Dick Roche (Wicklow, Fianna Fail)

I am pleased to be back in the House for Second Stage of the Carbon Fund Bill. I am here so often I am more frequently before the House than I was when I was a Member. I hope it is not a portent of things to come.

Second Stage of the Carbon Fund Bill will provide an opportunity to develop issues raised in yesterday's debate in Private Members' time. The Bill was amended on Committee Stage in the Dáil, and benefited from a detailed examination and debate in that House. As I stated in my contribution to the Private Members' debate, the Government is committed to meeting Ireland's Kyoto Protocol commitments, and we will do so on a basis which is both transparent and fully consistent with the principles underpinning the protocol.

Ireland will reduce total greenhouse gas emissions by an average of 15.2 million tonnes each year during the protocol compliance period from 2008 to 2012. This will be achieved by means of a combination of emission reduction measures which have been implemented across the economy, including participation by approximately 109 of our heaviest-emitting installations in the EU emissions trading scheme. These measures will be supplemented as necessary through use of the three flexible mechanisms in the Kyoto Protocol to purchase allowances arising from emission reductions in other countries.

For the benefit of the House, I will reiterate the fundamental international acceptability of purchasing carbon allowances on the international market. The purchase of allowances is a legitimate, practical and logical option which is explicitly provided for in the Kyoto Protocol. As well as being part of the Kyoto arrangements, carbon trading is endorsed in the recent report by Sir Nicholas Stern on the economics of climate change and by the European Commission.

Within the European Union, it is central to virtually every member state's response to its Kyoto commitments. It is also supported by the former UN Secretary General, Kofi Annan, and by Al Gore whose film "An Inconvenient Truth" contributed so much to the increasing awareness of global warming. Our policy on the purchase of carbon allowances to supplement domestic actions is not unique. At least ten other EU member states, namely, Austria, Belgium, Denmark, Finland, Italy, Luxembourg, the Netherlands, Portugal, Spain and Slovenia are expected to purchase up to 550 million units to meet their commitments. To date budgetary commitments of €2.8 billion have been made by these member states.

An important point often overlooked is that the importance of the flexible mechanisms in the Kyoto Protocol, particularly the clean development mechanism, are not confined to parties who wish to purchase carbon allowances to supplement domestic emission reductions. They are also hugely important to developing countries in terms of attracting investment in modern clean technology. At the meeting of the parties to the protocol in Nairobi last December, there was much discussion about the value of this investment for development and the reality it might not otherwise occur.

Why commentators in Ireland put themselves outside this debate and seek to deny the advantages to Ireland of using the mechanism and its evident advantages to the developing world is difficult to understand. It seems to be a classic example of ideology clouding out logic. An interesting comment on this matter was made by Mr. Yvo de Boer, executive secretary of the UN Framework Convention on Climate Change at the recent Paris meeting. He spoke of the purchase of carbon credits as a device which allows developed states to be ambitious about the carbon burden they carry and supports developing countries, particularly those who wish to use and develop clean technologies.

To illustrate the major importance of the mechanism to developing countries, the point can be made that it is the only way many of them will be able to fund a move to clean technologies. Examples of clean development mechanism projects include an energy conservation and greenhouse gas emissions reductions project in Moldova; a low-cost urban housing energy upgrade project in Cape Town; a hydroelectric project in Honduras; a hydropower plant in Bhutan and a biogas support programme in Nepal.

Regarding economic competitiveness, we must face up to the full economic and social consequences of not buying credits to supplement domestic action to meet our Kyoto commitments. Often, this is not done by people who make commentary in this country. The alternative for Ireland is that industry would be forced to carry the full burden, the consequences of which could be very severe. In other debates, I mentioned high-energy users such as Aughinish Alumina would face bills which would close them down.If the ESB were made bear the full cost of the credits it has, which is suggested by other parties, it would face an additional bill of €750 million. This is ignored and brushed aside in discussions.

Existing Irish industries would have to carry huge economic burdens. Ireland would become an even more costly place to locate business and jobs. The cost base of all industries would rise, electricity prices would be inflated and domestic producers would face undercutting from imports. The significant point about this is that global warming is a global problem and wherever in the world a tonne is saved it will have the same effect in terms of the overall project.

I heard arguments that Ireland should not use the protocol flexible mechanism to purchase carbon allowances, even when it is the most cost-effective way to do so. At an estimate price of €15 per unit over the Kyoto period, the Government would have to add an additional burden of at least €270 million on to the companies in the EU emissions trading scheme. The question arises of why we should impose this when a variety of measures can deal with our Kyoto targets?

Should there be any misunderstanding about the Government's position, let me set it out very clearly. Ireland will comply fully with its Kyoto Protocol target sensibly and honestly, without compromising economic growth or jobs. In short, we will take a responsible and effective approach that is fully consistent with the Kyoto Protocol. In the process, we will also put Ireland on a firm footing in anticipation of more challenging emission reduction targets in the longer term.

