The Irish Economy

As predicted, the 18th Conference of the Parties to the United Nations Framework Convention on Climate Change did not bring much, despite the arduous effort of most of the 17,000 delegates in Doha. The Doha Gateway Package promises that a new treaty will be negotiated by 2015. The 2007 Bali Roadmap promised the same, only to fail two years later in Cancun. I predict that the Paris negotiations will not deliver either.

Doha did extend the Kyoto Protocol from 2015 (as agreed in Durban) to 2020. The Kyoto Protocol is now a European affair, with Australia as an honorary member. The emissions targets agreed in Doha are the same as the targets adopted a long time ago in Brussels.

Doha did agree to end the twin-track negotiations, with one track for Europe to do what it wants and another for the rest of world to be in deadlock. Europe will join the deadlock so.

At the moment, donor countries divert development assistance to climate aid, meant to reduce overseas emissions and help poor countries adapt to climate change. (By the way, development assistance also pays for the international travel of Ireland’s climate negotiators.) In Doha, there was much talk of changing these voluntary contributions to mandatory ones, based on some form of accountability.

Needless to say, the USA are dead against any admission of liability. China’s position will rapidly change once they realize that they are the greatest contributor to climate change since 1992, when climate change was internationally recognized as a problem.

Today’s editorial in the Irish Times paints a different picture. However, the EU did not take on further commitments to reduce emissions. Sandy and Bopha cannot be attributed, either physically or statistically, to climate change.

The Irish Times also calls for a Climate Bill. Draft Bills would have created new bureaucracies, but would not have contributed to emission reduction (as argued here and here).

Climate policy does not need bureaucrats. A carbon tax would work just fine. I was therefore pleased that as of Budget2(0)13 solid fuels will no longer be exempted from the carbon tax. Let’s hope that the fiscal problems elsewhere will force other countries to follow Ireland’s example and introduce a carbon tax too. It would be even better if austerity would cull the excessive numbers of climocrats.

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.

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.

The Sunday Business Post yesterday published an op-ed by me. It’s a shortened and updated version of last week’s blog, and it sketches emission reduction options in transport:

“There is already a carbon tax on fuel, while motor tax and vehicle registration tax favour low emission cars. There are strict European rules about the fuel efficiency of new cars. Fuels are blended with biofuels. Public transport is subsidised. If the economy returns to modest growth and policies continue as they are, but the carbon tax rises, then emissions from transport in 2020 would be roughly the same as they are today. (Transport emissions doubled between 1990 and 2000, and another 20 per cent was added between 2000 and 2010.) According to the climate bill, however, transport emissions should fall by 20 per cent.

How can this be achieved?  If we ignore all the evidence that biofuels are bad for the environment and bad for poor people, and we increase the mandatory blend from 3 per cent to 10 per cent (in energy terms), emissions fall by 7 per cent. If 10 per cent of cars were all-electric, emissions would fall by 2 per cent. (This is small because electric vehicles appeal primarily to urban households with two cars.)  Some 60 per cent of commutes by car are less than 10 km long. If half cycled to work instead, emissions would fall by 7 per cent. If the sale of two-litre cars is banned from 2012, emissions would fall by 2 per cent.

These four measures together reduce emissions by 18 per cent. Even this is not enough to meet the new targets.”

The SBP dropped a paragraph: “The climate bill would also establish a National Climate Change Expert Advisory Body, which would oversee the measures to reduce emissions taken by the various departments. This is welcome in principle. Like monetary policy, climate policy is best removed from day-to-day politics. The Expert Body would be like the Central Bank. Unfortunately, the Expert Body as foreseen in the climate bill is different. Any civil servant can be declared an expert, but others are excluded. Experts can be removed at will by the minister. And the government can block any publication by the Expert Body. The Expert Body would not have the required expertise or independence to do its job.”

The same edition carried another article on the climate bill, which cites the IFA and Teagasc. The IFA’s 4 billion euro is an estimate of the loss of export revenue; the cost would of course be much lower. It’s not clear where the number comes from. A 40% reduction in the herd size is probably much more than is needed to meet the 2020 target (although it is hard to imagine that the herd size would not be cut). I could not find a source for that number.

The IFA used to be firmly opposed to climate policy.  Over the last couple of years, their position has become milder as they realised that climate policy would bring new opportunities (carbon storage, bioenergy). In fact, Irish dairy is among the most climate-friendly in Europe, so EU policy might improve our competitive advantage. The publication of the climate bill seems to have reversed a positive trend.

