Dáil debates

Thursday, 5 June 2008

Carbon Allowances: Motion (Resumed)

 

The following motion was moved by Deputy Simon Coveney on Wednesday, 4 June 2008:

That Dáil Éireann:

recognises that electricity generating companies in Ireland will make unearned windfall gains of approximately €1.6 billion, based on an average cost of carbon of €25 per tonne, in the years 2008 to 2012 arising from the free allocation of carbon allowances by the Government and the requirement by the electricity regulator to include the cost of carbon in electricity pricing; and

recognises that the Government to date has refused to claw back this money for the benefit of consumers, the economy or the environment;

in view of the ongoing deterioration in the economy calls on the Government:

to improve competitiveness, bring down inflation and help reduce poverty by cutting the lower rate of value added tax from 13.5% to 12.5%; and

to fund this tax cut by putting a levy on unearned windfall gains of electricity generators.

Debate resumed on amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"—recognises:

that the Government has a long-term strategy, as set out in the Energy Policy Framework 2007-2020 and in the programme for Government, to reduce our dependence on imported and finite fossil fuel sources through delivering greater energy efficiency and increasing our use of renewable resources in the electricity, heat and transport sectors;

that the actions to deliver this long-term strategy in relation to the energy sector include the delivery by SEI of a range of schemes to enable domestic, commercial and industrial consumers to reduce their dependence on fossil fuels;

that the Minister for Transport has concluded the consultation phase on a paper on a sustainable travel and transport action plan that is due for completion shortly;

that the social welfare fuel allowance programmes are aimed at those on lower incomes that are most vulnerable to fuel poverty;

that the ESB has put in place a new €22 billion strategic framework up to 2020 that will see a major investment in renewable energy, a halving of its carbon emissions within 12 years and the achievement of zero net carbon emissions by 2035;

that the issue of windfall gains to electricity generating companies that arise as a result of the free allocation of carbon allowances under the European Union's emissions trading scheme is a complex one that faces all EU member states;

that this issue is subject to ongoing examination by the Department of Finance and the Department of Communications, Energy and Natural Resources;

that negotiations are currently taking place at EU level which will remove the possibility of free allowances after 2012; and

that a one percentage point reduction in the reduced VAT rate would cost the Exchequer €396 million in a full year and have little impact on prices;

in view of the ongoing challenges in relation to the economy, calls on the Government:

to continue to implement the stability-oriented fiscal policies that have underpinned the success of the Irish economy over the last decade; and within that context, to bring forward whatever policies are necessary to promote future economic success at the appropriate time within the annual budget cycle."

—(Minister for Finance).

11:00 am

Photo of Liz McManusLiz McManus (Wicklow, Labour)
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While I cannot support this Private Members' motion, I welcome the debate. The issue under scrutiny relates to energy policy and economic policy, both of which are centre stage in the public sphere at present.

It would not be generally known that the carbon allowance scheme which is designed to cut carbon emissions has actually created an anomalous situation whereby companies make a profit while consumers pay the price for a scheme determined at EU level. The current arrangement, which means that the ESB and other power generators have free carbon allowances, is a temporary one but the regulator's requirement to ensure the carbon cost in consumer charges is not. It has led to increases in charges for electricity and these look set to rise again.

A new regime in regard to carbon allowances will come into force in 2012, that is, in four years' time. From 2012 new targets will apply and carbon allowances will be auctioned. For companies that cannot, or will not, reduce carbon emissions, the costs will be sizeable. Those costs will be passed onto the customer and unless there is a real determination to tackle carbon emissions in the meantime, that cost will be penal.

We already know that a 15% increase is being sought by the ESB, Bord Gáis is seeking up to 20% and petrol and diesel continue to increase in cost, so the focus on the windfall gain, even if it is short-term, is timely. We should look long and hard at how best to utilise this funding which accumulates to €1.6 billion over the four year period. I am not impressed by the vague statement in the Government's amendment that "this issue is subject to ongoing examination by the Department of Finance and the Department of Communications, Energy and Natural Resources". I would prefer if the Government, instead of fobbing off the motion with this kind of cotton wool, were to look seriously and rigorously at the potential value of the windfall gain.

I urge that this potential be opened up, as is proposed in this motion. However, I do not believe that dissipating the windfall gain as proposed by Fine Gael is the way to go. It may be a popular move to reduce the lower rate of VAT from 13.5% to 12.5 % but it is not a prudent one. After all, there is no guarantee that consumers would see the benefits. More importantly, such a proposed use of the fund would not deal with the two overriding concerns that should determine Government energy policy, the first of which is climate change.

Power generation offers us significant opportunities as a country to meet our CO2 targets. Over the past ten years the Government has failed abysmally to tackle climate change. Far from reducing, our emissions are still rising well beyond the targets already set. The challenge into the future, as the EU sets the bar higher and as the threat of global warming increases, will become more urgent for us all. The EU requirement of a 20% reduction by 2020 may well rise to 30% if negotiations at global level are successful.

We must all face this new reality and it is not a pretty sight. Ireland currently is the fifth highest emitter of CO2 per capita in the world. Over the past 10 years the Government record is awful. On energy security, we have the third highest level of oil imports in the EU at 87%. It is very difficult to see how Ireland can meet these challenges of climate change and energy security and yet, at the same time, we have simply no choice in the matter. We will have to do so and a sea change must occur across all sectors.

In the non-trading sector the big offenders, agriculture and transport, cows and cars, happen to also be the most intractable when it comes to reducing CO2 emissions. Therefore, much rides on transforming our energy production. The vast natural resources we enjoy of wind, wave and tide are good news for us but that full potential has yet to be fully exploited. Also welcome is the ESB's €22 billion strategic framework which aims to halve its carbon emissions within 12 years and achieve carbon net-zero by 2035.

Infrastructural development on a major scale is required and this windfall gain should be earmarked to fast-track the development of renewables in the electricity sector. I recommend that the windfall gain be put into a carbon fund for that specific purpose. Such investment would mean that the move towards renewables would, at the end of the day, ease costs for the consumers but it would also mean that we, as a country, would have a better chance of meeting our EU and Kyoto targets.

The other great challenge is for those changes to apply evenly and fairly. The issue of fuel poverty is real and pressing. This winter, there will be low income families and old age pensioners who are simply not able to keep warm because of rising energy costs. I listened in disbelief to the Minister for Communications, Energy and Natural Resources when he replied to my concerns on this issue. In this House last week, he effectively gave a sermon about how we all had to tighten our belts and face reality. When it comes to rising costs of energy, the Minister for Finance dismisses these concerns and calls people whingers.

I remind both these Ministers that this wealthy island we all share has one of the highest levels of excessive winter mortality in Europe. An estimated 2,800 excess deaths occur here over the winter months. Let us remember we are talking mainly about frail, elderly people. In Northern Ireland, which is ahead of us, a fuel poverty strategy is in place to tackle what is a scandal. In the Republic, however, there is no fuel poverty strategy or even the promise of one. In fact, disgracefully, only 4% of the energy budget is spent on improving low income homes. The windfall gain could and should be used to protect those on low incomes from the steep increases that may be inevitable. There is no argument in terms of the cost of energy but the increases must not impose an undue burden on those who are least able to afford them.

We are witnessing great changes in the area of energy. This morning, the Joint Committee on Communications, Energy and Natural Resources heard a presentation on the east-west connector. That is a wonderful project and I hope the Government will ensure funding is provided, although I do not think anybody expects the commitment on NDP funding to be met. We want that project to proceed but it is possible that people will have to pay for the connector through an extra tariff on their electricity bills.

