Here’s a guest post on the very important potential fiscal costs of climate mitigation by the IIEA’s Joseph Curtin.
The basic imperative to reduce emissions is easily understood. From March 2015 to July 2016, in each successive month the previous highest global temperature for that month was broken. July 2016 was the warmest of any month on record in the period of historic measurement. Given this record goes back roughly 160 years, the odds of this occurring without man’s input in the form of greenhouse gas emissions is infinitesimally small.
Reducing emissions is a political challenge that is difficult to grapple with, in Ireland as in many other countries. In welcome developments, we now have a Government Department with “Climate Action” in its title, and the newly established citizens’ assembly was given the goal of exploring “how the State can make Ireland a leader in tackling climate change”.
But on the ground there are few examples of “action” and “leadership” to draw upon. There has been no plan to reduce emissions since the previous strategy expired 4 years ago. As we can see from the EPA’s latest inventory report, since the end of the recession in 2011 Irish emissions have more or less flat lined. In fact emissions will probably increased in 2015 (although EPA data have not yet been published) and are projected to continue increasing in the years ahead.
Leaving aside the moral case for wealthy counties such as Ireland to take action (which is persuasive), I’m going to focus here on estimating the cost implications of inaction for the Irish taxpayer by 2030. This is a particularly pertinent question within the context of the EU’s fiscal rules and the so-called “fiscal space” within which Ireland must now operate. More money spent on emissions permits and fines means less money for tax cuts, schools, hospitals or for meeting other social policy objectives.
Given the focus on the taxpayer, I’ll focus on emissions not covered by the EU Emissions Trading Scheme (EU ETS), as this is the proportion of Ireland’s emissions that Government is accountable for reducing. Agriculture is responsible for the largest share (42%), followed by transport and heat use in buildings.
As can be seen from the graphic below, Ireland’s emissions from these sectors must decline to 39 million tones by 2020, 20% below the 2005 baseline. However the recession in the earlier years of the target meant that over-compliance was achieved in both 2013 and 2014. This surplus can be banked and offset against emissions in the future years up to 2020.
While this looks encouraging, since the economy has begun to recover the trend is being reversed. The EPA project that Ireland’s cumulative shortfall will be in the region of 12 million tonnes CO2 by 2020.
Each year a Member State is entitled to use offsets (these are cheap carbon credits bough from outside the EU) up to the equivalent of 3% of its 2005 non-ETS emissions. This proportion of compliance should be rather cheap. The bridge the remaining gap Government will seek to purchase unused entitlements from other Member States (this is permitted under the EU law) by way bi-lateral agreements.
An average (low) cost of between €5 and €10 per tonne CO2 might be expected for permits from these sources, resulting in an overall compliance cost perhaps in the region of between €60 and €120 million. This estimate tallies with the DECLG estimate of “in the region” of €90 million. 
It should be noted, however, that in the period to 2020 Ireland must also meet a legally binging target for renewables. According to SEAI data published last week, renewable power supplied 9% of Gross Final Energy Consumption in 2015 compared with a target of 16% for 2020. Based on a realistic (linear) and a more optimistic (exponential) extrapolation of the trend, an overall shortfall of between 1.2 and 3.5% might be anticipated.
While it is difficult to ascertain how much this might cost the exchequer because, again, compliance must be purchased bi-laterally from countries that exceed their target, the (former) DCENR estimated that every 1% shortfall could cost to the exchequer circa €140m.  This means the exchequer could be facing a bill of between €168 and €490 in total.
Moving beyond 2020, the Commission proposed emissions targets for Member States in July 2016, so it is now possible to estimate the potential costs of inaction to 2030 (renewables targets will no longer be legally binding so these are not considered below).
As I note here, Ireland’s deal is beyond the best-case scenario that might have been expected. The headline 30% reduction target for 2030 was anticipated, as indeed might have been the flexibilities allowed (within proscribed limits Ireland may purchase a small amount of ETS credits and plant forestry for compliance). Surprisingly, however, the Commission is proposing that Ireland’s post-2020 compliance targets will not continue on from the 2012-2020 trajectory. As can be seen from Fig 4 our proposed 2021 target means that emissions are permitted to be 9 million tonnes higher compared to 2020 if the impact of the flexibilities is considered (I call this the Harry Potter proposal).