Over at VoxEU, a bunch of economists challenge the current consensus in climate policy circles and suggest a range of policies that may actually reduce emissions.

In the forthcoming ESRI Research Bulletin, David Anthoff and I offer some thoughts on how a country may set a carbon tax.

The Climate Change Response Bill was debated in the Seanad yesterday. You can read the various interventions here.

Minister Cuffe is not very clear on the 2020 target, but seems to argue that the climate bill does not go beyond the current EU obligations. He offers two arguments. Second, Ireland will overcomply on its ETS obligations, and this will count towards Ireland’s non-ETS obligations. This is an accounting gimmick. Ireland would export its excess ETS permits to offset undercompliance elsewhere in Europe; emissions would not fall. Note that Ireland will just about meet its ETS targets according to the EER2010.

Third, Minister Cuffe seems to use the EU accounting method for land use emissions in 2020, and the UN accounting method for 2008. The increase in the carbon sink is much smaller than the Minister suggests if one uses the same method for both years.

Senator Glynn of Fianna Fail states that “[t]he Bill does not impose any legal obligations on Government to achieve the emissions targets set in the Bill and it allows for these targets to be changed.” That’s a remarkable position.

IBEC has published its analysis of the climate bill, including an estimate of the costs. That cost estimate is exceedingly optimistic for the following reasons:

1. IBEC assumes that emissions from land use are accounted for according to the yet-to-be-enacted EU rules.
2. IBEC takes the EPA’s with-additional-measures scenario as its starting point. That scenario is rich in wishful thinking, and IBEC does not count the costs of the “additional measures”.
3. IBEC’s numbers are based on an engineering model. Such models are notorious for underestimating the costs of emission reduction.
4. IBEC assumes that the marginal cost of -30% by 2030 is the same as the marginal cost of -30% by 2020. This would be true if the capital stock has an average life time of one year.
5. The cost estimate assumes that the emission reduction burden is shared optimally between ETS and non-ETS.  As I’ve argued before, the extra burden would fall on the non-ETS.
6. The model covers emissions from energy only. The IBEC estimate therefore omits the costs of reducing non-energy emissions (methane from cattle).

Even so, IBEC reckons that the cost will run to €400 million per year. I do not know what the cost would be, but it would certainly be much higher than that.

As the introduction of the climate bill may be imminent, I thought it would be appropriate to make public at least part of the consultation. Our latest draft is here. It omits one crucial part as we’re still trying to get our heads around estimating the costs of the proposed targets.

All comments are welcome.

This is the summary: [W]e are grateful for the opportunity to comment on the draft Climate Change Response Bill 2010. There are a few ambiguous statements in the draft bill that will need to be clarified in the next version, particularly with regard to the emissions target for 2020 and the definition of carbon sinks. A unilateral adoption of a 30% emission reduction target for 2020, as proposed in the draft bill, would be problematic, as EU legislation would oblige Ireland to bridge the gap between the EU target (-20%) and the Irish target (-30%) through emission reduction in the domestic non-ETS sectors (mostly agriculture, households, small and medium-sized enterprises, and transport). The proposed targets for 2030 and 2050 are extraordinarily ambitious. The draft bill omits to introduce an appropriate framework for policy measures to meet the proposed targets. The establishment of a National Climate Change Expert Advisory Body is a welcome proposal but the climate bill should guarantee that the people on the body are indeed experts and that the body is independent. The Regulatory Impact Assessment adds little to our understanding of the impact of the proposed climate bill.

We recommend the following changes to the Climate Change Response Bill 2010:

• Adopt the EU target of a 20% emission reduction by 2020.
• After 2020, the target should be to intensify climate policy such that the (nominal) marginal abatement costs of emission reduction increases with the rate of discount (i.e., the nominal interest rate) until carbon dioxide emissions are zero.
• Create a framework for policy interventions of greenhouse gas emissions, with single regulation and equalization of marginal abatement costs as important criteria.
• Guarantee that the National Climate Change Expert Advisory Body is independent and has the required expertise.

Furthermore, we recommend that the impacts of the proposed climate bill will be assessed before the bill is introduced.

UPDATE: Interesting comments in today’s Irish Times. Ciaran Cuffe may need to check his math.

As another sign of the rushed introduction of the climate bill, the first estimates of the costs of the climate bill are published in a newspaper. O Gallachoir’s estimates are based on a model which is still under active development (rather than on a model which has been vetted and peer-reviewed — this is due to the starting date of the modelling project). Note that UCC is way ahead of the ESRI here: We still have to figure out how to estimate the economic impacts of targets this deep; the measures included in our model are not sufficient. The regulatory impact assessment has no cost estimates.