I appreciate the thinking behind this Fine Gael motion but, regrettably, the Labour Party will not be supporting it because of the second section of the motion.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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I wish to share time with Deputies Dooley and Conlon.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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Is that agreed? Agreed.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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I am pleased to have the opportunity to speak on this motion and to support the Government amendment moved by my colleague, the Minister for Finance. Fine Gael's motion is leading us in the wrong direction. It is a short-term reaction that will do nothing to help people and the economy to face energy problems in the longer term. These problems will not arise in five or ten years' time; they have already arisen and we need to address them today. Fine Gael's motion provides neither a solution nor a long-term direction for the people.

Energy policy is complex but we must keep three considerations in mind. Our energy needs to be competitive and clean and our supplies must be secure. We face challenges in each of these considerations. The need for clean energy is obvious if we are to avoid tilting our planet into catastrophic runaway climate change. The emissions trading system established by the European Union is the cornerstone of our response and hopefully will be the basis of the international response agreed in Copenhagen in 2009. The system is far from perfect, however, and my party has consistently recommended that the allocation of carbon credits, which is the basis for trading, should be done by auction rather than free allocation. I am glad the EU is changing its policy so that auctions will form the basis of the emissions trading scheme from 2010. Every party in this House which supports measures to address climate change is supportive of the trading scheme and the mechanisms which have led to Fine Gael's motion.

Fine Gael makes a number of mistakes in its argument. It confuses the emissions trading scheme and the effect it has on electricity costs with the wider issue of energy cost rises elsewhere. One of the main reasons for the pain being felt in the transport and home heating sectors is security of supply. Alongside concerns for clean energy, supply issues are now dominating energy policy. The effect is also being felt in the electricity sector as gas prices follow the trajectory of increasing oil prices. Fine Gael's short-term reaction of cutting taxes is not the correct way to proceed because it misunderstands global developments in energy. That is not only the opinion of the Government. The chief economist of the International Energy Agency, an organisation which has historically been conservative on the issue of security of supply, has clearly stated that we face an urgent problem which requires radical change in how we use energy rather than a short-term tax reduction approach.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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When it has a direct impact on the economy, we need to take note.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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Last week the head of the OECD——

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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The Minister is blinkered.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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——implored countries to avoid the short-term political reaction and recognise that the only way to address security of supply and peak oil is to reduce demand.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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I agree.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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That has to be our fundamental response but nothing in the Fine Gael motion will help us to deliver that. It advocates helping the partnership talks, turning round our ailing construction industry and reducing the cost of home heating oils.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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It recognises the reality of the economy.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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No, it does not.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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The Minister fails to recognise that reality.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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The Minister without interruption.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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He has a singular carbon perspective.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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Fine Gael would put the small two cent coin in every euro back in play. As the Minister for Finance argued last night, those two cents are more likely to end up in the pocket of the market in which Fine Gael appears to have such faith.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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It will not. They are regulated prices.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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That will not address the fundamental issue of security of supply.

The Government's response is much wider and our amendment recognises the solutions we need to introduce. We recognised the flaws in the emissions trading scheme and argued strongly that it should have been structured differently. That is why we are reviewing it. We acknowledge the issue is complex but we now have an all-island single electricity market rather than having to act on our own in the South. The two jurisdictions on the island have an interest in and responsibility for maintaining and managing that market. Our colleagues in the UK have also considered these issues in detail and have decided not to follow the windfall tax route.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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What about Spain?

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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I will speak about Spain presently.

The UK decision has implications for Ireland because we acted correctly by consulting the single electricity market committee, which is responsible for regulating this complex market system, and its advice contradicted the approach taken by Fine Gael. It recognised, however, that the decision is ultimately for the Government to make. We will continue to review the matter.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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The committee did not recommend against our proposal.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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One of the measures——

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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The Minister is misleading the House.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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I am not misleading the House. The Deputy can consult the report issued by the committee in March.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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It did not recommend against our proposal.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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Deputy Coveney has had an opportunity to contribute.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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It outlined the various difficulties involved.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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Is the Minister standing over that statement?

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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The Deputy will resume his seat.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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We can discuss the committee's advice in detail but five of the ten minutes allotted to me are now gone.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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We can discuss it now because the Minister has raised it.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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If the Minister and Deputy Coveney would take their seats for a moment——

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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I am saying the Minister is misleading the House.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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The Deputy will most certainly take his seat.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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He is entitled to give way.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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He did not ask to give way and Deputy Coveney is not entitled to shout other Members down. The Deputy will have an opportunity to make his contribution.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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The Minister is giving way.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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I ask Deputy Barrett to allow the Chair to speak.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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He is giving way.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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Will the Deputy allow the Chair to speak?

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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Certainly.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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Thank you. Deputy Coveney will have an opportunity to respond at the conclusion of the debate but he should allow Members the time to make their cases.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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He is misleading the House.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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It is not in order to make an allegation that a Member is misleading the House. The Minister without interruption.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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As part of our ongoing review, we examined policies in other European countries. As Deputy Coveney noted, Spain has introduced such a scheme but this is being challenged in the Spanish courts and by the European Commission. We are rightly following our own legal advice in investigating our options because we recognise that complex legal issues arise. I am proud of the work done by my Department in conjunction with the ESB over the past nine months in recognition of these realities and the market conditions.

The only long-term solution to delivering competitiveness in the electricity market, which is crucial to the digital and other industries, is developing renewable energy and efficiency measures in order to reduce costs. One of the reasons for the introduction of the emissions trading scheme is to promote renewable electricity, which does not have a carbon cost.

Apparently, on the basis of the contributions of its members, Fine Gael fundamentally disagrees with the work we have done. Certain Fine Gael Members stated that their party does not agree with the ESB's reform strategy. They are entitled to their position but I am of the view that the reform strategy is the proper response because it will allow us to work with our State agencies——

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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Who said that we do not agree with the reform strategy?

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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Deputy O'Donnell. I will show Deputy Coveney the relevant passage later.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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The Minister has made an accusation. He should read the relevant part of Deputy O'Donnell's contribution into the record now.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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I will do so. Deputy O'Donnell stated:

The Taoiseach also said it is important point out that the revenues available to the ESB and others are factored into their capital programmes for providing alternative energy sources. This is a point on which we fundamentally disagree with the Government.

This seems to indicate that Fine Gael disagrees with the ESB's reform strategy.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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No, we disagree with the Government.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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If I may, I wish to finish my contribution.

Photo of Brendan HowlinBrendan Howlin (Wexford, Labour)
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Deputy Coveney should allow the Minister to conclude. The Deputy will have an opportunity to reply at the end of the debate.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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This is the second occasion on which the Minister has misled the House.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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This is a fundamental example of matters in respect of which we have different views. Fine Gael's response is to reduce taxes. This is similar to Senator Hilary Clinton's assertion that there should be a tax holiday in the US because energy prices are high. Our response is different and is based on trying to use key measures, in respect of the ESB and in other areas, to reduce demand. We want to put smart meters in all homes so that people can reduce the amount of electricity they use to cut the cost of their bills.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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I wish the Government would do that.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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The amount of money people would save would be a multiple of the 2 cent reduction that Fine Gael proposes to introduce. The latter would not provide any assistance in the context of a long-term reduction in electricity prices.

It is important and correct that the Government amendment refers to a number of key areas in the economy in respect of which changes must be made. In that context, the sustainable transport plan is a perfect example.

