The Irish Economy

The UNFCCC Job Creation Program once more demonstrated its awesome force. Some 20,000 people met in Durban for 2 weeks. If you add travel, preparation and debriefing, that is easily 1,000 person-years.

What did we get for this? The final documents have yet to be published, but here is what seems to be reasonably accurate summary. There were three agreements.

First, further details were added to the mechanisms through which rich countries would transfer money to poor (and not-so-poor) countries for (a) reducing emissions and (b) helping them cope with climate change. The latter is an imperfect form of liability and compensation (we emit most, they suffer most). The former is an imperfect form of arbitrage (emission reduction is dear here, cheap there). This is progress of sorts, but the money to be transferred has yet to materialize (and no one seems to have much to spare at the moment).

Second, the Kyoto targets were extended to 2015. This creates the diplomatic illusion of having saved the Kyoto Protocol, but all countries that are bound by Kyoto had already adopted unilateral targets that are more stringent. Well, the EU has, and Canada, Japan, and Russia have already indicated that they will not take seriously this part of Durban agreement.

Third, the Durban Platform was established. The Platform pledges an agreement by 2015. It replaces the Bali Roadmap, which pledged an agreement by 2009. Once more, the countries of the world agreed to agree at a later stage.

Nothing much to show for those 1,000 person-years of work. And this was the 17th Conference of the Parties. One wonders whether there really are no better investments of the time and effort.

The Examiner has a story on the proposed LNG terminal at Tarbert in the Shannon estuary. This is a privately funded project and a welcome stimulus for North Kerry. As long as the developers play within the rules, public policy analysts should have no opinion on such matters. But as the gas market is so heavily regulated, private actors affect the public good. The LNG terminal would, for instance, improve the security of supply, which is very valuable.

Minister Rabbitte argues that Shannon LNG would increase the price of gas. This is absurd at first sight. Increased competition should reduce the price. The minister is right, though. To see why, we need to consider the gas interconnector from Scotland that lands in Gormanston in Co Meath, or rather the way in which its price is regulated: The annual cost of the pipe is distributed over the gas it carries.

The interconnector is a competitor’s wet dream. If you capture a small part of the gas market, the interconnector will increase its price — because its annual cost is distributed over a smaller volume. You can then increase your price to just below that of the interconnector and gain yet more market share. And the interconnector will raise its price again.

The solution surely is to change the regulation of the interconnector rather than to block the LNG terminal. The current regulation, which may date back to the days of Minister Woods or Fahey, is a neat example of something that makes sense in the short run only.

Note the separation of powers. Minister Rabbitte is the executive branch of government and an influential part of the legislative, he appoints and controls the budget of the regulator, and he is the trustee for the shareholders (us) of the dominant company in the market.

With all eyes on the euro, the budget, the Middle East, some remarkable, smaller stories emerged.

Irish roads are now among the safest in the OECD. I guess the main reason is that much traffic has shifted to the new roads.

The 2010 Drinking Water Quality Report is out. Water quality is getting better, but slowly. Biological contamination is down and trihalomethanes (which result from improper chemical treatment) are down too.

Construct Ireland reports on an unpublished SEAI study (the leak is easily identified) that shows that building standards were not enforced. This is not surprising in itself, but the scale is. Sean O’Rourke’s interview with Gerry Wardell is worth a listen, and SEAI’s response is intriguing.

The EU is putting pressure on Ireland to hurry up with water charges. Ireland is obliged to fully recover the costs of water services. This implies an average charge of 500 euro per household per year, 5 times what is expected to be announced in next week’s budget.

The carbon tax is likely to go up. Initially, the carbon tax was tied to the ETS permit price, which has gone down. The market is least distorted when permit price and carbon tax are equal. Coal and peat, the fuels that emit most carbon dioxide, are still exempt from the carbon tax and there is no sign of the commencement order.

Dublin is considering a fire call-out charge. This would be wrong. Fire is an emergency. One should never hesitate to call for help.

Minister Rabbitte for Energy sketches several reforms of household energy policy in today’s Irish Times. These are plans for the longer term.