The Government has capped the State's purchasing requirement at 3.6 million allowances per annum, or 18 million allowances in total over the five-year period. The announcement in the budget that €270 million will be provided between now and 2013 establishes a definite financial basis for the purchasing requirement and builds on €20 million provided by the Minister for Finance in 2006 to begin the process.

In addition to providing financial resources, it is essential to put in place appropriate institutional arrangements. In his 2006 budget statement, the Minister for Finance initiated the process of developing these arrangements by announcing the establishment of a carbon fund through which the necessary financial resources will be managed, and he designated the National Treasury Management Agency, NTMA, as the purchasing agent for the State. The provisions of the Bill will, inter alia, give a statutory basis to both the carbon fund and to designation of the NTMA as purchasing agent for the State. It is therefore a piece of framework legislation.

The Bill has been drafted in close consultation with the Department of Finance and the Office of the Comptroller and Auditor General to ensure the legislation provides for robust checks and balances in the expenditure of public funds. I will briefly outline its main provisions.

Section 1 provides for the definitions, which are generally quite straightforward in nature. The Bill introduces the term "Kyoto units" to capture the different types of carbon credits and allowances available under the United Nations Framework Convention on Climate Change and the Kyoto Protocol. Section 2 addresses the main functions of the Bill, establishing the carbon fund, leaving control and management of the fund with the Minister for the Environment, Heritage and Local Government and delegating management of the fund to the NTMA.

Section 3 provides for the funding required for the acquisition of Kyoto units. My Department engaged in extensive consultation with the Department of Finance and the Office of the Comptroller and Auditor General to ensure the most efficient and cost-effective means of providing for the acquisition of Kyoto units. This provision in the Bill enables the NTMA to draw down funds directly from the central fund on an ongoing basis as needs arise.

I am conscious the NTMA should not carry out the acquisition of Kyoto units without Oireachtas scrutiny, and therefore the Bill provides that moneys drawn down from the central fund for this purpose must be repaid in subsequent years through moneys voted to me by the Oireachtas. This will enable an appropriate level of oversight by the Oireachtas on expenditure of State funds by the NTMA and the policy issues underpinning the use of the Kyoto Protocol flexible mechanisms.

Section 4 stipulates that the carbon fund cannot be used for any other purpose. Sections 5 to 7, inclusive, provide for the provision of proper accounts by the NTMA in managing the carbon fund, audit of the accounts by the Comptroller and Auditor General and the accountability of the NTMA to the Committee of Public Accounts. The NTMA will also be required to provide to the Minister an annual report of its activities in managing the fund, which will be laid before each House of the Oireachtas.

Section 8 provides that the activities of the NTMA will be guided by direction from the Minister for the Minister for the Environment, Heritage and Local Government in consultation with the Minister for Finance. I intend that the purchase of Kyoto Units by the National Treasury Management Agency will be guided by the following principles. These are that the units contribute to the ultimate objective of the United National Framework Convention on Climate Change, the stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. In addition, there will be no investment in projects related to nuclear power; investment risk will be minimised, particularly with the timely delivery of credits; and good value for money will be obtained.

Section 9 provides that the Minister may revoke some or all of the functions assigned under the Bill to the NTMA following consultation with the Minister for Finance. The House will be aware that the European Commission recently made a decision on Ireland's national allocation plan, the so-called NAPS II, for the emissions trading period 2008-12. This plan provides the framework for participation by 109 Irish installations in the EU emissions trading scheme in the relevant five-year period.

Although it accepted many aspects of our plan, the Commission took a certain view which is interesting in light of some of the commentary we heard in the other House. It indicated that we have not yet shown sufficient progress on the purchase of Kyoto units to supplement domestic emission reductions. I do not agree with the Commission and I have challenged its view in a detailed response. For the purpose of confirming Ireland's determination to meet our Kyoto commitments, I have already finalised arrangements to invest €20 million in a carbon fund operated by European Bank for Reconstruction and Development and a further €20 million in a fund operated by the World Bank.

These investments are a significant step in demonstrating progress towards meeting our Kyoto commitments and enactment of the Carbon Fund Bill is an essential next step. In addition to designating the NTMA as purchasing agent, enactment of the Bill will enable the agency to complete the full purchasing programme for the 2008-12 period. Finalising our compliance arrangements will also provide essential support for the Kyoto Protocol and its objectives.

This is important legislation for Kyoto compliance purposes but also to ensure the future competitiveness of Ireland's business sectors. I trust it will be supported by all parties as its logic is clear. The provisions this Bill underpins are set out in the Kyoto Protocol and all the states which have signed up to it accept those principles. The principles we are using in this country have been underpinned by the United Nations, and the then Secretary General, Kofi Annan, spoke about them. Others, including Stern, Gore and Yvo de Boer, the Executive Secretary of the UNFCCC, spoke in favour of them.

I am somewhat mystified that so many commentators are taking the opposite view. It seems to be a classic example of the whole world is out of step with my Johnny.