Tuesday 22 January 2019

Comment: Paschal Donohoe fails to spot the climate-shaped hole in his Budget

Climate and energy policy were missing in a Budget where all the details were widely leaked beforehand

BLOW HARD: The aftermath of last week’s Storm Callum along the South Wall from Poolbeg Lighthouse, Dublin. Photo: Steve Humphries
BLOW HARD: The aftermath of last week’s Storm Callum along the South Wall from Poolbeg Lighthouse, Dublin. Photo: Steve Humphries
Colm McCarthy

Colm McCarthy

Paschal Donohoe's Budget last Tuesday, sufficient unto the day, was so widely leaked that it will be remembered more for its omissions than for the minor tax reliefs and rather larger spending commitments, that were announced.

If economic growth continues and external conditions prove benign, all will be well: if the economy hits an early setback Budget 2019 will look like another gamble with the public finances.

One of the omissions was the absence of any policy measures on climate or energy policy. The intention had been flagged to move the excise tax on diesel closer to the rate on petrol and Ireland is exposed to an overshoot on ambitious greenhouse gas targets it has agreed with the EU.

Petrol and diesel have similar carbon dioxide emissions per litre, but diesel emits low-level pollutants in addition: public health agencies have queried the tax discount. There is a separate carbon tax on several fuel types in Ireland, including coal, which the minister also left untouched, ignoring calls for an increase from several quarters.

The policy horizon for effective action on global warming, in Ireland and everywhere else, is measured in decades and the issues in energy policy simply cannot compete for the short attention span of politics and media.

The Intergovernmental Panel on Climate Change released an important update report in Seoul the day before the Budget which received brief global publicity. In truth there was nothing startling or new in the IPCC report. Established 30 years ago under UN auspices, the IPCC is the largest collaborative scientific project ever undertaken, involving several thousand of the leading experts from around the world.

NOBEL LAUREATE: William Nordhaus has investigated the economics of climate change
NOBEL LAUREATE: William Nordhaus has investigated the economics of climate change

It seeks to establish and publicise the best available evidence on climate change and to provide guidance to policymakers.

The measurement of climate change is difficult and the consequences in the future hard to predict. The IPCC has however concluded, repeatedly and for many years past, that the evidence supports some important broad findings:

• The planet's climate is changing and the changes over the last century can be traced to human activity.

• A principal consequence is global warming: the earth's average temperature has increased by close to 1°C since 1900 - way ahead of previous episodes of climate change and cannot be accounted for by purely natural processes.

• The chief culprit is the combustion of fossil fuels, mainly oil, coal and natural gas.

• At current levels of fossil fuel usage, the worldwide climate change will continue.

• And there will be negative consequences, including sea-level rise and more frequent extreme weather events, with serious economic costs.

The IPCC's accumulation of evidence on climate change is so persuasive that the reality is accepted by all but a handful of scientists. There is less agreement about the extent of the longer-term damage, and about the speed with which remedial action needs to be taken. The alteration of the earth's climate by human action is unprecedented and uncertainty about the future pattern of events is inevitable. But there are hardly any climate experts who doubt that action to contain emissions is urgent and that policy response to date has been inadequate.

There is good news about the climate challenge: the economic analysis shows that one fairly straightforward policy is available which would incentivise the most efficient, and lowest-cost, methods to cut emissions. This is the imposition of a charge on the consumption of items or services whose provision entails the combustion of fossil fuels.

Last Monday, William Nordhaus of Yale University was awarded the Nobel prize for Economics, largely for his work on the economics of climate change. Nordhaus has been the principal architect of a consensus among economists that practical measures are available which would arrest global warming at affordable cost.

He is not, however, optimistic that the path chosen by the world's politicians is delivering a coherent climate policy.

His non-technical guide The Climate Casino (Yale University Press, 2013) is a masterpiece of exposition. I doubt if Nordhaus received a well-deserved congratulatory telegram from the White House: Trump has described global warming, accepted as real and threatening by Shell, BP and Exxon, as a 'hoax'.

The earth has just one atmosphere but has about 200 national governments. Nordhaus insists, in line with the scientific evidence, that every tonne of emissions, from whatever source or country, has approximately the same adverse effect.

But some countries release very little of the world's total, a small fraction of one per cent in the case of Ireland. If the science was telling us that the earth would burn to a cinder 50 years hence (the science is not quite that scary), the immediate and total elimination of Ireland's emissions would delay the planet's incineration by a few weeks.

There is no pay-off to a small country for incurring the costs of emission reduction, since the benefits accrue almost entirely to others.

Even China, the world's largest emitter, is responsible for only one-quarter of worldwide fossil fuel combustion, the USA for about one-sixth. The EU countries burn just one-tenth between them: even a prodigious further effort in Europe, which has done more than others, would be unsuccessful unless reciprocated.

If planet earth had the good fortune to be colonised by a superior species from outer space the new rulers, anxious to maintain their colony in working order for another few centuries, would quite likely hire Bill Nordhaus and would quickly dissolve its 200 competing governments.

There would be just one worldwide climate policy. First up: who amongst the 200 squabblers has been pursuing destructive policies that encourage emissions?

Gasoline taxes are too low in the USA - cost per litre at the pump is around half the figure for most European countries; but it is not the worst offender. There are some big countries which actually subsidise the retail price of petrol including Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan, Russia and about 50 smaller ones.

There are no taxes at all, worldwide, on marine fuel and on jet kerosene for international transport, responsible for 4pc and rising of total emissions.

In Europe, brown coal (lignite) for electricity generation, the highest-emitting fuel source, is subsidised in Germany, currently the Continent's virtue champion in all matters environmental.

Peat gets the same treatment in Ireland which subsidises both the least and the most damaging methods of power generation.

Nordhaus would advise the alien rulers that production equals consumption for the planet as a whole and that only a single planet-wide policy makes sense.

There is little point for Europe to bathe itself in virtue by adopting production-based targets with greater enthusiasm than others if carbon-intensive industries simply transfer to the developing countries, effectively outsourcing emissions.

Far better to discourage consumption of carbon-intensive products everywhere and let them be produced in the most favourable locations.

Sunday Independent

Today's news headlines, directly to your inbox every morning.

Don't Miss