I must inform Deputy McManus that we are equally as aware as anyone in the House of the issue of fuel poverty in the emerging energy climate. We are investing some €158 million through the Department of Social and Family Affairs in the fuel poverty allowance scheme. I was proud to be able to double the amount of money allocated for the warmer homes scheme this year. The scheme in question assists people to take the correct action for the long term by allowing them to invest now in better energy efficiency for their buildings in order that they will not be obliged to use so much energy and can thereby reduce their bills.

I was also proud to initiate a new home energy savings scheme. This is the best means by which to restore the construction industry — if that is the primary goal in Fine Gael's motion. It is better to do this by putting in place an innovative scheme which will allow the industry——

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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We do not disagree with the Government in that regard.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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——to engage with the hugely important task of becoming more energy efficient. Those on the opposite side of the House may laugh at this initiative and demean it by stating that it is merely me saying that we must tighten our belts.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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We welcomed the scheme. What is the Minister talking about?

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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It is the crucial response. Deputy McManus sneered as if to say that this scheme is not a key policy development. It is the key policy development and will be achieved by the Government supporting a number of programmes and ensuring that there will be an incentive for people to do the right thing. That is set out in the amendment.

Rather than trying to offer a short-term response to this problem by cutting tax, it is far better to begin investing now in the real solutions, namely, to reduce our use of existing energy and to develop alternative sources.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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We are in favour of that.

Photo of Eamon RyanEamon Ryan (Dublin South, Green Party)
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Fine Gael's motion does nothing to assist us in this regard. The Government is focused on the task.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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That is not the case. The Government is not collecting a windfall tax.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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I welcome the opportunity to discuss this matter and to address the motion, which is populist in nature. It is always popular to suggest that one intends to take from the rich or big business and give to the poor. This is laudable at one level and, in a sense, it is a no-brainer. Unfortunately, however, the motion misses the point and in my view what is proposed represents Robin Hood economics. The latter will not solve the weakened fiscal position which has impacted on Ireland's economy and on other economies throughout the world.

The challenges with which the economy must deal are, for the most part, outside our control. Rising oil and food prices and difficulties regarding the euro versus the dollar and sterling are creating strains and stresses within the economy. As a result, our capacity to trade is being hampered and this is having an impact. This phenomenon is not peculiar to Ireland and it has become a global issue.

Ireland has an open economy and the housing and mortgage sectors here are experiencing difficulties as a result of the issues that have arisen in the sub-prime market in the United States. The challenges faced by the housing construction sector have created a sudden slowdown in the economy. This slowdown is set against a backdrop of a prolonged period of high growth in the sector. Perhaps we got somewhat ahead of ourselves in this regard, particularly in the context of the number of units completed in the past two years. However, I have no doubt that the position will right itself quickly. The construction sector has displayed its capacity to stop building and has thereby created an opportunity for the glut in the market to be addressed. The slowdown to which I refer has had a significant and sudden impact on employment and Exchequer returns. The headlines in today's newspapers illustrate the position, particularly for anyone who was not aware of what was happening.

The medium to long-term prospects for the residential housing sector are very good, particularly in the context of the projections for the next two years. These projections are based on the fact that our economy continues to grow. The most pessimistic economists suggest that there will be a 2% growth rate in the next number of years. When one considers these forecasts in conjunction with figures which illustrate the increase in our population, it is clear that there will be a need for more sustainable levels of residential housing development. The residential housing sector has been extremely important to the economy.

The fundamentals of the economy are strong, with projected growth rates of 2%. Employment in other sectors is holding up strongly. In my opinion, the industrial and commercial sectors are performing well. The shock to the system the economy has received — this has been exacerbated as a result of our dependence in the past couple of years on the residential housing sector — is probably being felt more acutely at present.

The challenges facing the residential housing sector have been exacerbated by difficulties in the banking sector. The initial problems relating to the banking sector emanated from the sub-prime lending market in the United States and related to the capacity of banks to package sup-prime loans and sell them on——

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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That has nothing to do with house prices in this country rising by 50% in the past six months.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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Demand obviously had a great deal to do with that. I am referring to the shock to the system experienced by the economy rather than the demand for housing.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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The young people of Ireland are being ripped off.

Photo of Timmy DooleyTimmy Dooley (Clare, Fianna Fail)
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The difficulties in America obviously had an impact on the financial sector here. The banks have completely reined themselves in, perhaps unnecessarily, in the context of offering people credit. It used to be far easier for first-time buyers to obtain credit. However, the position has changed and this is having an effect. The banks are seeking to take a belt-and-braces approach and the days when people could obtain 100% mortgages are gone. In many instances, banks are only prepared to provide 80% mortgages. This affects first-time buyers, without whom the residential property sector and the economy in general will get into trouble. First-time buyers are the lifeblood of the building sector.

Current banking policy is fuelling a boom-and-bust model. We must address this development. The banks have created many of the problems experienced in the past four to five years. There was a time when one could not walk past a bank without ending up with a €20,000 loan in one's back pocket and included with every newspaper or magazine were advertising documents offering all sorts of unsecured loans. This type of behaviour was unhelpful. It fed an already buoyant economy and created a sense that there was endless credit available. The banks are now acting in an aggressive manner by not offering loans to those who are in a position to repay them and who can set them off against assets that are secure. Unfortunately, the boom-and-bust approach is having a significant impact in this regard and we must take action in respect of it.

Not all banks took the approach to which I refer and some were more prudent. However, the behaviour of those that offered incentives such as interest-free periods, 100% mortgages and the provision of funds that were additional to those that could be obtained through such mortgages in order to allow people to buy furnishings, landscape their properties, etc., was entirely unhelpful. Perhaps a committee of the House might address that matter at a later stage.

The Minister has clearly set out the Government's energy policy, speaking about security of supply, sustainability of the environment and price competitiveness. It is important we look to such Government policy rather than adopt some soft approach in terms of taking the levy from these power generation companies and appearing to give it back to the public through some reduction in VAT. From past experience when the high rate of VAT was reduced, the difference did not find its way back to the consumer so anything suggested in this motion, particularly by way of giving the windfall back to the consumer, would not work.

The windfall to the power generating sector should have some effect and we should find some method of placing encumbrance on the windfall, although I am not sure the Robin Hood levy would necessarily be the way to go. The Government should consider attaching conditions and consideration might be given to research and development and whether the energy generating companies are not just prepared to invest in new technologies by way of capital investment. They must look beyond that and investment in research and development for the next wave of technologies would certainly be helpful.

We must reduce our dependency on fossil fuels and get real about our dependence on coal and oil. Everybody in this House, regardless of political persuasion, is coming around to that way of thinking. It is not sustainable in the long term to continue in the way in which we have consumed coal and oil. We have a duty of care to the environment and the generation of power plays an important part in that.

We should consider the use of hydrogen, wind, wave and tide energy in getting a much better level of power generation. As a result of our unique position, with currents, winds and tides surrounding this island, we should be able to harness such energy and invest to a point where we will benefit in future.

12:00 pm

Photo of Margaret ConlonMargaret Conlon (Cavan-Monaghan, Fianna Fail)
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I welcome the opportunity to contribute to the debate this morning. It is important when analysing the motion that we take a little time to assess our current economic position and the challenges we face. We must also examine where we have come from, both as a country and an economy.

Since 1997, the rate of economic growth in Ireland has averaged 7.25% per year, leading to an unprecedented change in the Irish economic sphere. The total number of people at work has risen by 800,000, helping to accelerate average per capita incomes in Ireland to above those enjoyed in many other economies. Unemployment has decreased from 10% in 1997 to approximately 4.5% in 2007. These are some of the vital statistics we must bear in mind.

