

    This plan increases inequality.
    Deflates the economy.
    Guarantees the expansion of tax evasion and further growth of the black economy.
    Lowers social cohesion and encourages social instability
    Causes people to be even more cynical about the institutions of the state

    Let’s face facts, the government will do anything to get their hands on this bailout money. We need a loan of 100bn at 1% interest a year.

  16. @Damien G

    The short answer is you can’t grow an Ecoomy that you take 8 bn out of. Social welfare payments are at the highest GDP multipliers of all. We actually proved this last year with the first 3 bn cuts, despite the incredible growth in exports we were still in the doldrums.

    PIGGs can’t fly because the level of adjustments required to pay the new lords in Frankfurt and London will depress the local economies to such and extent that their debt/gdp ratio will only increase.

    The only answers are;
    1. Frankfurt prints money by getting on to their computer and paying off some of the bondholders.
    2. Ireland defaults
    3. There is massive inflation and the capital sums deflate away.
    4. Ireland gets seriously into the hair cutting business
    5. Ireland defaults
    6. Ireland defaults

    All we getting from the junta is waffle. They have lumbered every family in the country with a €300,000 mortgage and they have now been told by mortgage company that the rate is going up from 1% ECB to 5 or maybe 6 or maybe 7% from the IMF/ECB/EU.

    We could shut down all the hospitals, stop all social welfare and let the country go back to the stone age we would still have to default. A family cannot pay €20,000 a year in interest for a property they don’t even own because of Faustian promise made by a deluded man to some foreign bondholders.

    The taxation that the sherifs in the dail would have to take from each family to pay the foreign lords would make the country completely uncompetitive.

  17. Why arent they looking at deregulation?
    I have beed skimming though part L of the TGD Building Regs recently, wondering will there ever be a house built in the country again.
    We have celtic tiger gold plated regulation in a situation where there isnt the euros to pay for it nor enough activity to regulate.

  18. The confusion arises because it is ASSUMED the rational behind the plan is to ensure the growth and reestablishment of a functioning economy. Lets go completely out there and ASSUME for a moment that the rational is to impoverish the population and ensure the break down of national goverance structures, far out sure but hey fits much better then the previous assumptiom, no?, go figure huh.

  19. Ireland won’t default… that’s a scare tactic to rob and rob more.

    I wish and pray that Ireland would default.

  20. So we get screwed to avoid the bondholders taking a hit on their investment choices which they assumed at a rate which calculates the risk attached. Now having paid them the rate due, we cover same and guarantee them is risk free and yet the rate remains as high! Obviously the market expects us to default and we should disspointment them as we have payed already for the dubious privelege. Roast the bondholders I say.

  21. Given that 80% of our laws now come from Brussels and that our economy is basically being run for the next 4 years by the EU, our govt is just a bunch of functionaries. Surely the cost of govt should have been up for the chop by about half!

  22. @MarcusOC
    They intend to raise 600 mln euro per year through water charges, or 400 euro per household per year.

    The average person uses some 150 liters of water per day, or 55,000 liters per year. A charge of 2.75 euro per 1000 liters would bring in 600 mln euro per year.

    A one-person household without a meter would pay 400 euro per year. With a meter, the bill would be 150 euro per year. A meter can be installed for less than 250 euro, so a one-person household would have a payback period of less than a year.

    There are 0.3 mln one-person households. If they all install meters (and pay 150 euro per year), the flat rate has to increase from 400 to 450 euro (in order to raise 600 mln/year). At that rate, two-person households would want to buy a meter.

    And so on.

    If you add water-saving and heterogeneity in water use, the transition would be faster even.

  23. @ Al

    Why arent they looking at deregulation?
    I have beed skimming though part L of the TGD Building Regs recently, wondering will there ever be a house built in the country again.

    The delay in implementing appropriate building regulations lumbered us with the very large stock (majority, even) of sub-standard shoebox apartments in Dublin city (let’s call it Zoeland, for brevity).

    Really, the only lesson that you’ve taken away from this crisis is more “light touch” regulation…?

  24. Siemens offering water meters eh? This won’t end up like those German submarines sold to Greece that they still had to buy when their economy went belly up earlier this year I hope.

    Can we put a different angle on this ‘default’ thing? You can have all your money back that you invested but we are going to deduct any interest we paid you

  25. @ Richard

    Agree with comments on pension reform, broadening tax base, and quangos. Also continued exemption of peat and coal from carbon tax makes no sense. Your comment on water would also appear to make sense also.

    But

    – On privatization, Review Group on State Assets and Liabilities would have to make a report first would it not?

    – The subsidies for insulation are targeting market failures and are focused on measures with positive net present value to society, so think you are wrong here.

    – Renewables are the only game in town in medium term perspective and it would make no sense to change our strategic direction. What are the billions of € you speak of in government expenditure incidentally? The PSO of €40 million?

    – The comments on transport are confusing. The reform was intended to be introduced on a revenue neutral basis. It has been hugely successful, and will largely offset cost of carbon tax to those driving newer vehicles. Of course bands will be revised to protect tax base. Can’t see what’s wrong with that, and with people driving vehicles which are cheaper to run and more environmentally friendly.

