2019 Monsignor Pádraig de Brún Memorial Lecture – Philip Lane

Central Bank of Ireland Governor Philip Lane will deliver the 2019 Monsignor Pádraig de Brún Memorial Lecture, entitled Climate Change and the Financial System, at NUI Galway on Tuesday, 5 February. All sectors of the economy will be affected by climate change, whether through exposure to weather-related shocks or the economy-wide transition to low-carbon means of production and consumption. These structural changes will require considerable investment by households, firms and the government to retrofit buildings and switch to low-carbon production techniques and transportation methods.

The funding of this investment is just one of the challenges facing the financial system. In addition, it must cope with carbon-related market risks and credit risks, a reduction in the insurability of climate-vulnerable regions and activities and the tail risks of macroeconomic and financial instability. Given the scope and severity of these risks, addressing climate change is now high on the policy agendas of the central banking and regulatory communities. Accordingly, this lecture will outline the climate-related work agenda facing the Central Bank of Ireland.

The biennial public lecture is held in honour of Monsignor de Brún who served as University President from 1945 until 1959. The memorial lectures have been running since the 1960’s with Professor Stephen Hawking giving a lecture in 1994 on “Life in the Universe”.

The event is free and open to the public, however those who wish to attend must pre-register at: https://www.eventbrite.ie/e/climate-change-and-the-financial-system-tickets-54910693362?aff=ebdssbdestsearch

No Climate Change Bill (yet)

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.

Climate Change Response Bill 2010

The Climate Change Response Bill 2010 was published today for consultation, together with an explanatory memorandum.

Art 1-3 are preliminaries. Art 4 has the emission reduction targets:

  • Emission reduction should be 2.5% per year on average between 2008 and 2020. The bill seems to say that 2020 emissions should be 28% below 2007 emissions (i.e., 52 mln tCO2eq). The memorandum says that 2020 emissions should be 26% below 2008 emissions (i.e., 50 mln tCO2eq).
  • 2030 emissions should be 40% below 1990 emissions.
  • 2050 emissions should be 80% below 1990 emissions.

(In fact, the base year is 1995 for the F-gases and 1990 for the other greenhouse gases. Between 1990 and 1995, emissions of F-gases rose from 0.06 mln tCO2eq to 0.20 mln tCO2eq so the dual base year just complicates things.)

The 2030 target seems to follow from the fact that 2030 is halfway between 2010 and 2050 and 40% is halfway between 0% and 80%. Annual emission reduction is to be 2.5% between 2010 and 2020, 3.9% between 2020 and 2030, and 5.3% between 2030 and 2050.

Art 5 creates a National Climate Change Plan. Art 6 establishes an annual statement to the Dail. Art 7-10 create a National Climate Change Expert Advisory Body. (The memorandum clarifies that no new expert will be hired.)

Art 11 orders public bodies to have regard for the climate bill and report progress to the Minister of the Environment.

Compared to the Oireachtas bill (discussed here), the Government bill creates much less bureaucracy. That is a good thing. Like the Oireachtas bill, the Government bill has nothing on how the targets are to achieved. This is a serious omissions. It is all good and well to announce a target, but there is more to policy.

The targets are very ambitious, as discussed here. Fortunately, the memorandum assures us that “[t]his Bill does not have immediate significant financial implications for the Exchequer.” The crucial word is “immediate”. The 2020 targets are notably more stringent than the EU targets, and we’re well on track to miss those (at least, according to the EER2010).

UPDATE:

ETS emissions are controlled by the EU rather than by the Irish government. That implies that the additional emission reduction effort for 2020 will fall entirely on the non-ETS sectors. The EU targets are to reduce ETS emissions by 21% in 2020 (relative to 2005) and non-ETS emissions by 20%. The government target is to reduce non-ETS emissions by 37% in 2020 (relative to 2005).

In 2008, non-ETS emissions were about 48 mln tCO2eq, 38% in agriculture, 30% in transport, 16% in households, 9% in services, and 7% in manufacturing.

Note that I assume throughout that LULUCF is as defined for the Kyoto Protocol. Note also that the climate bill is silent on this.

UPDATE 2: See Times, Independent, Examiner

UPDATE 3: There is a Regulatory Impact Assessment, which contains the gem that if you raise energy prices through a carbon tax it would affect the vulnerable and competitiveness, but if you raise energy prices through other means there would be no such impact.