However, there have been external shifts and development which are outside our control. The strength of the euro against both the dollar and sterling is an example, as well as international financial market difficulties such as the credit crunch and higher oil and food prices. These global economic developments play a key role in shaping Ireland's economic horizon as we are highly integrated in the global economy.

We benefited handsomely from being such an open economy for the past ten years but we are now bearing the brunt of a downturn in the international economic field. Many such open economies are cyclical and there are booms, depressions and recessions. Whereas we would all like the boom times to exist ad infinitum, we must realise dips can come about, and we are undergoing such a period in our economy now. It is important there is careful management of the challenges facing us at this time.

To focus on the specifics of the motion, our national energy policy is central to the country's future economic development. The Government's policy is based on the energy policy framework and the programme for Government as agreed with our Green Party and Progressive Democrats Party partners. These documents set out the three planks for future policy — security of supply, price competitiveness and environmental sustainability. We must adapt and be flexible in our actions to take heed of the international developments as they change and evolve. To ignore them would be folly.

Furthermore, the motion specifically mentions the issue of carbon-related windfall gains for the electricity sector. The EU's emissions trading scheme is complex and affects not only Ireland but all EU member states. It is subject to ongoing analysis by the Minister for Finance, Deputy Brian Lenihan, and the Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan. This will take account of the ramifications and efficacy of any national and EU plans. We must work with all State agencies in this regard.

If we move next to examine the proposal to reduce the lower rate of VAT from 13.5% to 12.5%, that will result in significant losses, approximately €396 million in a full year. Even if the reduction is passed on in full to consumers, the impact on the consumer price index will be only minimal.

The Government can speak from some experience. In 2001, we cut the VAT rate from 21% to 20% but the expected benefits for the consumer simply did not come about. The reduction in VAT was not passed on to the consumer and a year later, the Government rolled back the reduction.

Fuel prices are driven by a number of factors, including the price of oil on international markets, exchange rates, production and refining costs. The rise in oil prices over recent periods reflects additional factors such as geopolitical uncertainty, supply disruptions and strong economic growth in countries such as China.

The high price of oil indicates we need energy efficiency and alternative fuel sources. My colleague, the Minister, Deputy Ryan, spoke earlier on such matters, articulating why and how we must move forward with these matters. We must take into account the experience from other countries and learn from the consequences of their actions. We must look at how we can cut back on our dependency on fossil fuels and we must continue to develop and encourage the use of alternative sources.

There is no doubt the financial position has weakened from that envisaged at budget time. We should not forget that our public finances are strong, our level of debt is low and our GDP growth rates have been stronger than most other European countries. The OECD economic outlook is forecasting a GDP growth of 1.5% for Ireland, picking up to 3.75% next year. The economy has always been resilient and I am confident these growth rates will come about and we can continue with our plans in the programme for Government.

We in government have always focused on the most vulnerable in society and our measures reflect this. We have taken successive opportunities to make real and significant increases for those on social welfare and reduce the levels of tax paid by lower income earners. For example, the last Government promised to clear the €200 pension barrier by 2007, which it delivered on. We are also delivering increases through social welfare to the most vulnerable people in ways such as fuel allowances. This is being done to make a real difference in the lives of ordinary people.

There are further specific energy developments that I welcome. The ESB has put in place a new €22 billion strategic framework up to 2020, which should see the halving of its carbon emissions within 12 years. I hope it will be ahead of its schedule in achieving zero net carbon by 2035. The Minister for Transport is due to launch his sustainable travel and transport action plan soon and I look forward to its publication.

The fundamentals of our economy are sound and if we adopt a wise and prudent approach to public spending, we are well placed to rise to the challenges that face us. I am confident the Minister for Finance, Deputy Brian Lenihan, is the right person to steer the ship through these choppy international waters.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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I wish to share time with Deputies Naughten, McHugh and Feighan.

It is a pity the Minister decided to leave having made allegations about Members on this side of the House and our willingness to——

Photo of Trevor SargentTrevor Sargent (Dublin North, Green Party)
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I apologise for the Minister's absence; he had to go to Luxembourg.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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I ask the Minister of State to sit down and cease his bluster. The Minister came in, made allegations and ran from the House before we had a chance to officially address them through the Chair.

Photo of Trevor SargentTrevor Sargent (Dublin North, Green Party)
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He had a meeting in Luxembourg.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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Can the Chair give me some protection please?

Photo of Johnny BradyJohnny Brady (Meath West, Fianna Fail)
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The Minister of State wishes to apologise on behalf of the Minister.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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I will not accept any nonsense from the other side of the House as I have listened to waffle for the past 40 minutes.

Photo of Johnny BradyJohnny Brady (Meath West, Fianna Fail)
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If the Minister of State wishes to apologise on behalf of the Minister, he is entitled to do so.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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The Minister should be here as this is a debate about security.

I wish to state on the record that, through the all-party committee I am proud to chair, Fine Gael is as concerned as and has policies the equivalent of, if not better than, this Government on this issue. Members of Government pretend they are the only people on earth who care about energy security and climate change but that is nonsense.

Photo of Trevor SargentTrevor Sargent (Dublin North, Green Party)
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It is a cross-party issue.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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To try to wriggle out of accepting this motion on spurious grounds is absurd and I hope the public sees this.

This is a simple matter of principle that relates to the State recouping that part of a generator's income that is attributable to the free allocation of carbon allowances. It has nothing to do with energy policy but is about the ESB collecting money — it was supposed to pay for emissions through the emissions trading scheme, ETS, but it has free allowances allocated by the State. The regulator has calculated that electricity is approximately 10% more expensive due to this additional charge. It is a charge the ESB does not have to carry and we are simply suggesting that this money belongs to the taxpayer. The ESB has been given a free allocation of credits and we are saying money should be returned to the taxpayer. It is outrageous that anyone could suggest this might increase the price of electricity.

The ESB recently had the cheek to put us on notice of a possible further increase in electricity prices of 16%. We are suggesting the 10% mentioned, approximately €300 million, belongs to the taxpayer. It is a question of taking it back, in these difficult times, and redistributing it back to the taxpayer. The best way to do this is not reducing the top rate of VAT from 21% to 20% but by reducing the 13.5% rate to 12.5%. People dependent on heat, light and fuel, including old age pensioners and those on low incomes, are affected by the 13.5% rate. We are trying to reduce the costs affecting such people.

Two nights ago I spent my time on the board of management of a secondary school doing next year's budget. The heating and lighting bill is going up from around €25,000 to an estimated €55,000 — this is an increase of approximately €30,000 in one school with around 400 pupils. We must get real on this matter. Of course we want to cut emissions, make changes and introduce more renewable sources of energy — we are all in favour of this — but we must bring the public with us. The public must not be conned — it is paying for something the supplier does not have to pay for. What is wrong with Fine Gael proposing we take back this money and return it through a reduction in indirect taxes?

The Government has suggested, nonsensically, that it tried to reduce VAT by 1% previously but it did not work. We all know the answer to this and my colleague will address it when he speaks on this issue. If the VAT rate is reduced from 13.5% to 12.5% it is the Government's responsibility to ensure the reduction is passed on to the consumer. If the Government is not prepared to do this there are people on this side of the House only too delighted to take up the challenge. It is nonsense to suggest we should not reduce taxation because savings will not be passed on to the public. Should VAT be left at 13.5%, although we can afford to reduce it to 12.5%? I would love to reduce this rate to 10% and make this country more competitive.