Notwithstanding this lucky break, the scale of the challenge facing Ireland is still surprisingly daunting. To assess total compliance costs facing the exchequer (in a “no action” scenario) one must first estimate the cost of flexibilities (2 in the Fig 5 below), which is the cost of purchasing permits on the EU ETS post-2020 and the cost of planting forestry. Second, one must estimate the additional cost of residual non-compliance (1 in Fig 5 below).
Teagasc have estimated that forestry costs the exchequer €26 and €42 per tonne of carbon sequestered, while the price of EU ETS credits is projected to be between €18-€26 per from 2020-2030. We therefore use a low value of €18 and a high value of €42 for flexibilities (for illustrative purposes).
Turning to non-compliance, the ultimate infringement procedures and fines for non-compliance will be determined in ongoing negotiations. It stands to reason, however, that non-compliance should cost more than flexibilities. For illustrative purposes we therefore use a low range estimate of €50 and a high range of €100 per tonne of CO2 equivalent (the high range figure is equivalent to the current fine applying in the EU ETS sector for non-compliance).
On this basis the combined 2020 and 2030 potential costs of climate inaction are given in Table 1 below.
Table 1. Proportion of Fiscal Space Allocated to Climate Targets in No Action Scenarios
|Million Tonnes CO2-eq||Low (€ million)||High (€ million)|
Between circa €3 and €6 billion is therefore estimated, but it should be noted that this is not a prediction. These scenarios assume that no further actions are taken to reduce emissions between now and 2030, and this is highly unlikely.
While a full assessment of the economics of climate action is beyond the scope of this analysis, measures (pubic transport investment, cycle lanes, non-diesel busses and other low-emissions vehicles, optimising land use for climate smart agriculture, retrofitting homes, offices and public buildings, renewable heating, phasing out peat/coal and investing in PV and wind, etc.) would largely boost the domestic economy. In most cases what is required is not new exchequer resources, but the recalibration of incentives and re-allocation of existing resources.
The purpose here is not to point to looming fiscal catastrophe. Rather it is to underline the need for a more proactive approach to reducing emissions, particularly from agriculture, buildings and transport. With an economy and greenhouse gas emissions that are once again growing fast, this is a particularly important policy consideration.
Joseph Curtin is a climate policy Research Fellow at IIEA and UCC, and a Member of Ireland’s Climate Change Advisory Council. Any opinions expressed are personal.
 Government is not responsible for compliance costs for installations covered by the EU ETS. In fact part of the revenue from the sale/auctioning of carbon permits accrues to Government.
 The IIEA’s estimates are included on page 34 of this report from June 2016: http://www.iiea.com/ftp/Publications/IIEA_CSA%20Leadership%20Forum%20Final%20Report_Digital%20Version.pdf
 The Commission is proposing that the target is based on emissions between 2016 and 2018. This is positive for Ireland because our target will be below emissions, but for most member states emissions are below their target, so this has the opposite effect. The reasons for this resetting of the baseline are nothing to do with Ireland, so in a sense Ireland got lucky.
 Point Carbon/Thomas Reuters 2016
9 replies on “How much of Ireland’s “fiscal space” will climate inaction consume?”
“Given this record goes back roughly 160 years, the odds of this occurring without man’s input in the form of greenhouse gas emissions is infinitesimally small.”
Hi, Joseph. This point is pedantic, but I think warrants a couple of sentences on a blog post.
The probability is infinitesimally small conditional on the climate not being on some trend that is unrelated to human behaviour. In other words, this statement is correct only if exactly 100% of the observed climate change is caused by humans. To be clear, I am not claiming “climate denial” here: humans are certainly affecting climate, but it is very hard to show that it is 100% human-caused. For example if 90% of the observed change in global temperatures is attributable to humans, and 10% caused by other factors, then repeated record highs are not infinitesimally improbable.
Good point. I’m far from an expert on probability. Although I think the weight of scientific evidence suggests that natural factors are adding having a cooling effect. Don’t have time to look through IPCC, but see for example: http://earthobservatory.nasa.gov/Features/GlobalWarming/page4.php I’m a non expert and there are high error bars around this kind of stuff, but as far as I understand human contribution is probably more than 100%. The odds therefore could be smaller than 1/160^16, right? Joe
Ireland’s greenhouse gas emissions could be reduced by 10% in 36 months by a reduction in the national non-dairy herd.
