Carbon tax breaks for low-particulate fuel

We have learned a few lessons over the years. Monetary policy and market regulation are better done at arm’s length of the government. The generalists in the Dail set the broad goals, but leave the details to quasi-independent technocrats. Macro-prudence is now being added to those broad goals.

Micro is another matter. Policy-makers instinctively reach for the second-best. Sometimes that is the best feasible regulation. Sometimes that creates rents for their clients. And sometimes it is just the force of habit.

The Examiner reports that Minister Hogan suggested that smokeless fuels be given a break on the carbon tax. Really? The carbon tax regulates carbon dioxide emissions. Smokeless fuels and smoky fuels differ in their particulate emissions. A carbon tax break may reduce particulate emissions but would increase carbon dioxide emissions.

A carbon tax break would make climate policy more expensive. Emission reduction is cheapest when there is a uniform price. At the moment, there are three carbon prices: EU ETS, carbon tax, and zero. Hogan proposes there’d be four: EU ETS, carbon tax, reduced carbon tax, and zero. The reduced carbon tax would hold for coal and peat, the fuels that emit most carbon dioxide per unit of energy.

A carbon tax break would also make particulate policy more expensive. At the moment, there is a range of regulations including technical standards (e.g., in transport) and local bans (e.g., on selling smoky fuels in cities). A tax break would add yet another layer of regulation. The impact on costs is predictable: They will rise as any move away from first-best regulation does (Tinbergen 1952).

The impact on emissions is unknown. There are two substitution effects: (1) smoky -> smokeless coal and peat; and (2) oil and gas -> coal and peat. The carbon tax break would apply to all smokeless fuel, not just to smokeless fuel sold in places where smoky fuels are banned. Smokeless fuel use may increase more that smoky fuel use falls.

Recall that smokeless fuels are not particulate-less. There are no visible emissions. Invisible particulates, the ones that do real damage, are emitted nonetheless.

If Minister Hogan wants to reduce particulate emissions, he should impose a particulate tax (and abolish the ineffective sales ban) or extend the sales ban to the entire country.

Financieel Dagblad on Ireland

Yesterday, Het Financieel Dagblad published an interview with Michael O’Leary and me on the future of the Irish economy. I said much else besides, and some colorful language was cut out. For those who cannot read Dutch, here’s what Google Translate made of it:

Ireland has not really learned from the crisis

Reforms in Ireland have not been substantial enough to lift the economy on a higher level and to make more resilient to shocks. Through weak political leadership and an indulgent attitude of the troika of IMF, ECB and European Commission, opportunities have been missed, leaving the country in the long term to continue to perform below par. A repeat of the scenario of a severe economic downturn that Dublin cannot get to the top of on its own, cannot be excluded.

This say two connoisseurs of Irish society, Michael O’Leary, CEO of Ryanair, and Richard Tol, originally a Dutch professor who because of the crisis moved from Dublin to Brighton.

“A crisis is an opportunity for reform, but in Ireland there is only cuts,” says Tol. “Even this very big crisis was no need for structural reforms, where there should have been.” O’Leary agrees with him.

“We had the opportunity to exploit the crisis to reform the labor market and to remove job-growth barriers. “Never waste a good crisis.” But we have missed every opportunity. In Ireland there is not much appetite for real, structural reforms. ”

Rebound effect

Because nothing has changed, Ireland remains a “very inefficient, third-rate economy with a high cost structure,” thinks the CEO of the price fighter in aviation. Professor Tol takes into account an economic acceleration by the rebound effect, but then foresees a new crisis. “If confidence returns, for example in 2015, another period of rapid growth follows.

We might get another ten years growth rates of 5%. But because the structural problems are not addressed, this can produce a similar crisis in 2025 or 2030. Which can be much worse than the current one if the Irish by that time have not sufficiently reduced their debts. ”

Dublin has a long way to go, even if the country is by year-end released from the troika, as is widely expected. Some key figures illustrate this. The government expenditure fell, but are still well above the level of 2005. The debt has grown so much that the IMF warns that it can be unsustainable if there is no a real economic recovery soon. A major problem is the steady increase in the number of homeowners who can no longer bear their mortgage.

Insane

O’Leary does not understanding that Ireland has not faced up to reality the beginning of the crisis. “The government gets  €35 billion in taxes, but spend €45 billion.

This is the first thing that should be reformed. Why are we still wasting perhaps €2 billion by giving everyone in this country child support. I’m a multi-millionaire, but my wife gets four checks each month to support our four children This is insane. ‘

The entrepreneur, who elevated efficiency in his business to a religion, is annoyed by the combination of high wages and strict labor laws that take the dynamic out of the economy, according to him.

“Why should an Irish doctor earn two or three times as much money as a German doctor? That would not be bad if productivity is proportionally higher. But you cannot be treated between 5 pm and 7 am.”

Shut tight

Tol regrets that important sectors of the economy such as legal services, energy and transport in practice are as closed as before the crisis. Furthermore, the 42-year-old professor knows from personal experience how high wages in Ireland are still.

“My net wages dropped by 30% between 2010 to 2012. When I started working in Brighton my salary was matched. I am now the highest paid professor in Brighton.”

That Dublin fails to get itself together, even if a crisis manifests itself as the ‘excuse, O’Leary as well as Tol explain by a chronic lack of expertise and leadership in Irish politics. The electoral system promotes that the government and parliament consist of populists.

Who please their electorate, shrink from painful measures and generally lack the knowledge and experience necessary to steer the country by a crisis. Tol: “The Dáil is full of people who can talk very well. Many have been lawyers or teachers. Expert backbenchers are not there.

No strong opposition

The professor points out that there is no separation of powers. Ministers retain their seats in the Dáil, and are the spokesmen of their own party. Moreover, there is no strong opposition, because the two major parties, Fianna Fáil and Fine Gael, are like two drops of water. What separates them historically is not idealogy, but their position during the Irish Civil War.

The troika also do not mind anymore. “The problem of the Troika,” O’Leary says, “that when the worst of the crisis had passed and the idea was established that the country was saved, focus on reforms disappeared.” According Tol especially the IMF was full good intentions, but the ECB has taken over the control. “They just want their money returned.”

Where in Donegal?

This document reached me by way of the European Commission. It shows that some people are working hard to convince the Commission that Bogtec is a transnational infrastructure project of European importance (and thus qualifies for subsidies). It also shows that the Spirit of Ireland refuses to die.

There is mention of a glacial valley near Kilcar, Co Donegal. A dam, 1300 meters wide and 120 meters high (in the middle), would create an upper reservoir with a surface of 4 squared kilometers; assuming that the valley is triangular, the reservoir would be 6150 meters long. The sea would be the lower reservoir. Surplus wind power would pump the water from the sea into the reservoir. Releasing the water back into the sea, power would be generated when there’s demand.