Is the Government to bury its head in the sand on the basis that all of our economic difficulties originated in George Bush land? Does the Government somehow feel that this is a problem from the US? Are we codding ourselves? Young people in this country had to take out larger mortgages because the Government did nothing while the price of a three bedroom terraced house in Dublin went from €420,000 to €525,000 in the space of ten months. Members of the Government sat on their side of the House and did nothing. The real problem in this country is people are up to their necks in debt due to huge mortgages. The knock-on effect on the competitiveness of our economy is the result of Government inaction.

The Government has tried to lambaste Fine Gael in this House for tabling a motion seeking to return moneys to the taxpayer that were collected but were not due to the generator. We feel this €300 million should be redistributed. In case people do not realise, when money is returned buoyancy is created in the tax system. It is not necessary to give the full amount because allowances should be made for buoyancy. The money we seek to give back is, more or less, exactly in line with the cost of reducing VAT from 13.5% to 12.5%.

I am a long time in politics and this is the first time I have ever heard a Government argue that a reduction in taxes would be bad for the electorate and the economy. This is especially strange coming from a Government that has boasted of how it reduced taxes over the past ten years. It is absolute nonsense. If the Government had a better way to redistribute this money I would have hoped it would table a proper amendment to the motion suggesting this alternative. Instead we have received a diatribe suggesting that nobody but the Government cares about addressing energy security and climate change. Why did the Government not table an amendment stating that it would prefer to reduce income tax or the top rate of VAT or use the money for another purpose beneficial to the consumer? The amendment tabled is just a blanket attack on Fine Gael, as if we do not care about climate change. I take grave exception to this. I like a proper debate and if people disagree with our viewpoint, so be it. The Government has instead waffled and made totally inaccurate statements and I find this unacceptable.

Fine Gael's proposal is not unusual. Denmark recently introduced a package of taxes on sulphur dioxide, carbon dioxide, fossil fuels and electricity and the revenues raised amounted to approximately 3% of GDP. The additional taxes have been used to lower personal taxes and VAT and to provide incentives for energy efficiency. The principle of charging a tax, taking it back and reducing direct taxes works well in Denmark but apparently this Government has difficulty with the principle of returning to people something that was wrongly taken from them.

Photo of Denis NaughtenDenis Naughten (Roscommon-South Leitrim, Fine Gael)
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I welcome the opportunity of speaking on this motion. At present our economy is in recession. The increasing rate of consumer price inflation is due not only to the global energy situation and rising food prices, but also to the lack of action, in terms of domestic policy, on regulation, competition and public sector management. The Government has sabotaged Ireland's capacity to handle tougher economic times through reckless financial management over several years. In the past two years the Government has increased its day-to-day spending by 65% more than the level of economic growth and has made absolutely no effort to deliver value for money. Inflation is running at 5% and our economy is haemorrhaging up to 3,000 jobs per week, yet the Government is like a rabbit trapped in the headlights — it does not know where to turn. Its anti-inflation group has not met for the past 12 months. It sees no need to introduce corrective strategies and has failed to respond to the demand for action or put in place any plan to deal with the issue of competitiveness within the public sector, which has been demanded by its organisation, the National Competitiveness Council.

It is clear that the political will is not there to carry out the reform that is urgently needed. According to the Mazars statement on 3 June, the credit crunch is far more broadly based and deep rooted than most people think and it will take three to five years for businesses to recover. It is clear that the housing sector collapse is spilling over into the wider economy, yet the Government is prepared to do absolutely nothing to support the economy.

We have put forward a proposal to deal with this. Getting rid of an array of quangos would save €200 million of taxpayers' money over the next four years. There is also the proposal before the House today. The Government is knocking it back but has not come forward with any solution to address the recession, which is being compounded by the lack of action and direction in the Government. The only statement the Government has made in responding to this motion is that it is the wrong direction to take, yet it is not prepared to say what it will do. It has been said that we need to reduce the demand for energy. There will be absolutely no difficulty in reducing demand if this Government sits on its hands as it has done for the past 12 months because we will not have an economy to demand oil, fuel or energy. That is what is happening at present. The Government, which has been in place for the past ten years and does not know the realities of day-to-day living in our society, does not realise the impact that the fuel crisis and the recession are having on families that are trying to cope. The response of the Minister for Finance this week was to tell people to stop whingeing and put up with the rapid rise in prices.

What we have done is put forward a sensible, straightforward proposal. A total of €315 million per annum is being taken in by private companies and a semi-State company for doing absolutely nothing. As far as the Government is concerned, these companies should be allowed to pocket that money, although it is being taken directly from young families that are struggling to cope. The proposals before the House would have a direct impact on our competitiveness by reducing inflation by 0.2% and would act as a direct stimulus to the economy, which is badly needed.

In recent years, Ireland's competitiveness has plummeted by 17 places in the rankings, resulting in mounting business costs and inflation, yet the attitude of Government Members is to blame it on external factors and say it has nothing to do with them. They are burying their heads in the sand. The Government's response to the flagging construction industry and housing sector was put across well by the former Minister for Enterprise, Trade and Employment, whose approach was to suggest that people move to the UK and get jobs in the industry there. Sadly, that is what is happening in my constituency. Young men travel up to Knock Airport on Monday morning, get on a plane and fly to London, work there during the week and fly back on Friday evening. That is not acceptable. These are men with young families who must commute to the UK on a weekly basis.

This proposal would give a badly needed boost to our tourism industry, which has seen a 6% to 8% fall in the number of tourists from countries other than the UK in the past few months. The VAT take from kerosene is estimated to double this year, from €77 million in 2007 to €144 million in 2008. The EU oil price bulletin shows that home heating oil in Ireland is the most expensive in the EU and is 24% more expensive than diesel even though they are basically identical products. In 23 member states, home heating oil is cheaper than diesel, but in this country the opposite is the case. If we could even get our prices down to European levels Irish families would save €50 million a year. Irish families are struggling because of the incompetence of the Government, which refused to put in place proper building standards in the past few years to support its buddies in the construction industry. Now the Government is saying it is not prepared to support young families who are trying to cope with the energy crisis and the increasing cost of living. I commend the motion to the House.

Photo of Joe McHughJoe McHugh (Donegal North East, Fine Gael)
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I would like to pick out a few key phrases from the Government amendment. "Long-term strategy" is mentioned twice. We see references to the Energy Policy Framework 2007-2020, a strategic framework up to 2020 and the aim of achieving zero net carbon emissions by 2035, which is 27 years away. The situation is said to be subject to ongoing examination by the Departments of Finance and Communications, Energy and Natural Resources, and we are told there will be no free carbon allowances after 2012. There is not one mention of the short term or the medium term but only the long-term strategy. There is no mention of the here and now or of the people who must pay up to €1,000 for 1,000 litres of home heating fuel. There is no mention of how people in the haulage industry or the fishing sector are to deal with their short to medium-term needs. It is an absolute abdication of responsibility. It is cute-hoorism at its worst.

A gentleman named Deputy Bertie Ahern, a former leader, sat in the chair where the Minister of State is sitting now. When history is written he may be the man who is given credit for the Celtic tiger and he may smile and say he was the man who delivered the Celtic tiger, but the impending economic recession is the elephant in the room. Not one Member on that side of the House, including the noble Green Party Members, one of whom is en route to Luxembourg, is prepared to take on that elephant. They will blame the United States and the Middle East. They are prepared to abdicate their responsibility in trying to tackle this issue in the Chamber. A person once said "How do you eat an elephant?" The answer is "One bite at a time". What we are trying to do on this side of the House is offer a suggestion that we decrease the VAT rate from 13.5% to 12.5%. It will not change the economy overnight, but it is a bit-part solution to a larger problem. The irresponsibility and recklessness of the opposite side of the House in stating that our suggestion is not even worth examining is disgraceful.