This would generate very little economic effect given that total gross value added from the agricultural sector (Nace sector 01) is around 1% of total gross value added in the economy.
The entire national debate dances around the fact that the far-cheapest abatement solution can never be uttered in public.
“Reducing emissions is a political challenge that is difficult to grapple with, in Ireland as in many other countries.”
Correct. Agreeing to ‘reduce’ emissions (the negative externalities of modern economic activity) – be they solids, liquid or gaseous is the same as agreeing to reduce the annual rate-of-growth of your economy. That’s not likely to endear politicians to either their electorates or their financial supporters since it would require a mandatory increase in taxations and increases in the abatement and remediation costs for the affected industries. So, what to do?
Renewable energy sources are touted as being one (theoretically low cost) way to achieve emission targets. Unfortunately, the practical reality is that energy (I assume its electrical power) derived from these aforementioned sources needs to be priced at x3 times the existing consumer price – to recover the costs of installation, operation and maintenance, and the costs of extending and upgrading the existing transmission networks. Some recent engineering studies are suggesting that the upper penetration limit for land-based turbine generation will be 16% of the total generation output (from all sources). Are we there yet?
Its important to be mindful of the economic distortions created by the significant level of taxpayer subsidy being given to the renewables ‘industry’. If these ‘incentives’ were removed, the renewables would collapse into bankruptcy.
“While a full assessment of the economics of climate action is beyond the scope of this analysis, measures (pubic transport investment, cycle lanes, non-diesel busses and other low-emissions vehicles, optimising land use for climate smart agriculture, retrofitting homes, offices and public buildings, renewable heating, phasing out peat/coal and investing in PV and wind, etc.) would largely boost the domestic economy. In most cases what is required is not new exchequer resources, but the recalibration of incentives and re-allocation of existing resources.”
This is mostly wishful stuff. What is ‘smart agriculture’? As I point out above – “investing in PV and wind, etc.” will be divert some existing economic resources; resources which may prove difficult (or perhaps impossible) to replace. What’s with the “etc.”? If it refers to biomass, its another non-runner in the Renewable Handicap Hurdle.
” … [the] recalibration of incentives and re-allocation of existing resources.” Sounds interesting. Needs some explaining though, since it smells uncommonly like taxpayer revenues being barbecued on a bonfire of political and special interest vanity.
ps: If global warming has indeed commenced – its too late for any meaningful abatement or remediation. It will be a relentless process, driven by the Laws of Nature. Humans would just have to suck it up.
The 19th century industrial revolution spawned the initial man-made build-up of GHGs, especially CO2, in the Earth’s atmosphere. Post WWII, a further acceleration occurred, including both developed and developing economies. The issue of ‘risk’ consequences of rising CO2 atmospheric concentrations became politicised from the late 1980s, Inevitably, we are already living with the ‘global warming’ effects arising from past emissions – amounts to about 1 degree of warming.and varies In terms of its regional effects and physical impacts e.g. promoting plant growth via longer growing seasons, The current warming level may be beneficial in some respects, but deleterious in others e.g. changes/intensification in some regional weather patterns, The object of climate policy is to restrict further warming to within a 2 degrees boundary. Many climate scientists argue has already been surpassed and, in any case,the 2 degree limit is a politically contrived goal. Whether it is or not, restricting GHG emissions is important to future warming trends, the likely impact of which would be costly, both in environmental and economic terms and possibly severely so. Tol’s ‘Climate Economics’ textbook provides useful and succinct overview and explanations of the issues..
One of the keys to open your understanding of our modern (fossil-fuel era) economies is that you accept that they are highly complex and maddeningly interdependent, interconnected physical systems. Hence, economics and economists (and other specialist ‘experts’) can only grasp at small, specific proportions of the multitude of issues and aspects of such systems. Basically, many experts are almost blind, due in no small measure to the deeply specific nature of their respective professional educations. There a few polymaths about.
