Oireachtas Joint and Select Committees
Wednesday, 1 March 2023
Committee on Budgetary Oversight
Report of the Commission on Taxation and Welfare: Discussion (Resumed)
Barry Cowen (Laois-Offaly, Fianna Fail)
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I apologise to our guests for the delay. A vote was called. The necessity to attend in the House for votes can disrupt our meetings. I welcome Ms Marie Donnelly and Professor John FitzGerald from the Climate Change Advisory Council and Dr. Kelly de Bruin and Dr. Niall Farrell from the Economic and Social Research Institute, ESRI. The purpose of this meeting is to discuss chapters 13 and 15 of the report of the Commission on Taxation and Welfare.
Before we begin, I wish to explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. However, witnesses giving evidence remotely from a place outside the parliamentary precincts may not benefit from the same level of immunity from legal proceedings that a witness who is physically present does. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in respect of an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative they comply with any such direction.
Members are reminded of the long-standing parliamentary practice to the effect they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable. I remind members of the constitutional requirement that they must be physically present within the confines of the place in which Parliament has chosen to sit, namely, Leinster House, to participate in public meetings. I will not permit members to participate where they do not adhere to this constitutional requirement. Therefore, any member who attempts to participate from outside the precincts will be asked to leave the meeting.
I invite Dr. de Bruin to make her opening statement.
Dr. Kelly de Bruin:
I thank the Chair for the invitation to appear before the committee. I am the head of the climate economy modelling team at the ESRI. I am joined by my colleague Dr. Farrell.
This committee is considering the budgetary implications of the report prepared by the Commission on Taxation and Welfare. We will provide insight relevant to chapter 13 of this report, which focuses on moving to a low-carbon economy. It is important policies be targeted towards correcting for specific market failures. Well-designed climate policy ensures we can achieve the required emissions reductions while minimising disruption to economic and social activity. In doing so, we must ensure the distribution of this burden is fair. I will give a sense of the current work being conducted at the ESRI concerning the Irish carbon tax and fossil fuel subsidy removal and convey our results regarding these issues. Our goal is to provide insight to guide policy formation.
To contextualise our results, a general understanding of our methods will be useful. Hence, I will first give a short, non-technical overview of our model, the Ireland environment, energy and economy, I3E, model, which was applied to research these issues. The I3E model is an intertemporal computable general equilibrium, CGE, model, that reproduces the structure of the economy in its entirety. It includes production sectors, households and the Government, among others. The model quantifies the nature of all existing economic transactions among diverse economic agents. According to microeconomic behaviour, producers and consumers maximise their profits and utility given their budget constraints. In other words, a CGE model examines how inputs and outputs flow between production sectors of the economy and result in final goods consumed by households.
The explicit modelling of sectorial interlinkages makes it possible to investigate the wider economic impacts of a specific shock or policy through the different transmission channels in the economy. Therefore, CGE models have become a standard tool for empirical analysis. They are widely used to analyse the welfare and distributional impacts of policies whose effects may be transmitted through multiple markets and channels in the economy. Such secondary impacts are of critical importance in the case of climate policies.
The first recommendation we will discuss concerns the gradual increase of the carbon tax to €100 per tonne in 2030 and clarity on the tax path post 2030. Our research has extensively examined the impacts of carbon taxation. The results from the I3E model show that the proposed carbon tax increase has the potential to reduce emissions by approximately 16% by 2030 when compared with the absence of an increase. The associated economic costs are limited, with an estimated cumulative decrease in real GDP by 2030 of 1.4% and a 2% decrease in real Government revenues. There may be economic benefits if carbon revenues are recycled to reduce other taxes in the economy, with our analysis finding an increase in real GDP as well as reduced emissions, but with larger impacts on Government revenues.
Much evidence exists to examine the distributional impact of carbon taxation. When considered in isolation, a carbon tax is found to have a regressive impact, that is, the cost constitutes a greater share of the budget for a low-income household. With a responsive government welfare system, the carbon tax increase need not increase inequality across households and can be net progressive.
The second recommendation we consider is the equalisation of the rate of excise duty on petrol and diesel. Our estimates show this could lead to an almost 4% decrease in emissions, a 0.3% decrease in real GDP and a negligible impact on real Government revenues by 2030.
The third recommendation we will comment on is the reduction of fossil fuel subsidies. Our work shows that the full removal of fossil fuel subsidies has a similar impact on emissions to the planned increase in carbon taxation, namely, a 16% decrease by 2030. Real GDP impacts are slightly higher than the carbon tax increase, with an estimated 1.6% decrease by 2030. Given the high level of fossil fuel subsidies, the increased revenue created by removing fossil fuel subsidies is higher than the increased revenue from the higher carbon tax. Therefore, the removal of fossil fuel subsidies will result in a smaller reduction in real Government revenues compared with a carbon tax increase, at 0.2% compared with 2%. The economic impacts are, however, distributed more evenly with carbon taxation, where certain sectors will face large impacts under fossil fuel subsidy removal. These sectors would need support in this transition. As for fossil fuel subsidies to households in the form of fuel allowances, we find that the removal of these subsidies has negligible economic and emission reduction impacts as they are not directly connected to energy use. However, this is a highly regressive policy, given poorer households would face large negative impacts.
We would also like to draw members’ attention to an additional issue not specifically discussed in the report. We believe the EU emissions trading system, ETS, price will be of pertinent importance for the Irish economy and the Government budget. The EU ETS price, as projected by the EU, will increase to about €430 by 2030. Should this be realised, it will have considerable impacts on the Irish economy and Government revenues. Although this policy is determined at EU level, we believe the associated impacts for Ireland should be considered in more detail. Currently, the Government receives a large share of these EU ETS revenues and this stream of revenue should be considered when discussing the budgetary impacts of moving to a low-carbon economy.
The fiscal impacts of these recommendations on public balances are dependent on the secondary impacts. Policies can be designed to increase revenues but may lead to a decrease in net Government revenues due to the economy’s response to these policy changes. Receipts of sales taxes, wage taxes and corporation taxes decrease due to the dampening economic impacts of policies, which can outweigh the increase in carbon tax receipts or the reduction in fossil fuel subsidies.
The economic and budgetary impacts of a carbon tax or fossil fuel subsidy removal will strongly depend on the policy design. A well-designed carbon tax and revenue recycling scheme can assist in reaching other policy goals, such as economic growth and inequality reduction, in addition to emissions reduction. The design should carefully consider the effects of policy-induced behavioural change of households, enterprises and the Government in the transition to a low-carbon economy.
We wish the committee every success. We will be happy to assist it in the coming months.
Barry Cowen (Laois-Offaly, Fianna Fail)
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I thank Dr. de Bruin and invite Ms Donnelly to give her opening statement.
Ms Marie Donnelly:
I thank the committee for the invitation to discuss how the taxation system can help Ireland move to a low-carbon economy. I am the chair of the Climate Change Advisory Council. I am joined by Professor John FitzGerald, fellow council member and a former chair. The council welcomes this opportunity to have a conversation on how we can use the taxation system and other measures to take urgent action in response to the climate crisis and to meet our legislative requirements.