So, we are essentially asked to sign up to something we do not understand.

UPDATE: The IFA argues, rightly, that it is peculiar to introduce the climate bill next Wednesday when the public consultation is still ongoing. This reminds me of the waste bill, also imminent, for which the results of consultation are still not made public. Which is the party again that “believe[s] [...] in a political system that is transparent“? (Hint: click the link.)

Minister of State Ciaran Cuffe represents the government at the international climate negotiations in Cancun. His speech is here. This visit is part of the normal business of government.

Mr Cuffe announced a contribution of 23 million euro to a new UN fund. This contribution follows from earlier commitments and it is appropriately stingy. The new UN fund is a bribe for developing country negotiators to behave. I have yet to see evidence that the money will be put to good use. Although the Irish contribution is a logical result of earlier decisions, it is a tad insensitive to announce a 23 mln euro reward for bad behaviour at the same day as you are cutting the benefits to the blind. Fortunately for Mr Cuffe, bankers got a bigger reward for worse behaviour on the same day.

Mr Cuffe said more. He announced legislation for climate policy, continuing the Green charade of being in and out of government at the same time. He announced support for new research by the World Resources Institute — a project that still has to go to tender as far as I know — although funding for Irish research on environmental matters has been severely cut.

Mr Cuffe also said “Ireland supports the case for strong urgent action to reduce greenhouse gas emissions in order to stay as far below a 2 degree Celsius increase in global temperature. We know from the scientific advice that this is a necessity in order to avoid the worst effects of climate change.” In other words, Mr Cuffe argued that science necessitates action. This is not true. Science will tell you what if. If you do not like the prediction, you should do something about it. That is a value judgement, however, rather than a scientific fact. There is a long tradition of politicians hiding behind climate science. It is the root cause of politically motivated attacks on the science of climate change, and the consequent politicization of climate science. It is unfortunate that, a year after climategate and glaciergate, Mr Cuffe chose to reinforce the problem.

Last year, La Stampa published a rather skeptical article on climate change under my name. It was not written by me, as discussed here and here. Today, the record is set straight (original). The piece calls for a carbon tax in Italy.

The government likes to see Ireland as a hotbed of all things green and techie. It must have been a bit of a disappointment then that the Economist’s briefing on Europe’s tech entrepreneurs (June 12) does not mention the Emerald Isle at all. The only Irish connection is the European Commissioner, Maire Geoghegan-Quinn.

The Intergovernmental Panel on Climate Change has just announced the authors of its Fifth Assessment Report. The list is, to a large degree, a list of the international, academic establishment on all things climate. Ireland is not represented.

The list of authors for Working Group 3 is impressive (scheduled for release at 8 am this morning). WG3 deals with greenhouse gas emission reduction and hence has a lot of economics in it. The list is a mix of world leaders and upcoming talent; expertise and topics match; and there are a few heavy weights with the authority to stand up to anyone who attempts censorship.

The list of authors for Working Group 2, on the impacts of climate change, is good too. There is less economics here, but what is there is well covered.

For completeness, here’s the list for Working Group 1 on the physics, chemistry and biology of climate change.

UPDATE: The (correct) WG3 list is now available.

John Gibbons is having a go at Bjorn Lomborg. Mr Gibbons argues that Lomborg has a PhD in spin, while in fact he has a PhD in political science. Gibbons oddly suggests that Lomborg is behind “climategate”, and refers to economic models as “voodoo”. Most seriously, Gibbons suggests that statisticians and economists have no relevant expertise on climate science and policy.

Climate is defined as the 30 year average weather. Statistics is therefore at the core of climate science.

Greenhouse gas emissions are caused by economic activity. Emission reduction already costs a heap of money, will cost a lot more in the future, and would cost a whole lot more if economists do not help design abatement policies. Economics is therefore at the core of climate policy.

The EPA has released its latest forecasts for the emissions of greenhouse gases up to 2020. It confirms that Ireland will not need to buy additional CO2 permits on the international market. We may even have too many, but the NTMA is not allow to sell any excess for reasons that entirely escape me. The EPA also confirms that Ireland is unlikely to meet its 2020 target (although Greece may lend a helping hand) even in the “optimistic” scenario, which assumes that emissions fall if there is a government report that tells them to.