Author: Richard Tol

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

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

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

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

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

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

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

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

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

The Climate Change Response Bill was debated in the Seanad yesterday. You can read the various interventions here.

Minister Cuffe is not very clear on the 2020 target, but seems to argue that the climate bill does not go beyond the current EU obligations. He offers two arguments. Second, Ireland will overcomply on its ETS obligations, and this will count towards Ireland’s non-ETS obligations. This is an accounting gimmick. Ireland would export its excess ETS permits to offset undercompliance elsewhere in Europe; emissions would not fall. Note that Ireland will just about meet its ETS targets according to the EER2010.

Third, Minister Cuffe seems to use the EU accounting method for land use emissions in 2020, and the UN accounting method for 2008. The increase in the carbon sink is much smaller than the Minister suggests if one uses the same method for both years.

Senator Glynn of Fianna Fail states that “[t]he Bill does not impose any legal obligations on Government to achieve the emissions targets set in the Bill and it allows for these targets to be changed.” That’s a remarkable position.

IBEC has published its analysis of the climate bill, including an estimate of the costs. That cost estimate is exceedingly optimistic for the following reasons:

1. IBEC assumes that emissions from land use are accounted for according to the yet-to-be-enacted EU rules.
2. IBEC takes the EPA’s with-additional-measures scenario as its starting point. That scenario is rich in wishful thinking, and IBEC does not count the costs of the “additional measures”.
3. IBEC’s numbers are based on an engineering model. Such models are notorious for underestimating the costs of emission reduction.
4. IBEC assumes that the marginal cost of -30% by 2030 is the same as the marginal cost of -30% by 2020. This would be true if the capital stock has an average life time of one year.
5. The cost estimate assumes that the emission reduction burden is shared optimally between ETS and non-ETS.  As I’ve argued before, the extra burden would fall on the non-ETS.
6. The model covers emissions from energy only. The IBEC estimate therefore omits the costs of reducing non-energy emissions (methane from cattle).

Even so, IBEC reckons that the cost will run to €400 million per year. I do not know what the cost would be, but it would certainly be much higher than that.