Photo of Frank FeighanFrank Feighan (Roscommon-South Leitrim, Fine Gael)
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Hear, hear.

Photo of Joe McHughJoe McHugh (Donegal North East, Fine Gael)
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That we are unprepared to tackle the problem disgraces the people. There is a short-term solution in respect of the fishing industry, where the price of green diesel has increased from 25 cent to 80 cent in the past three years. The solution is to introduce the €20 million tie-up scheme, a scheme encouraged by the EU across the Union. The Minister of State must ensure that the tie-up scheme is considered because the fishermen will have no medium term or long term if the here and now are not addressed. This is the responsibility of the Government's side of the House.

On today's "Morning Ireland", Mr. Barry Kenny, communications spokesperson for Iarnród Éireann, stated that there would never be a rail solution for the north west. However, the Green Party has stated the opposite. The Minister for Communications, Energy and Natural Resources, Deputy Ryan, is on record at the Joint Committee on Communications, Energy and Natural Resources as stating that he is willing to explore and examine the possibility of rail to the north west to reduce our dependence on fossil fuels. Mr. Kenny was reading the script of Government policy. Fianna Fáil is taking the hand of the Green Party Deputies. They are talking the language and are thinking long term — 2012 and 2035 — but the reality of the here and now is not being addressed.

We must consider practical solutions and I commend Deputy Coveney's motion. His solution, while it would not create overnight miracles in the economy, would be a realistic start. Last week in the House, the Minister, Deputy Ryan, had the audacity not to answer my question on the Ad Blue systems installed in new lorries by the haulage industry. Those systems are environmentally friendly, but industry members are not being rewarded or compensated for installing them. The haulage industry is on its knees. The Minister of State knows of haulage contractors in County Sligo who are losing their jobs. He also knows that only 3% of our rail services are being used to transport heavy freight with no plans to consider additionality.

The people are struggling and are concerned by inflation in the cost of their food baskets, home heating oil and their mortgages. As Deputy Naughten stated, they are also concerned about their sons and daughters getting on aeroplanes at Knock Airport and Belfast City Airport. As there are no solutions in Ireland, people from County Donegal and elsewhere are going to London, finding a scarcity of work and considering solutions in Dubai, Australia or, illegally, America. It is disgraceful that the Government has abdicated its responsibility to develop short-term and medium-term solutions. Anyone who has condemned the motion in the House should ask his or her constituents whether it is right to call for a tax reduction to give back to the consumer and to decrease the cost of home heating oil. Would the answer be "Yes" or "No"? Since the Minister of State knows which, it is disgraceful that the Government will not even consider the possibility of discussing our practical solution.

Photo of Seán BarrettSeán Barrett (Dún Laoghaire, Fine Gael)
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We are returning to the emigration of the 1950s.

Photo of Frank FeighanFrank Feighan (Roscommon-South Leitrim, Fine Gael)
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I commend Deputy Coveney on introducing this motion, which deals with improving competitiveness, reducing inflation and helping to reduce poverty by cutting the lower rate of value added tax from 13.5% to 12.5%. When the country was banjaxed in the late 1980s, Fine Gael, under the leadership of Mr. Alan Dukes, introduced the Tallaght strategy. We developed ideas and were supportive of the Government at a difficult time. I am not an aggressive politician, but people from the other side of the House have been telling Fine Gael to develop ideas for years. However, Deputy Coveney's enterprising idea is being rejected out of hand by a tired Government lacking its own ideas. As the Government needs the Opposition's help, I appeal to the former to accept Deputy Coveney's solution.

The credit crunch is having a significant effect on business, particularly small businesses, a category in which I include myself. Many small and innovative businesses have spent years addressing various issues, but the cost of being in business will put them out of operation. The issue between the public and private sectors is significant. The latter has been neglected for too long, but it is too late to save it. Anything that would encourage businesses to be competitive and give them a breath of fresh air would be helpful. I commend the Deputy's solution in this regard.

House completions have bottomed out at 25,000, the building sector is banjaxed and the tourism industry is under severe pressure. The increase in oil prices is putting the transport industry under pressure. Bringing the matter to the human level, our shop sells €5 ESB meter cards as a service to normal people who are in receipt of social security payments and are under serious pressure. These people come to my door at 11 p.m. or midnight because their electricity has stopped and they have needed to take the €5 or €10 from elsewhere. Most of us are fortunate enough to live in well insulated houses with ESB storage heating, which is reasonably good. However, most of the people in the situation I have outlined live in local authority housing built in the 1970s and 1980s. Since those houses have no insulation, they cost twice as much to heat as ours. Deputy Coveney's solution will help to reduce the cost of electricity. Sometimes, the houses I visit are colder than it is outside. Anything I can do to help people get through their difficult times would be reasonable.

Regarding the windfall levy and the cut in the VAT rate, reducing the 21% rate would have a greater impact on inflation, but there would be fewer benefits for the poor. Deputy Coveney has introduced the motion to address this matter, given that the poor, as opposed to higher income households, spend most of their income in the 13.5% rate bracket. Last year, Spain introduced a windfall levy for this reason and the UK Treasury is considering a proposal by the energy regulator.

Introducing the environmental issue is nonsense. Fine Gael has developed a positive and innovative solution to a serious situation. I have highlighted how the vulnerable are being targeted and how our suggestion will help them to reduce their bills. I commend the motion to the House.

Photo of Jimmy DevinsJimmy Devins (Sligo-North Leitrim, Fianna Fail)
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I welcome the opportunity to discuss the important topic of energy and taxation. During the course of the debate, Deputies have made some interesting contributions. My colleagues, the Ministers for Finance and Communications, Energy and Natural Resources, have set out the Government's response to the proposal.

This morning, having followed the debate closely, I echo the comments made by them and respond to some of the issues raised. With regard to the economy, as the Minister for Finance, Deputy Lenihan, rightly pointed out, it is important that energy and taxation policy are framed in the context of the current economic situation and the current challenges we face. The economic environment has clearly become more challenging in recent months. A number of the risks identified at budget time have subsequently materialised, although, as already pointed out in the debate, most of these developments are on the external side and effectively beyond our control.

On the domestic front, we are all aware of the sharp slowdown in the residential house building sector. While we may experience a year or two of fairly low levels of completions, it is reasonable to expect over the medium term that annual completions will return to sustainable levels which will remain high by international standards, reflecting the strong underlying demand for housing in Ireland. It is of interest to note that the economy's flexibility and resilience was one of the main themes of the recently published medium-term review by the ESRI. The ESRI shares the Government's view in that we should see a return to trend growth from 2010 onwards. In other words, we are dealing with the challenges from a position of strength.

In terms of the public finances, there can be no denying that our fiscal position has changed from that envisaged at budget time. It is important, however, to point out that the current situation is manageable, given the strong position of the public finances. It is equally important to stress that, despite the underlying strength of the public finances, the Government is determined that there will be no unnecessary loosening of fiscal policy. We must control current spending to keep it in line with resources and it is crucial for Departments to adhere to the significant levels of current day-to-day expenditure provided for their activities this year.

