Windfall entitlements

There is an interesting piece in the Irish Times today.

Carbon dioxide emission permits are given away for free (grandparented) to electricity companies. This is a transfer of property from we the people to the shareholders of those companies. This has been going on for a couple of years, but no one protested too loudly.

The government has now introduced a new tax on the value of grandparented permits, and the regulator has ruled that this new tax cannot be passed on to electricity consumers. This is a good approximation to the preferred solution of auctioning permits.

Hat tip to Minister Ryan, so.

Of course, there is the law of unintended consequences. First, there was the PSO levy. Now, private companies argue that what once was a windfall profit, now is part of their regular return to capital.

The verdict will be interesting. Will the judge reason from a 2007 perspective, which has that the companies enjoyed a windfall for three years, which the government now ends? Or will the judge adopt the 2010 perspective, which has that the companies have a reasonable expectation for an income stream (based on the current position of the European Commission and the position of the government until only a few months ago) which the government capriciously removed?

Energy and Environment Review 2010

Out now

The Energy and Environment Review 2010 is the third in a series of annual reports published by the Economic and Social Research Institute, discussing trends in resource use and emissions to the environment as well as policies to change those trends. The key findings are as follows:

  • While emissions of most persistent organic pollutants are expected to fall between 2010 and 2025, emissions from households of PCBs to air and of dioxins to land and air, and particularly emissions of hexachlorocarbons to air from agriculture are projected to increase. To avoid this, additional policy interventions would be required.
  • Our estimates of the amount of methane from landfill differ from the official estimates, suggesting that international emission reduction obligations are less severe than they seem to be.
  • On average, firms spend 0.3% of their turnover on environmental protection and 0.7% of their investment is directed towards environmental care. More than three-quarters of firms spend no money at all on environmental care, but some firms spend up to 1.5% of turnover or 7% of investment.
  • It is expected that wind power will account for two-fifths of power generation by 2020, replacing coal and peat. After 2020, coal may well return to the fuel mix, with or without technically risky and expensive carbon capture and storage. Carbon dioxide emissions in 2025 would be 2.6 million tonnes higher without carbon capture and storage.
  • A large share of electricity is expected to come from renewable energy. The use of biofuels in transport can be expanded but this may face economic and environmental objections. In other sectors, the use of renewable energy seems to have stalled. It is therefore likely that Ireland will have to import renewable obligations in order to meet its targets.
  • Recent tax reforms have shifted the balance in favour of diesel cars, so that carbon dioxide emissions and tax revenue are lower than what they would have been without tax reform. In the unlikely event that the government meets the target that 10% of all cars be all-electric vehicles, carbon dioxide emissions from transport and power generation would fall by only 1% as all-electric cars primarily displace small cars driven over short distances.
  • Over the last two decades, energy efficiency has rapidly improved in Ireland and the government hopes to accelerate this trend. However, even if current policies are maintained, which seems unlikely given the current fiscal situation, a deceleration is more likely due to sectoral shifts in the economy, less efficient power generation, and export of electricity to Great Britain.
  • Ireland will probably meet its emission reduction obligations under the Kyoto Protocol because of the severe recession. However, at this point the EU target for 2020 seems to be out of Ireland’s reach. Subsidies are more likely to fall than rise, and the announced carbon tax is insufficient for the emission reductions required. Ireland will therefore have to import emission permits from other EU Member States.
  • Incineration will help Ireland to meet its landfill targets in the medium-term, but in the long-term more reform of waste policy is needed. Weight-based charging and three-bin waste collection would be needed (in urban areas) to make the planned increase in the landfill levy effective.

The Energy and Environment Review presents scenarios that consider actual and probable policies but disregard targets that are not supported by such policies.

The energy part of the review should be compared to the SEAI Energy Forecasts.

IMF/EU Deal Interest Rate

In an article in the Sunday Business Post I explain how the deal will allow Ireland to finance its deficit over the next three years at somewhat lower cost than the headline interest rate would suggest. The article is here.

Sargent: Ask Olli Rehn About the Minimum Wage

Anyone left in any doubt as to which of the outside parties was calling the shots in setting the terms of the EU-IMF agreement should consider checking out the clip from last night’s Week in Politics show. About two minutes in, there is a clip of Green Party TD Trevor Sargent discussing the decision to cut the minimum wage with a protestor. Sargent tells the protestor to take it up with Olli Rehn and that it was the EU, and not the IMF, that insisted on the cut in the minimum wage.

IMF deal can change Irish legal system for the better

An article by Eoin O’Dell, Trinity School of Law explains how. You can read it here.