One major issue in respect of our modern economies is the nature and behaviour of the matematical function known as the exponential: quite simply it has, does and will, exert a devasting impact due to the physical nature of our economies. The Physical Law and the Rules of Math abide. This matter is very poorly understood and appreciated. Actually, it appears as if its being willfully ignored – in the mistaken hope that it will just go away.
Given the complexity and deep interdependence of our economies, messing about with one issue (abatement of negative economic externalities) will, not may, have unintended and unexpected consequences elsewhere. For example: if you divert some existing financial and physical resources to climate change abatements, then you will axomatically reduce your rate of economic expansion. Basically, your economy will stop expanding; it will remain steady (give or take the odd hiccup).
Now it may be that there are some idle or under-used financial and physical resources lying about which can be readily deployed in the new ventures. But somehow I doubt this. Our developed economies have, over the last three decades, exhibited a slow and steady decrease in their annual (exponential) rates of economic growth. So what have the Big Persons done? Thrown trillions of virtual credit at their respective financial sectors – the one sector of our modern economies whose principal output is the most noxious and toxic economic externality of all – debt. Compound interest is also an exponential function. Funny that. Or maybe not.
So, that’s where a start might be made; abate the massive levels of debts first. Then shift over to energy and waste conservation strategies. Finally, attempt to reduce our economic fossil-fuel dependence (only very, very slowly) since its the majority of middle and low-income domestic consumers who will be affected most – and with them, their ability to provide the increasing levels of tax revenues needed, to their respective governments. And what, again, have our Big persons done here? Successfully, so far, they have lobbied for reduced taxes on themselves and low or no wage increases for the residuals. And ….? Where are those climate change abatement resources supposed to come from? They are not. But that’s a matter for to-morrow. In the meantime – “Party on!”
Oh dear. It’s dispiriting to read that the latest Citizens Assembly has been ‘given the goal of exploring “how the State can make Ireland a leader in tackling climate change”.’ This obsession with self-identification as a ‘world leader’ in this, that, or the other area of activity is ubiquitous throughout Irish officialise. The kindest thing to be said about it generally is that it’s just ‘small state’ guff, as meaningless as it is impractical.
The EU has its own brand of guff. Many problems arise from defining the achievement of ‘targets’ as the sole benchmark of policy success when it comes to GHG emissions. As Richard Tol points out in his comment, the EU is not averse to moving its targets, or quietly shelving them, as circumstances change. Which is fair enough since the process of deciding what those targets should be is inherently political in the first place. However, target-based benchmarking serves to mask unintended consequences of individual policy measures , obscures negative environmental consequences, obviates the political difficulties and the economic costs inherent in the pursuit of socially transformative change to over-ambitious timescales. The EU reports its purported policy successes, e.g. in meeting Kyoto targets, without ever adverting to unintended political, economic or environmental consequences, good, bad, or neutral .
Outsourcing heavy manufacturing industry certainly had a dramatic impact on EU GHG emissions overall, but environmental damage in the regions to which they were outsourced was ignored in subsequent policy assessment. Moreover, the effects of imported ‘carbon consumption’ was made invisible. EU biofuels policy is recognised as giving rise to environmentally disastrous impacts in several developing regions even by those environmental NGOs who lobbied ferociously for its adoption in the first place. The connection between the fall in emissions and the onset of severe economic recession was not lost on an observant public in the wake of our own economic collapse.
Over the past two decades the underlying assumption of environmental policy in liberal economies is that of ecological modernisation (EM), whereby environmental goals and economic growth reinforce one another, and can be applied successfully across all sectors of economic activity. In the past, especially in the early phases of the Celtic Tiger growth spurt, Irish Ministers could, and did, point to our apparent success in decoupling rapid economic growth from environmental costs of increasing GHG emissions. But such pronouncements were based on short-term assessments and were sectorally specific, primarily related to industrial innovation and technological improvements .
It follows within the EM approach that investment in retrofitting our houses, using smart technologies to manage land –use and agricultural production, converting our car fleet to electric power over the next decade, and wholesale conversion of our energy systems to renewable – should spur further innovation, stimulate domestic job creation and so on, thereby enabling us to comfortably exceed any EU imposed climate targets. No doubt all this may well come to pass, in its own good time. But thus far, in Ireland or elsewhere, the evidence for sustainable progress in the non-ETS sector is hardly impressive.