We welcome the report of the Commission on Taxation and Welfare. Since its establishment, the Climate Change Advisory Council has made recommendations in respect of the tax system and these are broadly in line with the recommendations we find within the commission’s recent report. The council has called for swift and decisive action to meet our legally binding targets, and to support people and communities by addressing Ireland’s dependence on harmful fossil fuels, which is a root cause of high energy costs, supply instability and high levels of carbon dioxide emissions.
The council has been consistent in its support to Government for the carbon tax and the planned gradual increase to €100 by 2030, as also supported by the commission. In 2022, the Government collected a total of €430 million in carbon tax revenue. This money is ring-fenced for the continuation and enhancement of retrofit supports, welfare transfers to protect the most vulnerable households and investment in sustainable agriculture. The certainty of this carbon tax increment is key to encouraging investment decisions and meeting decarbonisation targets. However, the Government needs to start to consider its approach to the carbon tax and other measures post 2030 in the context of supporting low-carbon investments, especially in light of recent developments at EU level. Ireland has an exemption from the recently agreed buildings and roads emissions trading system up to 2030, but we will have to consider what approach to take after that date.
The intervention of the tax system is most visible in the transport sector, where motor tax and fossil fuel excise duties apply. Despite the imposition of these taxes, emissions in the transport sector have increased more than twofold since 1990. This illustrates the reality that taxes alone will not deliver sufficient change to meet our targets. Ultimately, emissions reductions in the transport sector and in other sectors will only be seen when we have both reduction in transport demand and decarbonisation of remaining journeys. This can only happen with good spatial planning and with sufficient active and public transport options being made available. As a result, we need to ensure that funding for active and public transport is maintained and even increased, and that remaining motorised private transport is decarbonised.
In 2022, Ireland spent more than €1 million per hour - a total of €8.7 billion - importing fossil fuels such as oil and gas into the State. This is money that leaves the country. On average, approximately €4.1 billion in tax revenue is raised through motor tax, vehicle registration tax and fuel excise duties annually. According to the Central Statistics Office, CSO, the total budgetary cost of fossil fuel subsidies in Ireland in 2019 was €2.8 billion. This included tax exemptions, reduced excise rates and welfare payments. The imbalance is clear. We need to channel much greater resources towards reducing our dependence on imported fossil fuels, otherwise we will not achieve our climate goals.
We are now in year three of the first carbon budget. Increased ambition and accelerated action are needed if we are to stay within our carbon budgets. The commission’s report echoes many of the recommendations previously proposed by the Climate Change Advisory Council. The necessary actions are clear. We now need urgent implementation. The council is happy to assist the committee in its deliberations. We look forward to the discussion.
Barry Cowen (Laois-Offaly, Fianna Fail)
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I thank Ms Donnelly. We will now open to the floor to the members.
Mairead Farrell (Galway West, Sinn Fein)
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Gabhaim buíochas leis na finnéithe as teacht os comhair an choiste. I look forward to our engagement. I thank the witnesses for taking the time to come before the committee.
My first question is for the ESRI. With regard to the model, Dr. de Bruin stated that the results show that the proposed carbon tax increase has the potential to reduce emissions by approximately 16% by 2030 when compared with the absence of an increase. One of the things that is often said about predictive models is that they are only as good as the assumptions they are based on. Dr. de Bruin stated: "According to microeconomic behaviour, producers and consumers maximise their profits and utility given their budget constraints." This means that the model assumes switching behaviour on behalf of rational consumers in line with rational choice theory. Dr. de Bruin also mentioned that this is done within budget constraints.
I have three questions. We know that consumer choices are often found to be inconsistent with the assumptions of rational choice theory. How does the model account for that? In the context of budget constraints, will Dr. de Bruin explain how the model will work in practice? From my experience, tax can be used to change behaviour provided there is the essential aspect of an affordable alternative. Many of my constituents are extremely environmentally conscious, but a lot of people are struggling financially at the moment. These people are not able to afford a Tesla or a hybrid car of any description. They cannot afford to install solar panels on their roofs, and so on. The tax just increases their cost of living but does not make an electric car any cheaper for them. I am interested in the witnesses' views on that.
The war has massively increased the cost of carbon. The reduction in the availability and supply of Russian oil, gas and coal has pushed up the cost. Presumably, if the theory on switching behaviour in response to price increases is true, we should already have witnessed a massive switch because of inflation. Do we have any evidence to demonstrate that this has happened? Perhaps Dr. de Bruin could talk us through how the model deals with these three issues. That would be great.
Dr. Kelly de Bruin:
I thank the Deputy for those very detailed questions. First, I would like to accentuate that our model only looks at the policy of carbon taxation; it does not include other policies that would also be needed to help people to switch. For example, we do not look at subsidies or the Sustainable Energy Authority of Ireland grants to help people to switch to low-carbon alternatives. Our model looks at a baseline. We do not look at people switching to new technologies; we look at them making relatively easy switches. These will result in a 16% reduction in emissions. The latter will not be from one year to the next; it will happen over the next eight years. It is a gradual reduction.
I agree that is very hard for people to switch. That is part of it. Policies need to be in place to help people to switch in order that we might achieve a more significant reduction in emissions. The 16% reduction is what we will only get with the carbon taxation and not with additional possible policies to help people switch to more sustainable choices.
On the impact-----
Mairead Farrell (Galway West, Sinn Fein)
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In the interests of clarity, what is that 16% based on? Is it that people just cannot afford it? Is that what Dr. de Bruin means.
Mairead Farrell (Galway West, Sinn Fein)
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I am thinking of those people who do not have the means. I do not mean this in an argumentative way; I am just trying to figure it out. I am referring to people I deal with. I wonder what type of people Dr. de Bruin is referring to. Is she talking about a certain class of people? I just do not know how the people I deal with will be able to make a switch.
Dr. Kelly de Bruin:
The model does not refer to any specific people or any class of people. It is exactly what the Deputy said. It is a 16% reduction. Obviously, we are not assuming that people can just readily switch.
In that sense, we agree with the Deputy. An emissions reduction of 16% does not mean everybody is retrofitting their houses and switching to electric vehicles, EVs. Otherwise, the figure would be much higher.
Dr. Farrell might have some insights concerning the questions on the situation post-Ukraine war.
Dr. Niall Farrell:
In that context, people respond to the duration of incentives given. The response to a short-run spike is usually a short-run accommodation of change. We have not got to the stage where we are starting to think about Ukraine-related price increases in the long run. Perhaps, at present, it is more a case of a short-run blip and people trying to get through the current period. Anecdotally, that is what we have observed. I do not have any evidence to back this up but, anecdotally, it can be seen that there is more discussion of alternatives, such as EVs, solar and so on, in the home. If we start moving the conversation towards a more long-term change in prices, it would be expected that responses would be more in the line of long-run switches.