Thomas McDermott on Climate Bill

A guest post by Thomas McDermott
Climate change is a real and significant threat to human welfare, particularly in the poorest parts of the world. While an effective ‘solution’ to this threat will require global cooperation over a sustained period of time, this is no excuse for not acting now to begin the process of reducing our dependence on carbon-intensive activities.
Ireland has a great record of leading the world in initiatives aimed at reducing global poverty. This work should be complemented and reinforced by action on climate change. Ireland could take the lead in demonstrating to other rich countries (and the rapidly developing ’emerging economies’) that reducing carbon emissions can be achieved without jeopardising economic or social welfare. In fact, these goals can be enhanced by such initiatives. This is not only the morally right thing to do, it is also in our interests. Such leadership would help to restore Ireland’s image internationally, which has been so tarnished by the excesses, greed and corruption of our recent economic boom and bust. At the same time, intelligent climate legislation could provide an additional source of revenue for government, while potentially improving our competitiveness over the long-term.
Unfortunately, the proposed Climate Change Bill produced by The Oireachtas Joint Committee on Climate Change and Energy Security (and due to be debated in the Dail today, Thursday), will not achieve any of these worthy goals. The proposed bill would legislate for ambitious emissions reduction targets, with the Taoiseach responsible for ensuring that these targets are achieved. The Taoiseach would also indicate what levels of emissions he/she expects each year. How is the Taoiseach to predict annual emissions levels or to enforce any such medium to long-term targets? This is equivalent to imposing legislation that requires the Taoiseach to predict levels of economic growth each year, or somehow to enforce medium to long-term economic targets.
Unless this legislation envisages an entirely new, centrally-planned economic system in this country, I do not see how its objectives can be achieved.
Legislation of this nature will do two things:

1) It provides a convenient sound-bite for politicians to hide behind. It is relatively easy to say “we have proposed/introduced legislation that will force emissions to fall by x% by 2050” etc. without actually specifying how such targets will be achieved (i.e. without having to stand up to various interest groups who may stand to lose from specific climate-related legislation).
2) Such a law obliges the presiding government to make various interventions to attempt to reduce greenhouse gas emissions. Crucially, however, it leaves the choice of specific interventions as a purely political decision. How will the government of the day decide how and where to reduce emissions? On what basis? We surely should be sufficiently well chastened in this country by recent experience of political interventions in the property sector (in the form of tax breaks etc.) to understand what a dangerous scenario this type of legislation will create.

We should not allow politicians the convenience of meaningless targets to hide behind, or the opportunity to use climate change legislation as a means of making themselves and their friends better off in the next round of crony-political-economy.

Setting ambitious long-term targets might sound good, but in reality this does not provide any greater certainty to businesses, investors, or consumers, simply because such targets are purely aspirational and are not credible without specific measures to achieve them.

The optimal climate change policy from both an equity and an efficiency perspective is to place a tax on carbon emissions, and allow people to choose the best way for them of reducing carbon dependency. This would obviously have revenue raising potential – revenue that is so desperately needed right now – while any potential threat to vulnerable people could be mitigated by using part of the revenue raised to provide reimbursements to those on low-incomes. Taxes are never popular, but the people of Ireland are acutely aware right now that taxes must rise. In every crisis there lies opportunity. If only we had the courage to embrace this one.

Klimapolitik

Germany has been one of the main drivers of international and EU policy on climate change, and hence one of the key drivers of Irish climate policy.

Until recently, there was political disagreement about whether draconian greenhouse gas emissions where needed, or drastic cuts would be enough.

In the last few months, two documents have appeared that suggest that this is changing. Both are available in German only.

The first paper, by a relatively junior researcher at think tank close to the Chancellery, suggest that (whisper it) the sacred two degrees target is perhaps infeasible, that (a few odd but not entirely crazy people have argued that) there is nothing special about two degrees anyway, and that we should perhaps keep in the back of our minds that one day we may need to consider whether a Plan B might be required. The extremely cautious tone of the paper is indicative of the scale of the heresy.

The second paper does not mince words. It is by the Scientific Advisory Council of the Federal Ministry for Finance, a body of 29 professors. The Council argues that climate change is not as big a problem it is made out to be, but that it can be solved at a relatively low cost with clever policy intervention. It further argues that the first-mover advantage in technological progress is a myth (the second mover is often better off) and that Germany should stop taking the lead as nobody else is prepared to follow.

Harbingers of change to come? Time will tell.