Professor John FitzGerald:

I submitted my statement before the plan was published. I will say a few words on the plan. The Climate Change Advisory Council, CCAC, welcomes the plan that was published yesterday as a major step forward. It includes realistic sectoral targets and appropriate governance to ensure a successful transition. It provides for an early warning to be issued if we are underperforming. Rather than making optimistic assumptions about oil prices, which would reduce the magnitude of the challenges we face, the plan is more realistic. This is to be welcomed. The next task is to ensure the detailed measures proposed in the plan are implemented in an appropriate timescale.

As the statement I have submitted makes clear, the costs of doing too little on climate change are far greater than the costs of doing too much. We should be erring on the side of caution by doing too much, but we are actually doing too little. Ireland has set itself a binding target of decarbonising by 2050, with key milestones along the way. The plan sets out realistic targets for 2030. Out to 2050, however, it involves a significant rate of acceleration. If we had seen a trajectory to 2050, we might be able to say we should be doing more by 2030 to meet the 2050 target. That remains to be seen. Our job is to provide independent advice on the most cost-effective way of meeting our climate change goals.

On carbon taxation, a wide range of research in Ireland and elsewhere shows that if global warming is to be halted, it is essential that we raise the cost of emitting greenhouse gases. One of the key messages from the CCAC in successive reports has been that if we are to make progress, we need to implement rising carbon taxes that reflect the potential damage done by emitting greenhouse gases. Various other measures and policies are needed to bring about decarbonisation, but they will be significantly undermined if emitting greenhouse gases remains the cheap option. The carbon tax in Ireland and the carbon price in the EU emissions trading system are too low. That is one of the reasons we are underachieving.

It is important to put a price on carbon dioxide emissions for three key reasons. First, it discourages the use of fossil fuels and makes it comparatively cheaper to use electric cars and upgrade our homes. If emissions are priced appropriately, businesses and the Government will find that the elimination of greenhouse gas emissions saves money. Second, carbon pricing, especially the carbon tax, provides the Government with revenue it can use to compensate or support those who are on low incomes. Such revenue can be used in the budget to reduce other taxes or to increase expenditure. Research shows that shifting from taxes on labour or indirect taxes to taxes on carbon can increase employment. The use of the revenue from a tax of this nature can affect the distributional effects of the tax and can have beneficial effects on the economy as a whole. The third and most important reason to price emissions is to incentivise businesses and households to invest in new technologies. This will allow us to continue to enjoy a reasonably high standard of living while eliminating greenhouse gas emissions.

Those involved in companies like Volkswagen are investing billions in the development of electric cars not because they are nice people but because they know they will be priced out of the market if this does not happen. This shows that the expectation that prices will increase drives technological development. The current carbon pricing levels are too low to drive real change. In light of our failure to take action in this respect in the previous budget, I suggest that the carbon tax should be increased to €35 a tonne in the next budget, with a commitment to increasing it to at least €80 a tonne by 2030. It is important for the Government and the Oireachtas to give a commitment to an increasing trajectory over time so people know that if they invest in reducing emissions, they will make money in the future.

A massive body of evidence from across the world shows that carbon taxes are essential. There are very few carbon tax deniers in the economics community. A recent statement by a large number of American economists, including 27 Nobel prize winners, identified carbon taxes as essential for the US and the world. The OECD and the EU led the way in 1990 and 1992, but unfortunately Ireland rejected the proposal to raise a carbon tax at EU level in 1992 on the basis that we did not believe in tax harmonisation. That was a very unwise move by Ireland at the time.

The research carried out by the ESRI showed that it would have been beneficial for Ireland if it had gone ahead with that EU proposal. There have been many papers since 1992, some of which two colleagues from the ESRI have been involved in, all of which show that carbon taxes are essential to driving the decarbonisation of the economy. There has been at least one per year over a 30-year period. The council advocates hypothecation of the revenue from carbon taxes, using it to compensate those on low incomes who might otherwise carry a disproportionate share of the additional tax burden, promoting investment in dealing with climate change, and returning residual income to households.

As long ago as 1992, an ESRI study indicated that 30% of the revenue from a carbon tax would need to be used to compensate those on low incomes. Many papers since then have considered the issue. A useful paper by Barra Roantree from the ESRI published last week considers a range of options that provide the information the Government and Oireachtas need to determine how best to carry out a just transition. While advocating a just transition approach, the council has not favoured a particular scheme for achieving it. Detailed policies on how best to redistribute income are a matter for the Government and the Oireachtas, not for an advisory group on climate policy.

It is important that the investment programme to be financed in budget 2020 be subjected to rigorous assessment using the parameters of the revised public spending code, PSC. This code assumes that an appropriate price of carbon for 2050 is €260 a tonne. Using the recommended discount rate in the code, this implies a price today of approximately €80 a tonne. In planning for the future, the Government should take account of the fact that saving emissions is worth €80 per tonne today and could have a significant effect, for example, on the State's investment in vehicles. In planning to ramp up investment in retrofitting houses and other buildings, it will be important to take account of the capacity of the building industry to deliver. The plan pays particular attention to this issue, which is welcome. The expertise and skills need to be developed to undertake this work and this may take some time. However, the plans states that these investments in retrofitting houses will make sense if the carbon price is €30 or €80 per tonne. It emphasises that this will not happen unless the carbon tax is raised, as we recommend. One way of developing this expertise would be to gradually ramp up contracts to retrofit the stock of local authority dwellings owned by the State. The State is the landlord and is responsible for doing so. In doing so, the State would signal that investment in this sector will be a major feature of the coming decades. Developing the building industry capacity and skills to deliver it will be worthwhile. This investment would also substantially reduce emissions from families in local authority dwellings, many of which are on low incomes, and substantially reduce their expenditure, thus benefitting them in other ways and, in the case of more elderly tenants, bring significant health benefits.

In conclusion, carbon pricing alone will not deliver the necessary emissions reductions but delivering emissions reductions without a sufficient carbon price will be almost impossible and certainly much more expensive. Increasing the cost of emitting carbon is not a once-off commitment but must be sustained over the coming decade.