I’ve been hiking in Donegal only a few times. Is there a glacial valley near the sea, of the above dimensions, uninhabited, and not full of archaeological treasure?

UPDATE: I’ve had one vote for Glenaddragh River Valley, which is a good way from the sea.

UPDATE2: Another correspondent forwarded this map, discussed by Donegal County Council. The hydro plan was apparently rejected as it failed to meet the requirements of the SEA Directive on procedural grounds.

Swords v DCENR

The case of Pat Swords versus the Department of Energy etc continues. See here and here for its history. The media is strangely quiet. At stake is an injunction to halt the National Renewable Energy Action Plan (NREAP), but this case has ramifications for all relations between the rulers and the ruled, and for Ireland’ sovereignty.

There have been two sessions of the High Court, one on April 12 and one of April 16.

State argued that the case should be thrown out because the Aarhus Convention does not apply as it had not been ratified at the time the NREAP was accepted by the European Commission in 2010. This argument was rejected. Even though Ireland did not ratify the Aarhus Convention until 2012, the European Union had ratified it in 2005. Therefore, Ireland must comply with Aarhus.

Read that again: Ireland is subject to an international treaty it did not ratify.

The session is adjourned till June. State now has to engage substantively with the ruling of the Aarhus Compliance Committee, which has that Ireland failed to properly inform its citizens about NREAP and its impact and did not allow them sufficient time to engage with policy making.

Ireland v Pat Swords

It has been several years since I first came across Pat Swords. Pat demanded access to wind energy modeling work that he thought the ESRI had done but not published. There were many layers to our reply. The ESRI is not covered by Freedom of Information legislation. At the time, Ireland had not yet ratified the Aarhus Convention on Access to Environmental Information, so that did not apply either (but see below). Although it would have been appropriate for the ESRI to do a detailed study of the pros and cons of subsidizing wind energy, we had not. And no, we were not aware of someone else having done such a study either. There is no ex ante evaluation of wind energy subsidies in Ireland, and no ex post evaluation either. (And lest people protest, I am aware of a number of partial studies, and a number of not-independent ones.)

Pat lost interest in the ESRI, but not in wind policy. He asked every institution in Ireland he could think of “why do we subsidize wind?” Some replied in the vein of “because we do, now go away”. Others did not respond. So Pat asked the European Commission, with the same result. Although we do generously subsidize wind power, no official was able to satisfactorily answer why.

So Pat went to the United Nations. It first ruled that, because the European Union has ratified the Aarhus Convention and because wind policy is dictated by Brussels, Ireland’s wind policy is bound by the Aarhus Convention – a treaty Ireland had not ratified at the time.

The Aarhus Convention is not at all about wind. It is about public policy. The Aarhus Compliance Committee ruled that Ireland had failed to give its residents a proper say in the National Renewable Energy Action Plan (NREAP). Two failures were identified. First, there was insufficient information to inform a reasoned decision. Second, there was insufficient time given to deliberate and, if need be, protest.

The Committee did not say whether wind power is good or bad. It did say that decisions on wind power are dodgy.

This is a remarkable result in and of itself. The Irish government cannot justify policy decisions with a few half-baked arguments and ram it through the Dail. It often does, but there is now a precedent to call an end to such practice.

The story does not end here. Pat took the UN ruling to the High Court and asked for a judicial review of the NREAP. The judge agreed that there is prima facie evidence that things are not kosher and called a hearing, which is due to reconvene on March 13.

The government’s defense is that Pat’s protest comes far too late, ignoring that all his earlier protests were put aside and ignoring the UN ruling that insufficient time was granted in the first place. The government also argues that the EU has accepted the NREAP, ignoring that the UN ruled that the European Commission was just as much in the wrong as the Irish government.

Inexcusably, the government asked the court to be granted legal costs if they win. If he loses, Pat may have to pay the government’s lawyers.

Such bullying tactics may soon come to an end through another lawsuit, but they have not yet. It is immoral, though, that the mighty government seeks to throttle a judicial review by threatening to bankrupt a citizen who exercises his democratic right.

The government’s behaviour suggests that it knows it cannot defend its case for subsidies for wind power. Carbon dioxide emissions from power generation are indeed already adequately regulated by the EU Emissions Trading System. There is no reason to put subsidies on top. Many Irish households and companies would probably welcome cheaper electricity.

Pat comments on this case here.

Bogtec (continued)

The recently signed Memorandum of Understanding between Ireland and the UK on wind power has led to excited talk of tens of thousands of new jobs and billions in tax revenue and expert earnings. How realistic is that?

The Memorandum itself is silent on the implications of the deal. Pat Rabbitte and Ed Davey agreed to negotiate a treaty under the Renewables Directive. There are targets for renewables for all Member States of the European Union. Some countries will easily meet these targets, but most won’t. Under the Renewables Directive, Member States with a renewables surplus can sell this to the highest bidder or to an exclusive buyer.

Ireland may have more wind power than it needs. Ministers Rabbitte and Davey intend to enter into an exclusive agreement. This is obviously attractive to the UK. It is not obvious why Ireland would want this, rather than let the Brits compete against the French and the Poles. The first contours of the plan emerged shortly after the UK offered soft loans to bail-out Ireland’s public debt.

The UK cannot meet its renewables obligations. It cannot ignore these targets because the coalition is fragile enough and relations with Brussels already tense. Great Britain has plenty of wind, but people have effectively used the planning system to stop the erection of new wind turbines. So, the plan is to build turbines across the Irish Sea and transmit the power via a dedicated grid to England and Wales.

The Midlands are the leading candidate to build these new turbines. The plan is therefore known as Bogtec, after a similar plan involved the Sahara called Desertec. New wind capacity may amount to 5,000 MW. The current installed capacity is 1,700 MW.

Long distance power transmission is expensive. The East-West Interconnector cost 600 million euro. It has a capacity of 500 MW. Similar interconnectors elsewhere cost 200-300 million euro. Assuming that the Brits will not pay for gold-plating, the bill for the undersea cables alone would be 2-3 billion euro.

The delayed new North-South Interconnector will have a capacity of 400 MW. People are already up in arms against the planned pylons. Transmission from the Midlands to the sea will need 12 times as many pylons.

The potential benefits of Bogtec for Ireland are unclear. The more optimistic estimates aim to impress voters and politicians. Wind power does not generate a lot of employment. Estimates often ignore the jobs lost in thermal power generation, and the jobs destroyed by dearer electricity and higher taxes. There certainly are jobs in “sandwiches and concrete” as Pat Rabbitte put it. The more attractive jobs, however, are in manufacturing and in designing new turbines. There is overcapacity in wind turbine manufacturing, so companies would hesitate to build a new plant in Dublin Port – even if Ireland would suddenly discover its talent for mechanical engineering.