Mairead Farrell (Galway West, Sinn Fein)
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That is interesting. What does the ESRI consider constitutes long run? What is the period in people's heads? This is now a situation whereby people have to think it will be long term. How does the ESRI categorise that?
Dr. Niall Farrell:
What has been on everybody's mind over the past while was how to get through the winter, and how we made sure everybody had enough income to afford to heat their homes, etc. We are over the hump of the initial price shock and are now at the stage of settling into an equilibrium. If the political situation stays the way it is, we hope we will settle down into some sort of equilibrium. We are now in an equilibrium where the cost of fuel is higher than it was when we had cheap Russian gas. We now have a situation where much of our gas is the more expensive liquefied natural gas, LNG. We will settle somewhere there. We now have to start thinking about how we get through the medium term over the next four years or so, where we will still be trying to roll out renewables, which might be the lower cost alternative, but we have a production restraint in getting there. When that becomes more visible, perhaps it will be more salient for householders that they have to start thinking more about their long-term strategy.
Mairead Farrell (Galway West, Sinn Fein)
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I thank Dr. Farrell for that. It is interesting. I have another question for the ESRI regarding modern methods of construction, MMC. A recent ESRI report noted the contribution a transition to MMC could make towards less wastage, lower carbon emissions, less commuting, less pollution and so on. It is an area I am interested in but little progress has been made on it. The Department of Public Expenditure, National Development Plan Delivery and Reform set up a construction sector working group in 2018, which was a collaboration between industry and various Departments and State bodies. It produced some excellent reports but we are five years on from its establishment and bricks and mortar are still the order of the day. In the ESRI's view, what is serving as a barrier to the widespread roll-out of MMC?
Mairead Farrell (Galway West, Sinn Fein)
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Okay. That would be great. It is an area I have a particular interest in. I did not want to let the opportunity pass. I thank Dr. de Bruin for that.
Mairead Farrell (Galway West, Sinn Fein)
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It is very important to our delivery of housing, in addition to meeting our climate targets.
If any of the CCAC representatives want to jump in on any of the previous questions, be my guest. Do they want to do that or should I continue?
Ms Marie Donnelly:
My only comment relates to the point I took most note of when Dr. de Bruin talked about the carbon tax, which is the message that this tax can be regressive but balancing it with welfare measures is progressive. We have seen that now. The fact the carbon tax is ring-fenced to support retrofits and for welfare supports to people and sustainable agriculture is an important message around that tax and brings it into better balance.
Mairead Farrell (Galway West, Sinn Fein)
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Everybody is trying to help and so on but I see it from the perspective of my constituents who are living in social housing. I want retrofitting as quickly as possible for all such people. I see people with chronic obstructive pulmonary disease living in houses that are freezing, with windows that do not even fit properly. I know a woman who is reliant on an old range. The house was built in the 1950s and I would not be surprised if that range also dates from the 1950s. I would like retrofitting to take place much quicker.
Another area I am interested in, which is probably not talked about that much other than at this committee, is that of hemp and its absorption of CO2 per hectare. In France, the Government requires that all public buildings be built from at least 50% timber or biomaterials, mainly hemp, which can be used to make concrete. Do the representatives have any thoughts on this? It seems it could be an area we could look it in getting to our emissions targets. I am interested to hear their thoughts on that.
Ms Marie Donnelly:
I had two conversations with the hemp association in Ireland on the progress that has been made and the recognition of it. I put its members in contact with the SEAI to have a better recognition of hemp and its role in the construction process. For example, the council has requested and supported the notion and objective of increasing the use of wood in the construction of houses in Ireland. As the Deputy knows, building regulations allow for construction of up to three floors using wood, but in other parts of Europe it can go as high as ten. An update of the regulations, benefiting from the experience elsewhere, could take us in a positive direction.
Mairead Farrell (Galway West, Sinn Fein)
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I am also quite interested in the fact it is only three floors. Does the CCAC have a proposal on how high it should go? Does it agree with other countries? Has it made a proposal in that regard?
Ms Marie Donnelly:
We have spoken with officials from the Department of Housing, Local Government and Heritage. We have what we call sectoral meetings with them. In fact, we raised that issue at our most recent meeting. They said to us they are looking at a revision of the building regulations, which would allow the height go to a higher level.
Mairead Farrell (Galway West, Sinn Fein)
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I thank Ms Donnelly. I apologise to the Chair, but I have to attend another meeting. I thank everyone for coming.
Barry Cowen (Laois-Offaly, Fianna Fail)
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I am very much in favour of more timber buildings and at a higher scale.
Aindrias Moynihan (Cork North West, Fianna Fail)
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Both chapters 13 and 15 concern low carbon. I thank the witnesses for the outline and for being here today. The commission is recommending a reduction in fossil fuel subsidies on a phased basis and, at the same time, that carbon taxes are set out as planned. There will be options available to some people as regards public transport. Many others, however, will not have a public transport option available that will allow them to switch. The Connecting Ireland plan does not set out what bus services should be put in place for many communities near where I live, for example, Ballingeary, or capacity for the fairly densely populated Bride Valley that would allow people to get to and from work on public transport. That is not set out in the Connecting Ireland plan. I am trying to get an understanding of what alternatives will be available to households, such as those I mentioned, if that course of action is followed.
Similarly, many of these same houses or communities are dependent on home heating oil to run their homes. While people who live in them are very much in favour of moving towards more insulated buildings and more electric options, that is slow and expensive. There are clear alternatives with, for example, hydrotreated vegetable oil, HVO, fuel, which quickly gives a carbon-neutral result.
However, taxation and the bias in respect of HVO seems almost to keep it away from home heating. I would be interested in Dr. Farrell's view on that. Could it be an option that would quickly switch people over to a carbon-neutral home heating option?
Dr. Niall Farrell:
When it comes to enabling it, I fully agree that there need to be alternatives and something that people can switch to. That is an important point to take into account when designing the policies in this regard. I stress that the alternatives are there to help the carbon tax to work better and the tax is designed to incentivise the shift. There are two arms to the application: we need to make the bad thing more expensive and the good thing more accessible. Both elements are there. If we do not do that, there is international evidence that shows that if goods are simply subsidised, everyone switches to the cheaper option, which is subsidised, but then what happens to the fossil fuel option is, demand goes down, the price goes down and people start to switch back. We need to make that expensive, which is a fundamental element. I agree that goods need to be made accessible. I am from County Longford. I grew up in an one-off house so I know all about being tied to a car. I would separate the two issues. There is the current housing situation and then there is the future. For the current situation, options include EVs and so forth, which needs to made more affordable. However, future planning is important. Planning needs to be sustainable, there needs to be a situation where amenities are close in order that people are not as tied to a car to get around and for social activities. In regard to heating, is the Deputy referring to hydrogen heating? I did not catch that.
Aindrias Moynihan (Cork North West, Fianna Fail)
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I referred to the vegetable oil option for heating.
