Wednesday, 21 April 2021
Department of Public Expenditure and Reform
575. To ask the Minister for Public Expenditure and Reform if his Department has made an assessment of the trend in carbon price which is consistent with the new enhanced EU target for the reduction in greenhouse gases; and the way in which this will be built into policy on the public finances. [1503/21]
In summary, higher EU climate ambitions imply higher marginal costs to reach these targets and these higher costs should be reflected in public investment appraisal, through the Public Spending Code. Before these reforms can be made to the code, the higher targets need to be formally agreed and research work calculating the higher marginal abatement costs that might specifically apply in Ireland needs to be completed.
In 2019, Ireland changed the methodology used to underpin carbon pricing in public investment appraisal. For emissions in the non-ETS sector, the carbon price used is now based on the estimated marginal abatement cost associated with reaching a reduction in greenhouse gas emissions in the non-ETS sector of 30% by 2030.
It is reasonable to assume that any higher target that emerges at EU level will also entail a higher non-ETS target for Ireland. It is similarly reasonable to assume that a higher target implies a higher marginal abatement cost and that, therefore, the carbon price applied should also rise. However, country specific non-ETS targets for 2030 reflecting the higher overall EU ambition are not expected to be fixed until later this year.
For emissions in the ETS sector, the carbon price used in the Public Spending Code, was based on an assessment of likely future ETS prices. Again, it is reasonable to assume that a higher EU-wide target will involve a higher target for the ETS sector and that again, this implies a higher price for ETS allowances. However, a number of very significant reforms to the ETS are under active consideration by the Commission and these could influence ETS prices significantly. Again, final decisions on the share of the burden assumed by the ETS and any reforms are not expected until later this year.
Once decisions in these areas are finalised at EU level, my Department will work with officials in the Department of Environment, Climate & Communications to determine what impact these higher targets might have on estimated marginal abatement costs and how these can be reflected in public investment appraisal methodologies.
I hope that this work can be completed in 2021 but, as noted, this is dependent on agreement at EU level and the availability of the supporting research work, necessary to underpin changes to the Public Spending Code.