Export earnings depend on the selling price. The REFIT tariff in England and Wales is 25 c/KWh for small suppliers. The retail price of electricity is only 18 c/KWh, the wholesale price 6 c/KWh. If Irish wind farmers are paid the wholesale price minus the cost of transmission (2 c/KWh), revenue will be around €0.5 billion per year. Higher revenues will be at the mercy of the generosity of British subsidies.

If manufacturing jobs are in Denmark and revenues low, the government will not see much tax revenue. No royalties are paid on wind. Bogtec does not appear to be a great deal for Ireland.

Wind farms have real costs. They can spoil the landscape, affect wildlife, and disturb people living nearby. Do the benefits outweigh the costs?

There is not much information on Bogtec. The government has yet to publish an impact assessment, but it protests only meekly against the fantastical claims put forward by companies hoping for subsidies. Evidence is not the strongest point in Ireland’s energy policy. Paul Hunt has shown that energy policy in Ireland is run for the benefit of the state-owned energy companies and their workers, Minister Rabbitte disagreed. Mr Hunt’s analysis is based on data. Mr Rabbitte promised data, but has yet to deliver.

People that could be affected by the new turbines fear that planning regulations will not protect them. Indeed, Bogtec exploits the difference in planning between England and Ireland. The UN has ruled that Ireland’s National Renewable Energy Action Plan violates international planning standards. The High Court has agreed to hear this case in March.

Bogtec is a good deal for Britain.* Is it a good deal for Ireland too? We need to know before we proceed. Why is an exclusive deal with the UK better than selling to the highest bidder?  Is Bogtec related to the bail-out? Will the Irish government or state-owned companies invest money in Bogtec? What is the expected rate of return? What if UK subsidies are less generous? Will planning properly protect households? In the past, the Irish government repeated sleepwalked into a bad deal. It is time to kick that habit.

* Well, it is a good deal for Britain given the corner it has painted itself into. Without political constraints, the best solution would be to ditch the Large Combustion Directive and replace coal with gas over a 15 year period or so.

Bogtec

Yesterday, Pat Rabbitte and Ed Davey signed a Memorandum of Understanding. The MoU is crafted in terms of the Renewables Directive, which allows EU Member States to pool their targets. Essentially, the MoU gives the UK an exclusive claim on any excess (wrt target) renewables that Ireland may have. A monopsony is good for the buyer, but less attractive to the seller. Either the Irish government has little faith in the emergence of a market for renewable obligations, or perhaps Ireland felt it needed to do the UK a favour, for instance in return for the bailout.

The MoU does not specify any project, but there is an expectation (see here and here) of large wind farms in the Irish midlands, transmitted to England and Wales via a dedicated grid.

This is intriguing. Midland winds are not particularly favourable, and definitely cannot compete with the winds of England and Wales once the costs of long distance transmission, including an undersea cable, are accounted for. This project only makes sense when you consider the difficulties in building wind turbines in the England and Wales. Ireland’s comparative advantage is the weakness of its planning regulations.

There have been some exaggerated claims about the benefits for Ireland. Few jobs would be created here. There is no reason to assume that wind turbine manufacturers would set up shop in Ireland. Even the more lucrative parts of construction may well be done by specialist teams flown in from abroad.

Export earnings depend on the price. In England and Wales, feed-in tariffs are about 25 c/KWh for small, domestic suppliers. It is unlikely that large, foreign suppliers will be offered similarly generous conditions.

Profits are likely to be taxed in Ireland, but need not benefit Irish shareholders. There are no royalties on wind (and EU competition law prevents the introduction of royalties on wind-for-export only).

The wind power companies would need to lease land, but as the name of Bord na Mona is often dropped, this may be at a concessionary rate.

From an English perspective, this agreement makes sense in a narrow way. The choice is between yet another conflict with Brussels (if the renewables target would be ditched — the sensible thing to do), a reform of planning regulations, or a deal with the Irish.

From an Irish perspective, it is hard to find anything to commend this plan.

Doha

As predicted, the 18th Conference of the Parties to the United Nations Framework Convention on Climate Change did not bring much, despite the arduous effort of most of the 17,000 delegates in Doha. The Doha Gateway Package promises that a new treaty will be negotiated by 2015. The 2007 Bali Roadmap promised the same, only to fail two years later in Cancun. I predict that the Paris negotiations will not deliver either.

Doha did extend the Kyoto Protocol from 2015 (as agreed in Durban) to 2020. The Kyoto Protocol is now a European affair, with Australia as an honorary member. The emissions targets agreed in Doha are the same as the targets adopted a long time ago in Brussels.

Doha did agree to end the twin-track negotiations, with one track for Europe to do what it wants and another for the rest of world to be in deadlock. Europe will join the deadlock so.

At the moment, donor countries divert development assistance to climate aid, meant to reduce overseas emissions and help poor countries adapt to climate change. (By the way, development assistance also pays for the international travel of Ireland’s climate negotiators.) In Doha, there was much talk of changing these voluntary contributions to mandatory ones, based on some form of accountability.

Needless to say, the USA are dead against any admission of liability. China’s position will rapidly change once they realize that they are the greatest contributor to climate change since 1992, when climate change was internationally recognized as a problem.

Today’s editorial in the Irish Times paints a different picture. However, the EU did not take on further commitments to reduce emissions. Sandy and Bopha cannot be attributed, either physically or statistically, to climate change.

The Irish Times also calls for a Climate Bill. Draft Bills would have created new bureaucracies, but would not have contributed to emission reduction (as argued here and here).

Climate policy does not need bureaucrats. A carbon tax would work just fine. I was therefore pleased that as of Budget2(0)13 solid fuels will no longer be exempted from the carbon tax. Let’s hope that the fiscal problems elsewhere will force other countries to follow Ireland’s example and introduce a carbon tax too. It would be even better if austerity would cull the excessive numbers of climocrats.

The Swords is mightier

The saga of Pat Swords v The World continues to unfold. Not content with having the UN-ECE Compliance Committee of the Aarhus Convention declare that EU renewables policy violates procedural obligations with regard to sound policy making, Pat has now sought, and found, a legal review of the Irish implementation of that policy, specifically, the National Renewable Energy Action Plan and the REFIT scheme. The case will be before the High Court on January 15.

To be continued.

Incentives to work

Callan, Keane, Savage, Walsh and Timoney have a new paper on the incentives to work in Ireland. This is an important topic and I am glad to see continued research on this.

For the first time, Callan et al. include the cost of working in their analysis. We showed earlier that this is an important consideration. Our paper was primarily intended to address a blind spot in labour economics (which disregards expenditure patterns); our calculations were illustrative only. Unfortunately, what was meant to be an academic contribution became a public issue.

