Category: Environment

Waste policy

Minister Gormley just released a 1232 page review of waste policy. The press release is short and vague, but it does announce an increase of the landfill levy to €75 per tonne in 2012. It’s €15/t now, so that’s a 400% increase. The average price at the landfill gate is about €140/t. This will go up to €200/t, a 43% increase. Curtis et al. show that the effect on the volume of waste is small.

The press release also announces an incineration levy of €20-38/t. I do not know the details of the contract between Dublin City Council and Coventa/Dong, so I do not know whether its Dublin taxpayers or C/D shareholders who will be paying the annual €12-24 mln.

The summary report has a number of recommendations:

  1. More waste separation at source (7 bins for you), and improved collection of recyclables from homes
  2. Nonlinear waste charges applied at the county level (i.e., you will pay if your neighbours have too much waste)
  3. Stringent targets for recycling (we won’t be soccer champions, but we’ll beat the world on this)
  4. A ban on inter-county waste trade (this complies with WTO rules)

And this will of course cut emissions, create jobs, and save money.

A more detailed assessment will follow shortly.

Biofuels

Minister Ryan has mandated that 4% of transport fuels be renewable from July 2010 onwards. The Irish Times covers the story three times (1, 2, 3).

There are a number of things that strike me. The Department’s press release states that “[t]he obligation will be on the companies in question and at no cost to the taxpayer”. True. The cost will be to the traveller.

The opposition and the farmers quickly noted that biofuels would be mostly imported and called for support for domestic production. That could well violate EU and WTO rules. It would pose a cost to the taxpayer, and make biofuels even more expensive.

The Irish biofuels target of 4% by 2010 anticipates the EU biofuels target of 10% by 2020. It is not clear whether Ireland is engaged in prudent preparation for the EU target, or whether it is marching ahead of the music.

The biofuels target is justified on two grounds. The first is climate change. This is doubtful. A carbon tax would appropriately incentivise biofuels. The biofuels target is double regulation from a climate perspective. It is also not guaranteed that biofuels reduce greenhouse gas emissions. The rules state that biofuel emissions should be at least 35% below the emissions of the petrol or diesel replaced. This 35% per litre of fuel. As biofuels have a lower energy density, the saving per kilometre driven is less than the nominal 35%. More importantly, the nominal emissions from biofuels explicity exclude the nitrous oxide emissions from soils. N2O may turn the climate balance in favour of fossil fuels.

Biofuels may not be produced from crops grown on land that was converted from virgin forests. That rule is pointless. If history is any guide, the Brazilians will put corn on soya-land, put soya on pasture land, and chop down the trees to make way for the cows. (This is because of relative transport costs, not because of EU rules.) The “Sustainability Criteria” ignore such second- and third-order implications.

Security of supply is the second justification for the biofuels standard.  Diversification does not necessarily bring security. Four percent is small, and most of the biofuels will blended into petrol and diesel. A shortage of oil would increase the costs of agricultural production, and would have everyone scrambling for biofuels. The correlation between the price of oil and the price of biofuels is so high that diversification brings few benefits.

There is great hope for biofuels, however. We have spent the last 10,000 years perfecting plants for food. We have ignored plants for energy. We can therefore expect rapid progress. The promises of second- and third-generation biofuels are astounding — but not ready for the market yet. The current regulation protects an infant industry at the risk of locking it into outdated technologies.

Carbon tax galore

The Dept Finance has reinfored the expectation that there will be carbon tax as of January 1st, according to the Irish Times.

IBEC does not like a carbon tax (Irish Times), but the Royal Irish Academy does (Irish Times).

Frank McDonald writes about the impact of a carbon tax on the upcoming climate negotiations in Copenhagen. As things stand now, the carbon tax will be announced on the second day of international negotiations. The opening shots will have been fired on the first day, and nothing much will be happening on day 2 with thousands of journalists hanging around Copenhagen itching to write about a success in climate policy. Ireland’s carbon tax will thus attract worldwide media attention.

The economic rationale for a carbon tax in Ireland was first set out in a paper from 1992.

Convery defends the Green New Deal

in today’s Irish Times

Convery starts with stating that “raising the price of carbon is a necessary and sufficient step for tackling global warming” […] if and only if the tax was high enough to achieve the necessary reductions”. This stretches the definition of “necessary”. The carbon tax should, of course, be equal to the marginal damage cost. Such a tax does not lead to the emission reductions required by a forthcoming EU directive. Perhaps that is a sign that the EU is overambitious. But even if you except the writ of the EU, then we should still meet the EU-wide target at a cost that is minimum at the EU-level — and for Ireland not accept a cost that goes beyond that. This means that the carbon tax should equal the ETS permit price. Not less. Not more. Equal.

Convery then argues that, because methane from agriculture cannot be monitored, the uniform price principle is broken. True. He then seems to imply that because it is broken anyway, it does not matter to break it further: Because the tax on methane is zero, the price of carbon dioxide need not be uniform. This is plain nonsense.

Convery does not repeat the recommendation by Comher SDC that the carbon tax revenue should be used to subsidise energy efficiency. That would indeed be wasting tax money on double regulation.

Convery does argue that “[s]ubsidies […] be directed exclusively at enhancing fuel efficiency in poor households.” I have argued that the monies for this can more appropriately be found in the budget for fuel allowances.

Convery finally argues for a stimulus package of 2% of GDP, but does not state where that money should come from. The Comher SDC report recommends more borrowing and using the capital of NAMA, Anglo-Irish and the pension funds.

The affordability of a stimulus aside, investing in renewable energy is not the best stimulus. Climate change may be a problem for Ireland in 100 years, but extra borrowing surely poses a problem in 10 years time. The Irish economy needs jobs and capital, while energy is capital-intensive and labour-extensive. Renewable energy may create export opportunities in 10 or 20 years times, but we need to increase exports this year and next.

If there were money for a stimulus, then we should slash labour taxes. If we cannot slash labour taxes, then we’ll have to slash wages.

Poll tax bad, water charge good

Yesterday’s Independent had a headline on water charges. RTE ran with it too. The story is that a flat rate water charge will be introduced. Water charges are good in principle as they put a price on a scarce good. Flat charges — every household pays the same — are a bad idea. Flat charges do not incentivise water conservation. This is just a poll tax by a different name.

The Renewed Programme for Government also mentions water charges. It suggests a free allowance, and a proportional tax for any household that uses more than the free amount. This is much better than a flat rate, but still not perfect.

I would charge households for every cubic metre of water that they use. This is a consumption tax, and therefore regressive. I would repair the damage to the income distribution by increasing benefits and tax credits by an amount that is equal to the water tax rate times 100 litre per person per day — the amount of water needed to wash your clothes and flush the toilet.

Water charges require water meters. I would charge households without meters for the average water use of unmetered households (about 450 l/p/d) and households with meters for the actual water use. If the water charge is announced well in advance (say in Dec 2009 for Jan 2011), meters will rapidly be installed by those below average. This will drive up the average, so that more meters will be installed.

People on benefits would need a voucher for a meter.