Aindrias Moynihan (Cork North West, Fianna Fail)
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It would be almost a direct replacement for home heating oil. The burners would be modified in the home. It runs in much the same way, with existing radiators and burners-----
Aindrias Moynihan (Cork North West, Fianna Fail)
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It is zero carbon.
Dr. Niall Farrell:
It is zero-carbon net in that in the sense that it has been grown during its lifetime and CO2 has been taken in from the atmosphere, but then it releases carbon when it is produced. Assuming all the steps along the way are well thought-out and accounted for in respect to accounting, that is fine, but there is evidence to suggest that sometimes there can be creative accounting around that. That is something that needs to be borne in mind.
Aindrias Moynihan (Cork North West, Fianna Fail)
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My reading of it is that much of the bias in respect of the HVO is to keep it for transport. It seems not to be available for home heating whereas there is what appears to be a quick and easy turnaround to provide a zero-carbon option because fuel is generated from waste.
I will move over to public health, chapter 15 please.
Barry Cowen (Laois-Offaly, Fianna Fail)
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I advise the Deputy that some of our witnesses might not be-----
Aindrias Moynihan (Cork North West, Fianna Fail)
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Okay. We can come back on it.
Barry Cowen (Laois-Offaly, Fianna Fail)
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Yes, informally. I call Deputy Durkan.
Bernard Durkan (Kildare North, Fine Gael)
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I apologise for missing the meeting last week. It was chaotic, in more ways than one. I welcome our guests. I am reasonably up to speed on the issues concerned. We are playing our part in decarbonisation and compliance with measures to reduce emissions. The danger is that a division will arise between urban and rural on this issue on the basis that the rural dwelling is the cause of all the problems. Of course, that is not the case. If there is a problem, one of the early sufferers could be urban areas, which are the most densely populated. Any changes such as a reduction in food production would have immediate impact of a nature that we have not yet seen. As I said recently, and I am not saying that I am always right, but I predicted the housing crisis 25 years ago when nobody believed or accepted what I was saying. I now predict a food shortage in the not-too-distant future. All the signs are there to substantiate that on the basis that allegedly we have to reduce production. I am not so sure about that. I believe that much can be done scientifically with diet and huge strides have been made in that regard.
I was in a rural area the other night and a number of people raised concerns about the countries throughout Europe and further afield that do not seem to be changing their habits at all and are doing the same things they were doing to a greater extent than ten years ago. They are building coal-fired generating facilities and many other things unabated that have consequences for emissions. People are asking whether we can be sure that other countries, both in Europe and further afield, that have a contribution to make to CO2 emissions reduction and all that entails, are doing it. Are we doing more than our fair share given that we produce sufficient food in this country to feed 50 million people? That is substantial. That means we are incurring emissions for 50 million people. Of course, the question people ask is, “What is happening there?” If we reduce that level of production then it has to come from somewhere else. Where will it come from? How will it be dealt with? Will it be dealt with in a way that is open?
My last point is that they could come up with fairly accurate figures for population growth over the past 15 or 20 years, and for CO2 emissions reductions and measures taken to reduce all the burning that has taken place in various places. How much have they been reduced by? Are they being reduced proportionally or are we in this country taking it very much to heart and saying, “We have to do more”? We are allegedly one of the biggest pollutants. Whoever came up with that phrase has to answer that again. They are asking these questions and are not going to vote for politicians such as myself and others like me of this era, because they will see themselves as under threat. They will go for more radical attitudes. There will be political consequences. I am putting it out there now that we need to have a discussion on this to make sure that we can stand over everything that is happening and that we are not just taking every nudge that we get from Europe or elsewhere without having it carefully and scientifically assessed.
Dr. Kelly de Bruin:
Within the EU, we are all working towards the same goal. We have a European Union ETS system that covers all EU countries with the same carbon price. Non-ETS targets have been set. We can talk about whether that has been fairly set, which is a valid question. However, a great deal of work and detail goes into this. It is difficult for all EU countries. We all believe we are in the same position of having to cut emissions and it is not an easy task. The frustrations felt in Ireland are also felt throughout the rest of Europe. That is evidenced by the protests that are happening and the concerns being raised in other countries.
We did some work on examining the amount of emissions embedded in what we import into Ireland. While we export a large amount of beef products and a great deal of emissions go into the production of these, we import three times more than we export. As an island, we are a net importer of emissions, so I do not believe that reducing our emissions is doing more than our fair share. On the balance, reductions will have to be made around the world. That is the unfortunate situation.
Bernard Durkan (Kildare North, Fine Gael)
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But who is making the reductions-----
Barry Cowen (Laois-Offaly, Fianna Fail)
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I am sorry, Deputy. I will allow Ms Donnelly to contribute.
Bernard Durkan (Kildare North, Fine Gael)
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-----imports.
Ms Marie Donnelly:
I will try to address some of the points the Deputy raised. He is right, in that we are in a transition as well as a difficult position, and some of the choices and actions we are going to have to take will be difficult. However, we must start by understanding where we are. We are in a climate crisis. No one can deny that. We can see it in Ireland, Europe and across the world. That is a reality. It is no longer a scientific theoretical concept. It is real and it is here.
We know we need to do something. It is important that everyone does something. It is not enough for one country or even one region to do it. Everyone has to do it because, at the end of the day, climate change does not recognise geographic or national borders. This is why we have the Paris Agreement and our objectives under that. It is why we have 190 countries that are committed to achieving the goals of the Paris Agreement. Ireland is a signatory to that, which is why we introduced legislation in 2021, set our targets and are taking measures. We are playing our part. We are a grown-up nation that is a part of the world and we are doing our bit. It is not easy.
It is important that we divide our emissions into two broad categories, the first of which is CO2 from fossil fuels like oil and gas. We have to buy those fuels from abroad, but we have natural resources that we could use instead. It makes sense to use our own resources in substitute for all of those imports, which represent 67% of our emissions. While there are difficult choices involved and it is not a straightforward issue, people will understand that it makes sense to use our resources instead of importing gas and oil, along with their emissions, from abroad.
The Deputy is right about Ireland being a major exporter of dairy and beef products. Our profile of emissions shows that 34% of our emissions come from agriculture. The only country in the world that has a similar profile is New Zealand. Even the figure in the Netherlands is not as high. We are distinct in that respect. The question we are asking of the agricultural sector is to take a phased and balanced approach towards sustainable agriculture. There is no suggestion that we reduce our food supply. It would not be realistic, and it would not be coherent with the Paris Agreement, Article 3 of which refers to ensuring food supply globally. That said, we need sustainable agricultural production, and we need to support farmers in doing that. We must ensure that, as part of the process, the income that farmers can gain from their activities is maintained. This may mean diversification and some changes. For farmers in Ireland, though, that is not new. They have dealt with different practices and processes down the years. They are the most adaptable people in this country and are the most efficient at taking changes on board. They have a legitimate need to be supported in this transition, as it is real and affects their daily incomes.
Barry Cowen (Laois-Offaly, Fianna Fail)
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Would Deputy Durkan like to respond?