Nonetheless, it is useful to compare numbers. Callan et al. use the latest available data, and their earnings and benefits data is the best available. Earlier McGuinness and O’Connell showed that our wage equations, which omitted age as that was absent from our data, were severely biased. Callan’s estimates of the costs of childcare are from the same source as their income data. More importantly, they have information on the age composition of the household, whereas we had to work with average costs for a typical family. In these regards, the new analysis is superior to our work.

The main difference, however, is due to transport costs. There, Callan et al. run into the same problem that we did: The primary data are incomplete and one needs to rely on secondary data. This introduces all sorts of biases.

I am not convinced that Callan et al. got this right. They include only the cost of commuting, disregarding extra school runs, social calls associated with work etc. They ignore that commuters would own a different car than people who stay at home. In our paper, we compared travel costs in work and out of work, correcting for income, regardless of whether travel was from home to work and back.

Callan et al. use three methods to compute the typical cost of travel to work.

Method 1 is distance times cost per kilometer. They find 17 euro per week. But that is for the cheapest car. The range is 17-41 euro per week.

Method 2 is public transport: 14-25 euro per week.

Method 3 is based on the National Travel Survey. The starting point is an unreferenced 78 euro per week in travel costs. They then attribute 1/3 of this to commuting, and find 25 euro per week. The language is vague, but 1/3 strikes me as the national average rather than the average of those in work.

I suspect that Callan et al. underestimate the travel cost due to work. According to their Table A1.1, travel costs in the range of 15-25 euro per week, increase the fraction of people who would be better off on the dole from 4% to 5% (a 25% increase). Extrapolating, this would be 6% for a cost range of 50-100 euro per week (a 50% increase).

Childcare raises the fraction of people who would be better off on the dole from 4% to 6% (for all) and to 12% (for those with children).

Combining childcare and transport costs, 6% x 1.5 = 9% (for all) and 18% (for those with children).

McGuinness and O’Connoll found 9% (no children) and 19% (1 child under 5).

I therefore think that, although the new estimates by Callan et al. are more carefully done than our initial estimates, the new numbers are too optimistic.

Note that all of these calculations ignore undeclared income.

Energy could be so much cheaper

Gas interconnection

The Celtic Tiger died five years ago. The economic crisis hurts. The end of the pain is not in sight. So you would think that the government would do everything it can to keep prices low. For energy prices, you would be wrong.

Natural gas is an important fuel for heating homes and cooking. It is also used to generate electricity. The gas used in Ireland comes via two pipelines. Bord Gais Eireann (BGE) owns and operates both interconnectors. BGE cannot abuse its market power because the Commission for Energy Regulation (CER) regulates the price. Each year, total costs are divided by the volume of gas transported. BGE is allowed a modest profit.

This simple rule was fine when there was one source of gas only. That will change. Eventually, the gas from Corrib will be brought onshore. There are advanced plans to build an Liquefied Natural Gas (LNG) terminal in Kerry. With LNG, Ireland would no longer depend on the European market, where gas is dear. Gas is cheap in North America because of the abundant shale gas. As gas transport is expensive, it would be cheaper still to exploit the Irish shale reserves.

The costs of interconnection with Great Britain are largely fixed. If another source of gas captures a small part of the market, BGE will spread its costs over a smaller volume. That is, BGE would raise its price. The competition would thus capture a large share of market, and be able to raise its price at the same time. BGE would be forced to raise its price again.

The CER anticipated this and has changed the price regulation. The CER should be praised. It is not often that a government agency locks the door before the horse bolts. However, the new regulations are not good for consumers.

In the future, the right to transport gas over the interconnectors will be auctioned. There is overcapacity now and probably in the future, so the highest bid will not be very high. Therefore, there will be a reserve price. And if BGE still makes a loss, a levy will be imposed on all importers and producers of gas. This levy will be passed on to consumers.

This arrangement guarantees the profits of BGE. It drives up the price of gas and electricity. And because it hurts would-be importers and producers of natural gas, competition is hampered and prices go up again.

Indeed, the Shannon LNG project was stalled earlier this week, primarily because of the new price rules. The CER in effect shielded BGE from competition at the expense of anyone who buys gas or electricity.

BGE is largely state-owned, but a minority share is owned by employees, who will directly benefit from the new CER regulation. The exchequer could benefit too, but state-owned companies in Ireland have a poor track record of paying dividends. Instead, profits are diverted to vanity projects of managers and politicians.

It would therefore be better if BGE gradually writes down the capital invested in the gas interconnectors, and compete in the market on the basis of its variable costs only. Gas and electricity would be cheaper.

The new pricing rules are not yet set in stone. It will be a few years before households will pay more for their gas and electricity. People will complain bitterly to Pat Kenny and #gasprice will trend on Twitter. But then it will be too late to change the rules. The CER should reconsider now.

Atlantic oil

After a long absence, oil exploration companies returned to Irish waters. There is oil in the Atlantic. Now that experience is growing with the ultra-deep oil off Brazil and Angola, there is increasing confidence that the oil in the Irish Atlantic too may be commercially exploited – although the water is colder and choppier.

This is good news. Oil exploitation brings well-paid jobs and welcome royalties. It is early days though.

Some commentators and politicians have jumped to the conclusion that there is an immense richness under the Irish seabed that is being plundered by foreigners, and have called for punitive taxes.

Fact is, a few companies are exploring for oil. They are losing money at the moment, and it will be ten years or more before they would see a return on this investment, if any. There are plenty of other oil provinces that look just as promising as Ireland. Shell’s troubles in Mayo are well known in the international oil industry, and the story of Shannon LNG is making the rounds. Talk of high taxes, even nationalization, may well scare off the next round of would-be investors in Irish oil. The goose will be slaughtered before it has laid its first egg, perhaps golden.

Wind for England

England has a problem. Power plants are aging, and no one is willing to invest in new ones. The European Commission has imposed stringent targets for renewable electricity. The plan is now to build a great many wind turbines in the Irish midlands, and transmit the power to England.

The wind blows harder in Ireland than in England, but this does not justify the extra cost of long distance transmission. Rather, locals effectively use the English planning regulations to block new wind turbines.

Transmission will be over a dedicated grid. EirGrid would not have to invest even more than it already does, and English wind would not be eligible for the generous subsidies on Irish wind.

So what does Ireland get out of this? Some construction jobs, fewer maintenance jobs, and more wind turbines to look at. It seems that England struck the better bargain.

Wind power should pay royalties, just like oil and gas pay royalties. England would contribute money to the Irish exchequer if they still want to go ahead.

Royalties would make wind power more expensive in Ireland too, another reason to switch to cheaper gas for power generation.

Paul Hunt had excellent comments on an earlier version.