    – The “poll” tax is an interim measure.

    All in all, I think we should take a more less polemical and nuanced view, less of the same if you like.

  26. @EWI
    Well, more that it is typical in this country that we had the highest output of housing completions and then after that we bring in standards that are so high and costly that few houses will be completed.
    But, I think you are referring to planning regulation aot building??

  27. @Richard Tol – any idea why, at an installation cost of €250 per meter, the DoE is budgeting for a cost of over €400 per meter? If you back-work from the NPRF’s €550m cash commitment, assuming 1.1m households, the number is actually over €500.

    One other thing – the €30 carbon/tonne number has been floating round as an article of faith for years now, as the minimum level that would have to be achieved to influence behaviour.

    Has it any basis in fact?

  28. Water metering and the regulator are not about curtailing waste.

    They are about revenue raising and then privatizing. Part of the borrowing is repaid, ain’t the government grand?

    Privatizations will be used to repay the loans. Then the public will be gouged to make private profits. But the government gets out of a hole.

    The world is awash with oil and gas. So much for peak propaganda! If Ireland does not start exploration based on the Norway model, no one else will. It is safe in the ground, even if under the sea. Would Statoil be interested in helping? Has anyone approached them?

  29. The night crawler Pat Donnelly has emerged from his smelly slime- infested hole. I”m looking forward to the sunrise and fresh air.

  30. @Aiman
    The difference between a 250 euro meter and a 500 euro meter is the costs of a centralized program of installation: It is a logistical nightmare to install 1.5 mln meters.

  31. @jc
    An Bord Strip has terms of reference, A 4 yr plan would have taken account of that, unless of course the current/past government is backing away from privatization.

    The subsidies for insulation do not target market failures in any way. The market failures are principal/agent cq access to capital. The current subsidies support a particular technology.

    You may want to review the current investment program in power generation. There’s a bit more that 40 mln on the table.

    On energy and environment, the 4 yr plan tries to bind the next government to the policies of the current/past government.

  32. @ Al

    But, I think you are referring to planning regulation aot building??

    The whole enchilada, really. Where does one begin and the other end?

    As to house completions: we’re not going to see many of those (apart from farmers’ children) in the near future, but I don’t think it has anything to do with what we were just discussing.

    @ Pat Donnelly

    A very good point about one way that metering might go.

  33. @Richard – from GWS days installation 4 years ago cost, in a rural area, €320 per connection. Hard to believe that either labour or materials costs have other than fallen in the interim.

    Are the diseconomies of scale really that large, on something that’s due to be done over a 3-year timescale? I’m not disbelieving, just astonished.

  34. @aiman
    We’re working on a paper, so I should not steal my own thunder.

    However, just consider the two scenarios.

    1. You want a meter. You call a plumber. You agree on a time. The meter is installed.

    2. The county council wants to install a meter in your house. They contact you to seek permission to enter your house at a time that needs to be coordinated with your neighbours. The meter will be installed by a firm that has won the installation tender. The meters will be bought in bulk through public tendering too.

    Scenario 2 has massive overheads and likely delays.

    You may recall the e-voting machines. There were far fewer, and there was no need to enter private property.

  35. ‘Essentially, the intention is to continue to pump billions of euros into renewable energy with the intention to make energy more expensive.’

    Essentially it’s because oil is a finite resource and renewables are not. It’s a concept known as ‘planning for the future’.

  36. @ Pat Donnelly
    I hope they don’t privatise the water network.

    Firstly, water is a basic health service and should be provided by the State.

    Secondly, there is no value in the water system other than the network, so there is no chance of selling water production and sales seperately from the pipes. It will always be a natural monopoly.

    I would llike to see it taken away from local authorities into a national semi-state, but not sold off.

  37. The decision to raise carbon tax without any reference to the EU ETS rate is strange. Currently the EU ETS cost of carbon is about €15 per tonne. The forward rates suggest there is a very low probability of a significant rise in the cost over the next two years – certainly not towards €30. It will be interesting to see if the increased tax will only apply to smaller companies not covered by ETS or will there be an attempt to collect extra tax from larger ETS companies also. Would a tax that only applied to SME’s be legal under competition law?

  38. @ Richard

    Thanks for the explanation. Look forward to seeing that paper.

    Does anyone know whether these meters to be smart or dumb?

  39. @MarcusOC
    State-of-the-art meters will communicate through the mobile phone network with a server. However, water does not require time-of-day pricing or smart appliances.

    @Old Fossil
    Good point. One could indeed challenge the tax, citing the decision of the Constitutional Council of France. CO2 = CO2 so this tax discriminates against small companies.

  40. @Tecumseh

    ‘This is simply bonkers – how can we continue with a policy of making ourselves more uncompetitive. I note they also propose to raise the carbon tax to EUR30/t which will also make things worse. As you correctly state our electricity bills will continue to rise.’

    We’ll have more expensive energy, yes, but it is a measure by the government I have to commend. There’s a reason for a carbon tax and less reliance on non-renewable energies: it’s to ensure that we still have a planet in 100 years. It may not make much difference but at least they’re trying, it’s the only thing about the plan I commend.

