Business Irish

Friday 23 August 2019

Richard Curran: 'Carbon tax hike will be the first test of the new 'Green wave''

Crest of a wave: Green Party candidate Ciarán Cuffe (right) is greeted by well-wishers at the European election vote count at the RDS in Dublin. Photo: PA
Crest of a wave: Green Party candidate Ciarán Cuffe (right) is greeted by well-wishers at the European election vote count at the RDS in Dublin. Photo: PA
Richard Curran

Richard Curran

We've all heard of Kermit the Frog's lament that it isn't easy being green, but maybe that is because it is bloody expensive.

When news reports of a Green Party electoral surge in local and European polls started coming in, it was referred to as the 'green wave'. It was a tremendous political result for the party, but it may end up being more of a ripple.

It isn't because the Green agenda is irrelevant or wrong-headed, quite the opposite in fact. It is because it will cost consumers, taxpayers and business lots of money to implement.

This may be why, despite the Green Party's relatively strong electoral performance, around 90pc of voters didn't vote Green.

In the shaky world of coalitions and minority governments, the Green Party could do well enough to return to power after the next general election. Even if it didn't, the very issues it wants to see tackled, particularly around climate change, need to be done.

But Irish taxpayers and business managers are not ready - not really. Employers body Ibec published a very detailed and insightful report on how to set the climate change agenda into the future.

It set targets for carbon taxes and the creation of a low carbon, yet competitive and sustainable economy. The employers body is contributing to the debate in a positive way, but the report lacked real detail on how some of these changes would be funded and how the burden might be split between consumers and businesses.

For example, it says that net carbon tax receipts in 2017 amounted to €419m of which households paid €246m and business paid €169m. Ibec is proposing that carbon taxes be increased to €30 a tonne in 2020 and are then increased by €5 a tonne each year until they reach €55 a tonne by 2025. It then wants them to reach €80 a tonne by 2030.

It would mean an environmental levy on households of €600 a year by 2025.

Ibec estimates this could bring in an cumulative extra €2.6bn by 2025. It also wants to assign some of that extra income to cover lower income households and smaller businesses in some sectors which would suffer the most from the higher costs.

The total amount of new money available from higher carbon taxes would be enough to anger many lower income consumers, while not yielding a massive windfall to fund the scale of other adjustments that need to be made.

Ibec reckons a transition to a low carbon economy requires €40bn in the years ahead. The Green Party reckons house retro-fits alone will cost €30bn.

For example, just 28pc of our greenhouse gas emissions (GHG) are included in an EU emissions trading system, which means they can be offset using credits. Of the 72pc remaining, nearly half of those come from agriculture.

These are increasing as the size of the national herd increases to meet our industry strategy of ramping up dairy production and exports.

There are measures which, with a real struggle, can be implemented across the farming sector to mitigate some of that increase. However, it has been acknowledged by some commentators that it won't be enough to meet our overall emissions targets for the sector.

So, lots we can do, but it won't be enough to meet the targets unless we row back on expansion targets. What farmer, who has invested and indeed borrowed heavily to fund expansion, will welcome such an initiative?

People don't have to be forced into voting Green but they often won't change behaviour unless they are forced to do so.

One of the problems is that the Government has signed up to binding targets on emissions with the EU but it is very difficult to enforce binding measures on the public.

Take retro-fitting houses. The Green Party says that for the 700,000 or so homes heated by traditional coal, peat, oil and gas systems, the Government should borrow up to €30bn in cheap loans from the European Investment Bank.

The cost of retro-fitting is around €20,000 to €40,000 a home. The State couldn't pay that, but it could offer grants and low interest loans to homeowners to insulate their homes and improve their heating systems.

But how do you convince people to borrow that kind of money (even at a low interest rate) to achieve a longer-term financial saving and help save the planet?

Who can afford to do this?

One way is to drive people towards it by increasing carbon taxes even more. This, of course, will reduce their disposable income rather than increase it. The Green Party argues that the country would save €3bn a year from not having to import as much fossil fuel.

The truth is that many people could not afford these loans and wouldn't even qualify to get one in the first place. The Government introduced a €3,500 grant for homeowners to retro-fit heat pump systems. They can dramatically cut your home heating bill as well as reduce emissions.

However, between April 2018 (when the grant was introduced) and January 2019, just 60 homeowners had availed of the new grant. Administered by the Sustainable Energy Authority of Ireland it did approve 370 grants, but there had been just 60 drawdowns after the first eight months of the scheme.

One issue is that your home must be inspected first to ensure you have the right insulation in place. This is perfectly sensible. Why hand out €3,500 in State grants for people to generate heat which just goes out the windows, walls and attic anyway?

But it means you have to look at getting your windows, walls and attics done too, if they haven't been brought up to scratch already. There are grants for this too, but the relatively low level of take-up suggests that people are not yet serious enough about the issues or just cannot afford it. With more people renting, incentivising landlords to do the retro-fit would be extremely challenging.

The environmental lobby around the world have been pretty much right in their analysis for a long time now. From pollution and sustainability to climate change, they have correctly pointed out the bigger picture and why we have to change how we do things.

But having the correct analysis doesn't necessarily mean their solutions are the best. The Green Party would like to see higher building specifications both in terms of home sizes and the quality of the materials that go into them.

Who wouldn't? But this will increase the cost and price of building at a time when not enough houses are being built and rents are sky-high. The Greens would like to see a serious paring back of agriculture production targets to help reduce GHGs but the impact on jobs would be very painful.

Businesses are becoming increasingly aware of the benefits and the necessity of being more environmentally friendly. But they are reluctant to spell out how much of the cost of improvement should be borne by them. Ultimately, unless businesses cut their margins or achieve impactful efficiencies, they will simply pass on their higher costs to their customers anyway.

Undoubtedly, many of these changes will be brought in. They simply have to. The changeover to a lower carbon economy will gradually take place, but it is so politically difficult that progress may well be slower than many would like.

Given that our political system could not successfully introduce a €150 a year household charge for water, it is clear that the process will be very fraught.

Higher carbon taxes in the Budget will be the first big test. Let's see how that goes.

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