Bernard Durkan (Kildare North, Fine Gael)
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Yes. I agree with everything Ms Donnelly said. A few years ago, I was involved in a campaign to extend wind energy facilities. There was significant opposition to that. People will say that the community was not involved and so forth, but that extension would have had a major impact had we gone ahead with it then. Years later, we have to try to catch up.
People present a question to me that I will put to the witnesses. There are alternatives and food producers have to diversify. Promoters of the proposal say that we can grow trees. That is correct but, as far as I am aware, we cannot eat trees. Wherever it comes from, we need to be able to produce sufficient food to meet our own needs. Otherwise, we will be dependent on imports. If that happens, there will be problems owing to, for example, transport. Our levels will tick up, leaving us in big trouble. As I told an earlier meeting, just one week of food shortages would lead to immediate panic, and understandably so. This is the nub of the issue.
I recognise that we are a signatory to the Paris Agreement. The group that visited me the other night suggested that not all signatories were keeping to their commitments and that, while we were endeavouring to do so, bigger, better, wealthier and more powerful countries were not.
Ms Marie Donnelly:
If I may, I will comment on that. I attended the Conference of the Parties, COP, in Egypt at the end of last year. I was a little disappointed because the commitment from, for example, China and India was lacking. The Deputy is right. Some measures have been taken. For example, China no longer supports the construction of coal-fired power stations outside of China, but it still supports their construction inside China. The people the Deputy spoke to were not wrong, but that does not give us an out. Just because other countries behave badly does not mean that we should as well. We should do what we know is right and continue encouraging, supporting and, indeed, pressuring all partners in the Paris Agreement to play their part through whatever measures are necessary so that, at the end of the day, we all have a climate and a world in which we can live.
Bernard Durkan (Kildare North, Fine Gael)
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I have a last point.
Barry Cowen (Laois-Offaly, Fianna Fail)
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Very briefly, Deputy.
Bernard Durkan (Kildare North, Fine Gael)
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It will be. There is a danger that we might transfer our policy of growing forestry to otherwise productive agricultural land. Trees would grow there more quickly, but this would reduce space for growing food and we would not be able to transfer the land back in one year's time or ten years' time. We will not be able to recover it because land does not work that way. We may find ourselves disadvantaged. I accept Ms Donnelly's point about New Zealand. I have not examined the figures recently and I do not know the extent to which New Zealand has made inroads into reducing its emissions, but either we are all in this together or we will fail. If we have to tell our people that they have to make more sacrifices and import more carbon from the rest of the world to feed themselves, it will not sit too well with them, especially given that we are a country whose food production punches above its weight.
Ms Marie Donnelly:
I will comment on the forestry issue. In the legislation, we set ourselves a target of having a climate-neutral economy and society by 2050. I suspect the Deputy will agree with me that we expect there will still be animals in the field in 2050, in which case we will have methane emissions. If we are to have a climate-neutral economy and society, this means we will have to have some sink mechanism to absorb that methane. This is one of the reasons we need forestry.
It provides the balance to maintain our agriculture on one hand and to have a sink. One balances one with the other. This is the rationale for having the Government targets for forestry and needing forestry to increase in the country, so that we have this balancing of emissions from animals, which we will still have, with the sink coming through in the forest.
Bernard Durkan (Kildare North, Fine Gael)
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I have a last point.
Barry Cowen (Laois-Offaly, Fianna Fail)
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I am afraid I am going to cut Deputy Durkan off. He has had his last point two or three times now.
Bernard Durkan (Kildare North, Fine Gael)
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I will make short comments. There is strong evidence to suggest that the number of animals in the cattle herd on the globe has reduced considerably over the past 20 years.
Barry Cowen (Laois-Offaly, Fianna Fail)
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I think they still outnumber us.
Seán Canney (Galway East, Independent)
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How do I follow that? This is an interesting discussion. We have to take decisions on climate change and climate action. At the same time as we are doing that in this country, many people are finding it hard to actually go along with everything that is being pushed at them. I will tell a story about St. Patrick's weekend in 2017, at this time of year, when I was on a trade mission to China. I went to the Great Wall of China. I met many trucks bombing up the road with black smoke spewing out of their backs. They were lorries bringing coal to the coal power stations in China. It was an incredible sight. I still have that vivid image in my mind. We are trying to do something in this country. We are a small country, yet that is happening across the world. That is just a by the way.
Today I met a group which has a serious concern about the erection of wind turbines beside their properties. We will get green energy and so on from it but the outcry is that this money is being invested by investors in projects to raise money for themselves. They cover it in talk about community dividends and how we will have better electricity. We now have, rising up, many people who are resisting that type of development in places where houses are within 1 km or 2 km of these ginormous wind turbines. At least three are going on in my own county, Galway, at the moment, which are at different stages of planning. It is creating much division and stress among communities. It brings me back to a matter. I am going the long way around this. I am a bit like Deputy Durkan and have much to say about this.
I know people who have gone the other way and put microgeneration solar panels on their roofs. They were sold a pup when they did that because, as of now, some have still not get any kind of payback for the surplus they produce, which is going back into the grid. The energy suppliers have free rein over that. That is not the witnesses' fault but the putting in place of the legislation has been delayed. I got an email from a guy who said to me that he changed energy supplier. He has not been paid by the new guy or the old guy and it has been left in abeyance. He has paid the capital for his photovoltaic panels. Everything is fine, except if somebody comes to him and asks how that has worked out, he would tell that person not to touch it with a 40 ft. pole, because it caused grief and people do not get the payback they are entitled to. That is his take on it.
I know a man who said he was going to do his bit for the environment and bought an electric vehicle. He held onto it for about eight months then sold it again because the infrastructure was not there to support him. He travelled a lot and when he pulled up in a place with a public charger, he would find there were two or three cars in front of him and he would have to wait for two or three hours. It was not at all viable. It is a great that we have this idea that we are going to change over. We need to do it but we are not putting the necessary infrastructure in place to create the new society that we are going to have in advance of doing all of these changes.
We are charging carbon tax to fund this infrastructure that I presume we need. I presume that is what the carbon tax is for at the end of the day. We will use it for things such as providing electric vehicle chargers, or maybe not. One can look at it and ask where we are going with this. One can look at the farmers. Decisions were made which affected my constituency in Galway East and the sugar factory in Tuam. I do not know if they had computers at the time, but some guy sitting in Europe decided that we did not need any more sugar beet factories in this country. During that time, it closed the sugar beet industry in Ireland on the whim of somebody who said it was the right thing to do and we did not need this anymore. The result in my constituency and right across Galway, Mayo and Roscommon was that we got rid of the farming we had at the time, which involved rotational crops. We had the root crops, the barley, wheat and so on. All of these crops were being produced. The ground was being sown. There was probably less beef at the time and fewer cows in our area. The whole thing closed down and people are now raising either sheep or beef. They are being told that is the wrong thing to do and it sticks in their craw that they are being told by somebody else that they are doing the wrong thing.