  41. And in addition to what Old Fossil says, with coal and peat exempt from the new carbon tax, but presumably not from emitting carbon, are other power generators (primarily gas?) and the customer soaking up the pain for them?

  42. @Hugh Sheehy
    The change to motor tax to an emissions based rating rather than an engine capacity basis at least gave some incentive to purchase more carbon efficient cars – whether this would be reflected in overall emissions reductions is another question. What was completely wrong was the levels the new tax were pitched at.

    Take a 5 series 20 litre diesel. Pre-2008 motor tax would have been €650 per annum. Under the new scheme a BMW 520d is taxed at €156 (135 g/km). The new car is slightly more efficient (“efficient dynamics”)- perhaps 10% more. Say it were 25% more. Based on 20,000 km / annum, this (impossibly high) efficiency delta would result in actual reduction in CO2 of 0.7t. The cost of carbon avoided is therefore €500, or €740/t. EUETS Carbon is in the €15-20/t range.

    The tax should be increased in 2013 simply because the tax was set at far too low a level when the rules changed. For the example above, the motor tax reduction should have been about €10-€20 euro – not €500.

    The comment in the 4-year plan doesnt acknowlege that even if purchasing decisions were unchanged by the new rules, revenue would fall due to the effective decrease in taxation levied on the existing motor fleet – not because of the change in purchase decisions in 2008-2010.

    Easier to blame the pesky rational tax avoidance decisions of the public than irrational changes to the taxation.

  43. @Richard Tol
    Ah, I was unaware, I thought that was a temporary derogation. Thank you for the clarity.

    So what is the incentive to move to renewable? If all users of electricity are paying the carbon levy rather than producers, should I not load up a waste oil generator and pump black smoke out?

  44. @Dylansgoneelectic
    As long as we’re taxing the car and not the fuel then it’s got nothing to do with CO2 anyway.

    The tax itself isn’t merely irrational, it’s near fraudulent.

  45. @Richard: 30= 2.3076923*13. €13 is the current market price of ERUs. We’re such good green Europeans we’re going to charge over 2.3 times the market price for carbon? And pretend it’s an environmental protection measure, rather than a plain vanilla revenue raiser.

  46. @aiman
    The four year plan shows the impact of the junior partner that left government but didn’t: carbon tax, university fees, Metro North, energy subsidies, green IFSC, privatization.

    Doubling the carbon tax raises revenue and sweetens the opposition-within-government, so its a win-win. If it had been good for something else too, they would have tripled the carbon tax.

  47. If you want to get an idea of what a domestic customer will pay for water when meters are introduced then you just have to look at what non-domestic customers are paying at the moment.

    The average price for water is €2.25 per cubic metre; although that can vary up or down by 40% depending on which county you are in. The typical consumption for a 4-person household is about 200 cubic metres per annum (if no leaks). That gives you a €450 per annum water bill, plus a typical standing charge of up to €100 per annum to cover the costs of the metering and billing services. Therefore, the total bill would be of the order of €550 per annum for a family of four that does not have any hidden water leaks.

    The typical installation costs of the meters (incl boundary boxes) would be about €300; although it could be a lot higher in congested city areas or where it is decided to include the costs of the replacement of lead service pipes (for example). As there are 1.2m homes on public water supplies the costs are likely to be over €0.5bn.

    As we currently have 34 different water prices, a Water Regulator might be asked to set one national price for water; or set limits on the price of water in each region or county.

    The most difficult issue to address with water metering is to identify all of the customers and their connections. Failure to address this issue will add considerable time and cost to the installation project. Water meters will typically be installed outside the property boundary so entering private lands is less of an issue than one might expect.

    The 30,000 water meters in Dublin are read automatically from vans that drive around the city. The meters are attached to little radio transsmitters that send the data to receivers in the vans as they drive past. The next generation of meter reading technology (meters that send data direct to a website) have been piloted in Dublin also.

    It would be feasible to levy a fixed charge for water (€300 per 1 or 2 person home; €500 for all other homes); but it will need customers to self-register – much like the NPPR scheme.

    The main reason for installing water meters is to capture customer-side leakage which is probably costing upwards of €75m per annum across the country on the marginal costs of lost water production. You can’t simply identify the leaks and fix them, because new leaks will occur as pressures increase across the system.

    So water meters are essential for water management but desirable for water charges.

  48. @Richard

    I may be wrong but I thought all new houses built in the past 10 years or so were fitted with a water meter. Do we know how many ? this might this reduce the EUR550m bill.

  49. @Tecumseh

    No new houses on the public water supply have been fitted with water meters in the last 10 years.

    Many local authorities did make it a condition of planning that the developer/builder would install a boundary box capable of taking a water meter in due course. However, the local authorities did not have the resources to check and it is anticipated that the condition was either ignored or the boundary boxes are not suitable of taking a meter and a transponder for automatic meter reading.

    In my calculations I have assumed that a small number of properties will have suitable boundary boxes properly installed and “meter-ready” but that may be as low as 10%.

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