An edited version (part 2, 3) appeared in the Independent. Without byline online but on paper there is apparently a picture and a wrong email address.

UPDATE: John Mullins, CEO of BGE, disagrees.

Gas interconnection, decision made

I blogged earlier about the draft decision of the CER on the pricing rules for the gas interconnectors.

The decision is now final. I find the document hard to read, because it assumes that you are familiar with the draft decision, and it rambles between the actual decision, decisions that might have been, justification of the decision, and responses to comments to the draft decision. This is what I think was decided:

  1. The interconnector will be moved, legally, from offshore to onshore.
  2. Interconnector capacity will be auctioned.
  3. There is a reserve price for the auction.
  4. The reserve price is the long-run marginal cost.
  5. If the auction does not cover the costs of the pipe-formerly-known-as-the-interconnector, the difference will be split over ALL gas suppliers.

I am not sure whether there will really be an auction, or whether the reserve price will always hold.

The contentious point, however, is the long-run marginal cost. This implies that Bord Gais will have a guaranteed income on its assets.

Instead of forcing BGE to take a hit on what might turn out to be a bad investment in interconnection, the CER forces gas consumers to make up the difference.

This is wrong in principle. It is a transfer from gas users to the owners of BGE. And it distorts competition.

Exporting electricity

UPDATE2 Over on Twitter, Antoin argues that the plan as interpreted by me would violate EirGrid’s statutory monopoly.

Minister Rabbite yesterday announced plans to export wind power to Great Britain. This is a result of the energy summit organized shortly after the last elections. It now appears ready for public discourse.

The plan is simple. Build a load of wind turbines in the Midlands, where the relative lack of wind is made good by the relative lack of tourists and nature reserves, on land owned by Bord na Mona and Coillte. Build dedicated transmission lines to Great Britain. (The Spirits of Ireland hope that there will be pumped storage as well.)

The plan makes half sense from an English perspective. It is hard to get planning permission for onshore wind turbines in Great Britain. Onshore in Ireland plus transmission is cheaper than offshore in British waters. On the other hand, the plan is driven by the EU renewables target, which is pretty tough on the UK. With Germany abandoning its green energy plans (following earlier such decisions by Portugal and Spain) and with Theresa May wishing to ban Greeks from the UK, it is not immediately clear why the UK obeys the EU with regard to renewables.

It is not clear what is in it for Ireland: English-owned turbines generating power for England, transported over English-owned transmission lines. Dedicated transmission means that there are no benefits for Ireland in terms of supply security or price arbitrage. If the new transmission would be integrated into the Irish grid, Irish regulations would apply — and subsidies too, so that you Irish would sponsor my electricity bill. Ireland does not have royalties on wind power or transmission (and if it would, the same royalties should be levied on Irish turbines and power lines). That leaves some jobs in construction, fewer in maintenance, and 12.5% of whatever profits are left in Ireland for taxation.

It may well be that this plan is a quid pro quo for the UK contribution to the bailout of Ireland.

I am not convinced that the plan will go ahead. The English power market is in turmoil, and the companies may not be interested in an Irish adventure. Recall that the UK government also confidently announced that private companies would build new nuclear power. Well, they did not. The comparative advantage of Ireland in this case is the relatively lax planning regulations. Pat Swords may have put an end to that. But even the current planning regime can be used to block to an English adventure with no Irish spoils.

It is early days for this project still. It is worrying that the minister seems to think that more state intervention is required, and that the state still has money to waste. UPDATE: Paul Hunt points out that it is indeed the Government’s plan to intervene and subsidize: See the new energy strategy.

More academic thoughts on interconnection are here.

Pat Swords v The World

The UN-ECE Compliance Committee of the Aarhus Convention has now ruled in the case Pat Swords v European Union. The ruling has implications far beyond this case.

To recap, Pat is no friend of renewable energy. He complained about the government’s renewable energy policy to every authority in Ireland and was either ignored or told to go away. So he complained to every European authority with the same result. And so he complained to the United Nations Economic Commission for Europe under the Aarhus Convention on Access to Information, Public Participation in Decision Making and Access of Justice in Environmental Matters.

In February 2011, the Committee admitted Pat’s complaint. This is significant. Ireland did not ratify the Aarhus Convention. The EU did, however. Because Brussels handed down its renewable energy policy, Dublin is bound by Aarhus.

This sets a precedent. Any Irish policy that is somehow proscribed, inspired, or constrained by EU policy, is now subject to Aarhus.

The Committee has now issued its draft ruling. It is long and complex. It is silent on the policy itself. On procedural issues, two points stand:

  • Ireland made a mess of its public consultation on the National Renewable Energy Action Plan.
  • The European Commission failed in its duty to supervise Ireland.

So

  • Anything in the NREAP can now be challenged.
  • Consultation on the NREAP was not pretty, but it was not particularly ugly by Irish standards either. Other government plans can now be challenged too.
  • And the EU has been told to intrude more.

The hidden depths of the water charge

as submitted to the Sunday Business Post:

In a somewhat haphazard style, the government this week announced more details of its reform of the water sector. Unfortunately, the plans are about as well-crafted as the announcements.

People focused on the revelation that Father Christmas will not bring water meters this year. Instead, water meters will have to be paid for. It does not matter much whether households pay upfront or over time, through higher taxes via the Department of Finance, or through lower pensions via the National Pension Reserve Fund. Households will pay.

How much will households pay? A basic water meter costs €60, a fancy one €150. (The government appears to have picked the latter model.) An experienced plumber can fit a meter in 15 minutes or so. This is not terribly expensive, but many people are hard-up.

The government, however, does not trust households to install their own meters. The government could use a flat charge for people without a meter and a volumetric charge for people with a meter. If the flat charge is high enough, many will install a meter. This is a common arrangement in other countries. It is perfectly fine with the EU, ECB and IMF.

The government does not want to give people this choice. Ireland will be one of the first countries in the world with universal water metering. The government has yet to publish the cost-benefit analysis that shows that this is indeed the best bang for what little buck is left.

Because the government suspects that some people will not be happy to have their water metered and charged – and may thus refuse the government’s plumbers access to their house – the plan is to install water meters just outside the property, on council land.

That means what holes will need to be dug. The exact location of water pipes is not always known, so there may be some searching involved. Furthermore, water meters will be far from the smart electricity meters that the ESB is installing everywhere. Water meters therefore cannot piggy back on the communication network that the ESB is also putting up. Water meter readings will be collected separately.

All this makes water metering rather expensive. The government is not very forthcoming with its estimates, but it will be at least €500 per meter. The government will be happy to lend you that money – in fact will leave you no choice – so that a few hundred euro in interest should be added.

It is easy to get excited about such details – why pay €800 or more for something that can be had for €200 or less – but they distract from the bigger picture. Water meters are only the beginning. Water is metered so that it can be charged.