Energy, investment and taxation policy, to name but a few areas, must be framed in this context. Regarding energy policy, which is key to our future economic growth, the Minister for Communication, Energy and Natural Resources, Deputy Ryan, has set out the considerable progress being made in terms of commitments and actions under the energy policy framework. Global developments regarding the continuing high price of oil and fossil fuels with climate change present significant challenges. These must be addressed in the context of the wider economic and competitiveness needs of the economy, having regard to emerging budgetary realities.

I wish to turn to the issue of taxing carbon-related windfall gains in the electricity generating sector, which forms one side of the equation proposed under the motion. The issue of windfall gains to electricity generating companies that arise as a result of the free allocation of carbon allowances under the EU's emissions trading scheme is a complex one. Deputy Burton raised a number of relevant and interesting points in this regard last night. It is an international issue and one that faces not only Ireland, but all EU member states. This issue is subject to an ongoing examination by the Department of Finance and the Department of Communications, Energy and Natural Resources which will take account of all implications and in particular the need to be certain about the effectiveness of any initiative. However, it has already been mentioned that only one EU member state has introduced measures to deal with this issue and these are now subject to appeal and legal challenge. Against this background, it is clear that the issue requires very careful and in-depth examination.

It must be recognised that 70% of the free carbon credits allocated to the power generation sector were allocated to the ESB, a public sector company. As we have heard, it is proposed that from 2013 allowances will be auctioned and this issue will no longer arise. For the coming years, it will be a matter for consideration. However, there is an argument that putting a levy on windfall gains of electricity generating companies could seriously hinder the development of alternative energy sources. Yesterday in this House the Taoiseach stated that it is important to point out that the revenues available to the ESB and others are factored into their capital programmes for providing alternative energy sources.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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The Minister of State should be honest. It is a carbon tax.

Photo of Jimmy DevinsJimmy Devins (Sligo-North Leitrim, Fianna Fail)
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The development of such sources and technologies is key to lowering our high dependency on fossil fuels and delivering a sustainable energy platform into the future. As the Minister for Finance has pointed out, Ireland has a low burden of taxation in respect of labour and capital, a policy that has stood us well up to now and one which the Government is intent on maintaining. On the indirect taxes side, our broad but balanced application of VAT has served to protect the less well-off by applying, for example, the zero rate of VAT to food, children's clothes and footwear and medicines. In addition, Ireland is one of only eight EU member states which applies the reduced VAT rate to electricity.

It is worth recounting the experience of 2001 when the standard rate of VAT was cut by 1% from 21% to 20%. The outcome of this move clearly demonstrated that the expected benefits for the consumer did not materialise because the reduction in VAT was simply not passed on to the consumer. I recommend the amended motion to the House.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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The Government swallowed that notion.

Photo of Seymour CrawfordSeymour Crawford (Cavan-Monaghan, Fine Gael)
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I wish to share my time with Deputy Coveney. I congratulate him on bringing this proposal before the Dáil with the aim, initially, of creating a fund through the unearned windfall gains to the electricity generator industry which in turn would allow the value of the tax rate to be lowered from 13.5% to 12.5%.

It is interesting to hear Government backbenchers and Ministers trying to blame other economic problems on issues outside the Government's control. It is even more interesting to hear them so quickly describe as rubbish any proposal from this side of the House when every other week they have claimed that in Private Members' time Fine Gael has failed to put forward realistic proposals and that it always opposes for the sake of opposition.

I will not go into detail on the issues already discussed by Deputy Coveney regarding windfall tax and how that might provide the necessary funding, other than to say that to date the Government has refused to claw back this money for the benefit of customers, the economy and the environment.

The current crisis in the economy needs definite and short-term action. Government proposals, while very laudable, have clearly failed in the past to come to fruition within a reasonable timeframe. For instance, the Government ignored the nitrates directive for 12 years and eventually dealt with it only when under legal and political pressure from other EU member states. Any commitments by the Government, which has been in power for 11 years, must be taken with a serious health warning.

Our country is now in a serious economic downturn with consistent high inflation, rising job losses and increased difficulties in obtaining jobs by those involved in the manufacturing business. The Government has stubbornly refused to recognise the seriousness of our economic slide and persists in blaming external factors such as the value of the euro against sterling and the dollar, the price of oil and the difficulties in the international money markets. No doubt these have had some effect but we cannot ignore the total mismanagement of our economy and the fact that we relied so much on the unsustainable house building trade and windfall taxes received by Government from ever-increasing and totally overvalued development land prices. I remember one small farm in my area that went from a valuation of approximately €2 million to a sales value of €25 million in less than three years. The Government received an unexpected €7.5 million in tax and stamp duty from that totally unexpected sale due to the early death of its owner.

We are now in a new situation and today Fine Gael is trying to give the Government a positive alternative to sitting back and ignoring the problem, hoping that it will disappear. That will not happen. A 1% VAT reduction would help to cut the cost of many necessities in life such as heating oil, especially for our elderly and disabled who have need of such products 52 weeks a year. It will also reduce the cost of diesel oil to farmers and contractors. In light of the pressures on farmers, who face cutbacks in dairy and other products as well as increased feed prices, any help that can be given by the State, however small, will show some understanding. It would give a direct boost to the domestic economy and, above all, give assistance to the flagging construction and housing sectors.

Tourism is now one of our biggest industries and is under severe pressure because of the current situation. If the 13.5% rate were lowered to 12.5%, this would be noticed immediately in the cost of accommodation, car hire, etc., and would give a clear message that the Government is committed to tourism. The reduction will affect the price of home heating oil, but also electricity, gas and coal. Above all, it will reduce the income gap as low income households will benefit more than higher income households, as they spend more income on services taxed at this rate.

I understand the Department of Finance estimates the cost of cutting the 13.5% VAT rate to 12.5% at just less than €400 million in a full year. However, taking into account the extra spending and economic activity resulting from such a cut, Fine Gael believes the net cost would be less than €300 million. This figure is, in turn, less than what the proceeds from a windfall levy in the electricity generating sector would be. Spain has already introduced a windfall levy and the UK Treasury is considering a proposal from the UK energy regulator. I have heard the Government and its backbenchers emphasising that there is no guarantee that the 1% VAT reduction would be passed on to consumers. If this is the case, what is the purpose of the regulators, consumer organisations and all other special structures put in place by the Government over the past 11 years which are supposed to protect the consumer? If the Government does not accept this proposal, as seems likely, I urge it to take alternative action now before it is too late for the many companies, jobs and all those already living on the bread line because of rising inflation, fuel prices and lack of Government concern. Only some minutes ago I heard of another company going into liquidation. We cannot ignore this situation and we must take action.

Photo of Simon CoveneySimon Coveney (Cork South Central, Fine Gael)
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Before I discuss the detail of what has been said by the Government side, I will spell out for the House the purpose of this motion on behalf of other Opposition parties and address some of the concerns raised. There seems to be a perception that this is an attempt by Fine Gael to have a general motion on energy policy, or a comprehensive economic recovery package for Ireland. Nothing could be further from the truth. This is a specific proposal brought forward by Fine Gael because there will be a specific lump sum of money which will be paid for by businesses and households over the next five years, a figure of approximately between €1.5 billion and €2 billion. We want to see that money spent properly, which is the principle behind the motion, because it is taxpayers' money. The way in which the electricity regulatory environment has developed requires power generation companies to charge for the international cost of carbon, which is between €24 and €25 per tonne. As a result everybody's electricity bill here is higher than it otherwise would be if power generators were not required to add on to their bill an amount equivalent to the international cost of carbon.

