Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

As set out in public spending code, robust and rigorous project appraisal is central to securing value for money from public capital investment.  Value for money, VFM, relates not just to the efficiency of investment but to its effectiveness.  The public spending code maintained by my Department therefore contains detailed technical guidance on the methodology for carrying out cost-benefit analysis.

Section E-05 of the public spending code, which can be found at , sets out parameter values for monetising carbon currently used in cost-benefit analysis.  This guidance is based on work carried out by an interdepartmental working group which completed its work in 2014.  The group recommended that price of carbon on the EU emission trading system, ETS, on the European Climate Exchange should be used where possible and set out an approach for using futures pricing on the EU ETS to use for future time periods.  Where futures prices are not available, the group recommended the use, up to 2050, of the price projections for the ETS set out in the reference scenario in the EU 2030 framework for climate and energy policy.

To give an illustrative example, which is presented in table 2 of the relevant section of the public spending code, it is estimated that the shadow price of carbon for 2018 to 2019 will be €7.29 per tonne, based on average futures prices on the EU ETS over the period from 22 January to 25 March 2014.  As set out in that section, for the period from 2020, the projected price rises from €10 per tonne in 2020, in 2010 prices, to €100 per tonne in 2050.

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As the impacts of climate change are expected to be pervasive in Ireland’s environment, society, economy and natural resources, it is, of course, essential that the Government’s expenditure choices are informed by an assessment of the full range of such impacts at the appraisal stage. This means being able to capture the broadest possible range of potential costs as well as the range of benefits that might also accrue.

Consequently, in line with the advice of the Climate Change Advisory Council, the national mitigation plan contains a specific action for “a review of guidance on public expenditure appraisal and evaluation to ensure their suitability to capturing key costs and benefits of climate measures” for completion in 2018.  This will include consideration to ensure that an appropriate range of shadow prices of carbon are available to public bodies undertaking expenditure appraisal. The review will seek to determine if the existing appraisal framework provides the best available advice on measuring and reporting on the costs and benefits, including those measures with climate change effects.  It is expected that an updated public spending code will also be able to better inform investment decisions.

It is, of course, also important to be aware that the public spending code clearly acknowledges that the economic costs and benefits are not the only factors influencing policy decisions regarding public expenditure. There may also be social or other public policy considerations which inform the decision-making process.

At the recent meeting of the Citizens’ Assembly on how the State can make Ireland a leader in tackling climate change, there was unanimity that the State should take a leadership role in addressing climate change.  This will be a core objective of the forthcoming ten-year capital plan.  This leadership role will need to be underpinned by key actions such as ensuring that there is an effective price signal for investment project appraisal achieved through an appropriate price of carbon in the public spending code.

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