The government is tight-lipped about what the water charges will be. The EU Water Framework Directive is clear. Water charges should fully recover the cost of drinking water provision and waste water disposal. Ireland spends about €1.2 billion per year on water. Only some €200 million is recovered from non-domestic users. The total amount that will need to come in through household water charges is therefore €1 billion per year – or, not counting those with private or collective wells, €560 per household per year.

Unmetered households in countries similar to Ireland use about 150 litres of water per person per day. Full cost recovery implies that the water charge would be about €3.80 per thousand litres. As metering and charging reduce water use, typically by about a third, Uisce na hEireann would be quickly forced to increase the water charge to €5.70 per thousand litres.

The government has repeatedly promised that each household will get a generous allowance of free water. This is not clever. Again, the government has left us in the dark about the size of the allowance. If it is 100 litres per household per day, the water charge would be €9 per thousand litres. If the allowance is 200 litres, the water charge would be €22.

And therein the problem lies. Uisce na hEireann will supply water to households. The free water allowance will be for households. Small families will get all their water for free. Big households will pay through the nose. The minister will spin this as a boon to little old ladies living alone. A family of four would pay €800 per year without a free allowance but €1600 with. This is a baby tax.

Uisce na hEireann could only give a free water allowance per person if it would track how many people are present in a household.

The free allowance is best done without. Water charges place a disproportionate burden on the poor. Therefore, water charges should be raised and Uisce na hEireann should pay a dividend to the government, which should be used to increase benefits and tax credits. Not everyone would trust the government to pass on that dividend. Uisce na hEireann could have been mutualized, with every man, woman and child in Ireland owning an equal share.

Instead, Uisce na hEireann will be a subsidiary of Bord Gais Eireann (BGE). The government did not want to create a new state company, and it did not want to call on the private sector. That left little choice. BGE has a sound track record in providing households with gas, and it has successfully added electricity. BGE should be well able to deal with the retail side of Uisce na hEireann.

But Uisce na hEireann will do more than charging for water. It will run the water network and the treatment plants. BGE has diversified into wind power, an unfortunate decision which led to a downgrade of its credit rating. BGE loses money on its gas-fired power plant because it relied on in-house knowledge rather than external expertise. Let’s hope BGE has learned from this, because not anyone can run a sewage treatment plant.

Any manager would lose sleep over Uisce na hEireann. 34 local water boards will be merged to form a national company, with 34 different IT systems, 34 different model contracts with suppliers and operators, and 34 different labour regulations. 32 counties will transfer their water assets to Uisce na hEireann. Uisce na hEireann may initially employ 4,000 people, compared to the 1,000 people that now work for BGE proper. Was it wise to limit the competition for Uisce na hEireann to BGE and Bord na Mona?

Uisce na hEireann will be regulated by the Commission for Energy Regulation (CER), presumably soon to be renamed. The CER is struggling. It is wedged between the minister for energy qua policy maker and qua owner of the dominant companies. It has to deal with the far-reaching reforms of the energy market imposed by Brussels. And now its remit will be extended from energy to energy, drinking water, and sewerage. The CER cannot expect additional resources. Will it cope?

The government has embarked on a transformation of the water sector. That is welcome, in principle. It is unfortunate that options are not thoroughly scrutinized before decisions are made. The public debate has been distracted by the minor question how meters will be paid for.

Irish Water (again)

I had an op-ed in yesterday’s Business Post, together with a raft of other pieces. The points raised should come as no surprise to those who read Morgenroth’s and my earlier blogs. Conor Pope independently confirms our numbers. Summary:

  • The government plan for water meters is exceedingly expensive.
  • Free water allowances are a bad idea, particularly if the allowance is per household (as is likely) rather than per person.
  • Is Bord Gais up for this? Can the Commission for Energy Regulation cope?

The Sindo also wrote about Irish Water, which highlights another issue: Bord Gais is not fully state-owned. Employees own a fair chunk too. An uncompensated transfer of water assets from the counties to Irish Water would be a windfall for Bord Gais employees, a capital gain that will be taxable at some point in the future. It would be better if Irish Water would pay a fair price for the assets, funded by newly issued equity. The county councils would then be part-owner of Bord Gais, which would further complicate the planned privatization of part of the company.

Water meters (ctd)

Would you rather

Apparently, only Bord Gais and Bord na Mona are still in the running for Irish Water. One has lost focus, the other is in search of a mission. Not an easy choice.

This follows on yesterday’s post.

Water meters and all that

Ireland is not Greece. Ireland, for instance, does not have a problem with tax collection. Or does it? There clearly is a problem with collecting the household charge. To my mind, the core issue is that the Department of the Environment — which has limited experience with indirect taxation and none with direct taxation — tries to do something for which it was not set-up to do — and refused to call in the experts. Like all departments, Dept Env was already stretched because of the austerity programme.

The household charge is flat: 100 euro per residence. It is easy to determine who should pay. Is it a residence? Are you the owner? If yes and yes, you should pay 100 euro.

The household charge should, at some point in the future, morph into a property tax. There are two key differences. The property tax will be differentiated: More valuable properties would be taxed more. And the property tax will be much higher than the household charge: somewhere between 500 and 1000 euro per household on average.

If Dept Env struggles with something so simple as a low household charge, how will it cope with a more complicated and much higher property tax?

The next episode of the saga re-emerged in the news today: Water meters (1, 2, 3). Households will / will not pay for the installation of water meters. If so, payments will be up front / distributed over the years. If not, the Dept of Finance / National Pension Reserve Fund will make up the difference, perhaps as a soft / commercial loan to Dept Env / households. Installation will cost at most 300 euro per meter / at least 300 euro per meter / not yet known.

The semi-state that is to implement water meters, Irish Water, was supposed to start in early January. It is now mid April and plans are not yet definite. It is not even known whether Irish Water will be an independent entity or a subsidiary to Bord Gais or Bord an Mona. The National Roads Authority is apparently no longer in the running, and private companies (Veolia, Tesco) were never considered. As perhaps 4,000 county council staff may be transferred to Irish Water, it may want to recruit from the HSE to draw on their expertise in forging a national entity out of disparate regional ones.

This matters. Water meters are part of the ECB/EU/IMF agreement and the Water Framework Directive. As long as there is no Irish Water, Dept Env will fulfill its duties in the interim — duties that are beyond its actual remit. I worried about that in January. This piece has an intriguing remark at the end. Apparently, at least one county council is rushing through decisions, preempting the presumably stricter regulatory regime expected under Irish Water and the Commission for Energy (and Water) Regulation.

As I have argued before, there is an advantage to electing competent managers (rather than school teachers) to the Dail, as TDs may become ministers in charge of sprawling bureaucracies. Of course, it would help if the higher echelons of the civil service would have similar competencies.

