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.

The Green Budget

The Renewed Programme for Government may reflect the shifted balance of power. The document surely has a lot of green language. Italics are my comments.

We will revise our Capital Investment programme to take into account new budget realities and the need for us to meet our mandatory climate change emissions reduction targets.

Code for slash investment except in energy and public transport.

Introduce new targeted and efficient taxation policies which encourage sustainable enterprise development and the creation of sustainable employment in the Green and Smart Economy.

Code for tax breaks for companies that adhere to Green Dogma?

We will extend our system of Accelerated Capital Allowances to develop the Green Economy into areas such as renewables, waste disposal and water usage.

Sure. Tax breaks for companies that are friendly with greens.

Introduce Carbon Tax in Budget 2010. The principles underlying the carbon levy to be introduced in 2010 will be:

  • those most at risk of fuel poverty will be protected,
  • we improve the fuel efficiency of our current housing stock,
  • the relative tax burden on labour will be reduced.

I’m in favour of a carbon tax, and for using the revenue to cut labour costs and increasing benefits to compensate low-income households. Using the revenue to improve the housing stock is bad policy (double regulation).

Introduce charging for treated water use that is fair, significantly reduces waste and is easily applied. It will be based on a system where households are allocated a free basic allowance, with charging only for water use in excess of this allowance. In keeping with the allocation of greater responsibility to local government, Local Authorities will set their own rates for water use.

Water charges are clever, but require water meters. Bilinear taxes are a bad idea.

We will mandate the €200 million “Green Fund” established in AIB & BOI to prioritise the following activities:

  • Help existing mechanical/electrical engineering firms to become Energy Services Companies (ESCOs) providing managed energy services to public buildings by providing capital to install equipment on client sites;
  • Supplement the grants schemes run by Sustainable Energy Ireland (€50m Home Energy Scheme) by lending to homes and businesses that are retrofitting energy efficient equipment in their homes/businesses.

This is meddling in supposedly independent, commercial enterprises. It is also picking winners. Bad idea.

Participating institutions in NAMA will be obliged to offer a deposit account to consumers which will be ringfenced for lending to Green projects.

Tokenism.

We will put in place new public procurement procedures and guidelines to ensure that green criteria are at the centre of all state procurement.

Tokenism.

We will ensure that new public procurement guidelines for food include criteria based on giving greater weight to sustainable local produce, seasonal menus and organic production, building on good practice in other EU countries in this area.

More expensive food for civil servants.

We will prioritise research and technologies that offer strong development opportunities in the area of water management, leaks, measurement, metres etc.

This is mature technology. Little need for research.

We will work with the ESB and international motor companies to see a deployment of some 6,000 electric vehicles over the next three years.

Too much too soon. And isn’t ESB a commercial company?

We will present a plan for a high voltage off-shore electricity grid as part of the wider European electricity ‘Supergrid’ so that in the future we can become an energy-exporting nation.

Never mind that production costs of electricity in Ireland are higher than elsewhere.

We will introduce new energy demand reduction targets for energy utilities, thus allowing the customer to “save as they pay” through energy efficient measures.

Double regulation. A carbon tax will do just that.

Ensure the achievement of the target of 5% of land in organic agriculture and meet the growing demand for domestically produced organic produce by providing adequate resources and supports for the achievement of the target, with a focus on import substitution in areas where Ireland is under producing at present e.g. horticulture. Beginning in 2010, and rising in subsequent years, stepping up supports for the Organic Farming Scheme for conversion to organic production, Capital Grants for the Organic Sector and Non-Capital costs.

Interesting language. There is an apparent demand for organic produce, but supply needs to be supported nonetheless.

Declare the Republic of Ireland a GM-Free Zone, free from the cultivation of all GM plants.

Green Dogma.

We will overhaul and significantly enhance the current range of programmes and supports to facilitate the attainment of the target of 17% forestry cover by 2030 and contribute to meeting our climate change
commitments.

The Emerald Isle will be greener still, and will be renamed as the Emeralder Isle.

We will Continue the record levels of investment in water infrastructure, creating and supporting thousands of jobs in the provision of quality water and the prevention of pollution in rivers and groundwater.

This is hard needed for drinking water. Surface and groundwater quality are okay, and improvement can wait.

We will reduce water leakage from municipal systems in line with international best practice.

More investment in water infrastructure; less money for the rest.

We will place a cap on incineration capacity to prevent waste being drawn to incineration which could otherwise have gone to recycling, having regard tothe recommendations of the International Review of Waste Policy.

Green Dogma.

We will use producer responsibility to reduce levels of packaging waste generated and increase the target for recycling of such waste to 75% by 2013, in line with the recommendations of the international review of waste policy.

Higher costs for producers, higher prices for consumers.

We will introduce preferential parking/charging spaces for electric cars.

Micromanagement, double regulation, badly targeted regulation.

We will allocate a significant portion of the budget on road improvement projects to the provision of new footpaths to allow pedestrians to walk in greater safety and comfort.

Hoping that the commuter belt will walk to work?

We will reverse the CIE policy of excluding and limiting bicycle carrying capacity on interurban trains and buses and ensure all new train units have a more extensive bicycle carrying capacity.

Tokenism

We will develop a Bray to Balbriggan cycle and pedestrian route, and other similar routes such as Oranmore to Barna, as major tourism and commuter facilities.

Oh Ireland. One was thinking that one was reading the renewed programme for the NATIONAL government, but one mistakenly picked up the programme of the village council.

We will raise awareness of Building Energy Ratings (BER), by making it mandatory to display BERs wherever a property is advertised for sale or to let, including signage and printed/online advertising.

This is an interesting one. At present, one must have a BER if one wants to sell or let a house but one is under no obligation to show the BER to anyone, least of all the prospective buyer or renter. This is a good move.