Monday 21 October 2019

Richard Curran: 'Donohoe on thin ice as he takes tentative steps into the political minefield of who pays for climate change'

Minister for Finance Paschal Donohoe pictured in his office in the Department of Finance preparing Budget 2020. Photo: Gerry Mooney
Minister for Finance Paschal Donohoe pictured in his office in the Department of Finance preparing Budget 2020. Photo: Gerry Mooney
Peat industry: Bord na Móna carriages. Photo: Eamonn Farrell
Richard Curran

Richard Curran

PASCHAL Donohoe has decided to take a careful, tentative step into the political minefield of climate change. Most people agree that climate change has to be stopped and that Ireland needs to do more.

But so far there is very little agreement on who should pay the significant price of "doing our bit" in addressing the global problem.

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This Budget was about first tentative steps. Ireland has already been shown to be a laggard on sustainability and emissions. The key step in this Budget was increasing carbon tax by €6 per tonne to €26. The plan is to bring it up by around €6 per year until it hits €80 per tonne by 2030.

The Budget increase will translate into a 2c per litre increase at the petrol and diesel pumps, while heating oil prices will go up from next May.

This isn't enough to awaken deep anger in rural Ireland, where alternatives to diesel, petrol and heating oil are harder to come by. But it isn't enough to incentivise people to do things differently, either.

Taxes are usually about bringing in more Exchequer revenue or encouraging changes in behaviour.

This one is being presented as neither, but as a way of funding investment in alternatives. It will bring in an extra €90m per year. It is a drop in the ocean.

Business group Ibec estimates that a transition to a low-carbon economy in the years ahead will cost €40bn.

Carbon tax increases are a necessary price to pay. But they will not be truly effective until they bring about real changes in behaviour.

If you are living in a rural area, 50km from your job, with poor transport links, and no gas supply to heat your home, carbon taxes alone cannot encourage you to look for alternatives. But you will end up paying them.

The Government rightly took the view that the only way to get political buy-in on climate change measures is to say higher taxes are not about collecting more Exchequer revenue, but will be ring-fenced to fund sustainability measures like transport, retro-fitting home heating systems and incentivising electric vehicles.

Mr Donohoe has tested the political waters with a moderate rise.

He has also tried to neutralise the rural backlash by allocating one-third of the extra €90m to arrive in carbon tax, to rural-based projects in the midlands.

There will be a €20m fund for energy efficient installations in social housing in the areas in the midlands affected by winding down peat industries by Bord Na Móna and ESB.

A further €5m will go on peatland rehabilitation and €6m on a new Just Transition Fund.

It might be enough to calm rural and lower income voters for now, but what will happen when the carbon tax continues to rise every year?

Ibec suggested that it should rise to €55 a tonne by 2025. This would amount to a €600-per-year environmental levy on households by 2025.

The rubber would surely hit the road at that stage.

For example, elections in Finland earlier this year saw the right-wing Finns Party almost tie for first place with the Social Democrats.

The Finns Party didn't just play the immigration card, but also climate change as a populist strategy.

Its stance on environmental policies, which includes opposing a proposed tax on meat consumption, appeals to rural voters in particular.

They are very unhappy about the rising carbon taxes which hike the cost of fuel.

With all of the electoral dangers in mind, Mr Donohoe tried to make this first in a series of carbon tax rises more palatable to rural dwellers.

He announced an increase in the Budget for rural transport. He has raised the fuel allowance for those on social welfare by €2.

Climate change politics will be very tricky when it comes to rural Ireland.

For example, just 28pc of our greenhouse gas emissions are included in an EU emissions trading system, which allows them to be offset using credits.

Of the remaining 72pc, nearly half come from agriculture.

Increases in the size of the national herd to meet our food industry strategy are pushing up emissions dramatically.

Brexit could cost the beef industry dearly, as could longer term consumer meat consumption patterns.

Mr Donohoe is trying a "softly softly" approach to carbon tax increases by beginning with a modest rise and targeting the proceeds for redistribution in rural Ireland.

He even gave small independent bookmakers (often in small towns and villages) a relief on betting duty up to €50,000.

So if country residents want to drive their diesel cars to place a bet, the village bookie might still be in business.

This could all help a little but it won't wash for long.

To make an omelette you have to break a few eggs.

For example, he provided enough funding to maintain the grant levels for electric vehicles. These are an effective way of reducing emissions if you don't have to drive many long journeys.

Funding the construction of more charging points around the country would be one way of making them a little more attractive to rural dwellers.

The minister increased the funding for installing new charge points by €3m. Perhaps he would have got more rural take-up if he increased that to €10m.

This Budget was framed with the risks of Brexit in mind.

What will happen to future carbon tax hikes if there is a no-deal Brexit with serious economic consequences, particularly in rural Ireland?

Once again the Government has relied on uncertain corporate taxes to fund its Budget.

If they fall off in future, it will prove extremely difficult to push through environmental charges without having to simply pocket the proceeds.

The words 'carbon tax' are likely to feature a lot in election literature next time out.

Irish Independent

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