There are many things that we can discuss about this. I will repeat a question I always ask at the end of the day. If we are going to electrify everything, considering what has happened with the increase in oil prices in the last couple of months and how people put heat pumps into new houses or retrofitted existing ones, what costs do these people face bi-monthly? I have seen bills of up to €2,300 for a two-month period. People were doing the right thing but there is no back-up for them. As we know, electricity prices went through the roof. In essence, I am saying that we are creating a bad taste with all of these policies because this is their effect.
The other question I can think of is technical. I do not know whether the witnesses have the answer. When does the battery in an electric car reach the end of its life? Where does that battery go and what is it replaced with? People tell me that is an environmental problem we will have in ten or 15 years. How do we deal with that? Has anybody talked about this or looked at the plan? I am from a rural constituency. Farmers would say to me that they are the best guardians of the land. We have had an increase in our population. Last week, we had news that there were no tomatoes in the country, for whatever reason. If we keep going down this road, we could end up running out of other food products because we want farmers to cut back on their production, maybe rightly so. Maybe if all farmers were organic and produced half the food, did not use any fertilisers, and did it in an organic way, they might be just as well off, but who will produce the food for a country that has an increasing population? We are exporting food to other places in the world. How will we address all that?
I see this as a big project. Farmers want to buy into it but they are asking many questions. Young people want to buy into it. They actually have the guts to build their own houses, to install air-to-water heat pumps, to retrofit their houses to contribute, and to install microgeneration. What do we tell these people who we have already let down? We are telling them we will have all this done in 2050. That is probably all philosophy, but if we are charging tax, imposing carbon tax and raising fuel taxes to get people to stop using fuel, that money has to be used.
Local authorities have a huge stock of social housing. Many people in my constituency are burning turf. It will take 30 to 40 years to retrofit all those houses, with a huge budget, wherever it will come from, to put in air-to-water heat pumps and solar panels so that they actually meet the standards we will require. That is a reality.
At the moment the local authorities can hardly fix a lock on a door, never mind do anything else. I am being serious about this. It is something we can look at. The money comes out, a scheme of 40 houses in a local authority is delivered and they say that is great. That takes three years between design, procurement and getting it done. People pat themselves on the back over it. It is not a solution to the problem unless we are going to have the money to put into it. I do not know where that is going to come from. That is my rant.
Barry Cowen (Laois-Offaly, Fianna Fail)
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I will hand over to the witnesses. There is a lot in that to go through. I do not know who is brave enough to take it on.
Dr. Niall Farrell:
I have a few thoughts on some of the points. When it comes to lorries or perhaps boats transporting fossil fuels, we have a few of them in Ireland. The Deputy raised an interesting point in that it gives the perception. The perception is important and it feeds into our trust in public representatives. When it comes to climate change, the biggest impediment is getting political buy-in and getting people behind these policies. The Deputy raised the very interesting point that this is a real impediment.
Retrofitting was mentioned. Maybe there are costs in the first year or two, but the outcome over a 20- or 30-year period is what matters. In the long term, if there is a net benefit, it can be a net benefit in terms of costs and comfort. There is research to suggest that people have the sort of present bias that they are more aware of future benefits. That could be an impediment to climate change.
One other interesting point that was mentioned was on wind turbines. A very good paper was done in Maynooth University. There is a very good geography department there. One thing the people there analysed is what sites would be available for wind turbines if there was a certain setback distance between the wind turbine and where houses are allowed to be. Because we have such a distributed population in Ireland, if it is increased by any marginal amount, the sites that will be available are effectively zero, essentially. The lesson there is that if we want to deploy onshore wind, there will be a case where it encroaches near somebody's house. The solution lies in looking at how to ensure that person is looked after and made whole if there is some impact on his or her household. That is a very important question and one that needs to be answered and a discussion that needs to be had. Is it a case of local buy-in in the community? I do not know what the answer is there, but it is something that has to be satisfactory to the householder. It is an important question.
The final point that is very interesting, which was raised by Deputy Durkan, relates to food. I do not know the solution, but if it is the case there is a greater risk of food price increases and it is going to affect household welfare, perhaps we do need to look at the portfolio of locally grown produce versus imported produce. I do not know if it would change a whole lot. It would definitely be a worthwhile piece of research to do to. Given the new risks we have seen in the past year with the war in Ukraine, its effect on wheat prices and all the other knock-on effects, it is something that is definitely worth looking into.
Ms Marie Donnelly:
On the price of electricity, people feel that perhaps we have not been honest with them. The reality is the price of electricity, as indeed the price of oil and other things, went up because of the Ukrainian war and because there was a supply shortage. We all know that when there is supply shortage, the price goes up. Because the price of gas went up almost 400 fold - an unimaginable amount - it became the determiner of the price of electricity. What can Ireland do about it? We can stop using fossil fuel in our electricity system and then our electricity prices will be decided by our own natural resources. We can decide if we want high or low prices. They are our resources and we will decide. That is why we need the wind turbines.
It is important the conversation is undertaken, that there is full communication and consultation, and that communities are involved in the discussion. The rationale and the reason we need the wind turbines should be discussed and made transparently clear to people, and we must ensure people who are physically proximate to wind farms, in particular, are benefiting from the community support mechanism. On average, that support mechanism is approximately €2.5 million over a 15-year period. That is not a bad amount of money going into a community to do things the community wants for itself. It is a hands-off amount of money, it is their money and they can decide what to do with it. We have to be able to join the dots to make sense to people about why it is we need to get off imported fossil fuels and use our own natural resources.
On batteries for cars, it is not batteries for cars. We will be using batteries in the electricity system and batteries in balancing the grid. We will be recycling the batteries. We will be taking the lithium and the cobalt and recycling them, and that will be the norm. That will be the way we will do it and that will be our practice. Of course, over time it is very probable that battery technology will also advance. We do not know yet what is coming down the track. There could be other mechanisms of battery energy storage becoming available to us.
My final comment is on social housing. The council has repeatedly called for a policy to be published by the Government on the roll-out of district heating. Last year, the SEAI completed a study and it found we could get 50% of our heat through district heating facilities, which do not actually require the retrofit but can still heat the house enough to keep people warm and can be decarbonised. We urgently need this policy and, ultimately, the support to roll it out. It happens in other parts of Europe and it is very successful. There are very good examples of that in Tallaght and in Tralee. There are a few cases of it being used, but we really need to be able to roll that out so that everybody can benefit from it and not just those who can afford either the time, effort or cost of the retrofit, which involves a lot of effort from people who undertake it.
Patricia Ryan (Kildare South, Sinn Fein)
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Listening to Deputy Canney, who talked about the retrofits, I am conscious of air to water pumps going into houses, particularly local authority houses. Recently, in my constituency, air to water pumps were put into houses. While it is great to see that happening, unfortunately, the windows were falling out, with the result that they might as well be heating the garden. There needs to be joined-up thinking around air to water and retrofitting.