Paul Mooney on higher education

Paul Mooney has a long op-ed on higher education in today’s Irish Times.

Mooney taught at DCU and was president of NCI. That experience colours his assessment and recommendations. As I have argued time and again, some universities should focus on research and the academic side of education while other universities should focus on the more vocational end of third-level education. Mooney’s one-size-fits-all assessment and recommendations are more appropriate for the teaching end of higher education. Differentiation and specialization are a better way forward. Some Irish universities should lose the right to grant PhDs while other universities should minimize undergraduate numbers.

Mooney first discusses working hours. Teaching hours are a fraction of total working hours — a small fraction at the research end of the university spectrum and a larger fraction at the teaching end. That gradient can and should be made steeper: Many university lecturers are incapable of decent research while at the same time many good researchers are buried in teaching and administration.

Research is multifaceted. Some research is really applied, immediately leading to profits for companies and photo opportunities for politicians. Such research is best done in companies and consultancies. There is also blue skies research, curiosity driven stuff that is truly appreciated by only a handful of people and that perhaps one day might lead to something useful. Such research is best done in universities and national laboratories. Blue skies research does not benefit Ireland. It benefits humankind. It satisfies our thirst for knowledge. It feeds applied research. Blue skies research is a global public good. As one of the richest countries on the planet, Ireland has a duty to contribute.

Ireland can, of course, decide to free-ride and hope that other countries will provide the public good called fundamental research. But there are local spillovers too. The financial reward for top academics is small relative to their capacities and outside opportunities. A low teaching load (and hence a lot of time for research) is part of the reward for top academics. Top academics make top schools. Top schools attract top students. Top students join or form top companies, which prefer to be close to big pools of talent.

Like so many others, Mooney seems to think that technological progress is all about the natural sciences and product innovation. In fact, process innovation is at least as important. With a few exceptions, successful Irish companies are better at process innovation than at product innovation. RyanAir did not invent a new plane. Guinness and KerryGold convinced the world that their product is best (without changing the actual product). Ireland would make a bigger contribution to the global stock of knowledge if it would focus on what it is good at — and that is in the realm of ideas rather than things. The graduates of Ireland’s business and economics schools definitely command a higher wage than the graduates of its engineering and natural science schools.

Mooney also calls for (improved) measurement of performance. I could not agree more.

Gas interconnection

In December, I blogged about the peculiar pricing rules for the gas interconnector with Scotland. (The current rules would grant substantial market power to importers of LNG.

The CER has been aware of this for a while, and has now published a draft decision. The proposal boils down to the following elements:

  1. The interconnector will be moved, legally, from offshore to onshore. It remains to be seen that this would satisfy the European Commission, which is not happy either about the current regime.
  2. Interconnector capacity will be auctioned.
  3. There is a reserve price for the auction.
  4. The reserve price is the long-run marginal cost.
  5. If the auction do not cover the costs of the pipe-formerly-known-as-the-interconnector, the difference will be split over ALL gas suppliers.

Shannon LNG is understandably cross. They publicly fume about point 5, which will impose a cost on them that rises as they are more successful, but privately they must have hoped that the rules would not change. While I have argued that the rules should change, the current proposal can easily be spun as the regulator protecting a state-owned company from a private competitor.

Point 4 is worrying too. In the decision document, the CER goes back and forth between OPEX for the reserve price and OPEX+CAPEX. In the end, they opt for OPEX+CAPEX. Essentially, they propose to perpetually reward Bord Gais for what increasingly looks like a bad investment decision in the past.

Nothing has been set in stone yet. Let us hope that the CER will reconsider.

Dublin is the 8th best place in the world for students

at least, according to the latest ranking by QS.

They’re quiet about the method, but if you click on any of the cities, you will find what matters to them: Good universities, international mix, local employment, cost of living and fees, and quality of living.

As far as I know, this is the first such ranking so it is too early to tell whether Dublin’s high rank will increase the influx of foreign students.

Higher education reform

The HEA has published its plans for reforming higher education in Ireland. A high level summary is here. There are two more substantive documents (here and here) that partly overlap. There are two core ideas. First, “technological universities” are introduced. Presumably, these will replace the “institutes of technology”. This is to large degree a matter of relabelling. If this satisfies the demands to have a university in every county then so be it. Ireland would follow the international trend to call each and any 3rd level education entity a “university”. Besides, some (many?) of the ITs already grant PhDs and are thus universities in all but name.

The second idea is more controversial. The HEA wants consolidation, through associations, clusters and mergers. Indeed, technological universities will come from a “consolidation of two or more institutions”. On the one hand, it is high time to rationalize the bewildering number of institutions in higher education. I have argued that there too many, small economic departments. Similarly, Irish business schools are too small to credibly support a broad curriculum. There is a fixed cost to running a department, and small department spent a disproportionate amount of time on administration.

On the other hand, scale for scale’s sake is silly. The HEA is not particularly clear about what research and teaching should (not) be consolidated and why.

I would argue that, for research, 2-3 centres per subdiscipline is plenty. For teaching, 3-4 locations for a bachelor’s, and 2-3 for master’s and PhD is enough — per discipline. For those activities, quality beats location. I’d rather talk to / be taught by a good researcher / professor than the one next door. Silicon Valley is not because it is close to any old university, but because it is close to Stanford. For evening and weekend classes, and more vocational training, you do want close ties to local businesses and therefore a denser network of locations.

UPDATE: The Independent reports on the race to become the first Technological University.

The Examiner reports that the president of Cork IT thinks that TU are too university-like. Cork IT is, I presume, free to remain an Institute of Technology. As it would be one of few ITs, it would be free to re-define the IT concept in Dr Murphy’s image.

The Examiner also notes that “distance from home is a major factor in third level participation”. I would argue that people should be prepared to travel for a quality education.

Septic tanks

Minister Hogan appears to have waived the septic tank registration fee. That is fair and proper. The sewage bill in cities and towns is picked up by the taxpayer too. Either everyone poos for free, or no one. I favour the latter.

The minister has also indicated that inspections of septic tanks will be “risk-based”, and has redefined that concept as “if pollution is found nearby”. Commonly, risk is an ex ante concept. Inspections are supposed to prevent pollution.

Article 13 of the waste directive (2006/12/EC) specifies that inspections be periodic. Unless the department intends to periodically find pollution near each and every septic tank, the proposed inspection regimes will breach EU law.

That would not be a first. Friends of the Earth reviews the history of Irish waste water and EU law. Ireland has been in breach of EU waste law since the original waste directive (75/442/EEC) of 1975. No wonder that the Commission is seeking to impose fines.

UPDATE: The minister is in a particularly generous mood this week: There will be grant aid to upgrade faulty septic tanks.

