Ireland reaches its carbon crunch moment

Ireland has reached its carbon crunch. New proposals on national carbon limits from the Climate Change Advisory Council will, when approved by the Oireachtas, be split into binding sectoral goals. An updated Climate Change Action Plan from the Government, probably published next week by Minister for the Environment Eamon Ryan, will set the wider backdrop. It will indicate a range of targets for each sector to be firmed up into specific binding goals in the weeks ahead.

This will bring one key new factor into play – clarity that if one sector does less in terms of carbon reductions, others will have to do more . Where before targets were loose and not met, now there will at least be set figures. And with binding goals to reach, the Government has to decide finally how they might be achieved.They will be set down in black and white, sector by sector, with a plan on how to get there.

Up to now, political debate tended to amount to different sectors and interest groups giving out about an unfair burden. While this will continue, now the trade-off between becomes clear: we will surely see tension between sectors and groups as well.

The Climate Change Advisory Council threw in the ball on this debate at the weekend. Its new targets involve an annual average reduction in emissions of 4.8 per cent up to 2025 and 8.3 per cent in 2026-2030. The thinking is that investments now – for example in areas like wind energy – will take time to complete but will pay off in terms of reductions in the 2026-2030 period.

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The implications for the public finances are serious. Much of the upfront investment cost of at least an additional €5 billion per year, on the council’s estimates, will come from the State.

Total investment will be higher again, when considering money redirected from existing spending patterns, for example people buying electric cars. An analysis by McKinsey estimated a total spend of €125 billion up to 2030 in new and redirected investment related to the green transition.

The overall economic impact of the transition is hard to gauge – and of course framed by the costs of inaction. In an analysis of the macroeconomic implications, published by the council, one of its members, Prof John FitzGerald, points to the costs during the transition of redirecting State investment and consumer spending and having higher taxes, and the risks to agriculture and the food sector.

A separate document by McKinsey consultants calculates that the net job impact could be positive – to the tune of 32,000 jobs by 2030 – taking into account gains in sectors like wind energy and retrofitting and new export opportunities in areas like bioproteins, which it says should outweigh losses in areas like farming and meat processing. No one disputes, however, that there will be winner and losers in the transition and a need to support those worst hit.

For Ireland, having missed earlier targets, the message now from the chairwoman of the Climate Change Advisory Council, Marie Donnelly, was clear. The lower targets in the earlier period are not an excuse for inaction: on the contrary, the time to act is now if we are to have any chance of meetings the targets. The scale of the challenge is underlined by the 3.6 per cent reduction in emissions in 2020, a year during which much of the economy was closed for long periods.

Sectoral debate

In the days ahead a key area of the debate will be agriculture, responsible for upwards of one-third of emissions. This will be a key swing factor in the targets needed for other sector. The sector points to the gains from new methods of farming , with a KPMG report for the Irish Farmers Journal saying that reductions of 13-18 per cent in emissions are achievable by incentivising the adoption of new technologies. Teagasc research has previously put this figure at 10 per cent.

But work undertaken for the Climate Change Advisory Council report says that bigger cuts in emissions would be needed in agriculture, if other sectors are not to face an unfeasibly high burden.

In a background paper on the macroeconomic impact, economist Fitzgerald says that emissions cuts of at least 33 per cent are needed in agriculture. He writes: “Anything less would leave an impossible task for the energy sector if Ireland is to meet the targets for 2030 of reducing all emissions of greenhouse gases by 51 per cent.”

Work by Hannah Daly of the UCC Marei institute, undertaken for the council report, estimated that if agriculture emissions fell by about 19 per cent by 2030 – in line with the current agrifood strategy – emissions in energy would need to drop by 69 per cent to make up the difference. If agricultural emissions fell by 33 per cent, energy emissions would still need to fall by 61 per cent, still a big ask.

But the higher figure has big implications for farming. Teagasc research has shown that to reduce agricultural emissions by 33 per cent, it will be necessary to have a significant reduction in livestock numbers – something senior Government Ministers have so far said will not be necessary. This has a wider economic impact not only on the incomes of the farmers concerned but on the beef and dairy sectors, the latter a much more profitable enterprise for farmers.