Power generation companies for the next five years until the end of 2012 are being given a free allocation of carbon allowances to enable them to emit a certain amount of carbon into the environment without cost. They are gaining on the back of consumers and it does not cost them anything. The essence of this motion is that consumers will pay €1.6 billion per year for the next five years on top of existing electricity bills. This is based on the average cost of carbon being €25 per tonne, which is a very conservative figure. We need to decide who gets the money and the way to spend it. Is it appropriate to allow the money to go into the coffers of the ESB, Viridian or any other power generation company to which this allowance applies? Alternatively, should we, as legislators and representatives of the people, decide how the €1.5 billion is spent for the betterment of the economy, society and the environment? These are the three areas on which the motion impinges and these are the questions we ask.

This motion is not about the future direction of Government energy strategy as the Minister, Deputy Eamon Ryan, seemed to suggest in an arrogant way before he shuffled off to Luxembourg earlier. This is about the way we spend a carbon tax, which is being introduced by stealth. I agree with factoring the cost of carbon into the price of electricity. However, if we are to factor in this cost let us be honest with people, tell them it is a carbon tax and then tell them how we will spend their hard earned money paid in taxes. Instead, what is happening is that people have no idea they are paying an extra 10% in bills for the cost of carbon. Instead, people are fed the line by Government and others that the price of energy is increasing because of the international price of oil. This is a factor, but not the only one.

The policy decision has been made by the regulator to incentivise power generators to produce electricity in a carbon-efficient way and to charge for the cost of carbon. The money is being paid as we speak, yet the Government allows what amounts to a stealth carbon tax to continue to be paid by the consumer because it is not being up front and honest with businesses and households about what is happening. We are not discussing a small amount of money.

For Fine Gael, the principle for dealing with carbon taxation is simple. We need to encourage — indeed, insist on — a change in behaviour that will reduce carbon emissions and the carbon footprint of companies and people in the future. We agree with the regulatory decision made. However, we do not agree with the system whereby this money will not be recycled into the economy and given back to taxpayers in some other way. If there is to be a carbon tax, it should not be used as simply a revenue raising exercise, which is not the purpose of such a tax; carbon taxation should be revenue neutral.

Putting a value on carbon emissions should help to change people's habits and force a change in the way we think. At the same time we should recycle the money to provide tax relief for the consumer. If we are to take more from the consumer to change carbon consumption habits, let us give it back in another area so that the net tax paid by businesses and consumers remains the same. This is the main principle behind this proposal.

This motion covers two issues and I appeal to the Government to consider the two separately and then collectively. The Government should decide quickly if it will recoup gains made by the power generation companies free of charge on the back of consumers. Then let us have a debate on the best way to spend the money. Fine Gael has made its decision on this matter. We believe the lower rate of VAT should be cut because it represents a good deal in the current economic and social conditions, where people are put to the pin of their collar to heat their homes and where the construction industry is on its knees. The 13.5% VAT rate applies to that sector along with the services sector, tourism and many other sectors requiring stimulus at the moment. This is the reason we have chosen this motion. This is one of a series of packages of economic stimuli that Fine Gael will bring forward in the coming weeks and months, yet, we hear nothing from the Government in its response to the motion except that it will continue to implement the stability-oriented fiscal policies that have underpinned the success of the economy over a decade.

The Government's fiscal policies have caused the current panic in the economy. The Government did not plan for a rainy day when it had the resources to do so. I acknowledge that the Minister for Finance has accepted this is an issue and that he and his Department, together with the Department of Communications, Energy and Natural Resources, plan to examine it.

In his contribution earlier today, the Minister for Communications, Energy and Natural Resources, Deputy Ryan, misled the House on two issues. The first relates to his claim that the single electricity market committee is opposed to the Fine Gael proposal. This is untrue. The committee has stated that windfall gains could be used for the benefit of consumers and that this is a decision for the Government. Second, the Minister accused Fine Gael of being opposed to the ESB's €22 billion plan to reduce its carbon footprint dramatically in the next 20 years. That is a disgraceful comment from the Minister. He has seen my press releases, on behalf of Fine Gael, which welcome that strategy and encourage the ESB to move forward with it.

The issue for Fine Gael is that we do not want the ESB's future capital investment programmes to be funded via a carbon tax without the knowledge of consumers that the moneys they have contributed are being used for that purpose. If we expect them to pay that tax, we should be honest and tell consumers and businesses that they will pay up to €2 billion in carbon taxation in the next five years and how that money will be spent. That is how honest Government works.

Instead, however, the Minister, Deputy Ryan, comes into the House and dismisses Fine Gael proposals in such a way as to suggest that we do not care about climate change. At the same time, he asks for consensus so that we can create a green economy which prioritises a reduction in carbon emissions in the next ten to 20 years. This is something I am happy to do. However, when it suits the Minister politically, he dismisses our sensible, well thought out and properly costed suggestions. These proposals make economic, social and environmental sense. Most importantly, they do nothing to reduce the incentives that have been put in place under the regulatory regime to encourage a change from fossil fuels to cleaner and more efficient energy generation. Our proposal does nothing to impinge on what this policy, which Fine Gael supports, seeks to achieve. I commend the motion to the House.

Deputies:

Hear, hear.

Amendment put.

The Dail Divided:

For the motion: 63 (Dermot Ahern, Michael Ahern, Noel Ahern, Chris Andrews, Seán Ardagh, Bobby Aylward, Joe Behan, Niall Blaney, Áine Brady, Cyprian Brady, Johnny Brady, Dara Calleary, Pat Carey, Niall Collins, Margaret Conlon, Seán Connick, Mary Coughlan, John Cregan, Ciarán Cuffe, Martin Cullen, John Curran, Jimmy Devins, Timmy Dooley, Frank Fahey, Michael Fitzpatrick, Seán Fleming, Beverley Flynn, Pat Gallagher, Paul Gogarty, Mary Hanafin, Mary Harney, Seán Haughey, Máire Hoctor, Billy Kelleher, Peter Kelly, Brendan Kenneally, Michael Kennedy, Tony Killeen, Séamus Kirk, Tom Kitt, Brian Lenihan Jnr, Michael Lowry, Tom McEllistrim, Finian McGrath, Michael McGrath, John Moloney, Michael Mulcahy, M J Nolan, Seán Ó Fearghaíl, Darragh O'Brien, Charlie O'Connor, Rory O'Hanlon, Batt O'Keeffe, Ned O'Keeffe, Mary O'Rourke, Christy O'Sullivan, Seán Power, Trevor Sargent, Eamon Scanlon, Noel Treacy, Mary Wallace, Mary White, Michael Woods)

Against the motion: 38 (Seán Barrett, Pat Breen, Richard Bruton, Catherine Byrne, Deirdre Clune, Paul Connaughton, Noel Coonan, Simon Coveney, Seymour Crawford, Lucinda Creighton, Michael D'Arcy, Jimmy Deenihan, Andrew Doyle, Bernard Durkan, Damien English, Olwyn Enright, Frank Feighan, Martin Ferris, Charles Flanagan, Terence Flanagan, Brian Hayes, Tom Hayes, Pádraic McCormack, Joe McHugh, Arthur Morgan, Denis Naughten, Dan Neville, Michael Noonan, Caoimhghín Ó Caoláin, Aengus Ó Snodaigh, Kieran O'Donnell, Fergus O'Dowd, Jim O'Keeffe, John Perry, Tom Sheahan, P J Sheehan, David Stanton, Billy Timmins)

Tellers: Tá, Deputies Pat Carey and John Cregan; Níl, Deputies David Stanton and Simon Coveney.

Amendment declared carried.

Motion, as amended, put and declared carried.