There are a range of fuel allowances. Some are means-tested, some are not. None are needs-tested. Houses may be insulated at the exchequer’s expense, but the occupiers are still entitled to fuel allowances. Minister Rabbitte suggests that, in the future, fuel allowances will be directed towards colder homes. That is a welcome improvement.

There are grants for home energy efficiency improvement and micro-renewables. These grants are optimized for administrative convenience rather than emission or fuel poverty reduction. These grants also imperfectly address the core issue: The lack of access to capital to invest in home improvement. Minister Rabbitte suggests that, in the future, grants will be replaced with cheap loans. That is a welcome improvement.

Lack of information is another issue with household energy use. Minister Rabbitte suggest that, in the future, Building Energy Ratings will be mandatory. They are already, but this is not enforced and many prospective buyers/renters seem to be unaware of their legal right to a BER. Reinforcement of this regulation is a welcome improvement.

I had a close look at BERs in England. An English BER is about half the price of an Irish BER, and it contains much more information on heating costs and potential improvements.

Minister Rabbitte also suggests that houses with a poor BER will be taken off the market. I’m not sure that that is wise. It is rather tough on the current owners of such houses. It will also drive up rent particularly in the lower price segments.

UPDATE: 30.9% of houses have a BER of E, F or G.

Three good ideas, so, and one bad one. There is plenty of time to reconsider and refine.

Today, the 17th Conference of the Parties (COP17) of the United Nations Framework Convention on Climate Change (UNFCCC) starts in Durban, South Africa. Unlike the summit of 2009 in Copenhagen, expectations are low. The political attention is firmly fixed on the economy. The negotiators will thus make the same demands that were rejected by their counterparts at previous conferences.

Climategate 2.0 broke last week, too late to influence official positions. Besides, the new batch of emails show more of the same. The main new element is the role of the BBC.

Some 20,000 people are expected to travel to Durban. These events are expensive, definitely when compared to the expected result. Some Irish civil servants are rumored to travel in style. This is not at the expense of the Irish taxpayer. Travel to climate negotiations is covered by the development aid budget. As the aid budget is fixed, Irish travel to Durban comes at the expense of people in Ethiopia, Lesotho, Malawi, Mozambique, Tanzania, Timor-Leste, Uganda, Vietnam, and Zambia.

The low expectations for Durban are a blessing in disguise. I have argued that the current international climate regime is complete. The UNFCCC has standardized monitoring of emissions. The Kyoto Protocol / Marrakesh Accords has created international trading mechanisms for emission reduction credits. (Kyoto’s targets end in 2012 but the Protocol itself has no sunset clause.) The COPs have increasingly morphed into fora for pledge and review of domestic policies and targets. That is all that is needed, and all that is feasible (bar a transfer of sovereignty to the UN).

The negotiators in Durban should therefore focus on refining the existing mechanisms. That is quite boring stuff, so that hopefully the majority of the 20,000 in Durban will decide not to return to COP18 in Qatar or South Korea. UPDATE: It will be Qatar.

UPDATE: After pretending to be greener than Labour for a while, the Tories now argue that jobs are important too. This would put London on a collision course with Brussels. The UK will want to rid itself of the Large Combustion Plant Directive too.

UPDATE: Less than 72 hours after I predicted nothing much would happen in Durban, the EU changed its tune. Poland is not particularly keen on EU climate policy. They have the presidency. Talking tough, they at once please the greens and reduce the chance of success.

Eight academic economists have left Dublin in recent months or will leave shortly. That may seem like a small number, but there are only 200 or so academic economists in the country. They all have moved / will move to warmer places: Stirling (2.0K warmer on average than Dublin), Brighton (2.2K), Oxford (2.2K), Canberra (3.4K), Melbourne (5.3K) and Lisbon (7.0K). Dublin economists thus disregard the opinion of the European Union that a climate change of 2.0K is dangerous.

Between 1998 and 2009, intra-union migration has been towards warmer places. The average migrant in the EU experienced a warming of 0.6K. The average masks a wide spread. About 10% of migrants stayed in roughly the same climate, 17% experienced a cooling of 2K or less, and 16% a cooling of more than 2K. 24% experienced a warming of less than 2K, and 33% a warming of more than 2K. 450,000 people opted to live in a climate that is more that 5K warmer than what they were used to.

