Higher gas prices will push people to decarbonise energy, economist says

The recent dramatic rises in the price of gas in Ireland and Europe, which are likely to lead to continuingly high energy bills for consumers, should ultimately drive change towards greater energy efficiency and decarbonising energy supply, a leading economist has argued.

Adjunct professor of economics at TCD John FitzGerald said there was an urgent need to develop a global gas market as liquefied natural gas (LNG) was essential for Europe, but it is expensive and likely to remain expensive for the foreseeable future.

“The exceptional cost of gas will drive change – at the current price, it is equivalent to a €700 a tonne tax on the gas price of 2019,” said Prof Fitzgerald, adding that this price increase would have a dramatic effect on making a move towards net-zero emissions more attractive.

Net-zero world

“While in 2020 it looked as if the substantial cost of moving to a net-zero world would require major State investment because it was not commercially attractive, at today’s price of gas, energy efficiency and decarbonising energy are the cheap options.

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“For example, at a tax of €40 a tonne, much of the required retrofitting of the housing stock was not commercially viable; at a tax of €700 a tonne, it makes sense for all households to do it as soon as possible,” he told the Dublin Economics Workshopin Wexford.

Prof FitzGerald said that the additional cost this year of importing gas for the EU and Ireland would amount to 3 per cent of national income and, if gas prices remain where they are, this could cumulatively add another 2 per cent to bring the figure to 5 per cent

Alternative sources

“The shock in 1974 from oil price rises was around 4 per cent – thus, this is of a similar magnitude, but gas is responsible for a majority of the shock… and because gas is responsible for most of the shock and because alternative sources for gas will take time to develop, the shock will be felt beyond 2023.”

Prof Fitzgerald said that 70 per cent of Ireland’s gas currently comes from the UK and, if it were to reduce exports to the European Union in order to reduce the price on the domestic UK market, it would cause massive disruption in Ireland,

He pointed out that the UK had continued to export large amounts of electricity to France over the summer despite the fact that it resulted in higher domestic prices but they may be expecting to have to import more electricity in the winter so it may suit them to play a part in European energy supply.

“But cutting off gas supplies to Ireland without affecting Northern Ireland would be difficult – for example, much of the offshore infrastructure in Scotland, on which Northern Ireland relies, is Irish- [Republic] owned, as is much of the transmission system with Northern Ireland.”