We are all aware that last year, the Minister for Transport and for the Environment, Climate and Communications, Deputy Ryan, flagged a potential tax levy on SUVs. As we have acknowledged, the carbon tax tends to hit those on lower incomes the hardest. I understand the offset in social welfare measures can be used, but in terms of an issue of fairness and those with the broadest shoulders bearing the heaviest strain, we know that if you can afford you buy an SUV, you are unlikely to be struggling to heat your home. I ask for the witnesses' thoughts on the merits on a levy on SUVs.
Dr. Niall Farrell:
If there is a levy on SUVs and SUVs are bought by those who are more well off, then it is perhaps progressive, because it tends to hit those who are more well off to the greatest extent. If there is an accompanying distributional policy, I imagine the net effect there would be that those who are more well off pay more of the levy and those who are less well off are less inclined to have SUVs, so therefore they are more likely to have the benefit of the redistribution.
Patricia Ryan (Kildare South, Sinn Fein)
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I am concerned that the poorest are still paying a lot of money. We need to make some sort of move on that, in my view.
Dr. Niall Farrell:
I agree 100%. It is a very important point when it comes to thinking about carbon taxes. It is a suite of policies. There is the carbon tax, plus the fact that revenue has been raised through that carbon tax and how it is decided to distribute that. There are a range of ways to do it. It could be done by taxing benefits and targeting them.
It depends on the social objectives. If we want to target those who are less well off, the tax and welfare systems can be used. Lump sum transfers can be done so that everybody gets the same amount or a mix of both can be done. Something can be given to those who are less well off and then something to everybody else as well. There are a range of ways this can be done to try to help those who are not so well off.
Patricia Ryan (Kildare South, Sinn Fein)
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A recent Bloomberg article states that Ireland is in danger of missing its climate targets. To put a percentage on it, based on the current projections, how likely are we to meet those targets?
Ms Marie Donnelly:
Deputy Ryan will be aware that the Government yesterday published the fourth and final report of the Climate Action Plan 2021 actions. The report identified that approximately 80% of the actions had been implemented. Unfortunately, our emissions are still not going down. The carbon budget started in 2021. Our first carbon budget was 295 million tonnes of CO2. We have not seen a reduction of emissions in 2021 or 2022. Unless we get very significant emissions reductions in 2023, it is going to make carbon budget achievement by 2025 extremely difficult. The council has been saying this and we are saying it more and more loudly now because we need urgent high-impact measures from the Government. We do not need 600 actions in a climate action plan. We need 20 or 25 high-impact actions and we need them to be implemented right now.
Barry Cowen (Laois-Offaly, Fianna Fail)
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On fossil fuel subsidies, it is significant that such a low percentage of fossil fuel subsidies tend to be direct taxes. It is mostly indirect taxes. How is tax expenditure factored into those subsidies? We have spent some time in this committee looking at the oversight on tax expenditures, and we have come to the conclusion that the oversight is lacking. There is about €7 billion in tax expenditures of which we do not necessarily do full scale reviews annually. I would be interested in the views of both groups but I will go to the ESRI first.
Barry Cowen (Laois-Offaly, Fianna Fail)
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Will the witness give me an example of what indirect taxes we are talking about when were talking about fossil fuel subsidies?
Dr. Niall Farrell:
We are talking about excise duties. The commission's report recommends the equalisation of excise duty between different fuels. I do not know the exact details but I think diesel has a lower excise rate. This was perhaps for historical reasons, that the haulage industry had no alternative. Going forward, that does not really hold water to the same extent if we are trying to decarbonise and we are moving towards electricity or perhaps hydrogen-based fuels. It incentivises private motorists to choose diesel instead of petrol cars which can have other impacts in terms of particulate matter etc. It is an implicit subsidy in the sense that there is a difference and then one is getting a benefit because there is not such a high charge for those using diesel car.
Barry Cowen (Laois-Offaly, Fianna Fail)
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My question ends on the issue of oversight and the Government's understanding of the impacts of those decisions. Do the witnesses think the Government is conducting regular reviews of the efficacy of those decisions? For example, we have looked at tax expenditures in detail and have come to the conclusion the Government is not looking regularly at the impacts. We look at it regarding the equity for households, but we do not always look back at the legacy decisions we live with now and question whether a certain tax subsidy or tax expenditure is doing what it said on the tin originally or whether we have just inherited it.
Dr. Niall Farrell:
We do not have colleagues here from the tax team so this is slightly outside our usual field of expertise. I agree it is something we have inherited. It is there for a historical reason when it comes to haulage, when haulage was probably the primary user of diesel. Nowadays many private cars are diesel, there is no real reason for that to be the case and it is distorting decision-making. It is guiding people towards diesel cars. If we want to move towards decarbonisation, the reason for having it there is even less again.
Barry Cowen (Laois-Offaly, Fianna Fail)
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As far as the witnesses are aware, there is no real regular framework mechanism of reviewing those kinds of things?
Professor John FitzGerald:
There is. The tax strategy group papers published each summer by the Department of Finance review them. In particular on this one, the Irish Government Economic and Evaluation Service, IGEES, work supports what the council has said that the lower rate on diesel is not justifiable. The commission on taxation has a very specific recommendation on this. This is something that is reviewed every year by the Department of Finance and published. People do not tend to read it but it confirms that if we are serious about climate change, we need to do something about it.
Barry Cowen (Laois-Offaly, Fianna Fail)
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That is a very obvious one. Are there any others that could be put into that category of a legacy issue that is not efficacious?
Barry Cowen (Laois-Offaly, Fianna Fail)
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Let us stick with the environmental point of view.
Professor John FitzGerald:
There are other areas like the zero tax on diesel for use in the agricultural sectors. This has led to crime issues. It has led to instances of pollution from laundering diesel and money laundering as well. There are other impacts from that. This has also been reviewed by the Department of Finance and the tax strategy group paper. Those papers are worth looking at. They come out every year and they say the same thing every year.
Barry Cowen (Laois-Offaly, Fianna Fail)
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Yes, and they are ignored every year. We still give a free pass to aviation and shipping fuel. I know this is a global issue, but Ireland is a huge player in the field of aviation. A lot of aircraft leasing happens here. People listen when Ireland talks about aviation. Is there more we could be doing? What would the witnesses expect to see on this issue? This is an ongoing issue which cannot run much longer with such a high carbon cost. What could Ireland be doing?
Dr. Kelly de Bruin:
There is a lot of movement in that specific area. The European tax directive does not allow us to tax kerosene, for example. They now want to tax kerosene and they are allowing nation states to do so. Ireland has been quiet on this issue when we could have made a bit more noise. Other countries have implemented a passenger tax, for example, to indicate that they think that aviation should be taxed. Many other European countries indicated they think something should be done. Ireland did not do so.
I feel as though the movement is already there.
Barry Cowen (Laois-Offaly, Fianna Fail)
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Yet again, it will come at us rather than us leading.
Barry Cowen (Laois-Offaly, Fianna Fail)
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Yes, I know.