The Teagasc research suggests this could lead to a 25 per cent fall in farm incomes , a €1 billion drop in annual output from the sector and some 9,500 fewer jobs. In turn, this would require significant State support for affected farmers and businesses.

The Climate Action Plan is likely to focus on ways to redirect the sector and thus protect farm incomes by, for example, providing support for afforestation and in key areas of land use. Already incomes are low for most beef farmers but transitioning the higher earning dairy sector will be more difficult and economically costly.

Yet with demand patterns internationally moving towards sustainable output and rising pressure from investors on agricompanies, this is surely the direction of travel for the sector anyway.

Farming is a key swing factor in the target-setting now to come – and a really difficult one politically. An increased focus in the Climate Action Plan, meanwhile, is on the linked issue of land use and the contribution from areas like forestry and rewetting farming lands.

Energy crux

Massive investment in transitioning the energy sector is coming. Central to this is a move to renewable energy with a target to be set in the new Climate Action Plan of having 80 per cent of power needs derived from renewables by 2030, up from the old 70 per cent target. In turn this drives the transition of much of the rest of the economy by allowing green electricity to power vehicles and industry, and heat homes and offices.

The wind energy industry has said that the next year is now crucial if we are to ramp up offshore – and onshore – wind production, with the former requiring significant new legislation , including a Maritime Area Planning Bill, currently at committee stage and vital for planning offshore wind farms.

More clean electricity is vital for transport. Draft new targets for the Climate Action Plan, referred to in background documents published with the Climate Change Advisory Committee report, are for electric vehicles (EVs) to account for 45 per cent of new vehicle sales by 2025 – just four years away – and 90 per cent by 2029.

Indications are that the plan will target 40-45 per cent of car kilometres to be in electric vehicles by 2030, up from 35-40 per cent in the 2019 climate plan. A strategy document by McKinsey points out that falling prices of EVs should reduce the need for public subsidy at current levels in a few years time but the challenge of change is still significant.

The council document speculated that a scrappage scheme for older cards would be needed for more ambitious EV targets, but this is not immediately planned.

Electricity will also be a key factor in the transition for industry – where green hydrogen may also contribute – and for households. The demand from data centres remains a key factor in pushing up demand significantly. For households, retrofitting about half a million households will cut demand and increase the ability to deploy heat pumps, with a target that these will heat about 400,000 homes by 2030.

Retrofitting projects in particular will need State support, the council report says because, unlike EVs – where lower prices will cut the payback period – the payback on the cost of a full retrofit is very long.

Meanwhile, the Government action plan is expected to underline the potential of so-called district heating schemes – local systems which deliver low carbon heat to residential and commercial buildings in a particular zone. A potential example would be using the heat from the Poolbeg incinerator to provide heat to areas of the south Dublin inner-city, particularly Georgian buildings which will be hard or impossible to retrofit.

Demand dilemmas

A lot of the progress in cutting emissions is due to come via investment, notably in new energy supplies and technologies to use them. However, a focus of the Climate Action Plan is also expected to be measures to reduce demand from consumers and businesses.

Work from the UCC Marei Institute highlights the difficulty of making enough progress purely with the investment-focused measures and underlines that lower demand will be important too. This involves, for example, getting people out of cars – where possible – and changing commuting patterns.

However, as one senior source put it, “this effectively means trying to unwind 50 years of urban sprawl development” which has pushed people into long car-based commutes. It is also much more difficult in rural Ireland, where public transport options are typically sparse.

Still, the drive to getting people to cycle and walk more and drive less in their daily lives will continue and the increased working from home trend post-Covid may provide a bonus here in terms of cutting journeys.

The bottom line

The imperative for international climate action is vital. And as well as the costs, there are opportunities for Ireland, for example to develop as a big producer of wind energy.

But there is another push for action. Large companies that do not adapt will face higher and higher costs of buying carbon credits under the EU emissions trading system. And new EU rules together with higher carbon prices are also likely to mean rising costs for the exchequer if targets are not met. How the national, EU and UN targets will interact and be accounted for is complicated but the squeeze to meet the targets over the next vital decade is coming.