Month: January 2011

Cowen and Advice Relating to the Guarantee

As Fianna Fail deputies and the media debate the performance of Brian Cowen as Taoiseach over the next few days, the question of the September 2008 guarantee will come up time and again. The Taoiseach has defended himself strongly against accusations that any relationships he had with bankers led to his government’s decision to offer a near-blanket guarantee to the liabilities of the Irish banks. He has repeatedly argued that this decision was taken in the national interest.

This still leaves open the question of why it was considered in the national interest to offer such an extensive guarantee. On this subject, Mister Cowen has tended to answer that they took this decision based on the best advice available. The next few days would be a good time to provide evidence for this statement. As it stands, there is a lot of evidence that plenty of contrary advice was given. For example, as has been noted here on a number of occasions, the government’s expensively-hired outside advisers, Merrill Lynch, were not enthusiastic about such a guarantee.

In relation to the Department of Finance’s policy advice on this issue, a useful example of the Department’s stance is document 36 from the PAC collection. The document is a slide presentation from February 2008 titled “Overview of Financial Stability Resolution Issues”.  Page 11 states in bold:

As a matter of public policy to protect the interests of taxpayers any requirement to provide open-ended/legally binding State guarantees which would expose the Exchequer to the risk of very significant costs are not regarded as part of the toolkit for successful crisis management and resolution.

In bold and with “not” underlined. It certainly seems as though the Department officials were on the record as being against the form of guarantee provided. Evidence on who exactly proposed the form of guarantee that was provided would be welcome.

I also think it’s worth keeping in mind when government politicians condemn those who opposed the guarantee (i.e. the Labour Party) as having been irresponsible, as Peter Power did on the The Week in Politics last night, that this opposition was shared by the government’s own advisers.

More on the climate bill

The Sunday Business Post yesterday published an op-ed by me. It’s a shortened and updated version of last week’s blog, and it sketches emission reduction options in transport:

“There is already a carbon tax on fuel, while motor tax and vehicle registration tax favour low emission cars. There are strict European rules about the fuel efficiency of new cars. Fuels are blended with biofuels. Public transport is subsidised. If the economy returns to modest growth and policies continue as they are, but the carbon tax rises, then emissions from transport in 2020 would be roughly the same as they are today. (Transport emissions doubled between 1990 and 2000, and another 20 per cent was added between 2000 and 2010.) According to the climate bill, however, transport emissions should fall by 20 per cent.

How can this be achieved?  If we ignore all the evidence that biofuels are bad for the environment and bad for poor people, and we increase the mandatory blend from 3 per cent to 10 per cent (in energy terms), emissions fall by 7 per cent. If 10 per cent of cars were all-electric, emissions would fall by 2 per cent. (This is small because electric vehicles appeal primarily to urban households with two cars.)  Some 60 per cent of commutes by car are less than 10 km long. If half cycled to work instead, emissions would fall by 7 per cent. If the sale of two-litre cars is banned from 2012, emissions would fall by 2 per cent.

These four measures together reduce emissions by 18 per cent. Even this is not enough to meet the new targets.”

The SBP dropped a paragraph: “The climate bill would also establish a National Climate Change Expert Advisory Body, which would oversee the measures to reduce emissions taken by the various departments. This is welcome in principle. Like monetary policy, climate policy is best removed from day-to-day politics. The Expert Body would be like the Central Bank. Unfortunately, the Expert Body as foreseen in the climate bill is different. Any civil servant can be declared an expert, but others are excluded. Experts can be removed at will by the minister. And the government can block any publication by the Expert Body. The Expert Body would not have the required expertise or independence to do its job.”

The same edition carried another article on the climate bill, which cites the IFA and Teagasc. The IFA’s 4 billion euro is an estimate of the loss of export revenue; the cost would of course be much lower. It’s not clear where the number comes from. A 40% reduction in the herd size is probably much more than is needed to meet the 2020 target (although it is hard to imagine that the herd size would not be cut). I could not find a source for that number.

The IFA used to be firmly opposed to climate policy.  Over the last couple of years, their position has become milder as they realised that climate policy would bring new opportunities (carbon storage, bioenergy). In fact, Irish dairy is among the most climate-friendly in Europe, so EU policy might improve our competitive advantage. The publication of the climate bill seems to have reversed a positive trend.

Michael Noonan in the Sunday Independent

Michael Noonan puts forward some ideas for amending the bailout deal in an opinion piece for the Sunday Independent.   His focus is on ways to reduce the expected cost/risk to the State of cleaning up the banking mess.  

He suggests four main options: (i) have the EFSF put capital directly into systemically important European banks; (ii) have the EU provide insurance against bank losses beyond some specified level (an idea already suggested by Patrick Honohan); (iii) the fast-tracking of an EU-wide of a bank resolution regime (that presumably would not be limited to future bank creditors); and (iv) an ECB-funded special purpose vehicle for bank assets to avoid the alternative of firesales with losses rebounding on the State.

Something for the walk to work

If you are already fed up with the albums you got for Christmas, I did an interview for Vox about the Irish situation which you can download here.

Climate policy

Over at VoxEU, a bunch of economists challenge the current consensus in climate policy circles and suggest a range of policies that may actually reduce emissions.

In the forthcoming ESRI Research Bulletin, David Anthoff and I offer some thoughts on how a country may set a carbon tax.