We may eventually get there with electric cars; but best not to review the overly- hyped ’ targets’ projected for electric car uptake in the mid-2000s.
In the second half of 2015, Eurostat figures place Ireland in third place in the EU behind Denmark and Germany for highest domestic users electricity costs, reinforcing the connection between subsidies for acceleration of renewable energies’ development and electricity bills to domestic consumers.
A Deutsche Bank report reviewing the current status of Germany’s Energiewende policy, published at the start of June, notes: “… Germany has probably taken on too much in too short a time.” The four limiting factors identified by the report’s authors “… cost, physical limits, the available time budget and political feasibility” apply to other countries renewable energies transformative ambitions as much as to the German Energiewende policy the Bank examined.
In a recent Sunday Independent article, Joseph Curtin asked :”how can homeowners be encouraged to spend €20,000 instead of €3,000 on a home retrofit, comprising walls, heating system, lighting, windows and even appliances in one go?” A better question might be: how many homeowners can afford to spend €20,000 on such a project? That is, if they can afford a home in the first place. Our economic recovery, so to speak, has been very uneven and lumpy in its impact. An argument that assumes ‘fiscal space’ to subsidise homeowners spending on climate change-motivated home improvement plans, in my opinion, is a bit shaky. As far as I recall, a similar UK scheme was abolished a few years ago due to poor uptake by the public.
As for asking beef farmers here to decimate the national herd; here again the outsourcing argument rears its ugly head. Especially so, since our methods of beef production have been successively shown in various studies as more environmentally sustainable and leading to a higher quality end product than any of the alternatives available elsewhere.
The argument about the reality of climate change and the contribution of human activity to the increase of atmospheric GHGs has long since been accepted by a majority of the public, There are few takers for the Danny Healy-Rae thesis of climate change, either here or anywhere else in Europe. Science makes an invaluable contribution to our understanding of the mechanisms and processes, and the likely effects, of climate change.
We need a lot more science, since our understanding is incomplete and there are many uncertainties that remain to be resolved. But that neither negates, nor should it necessarily delay, purposive development to deal with the risks and challenges of climate change, including adaptation policies. What it should do, however, is put a brake on a headlong rush towards implementing policies that are ill-considered or detrimental to the environment or our economy.
The public argument, here as elsewhere, is about how the problem should be addressed, taking account of the four limiting factors as identified in the Deutsche Bank report and in a growing volume of multi-disciplinary studies. The viability of lumping a broad series of environmental problems under the rubric of ‘climate change’, and reducing progress toward their resolution to a single benchmark of GHG emissions measurement, appears increasingly questionable. The outcome of the recent Paris Climate Summit to some extent reflects that realisation.
As regards moving forward with domestic policy transformations, in the negotiations that led to the Maastricht Treaty, Ireland and others agreed to the extension of qualified majority voting (QMV) to environmental issues in exchange for a package deal called the ‘Cohesion Fund’ (Borzel, 2002). In developmental terms the trade-off was worth it. But it makes our negotiating position on climate policy direction more difficult at EU level. In the wake of Brexit, without the UK at the table, that position worsens.
In short, I don’t find an argument based on speculative calculations of what EU fines Ireland might face in the future if we don’t follow its author’s preferred options for remediating domestic economy GHG emissions convincing. In the current geopolitical environment, the only political, economic or environmental certainties, are their uncertainty. I welcome the fact that a Citizens Assembly will have an opportunity to consider domestic climate change policy, its objectives, and how we might proceed to its effective realisation. We have too few opportunities in Ireland for ‘bottom-up ‘ contributions to policy formation, especially on environmental issues. But I hope the good citizens who participate in this exercise will reject the politically-charged terms in which that question has been posed and demand a more-rounded exposition of the problems we face in meeting our international obligations as well as our obligations to ourselves and our society.
There is a lot of inaction in a lot of areas which is eating into Ireland’s fiscal space, not just inaction on GH gas emissions.
For example the inaction of the state WRT Oberstown house. Staff there have been voicing serious concerns WRT safety for many years. The response from management is to “blame the staff”.
Now that the building has been burnt down….. I wonder is it still the response from management to “blame the staff”.