Obviously, one cannot compare the individual impact of moving to a warmer climate with the impact of global warming, but at the same time it is clear that both Dublin economists specifically and intra-European migrants generally do not object to a warmer environment.

City climate data from World Guides. Country climate data from the Climate Research Unit. Migration data from EuroStat, for Czech Republic, Denmark, Germany, Estonia, Ireland, Greece, Spain, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Austria, Poland, Romania, Slovenia, Slovakia, Finland, Sweden, United Kingdom.

Sean and I have an article on green growth at Vox. It builds on a paper recently published in the Energy Journal. Research funded by the EPA.

I recently wrote that Dublin does not use MapAlerter, a nifty internet service that allows county councils to alert people in particular areas by SMS, Email, Twitter, RSS. I was wrong. Dublin does use MapAlerter. It even issued a flood warning on Tuesday, October 25, 2011.

The Irish Times ran a series on water services in Ireland.

The first article is perhaps the most interesting. It leaks the yet-to-be-published report on the water sector by PWC. PWC will apparently be fairly critical of the current system, which nicely fits with the plans by the Minister for a radical overhaul. There will be more investment in water infrastructure. There will be a water regulator. Word on the street has that the Commission for Energy Regulation will have its mandate extended to water (but not to transport). There will be national water utility. Bord Gais, Bord na Mona and the National Roads Authority are bidding to run Irish Water. Only Bord Gais has experience in mass retail.

The piece discusses the transfer of Shannon water to Dublin, but the Minister disappears from the story at that point. I would think that we first want to promote water conservation and fix the leaks.

The piece is silent on the future role of the county councils in water. If Irish Water runs the show, what will happen to the water infrastructure owned by the county councils? What will happen to the civil servants who run this?

Another article wonders what will happen to the private water schemes. Will they be nationalized? Will households with a private well and a septic tank have to pay the water charges? That would be grossly unfair.

The inspection fees for septic tanks are unfair too. Us city folk poo for free — or rather, waste water services are covered from general tax revenues. That is, septic tank owners pay for urban waste water, but city dwellers do not pay for rural waste water.

The second main piece is on drinking water quality, the problems with which are typically overlooked even though they are serious.

The third main article is on water meters. It is summarized in an editorial, and repeats a number of points I made in August. My main concern is the plan for the centralized roll out of water meters. I think that it makes more sense to have people install their own meters and let these meters use the same communication network as the smart electricity and gas meters. See the discussion here.

Conor Pope cites 1000 euro per household per year. I said that. If we maintain the current spending on water (incl. investment), if we keep the business rates for water as they are, and if we exempt those on private schemes from the water charges, then full cost recovery (as required by EU legislation) implies an annual charge of 500 euro per household per year.

There have been strong reactions to the announcement by the Minister of the Environment that he will not be introducing a Climate Change Bill quite yet. See Irish Times (again, and again).

The Irish Examiner has a response by Friends of the Earth: “With seven billion people on Earth, it is more important than ever that we reduce our carbon emissions. Ireland is never going to be the bread basket of the world and we must recognise the profound impacts that climate change will have on food security.” FoE argues at once that Ireland is too small to have an impact on global food supply and so big that is has an impact on the global climate.

(FoE omits that climate change will increase global food supply, at least according to the IPCC, and that biofuels have a negative impact on food production.)

The Irish Times broke the story. The Review of National Climate Policy has yet to be published, so I won’t discuss its contents. It is worrying that the government releases documents to a select few. They then set the public agenda. By the time the public gets access to the document, the news has moved on.

I agree with Minister Hogan that a Climate Change Bill is not a priority. The government has a lot on its plate, including the Department of the Environment — floods, water charges, septic tanks.

Besides, a Climate Change Bill is not required for climate policy. Ireland has had climate policies for many years now, and there is no sign that these policies will be abandoned.

The two draft Bills (discussed here and here) were primarily about creating new bureaucracy and had little to do with emission reduction or adaptation.

Ireland’s emission reduction targets are set by the EU.

UPDATE: The Review of National Climate Policy was published less than an hour after I posted this. It notes that Ireland will probably miss its 2020 targets with current policies, but does not suggest how policy could be reformed. It does not discuss the Climate Change Bill.