Wednesday 16 October 2019

Colm McCarthy: 'Varadkar bans drilling for oil never found in Ireland's waters'

The numbers just don't add up to support the future of Ireland's climate policy

'Our sovereign wealth fund exists only in the imagination of the Taoiseach's speech-writer.' Photo: Niall Carson/PA
'Our sovereign wealth fund exists only in the imagination of the Taoiseach's speech-writer.' Photo: Niall Carson/PA
Colm McCarthy

Colm McCarthy

Ireland's climate policy has been attracting public demonstrations, media coverage and political attention in recent weeks, but no greater clarity has emerged.

"Our sovereign wealth fund has divested from fossil fuels," declaimed the Taoiseach at the UN climate summit in New York last Monday - news which should gladden the hearts of taxpayers and climate campaigners alike. It is quite a surprise to discover that Ireland possesses a sovereign wealth fund at all, never mind one large enough to pull the strings of international capitalism, guiding the errant to righteousness.

As recently as 2010, this country was forced to borrow from the IMF for the first time in its history, unable to finance itself under the crippling burden of state debt. Nine years later, despite substantial extra borrowing and with more in prospect, you are invited to believe that the lucky nation is suddenly possessed of a sovereign wealth fund. Even better, its conscientious deployment offers enough impact on the fossil fuel industry to merit mention at the United Nations.

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The facts are as follows. There is a fund called the Irish Strategic Investment Fund (ISIF) whose origins date back to the financial crash. The government mobilised whatever financial assets were to hand, including the assets of the National Pension Reserve Fund, to help re-finance the bust banking system. ISIF has €5.3bn in assets, enough to run the health service from now until Christmas. It is a subsidiary of the National Treasury Management Agency, whose principal duty is the management of the government debt, which happens to be 40 times larger at €205bn. There is no sovereign wealth fund, because there is no sovereign wealth. The State has modest financial assets, dwarfed by the financial liabilities, and is overall a net debtor. Bigly, as the president of the USA might put it.

Our sovereign wealth fund exists only in the imagination of the Taoiseach's speech-writer. Liquidating ISIF's €5.3bn in assets would cause not a ripple in the market, even if it consisted entirely of equity in fossil fuel companies. Exxon alone has a market capitalisation around 50 times this figure and when ISIF sold its fossil fuel shares earlier this year, they realised all of €72m, roughly the daily turnover of oil stocks on the London exchange.

The Taoiseach went on to announce a ban on offshore oil, but not gas, exploration. Since exploration offshore Ireland started back in 1970, not a single commercial oil find has resulted from the 160 wells drilled. The key marketing skill in creating a successful Irish exploration company has not been the ability to sell either oil or gas, but the ability to sell shares. Just two significant gas fields have gone into production, the Kinsale Head field off Co Cork, now virtually depleted, and the Corrib field off Co Mayo, with five or six years of production left. Unless someone finds more gas immediately, Ireland will be entirely dependent on gas imports very soon.

Fields are rarely encountered containing gas without oil, and gas-only fields cannot be identified in advance of laying out €100m and upwards per exploration well. It is not even clear to experts what it means to permit gas, but not oil, exploration. According to industry veteran John Teeling, quoted in last Friday's Irish Times, the result will be no exploration at all, rather than very little as at present. The success rate for explorers offshore Ireland has been poor, and Teeling, who knows a thing or two about dry holes, believes explorers will simply not bother. "There are hundreds of other places where they can lose money" was his verdict.

Norway, a country matching Ireland's population, has a real sovereign wealth fund - state financial assets exceed liabilities, the accumulated fruit of oil and gas revenues converted into budget surpluses down the decades. The main fund totals €1trn, five times the Irish debt. Each Norwegian has state assets of about €200,000, while each Irish citizen is in the hole for about €40,000. The Norwegians agonise about the ethics of investing their oil wealth but have craftily declined to ban oil exploration. They have curtailed investment in fossil fuel assets only outside Norway. A sacrifice to match the meaningless gestures by Ireland would be to ban the construction of beach resorts in the Arctic.

The security of gas supplies is a serious issue. Last week Eirgrid, the state company which operates the electricity transmission system, released its annual assessment of generation adequacy. Ireland will run short of power generation after the Moneypoint coal station closes in 2025, mainly because of the huge increase in demand from data centres which Eirgrid intends passively to accommodate. There will be a continuing reliance on gas through the energy transition: it is not possible to rely entirely on intermittent renewables, and Eirgrid expects new gas stations will be needed. They have carbon emissions lower than coal or peat (the peat stations are also on the way out) and nuclear looks more costly with current technology. It would be prudent to encourage explorers to find some gas, and to develop diversified gas importation capacity in case they fail. Just why Ireland should volunteer to host power-hungry data centres way beyond Irish requirements, and why they are so keen to locate here, are questions no minister or state agency has chosen to answer.

Eirgrid has adopted the new government target of 70pc reliance on renewable power generation by 2030. Today's figure, high by international standards, is around 30pc. The target implies a huge increase in both onshore and offshore wind as well as new solar farms. Since renewable generation is geographically dispersed, there is a further requirement for extra investment in the transmission network to bring power to users.

Subsidies to wind farms and the hidden extra costs of transmission are all passed on to customers and Irish electricity tariffs are already expensive. The installed capacity of wind farms on the Irish system would need to treble, and there are to be new interconnectors to the UK and French systems. Engineers reckon the total cost, all of which will end up on customer bills, could exceed €20bn.

Public resistance to the construction of wind farms and high-voltage transmission lines has grown and the projects envisaged by Eirgrid will encounter planning delays. There is a further problem. The stability of a national power system weakens when the proportion of intermittent and weather-dependent generation goes up. There needs to be costly back-up or there is a risk of black-outs, and recent episodes in the UK and South Australia have been attributed to the increasing share of interruptible supplies on their systems. If Eirgrid ends up with 70pc reliance on interruptible power, it will be operating at the technical frontier of what has ever been attempted anywhere.

The task of climate policy is the identification of pathways to decarbonisation at minimum cost. A forecast is not a policy and there is no obligation on Ireland to accommodate huge extra demand from data centres at customer expense. The absence of a detailed cost analysis in the Eirgrid report is worrying: if Eirgrid is not doing the sums, who is?

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