Barry Cowen (Laois-Offaly, Fianna Fail)
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The EU ETS is the other matter I wanted to talk about. We might come to that.
Barry Cowen (Laois-Offaly, Fianna Fail)
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It is an ongoing issue.
Ms Marie Donnelly:
One of the complicating factors when it comes to aviation is its global nature and the competition between European and non-European aviation companies and firms. If Europe brings in charges that only apply to European airlines, this will place them at a competitive disadvantage vis-à-visinternational airlines. Therefore, it is again a little like what we talked about with Japan and India. The challenge is in trying to get everyone to move together in order to get progress in this area. There is one key aspect that Ireland and other countries could and should be researching more, namely, sustainable aviation fuels. This may well be a real opportunity for Ireland, perhaps not in this decade but in the next, given the natural resources we have from offshore wind, our capacity to electrify and our ability to produce electricity and hydrogen. Perhaps out of that, we could become a player in the context of sustainable aviation fuel.
Professor John FitzGerald:
As Ms Donnelly said, aviation needs to decarbonise by finding other fuels to use. One of the reasons there is so little progress in aviation compared with cars is that burning fossil fuels in cars is heavily taxed, so people invest in research on electric cars. If there were heavy taxes on aviation fuel, something would have been invented by now. It is a strong argument for the use of carbon taxes as a driver.
On the ETS, one of the problems was that when it was introduced, allowances were grandparented. This protected the incumbents. I attended a meeting in Brussels 14 years ago to discuss the economy. Representatives from British Airways was on the floor below arguing for a tighter cap on emissions because if it got free allowances, new entrants would be prevented from competing against it. There are complications. As the EU ETS price rises, if we get rid of the free allowances for aviation, airlines will be faced with having to do something about it. Hence, we see Airbus aiming to produce carbon-neutral aircraft by 2035 or 2037. The Chair is correct that this is a serious issue. As Ms Donnelly said, it is a global issue. However, Europe represents the way forward.
Barry Cowen (Laois-Offaly, Fianna Fail)
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That kind of moves us on to the ETS. I thank the witnesses for raising it. I know they have many opinions about it. The 2022 agreement signalled a new era. It is welcome that it will tackle some of the issues relating to the aviation industry, but it also signals that buildings, construction and road transport will be included in a way that has not been done previously. Will the changes to the ETS impact on our construction sector in any way?
Barry Cowen (Laois-Offaly, Fianna Fail)
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It will have a knock-on effect.
Dr. Kelly de Bruin:
Yes, it will have a knock-on effect. The way to answer the question relates to how it will be implemented. We already have a carbon tax in place for these sectors. If that is replaced by an ETS and the carbon tax does not have to be paid, not much will change if the price remains the same. However, it depends on whether buildings will be exempt from carbon tax - I assume they will - and on what happens to the EU ETS price. That is one of the big issues we will be facing. At the moment, the EU ETS price is going wild and what happens with that in the future will have an important impact on Ireland.
Barry Cowen (Laois-Offaly, Fianna Fail)
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We talked a little about either phasing out the credits or free allocation. At the time, the process was criticised somewhat for being too slow. Do the witnesses share the concerns in this regard?
Barry Cowen (Laois-Offaly, Fianna Fail)
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Does the Climate Change Advisory Council agree?
Ms Marie Donnelly:
We had a conversation about the buildings and roads ETS at one of our most recent meetings. Part of the challenge we will have relates to the price of carbon in that system versus our carbon tax. In a projection to 2030, our carbon tax is scheduled to go to €100 per tonne. A sum of €45 per tonne is being spoken about in the context of the buildings and roads ETS. That would be a significant change coming down the line. Consider what has happened to the ETS price in the past four of five years. It has gone from €5, €6 and €7 per tonne up to stratospheric levels in that time. We must remember that the ETS is a market-driven mechanism. Governments do not control the market. While it does not apply on the construction side, the operation of the building, including heating, can be impacted. There is a concern that the markets could drive the price of carbon in that system to a very high figure. If people are still heating their homes with oil, for example, it could cost them a lot of money.
Barry Cowen (Laois-Offaly, Fianna Fail)
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I agree. I am from a construction background. I was around at the time of the implementation of the first energy performance of buildings directive. I am thinking about all the knock-on effects it will have in the context of retrofitting and new builds. Those kinds of policies reverberate through the industry very quickly.
On the issue of what has been called a carbon border, the idea is that Europe will be a leader. We do not want that to be undermined by high-carbon products coming from the outside. I am in favour of that in principle, but I wonder whether there are equity issues in how we trade with people outside Europe.
Professor John FitzGerald:
In the construction sector, 6% of our emissions come from cement. It is not possible to get rid of carbon dioxide. It is part of the process. If we want to reduce emissions, we must use timber. That was discussed earlier. Cement is covered by the ETS scheme. At present, producers have to pay €100 per tonne of carbon emitted. However, they get some free allowances. As we move to auctioning and they have to pay for the full allowances, a carbon-border adjustment tax will be needed. If we do not have one and if, for example, the UK is not in the ETS scheme and does not have an equivalent price - although the UK has an ETS, and prices are currently broadly similar - if the price was very different, we would shut down our cement industry in the Republic of Ireland and import cement from Fermanagh or wherever, which would not be the correct solution. This must be a European solution with a European ETS.
Barry Cowen (Laois-Offaly, Fianna Fail)
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Does Professor Fitzgerald accept my concern about whether we are creating a citadel of Europe, with a border around it that others shall not pass, and that it would be difficult for emerging economies to break into the market?
Barry Cowen (Laois-Offaly, Fianna Fail)
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If they do it in a green way-----
Professor John FitzGerald:
-----they have got to be greener. Some of the steel plants in Europe have shut down and been replaced by steel plants in China. The emissions in China are greater than they would have been in Europe. As the carbon price goes up, Europe has got to adapt. As a result, the carbon-border adjustment mechanism is important. They have not signed off on this yet.
Barry Cowen (Laois-Offaly, Fianna Fail)
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The devil is always in the detail in terms of implementation. Would anyone from the ESRI like to comment on that idea?
Dr. Kelly de Bruin:
I would just reinforce what Professor FitzGerald said. We are talking about the call in China, and that call is being used to make products for us. This idea of a carbon border mechanism is exactly that; it actually equalises carbon emissions per person across the world. In that way, we are at the moment using other people's carbon budgets in our own consumption. Having a carbon-border adjustment mechanism equalises the carbon cost across different countries. In that way, it is in my view more equitable.
Barry Cowen (Laois-Offaly, Fianna Fail)
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I can imagine it might operate as a mechanism to force other economies outside Europe to change.
Barry Cowen (Laois-Offaly, Fianna Fail)
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Absolutely. I do not see any other people indicating to ask a question so I will give them one last chance.
As no one else is indicating, that is all the questions for tonight. It just remains for me to apologise again for the delay due to the vote in the Dáil. I thank our witnesses for attending.