Ireland in the European Court again, now over gas

In December, I blogged about the gas interconnector, the Shannon LNG terminal, and the need for regulatory reform in the wholesale gas market.

Last week, the European Commission chipped in. It is taking Ireland to court over the lack of competition in the market for gas between Scotland and Northern Ireland, and between Ireland north and south. Intriguingly, the UK is sued as well, although most of this is Irish rules on UK soil.

John Fingleton gave a great presentation at last week’s conference on the Irish economy. Among other things, he argued that competition policy in Ireland exists by virtue of the European Union.

(h/t Paul Hunt)

Commercial sensitivity

In the comments on my piece on Irish Water, Paul Hunt reports back from his attempt to get the costings for water metering etc from the PWC report. This request was refused as it would be “commercially sensitive”.

To cite Paul, this is balderdash.

Irish Water will be 100% state-owned. Citizens of Ireland (of two of which I am the legal guardian) have the right to know what is going on in a company they (will) own.

Ireland is an unwilling party to the Aarhus Convention, which grants access to data except “where such confidentiality [of commercial and industrial information] is protected by law in order to protect a legitimate economic interest”. As Irish Water will be a monopoly, I do not think there is a “legitimate” economic interest in hiding data.

Unfortunately, state-owned companies have made a habit of hiding behind “commercial sensitivity” when there is none.

Towards Irish Water

The public consultation on the establishment of Irish Water opened today. See here and here.

As I’ve argued before, charging for water and waste water is right and proper; and doing so through a state-owned, tightly regulated monopoly is a reasonable solution (although you can argue for a mutual company instead).

The contents of the position paper published today were well-leaked and contain little news. The position papers confirms that Irish Water will also be responsible for waste water and waste water treatment. Council staff will be transferred to Irish Water, probably with a considerable improvement in working conditions.

The Commission of Energy Regulation will regulate Irish Water. There is no sign of the creation of a super-regulator. The new CEWR will be inter-departmental, though, an interesting experiment.

The department persists in two follies – mandatory roll-out of water meters, and free allowances – but a third folly – universal metering – has been dropped.

The time table has been slipping, which is no surprise as it was so ambitious. The public consultation was supposed to start in October, and Irish Water was supposed to start work in January. Originally, the plan was to install 1.4 mln meters in 2 years time; that is now 1.0 mln meters in 3 years time – less than half as fast. It is not clear to me that this would support 2,000 jobs: 500 meters per job, installing two meters in three days.

To make up for lost time, the Department of the Environment now intends to start the work of Irish Water. This is a mistake. Like any department, Environment is struggling with staffing as it is. Utilities are better at being utilities than departments are. Utilities are also better at resisting cronyism than departments – every TD will want a water metering contract to go to their favourite engineer cq plumber. Irish Water will wrestle with the legacies of the county councils, and it is now being saddled with a departmental legacy as well.

Maybe the public consultation will further improve the plans.

Tol goes bye bye

Philip asked me to comment on the recent media coverage of my person (1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17).

The background is as follows. I have regretted that I never wrote my memoirs of my time in Hamburg. I plan to write a multi-media text “book” and tweet the key messages. To hone my book-tweeting skills, I decided to tweet my memoirs (under the hash tag #cuimhnícinn). The chapter on the ESRI was tweeted early on January 1st. I had assumed that all Irish twitterati would be asleep, but Colm Keena was not. And then RTE called, and nothing much had happened that day, and so on.

All this is ironic for someone who has repeatedly warned against celebrity economists. And yes, the Late Late Show called too.

Among our reasons to leave are the economic prospects of Ireland, and particularly of families like ours with a triple exposure to public finances: two salaries and kids in education. I called that “10 more years of austerity”, where “10 years” really stands for “a long period”. This was apparently news to some. Although really not my area, the facts are simple. The programme for government and the deal with the Troika have that the primary deficit will be reduced to zero by 2014-5. Public debt will reach 125-135% of GDP by then, pension reserves will be depleted, and valuable state assets will have been sold. That means that, after 2015, a large share of tax revenue will go towards interest payments, debt reduction, and rebuilding of reserves – rather than to things that make life worthwhile. If debt is to be reduced to 60% GDP, then 10 more years of austerity seems fairly optimistic. I do expect, however, that the ECB will monetize part of the debt.

I also said a number of things about the ESRI. I enjoyed working there, and hope to pass to my students the things I’ve learned while there. However, I also think the ESRI should work harder on transparency and quality management. ESRI data and models should be in the public domain.

There has been no independent investigation of the accusations of racism against some ESRI staff. Indeed, ESRI management has repeatedly denied the possibility that there could be any truth in such allegations.

The ESRI is not as independent as it should be. The ESRI does not have a budget to pursue issues that no one in government wants to hear about. That is, government departments and agencies set the research agenda. That is fine in a way. Blue skies research belongs at university. The ESRI does policy-relevant research – that is, answers questions posed outsiders. However, it would be better if part of the ESRI budget would be reserved for projects identified by the opposition, by the public, and indeed by ESRI researchers (who often come across major and minor public policy mishaps but lack the resources to pursue them).

Funding agencies do not influence the conclusions that the ESRI draws.

Funding agencies do influence the conclusions that the ESRI draws attention to.

The grant-in-aid is about 1/3 of the ESRI budget. About 1/3 is international and corporate money. And about 1/3 comes in through competitive tenders from the various parts of the Irish government. The funding agencies often have a clear idea of the desired result, and award the contract to the bidder who is most likely to obtain that result. Can a bidder uphold her integrity and be loyal to her employees at the same time? One solution is to have a specialized government agency to manage research contracts. Tenders would tend be awarded on merit, recalling that pliability is not a merit.

That agency could also keep an eye on the output: Some projects never seem to reach a publishable result.

This does not require a new government body. The research managers (and their budgets) in the various government departments and agencies could be transferred to, say, Science Foundation Ireland.

As to academic freedom at the ESRI, the chronology of my contributions to this blog tells it all.

Poll tax to be replaced by property tax

According to this piece in the Irish Times, the Cabinet have copped on that there is little support for a poll tax. Maybe they have realized too that poll taxes are not terribly smart from an economic perspective either.

An expert group will now be established, to report in Spring. As this discussion is not exactly new, our submission is as good as ready. Ronan Lyons’ has made good progress with his, as has Karl Deeter (also on video). Let’s hope the expert group will take this advice to heart.

Last week, though, I got a number of phone calls from journalists about a plan by the chartered surveyors that everyone should get their house valued by them. That would be an unnecessary transfer of money from the general population to a small group of professionals. There are substantial databases on property values already (CSO, revenue, estate agents, etc).

CORRECTION: The chairman of Residential Agency Practice Group of the Society of Chartered Surveyors Ireland points out that they have never called for all properties to be valued. Apologies to all involved.