Sarah Carey is not impressed with the PSO levy. See the earlier discussion here and here.
PSO levy (3)
- Post author By Richard Tol
- Post date August 26, 2010
- Categories In Environment
- Tags Energy
- 77 Comments on PSO levy (3)
Tag: Energy
My piece in yesterday’s Sunday Business Post builds on my post of last week. I also included elements of the discussion (thanks!), particularly expanding the bits on import substitution. Having studied in the Netherlands, import substitution was long ago and far away, so I would understand why the average Dutchie would be oblivious to its drawbacks. In Ireland, on the other hand, this policy was tried in living memory.
One of my recommendations is apparently already being followed up.
There has been some consternation about the announced energy levy. See Times, Examiner, and Independent (in decreasing order of accuracy).
The CER has announced an increase of the PSO levy (currently near zero) to a total of €157 mln a year. This is a levy on a connection, €33/yr for households and €99/yr for small businesses. Large companies pay a levy that depends on the capacity of their connection: €14/kVA/yr. The method of payment and the distribution of costs makes perfect sense if the PSO levy would be for security of supply (in the sense of avoiding black-outs), but that is only €14 of the €157 mln.
These are small amounts, but the costs are unnecessary. About €72 mln will be a subsidy for peat, and about €43 mln will be a subsidy for wind. That is, we subsidise carbon dioxide emissions and subsidise the reduction of carbon dioxide emissions at the same time!
Tuohy et al reckon that 0.9 mln tonnes of carbon dioxide can be avoided if we do away with the peat subsidies, and save €70 mln. On average, that is €78/tCO2, but their estimate of the marginal cost is €19,500/tCO2! Today’s spot price for emission permits is €14/tCO2.
I am not aware of a detailed study of the implications of the REFIT scheme on emissions and costs. REFIT is part subsidy and part price guarantee, so back of the envelop calculations are more likely to confuse than to illuminate. Suffice to say that REFIT subsidises carbon dioxide emission reduction.
The prime instrument for emission reduction is, of course, the EU ETS. I would think that that is enough. I do not understand why we would also subsidise emissions and emission reduction — and we would save €115 mln while simplifying regulations.
Some say that we need REFIT to meet the renewables obligation, but the EU will likely scrap that as some of the big Member States cannot meet theirs. Besides, it has yet to be established that REFIT is an effective and cost-effective way to meet the renewables obligation. Both renewables and peat are said to help with security of supply (in the sense of import dependence), but that is just another word for import substitution, and the available analysis has not gone much beyond hand-waving.
So, for now, I would think we would be better off without (most of) the PSO levy.
The government will establish the European Energy Research Centre at the Tyndall National Institute, and provide initial support of 20 million euro. See here.
Tyndall has no prior experience with energy research, and I must admit that I was unaware of its existence until the 20 million euro rumour emerged a few months ago. Wikipedia has an interesting entry. Then again, sometimes it is good to start with a clean slate.
I was wrong. I previously argued that subsidies for home insulation are an expensive way to reduce carbon dioxide emissions. The SEAI has now release a post-hoc assessment of the Warmer Homes Scheme. The executive summary puts a brave face on, but if you have a look at the detailed results, you soon discover that the Warmer Homes Scheme seems to have had no noticeable effect on fuel use (and hence emissions), poverty, comfort, or health. Most results are insignificant, a few are significant with the right sign, and a few significant with the wrong sign.
One of the striking results is that the control group (without subsidies) have put in about as much insulation as the intervention group (with subsidies).
The research is not brilliant, so perhaps there is more to it, but for now the conclusion must be that the Warmer Homes Scheme is an expensive way to achieve nothing.
The SEAI should be praised for studying the impact of their interventions and for publishing the results.