If the state is unable to sort out a few feral teenagers, then it is unlikely that there will be a professional / effective response to dealing with more complex issues such as reduction in GHG emissions, flood defenses, sea defenses, rising sea levels etc.
Tackling Ireland’s GHG emissions is going to require a multi pronged approach, more interconnections to France perhaps even Norway to import electricity etc.
About 10 years ago there was a suggestion of building a LNG terminal on the Shannon. But it got cancelled over squabbling with pipeline contracts.
Ireland imports a lot of gas from the UK, now with Brexit on the cards, a LNG import terminal will require to be looked at again.
Even if Money point power station were to change over from coal to Natural Gas there would be a big drop in emissions of Co2. For example…
Pounds of CO2 emitted per million British thermal units (Btu) of energy for various fuels:
Coal (anthracite) 228.6
Coal (bituminous) 205.7
Coal (lignite) 215.4
Coal (subbituminous) 214.3
Diesel fuel and heating oil 161.3
Natural gas 117.0
Given that Moneypoint burns through approx 2,000,000 tonnes of coal / annum the reduction would not be insignificant.
Fiscal inaction – Irish-style, is nothing new. Its just getting more and more Marx (as in Groucho, not Karl!). There are so many competing projects, each with its own cohort of persistant lobbyiers, that our government ministers appear to being driven in an ever decreasing circle. Stopping this crazy carosel to chose one project over another is, correctly, viewed as a poor re-election strategy. But stop they must. Simply put, the ordinary Irish taxpayer is being slowly driven to their financial margins in respect of their ability to pay additional taxes/charges (of whatever stripe) – yet paradoxically they have been promised more and more stuff, with a simultaneous promise not to increase taxes. Its truely bizzare. We need a true and fair explanation of where the additional finance (to cover the costs of promised projects – including GHG abatement) will come from. And which of the promised projects will not be progressed – due to lack of funding?
Some commentators will invoke Keynes – that new government spending (on long-term infrastucture projects) will, in the absence of private investment, stimulate a depressed economy and get it back to a positive rate-of-growth. This may indeed have worked in the 1930s, but it will not be successful today. The nature of the two economies, then and now, are totally different. Then, there was the real prospect of economic expansion. Now, we have experienced almost two decades (or possibly three) of faltering economic expansion. The long-term trend rate of economic expansion has effectively halved – which more or less guarantees that any long-term government or PPP infrastructural project will cost the taxpayer more and more over the economic lifetime of the project. In fact it would probably be a fiscal negative – as the private part of any project will extract their contractural rent. That’s one nasty, political dead-end.
“Given that Moneypoint burns through approx 2,000,000 tonnes of coal / annum the reduction would not be insignificant.”
Perhaps you are correct, but has anyone done the sums on the costs of decommissioning one plant and constructing another? I’d guess its more than substantial, and probably beyond the financial capacity of the Irish taxpayers. Given that such large infrastructure projects may be PPP-style boondoggles, how much of the construction costs and subsequent consumer tariff charges would end up being a fiscal dead-loss for the Irish state? I guess we would not be told this – it being commercially sensitive and all!
A similar financing problem exists for the hoped-for penetration of so-called renewable energy (electrical generation) in an attempt to reduce our dependence on fossil fuels. The existing overhead electricity transmission network is known to be inadequate both to connect up dispersed generating sites and to balance intermittent feed-ins and would have to be significantly extended and upgraded. So how would this infrastructural enhancement be financed? By the consumer – via higher charges? That’s not likely to go down too well with voters.
The debate we should be having is not about GHG abatement or the installation of new electrical generating capacity – but about the probable impact on domestic consumer demand if energy tariff charges were increased (so as to avoid income or consumption tax increases). Looks like we are attempting to keep our cake, whilst eating same simultaneously – and at the same time. Grouchesque!
Is it understood that in order for us to ‘grow’ or existing developed economies at a 3% p/a, compounding rate (the bare minimum needed) over the next 23 years to 2020, we would need to consume an amount of fossil fuels greater than the total sum of all the fossil fuels we have already consumed (from 1860 – to present). Someone like to enlighten me as to where all that additional stuff will come from? In reality, we do not even have the physical resources and infrastructures currently available to actually extract such a massive amount. Funny that. Or maybe not.