State needs to invest €20bn a year to achieve emissions target, IMF says

The Republic will need to invest €20 billion annually for next 10 years in climate-related infrastructures and mitigation measures to achieve the emissions reduction targets laid down in the Government's Climate Action Bill, the International Monetary Fund (IMF) has claimed.

In a report on climate change mitigation in Ireland, the IMF said the €20 billion figure was based on the State’s more ambitious emissions reduction target and “the projected sectoral investment needs”.

It estimated that about a third of the investment would need to be on climate-sensitive infrastructure relating to energy supply, transport, water and waste.

The Government’s landmark climate legislation commits the State to reducing emissions by at least 7 per cent per year – to enable a 51 per cent reduction by 2030 and climate neutrality by 2050.

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A significant tranche of the investment earmarked for the €116 billion National Development Plan (NDP) will be used to fund the State's climate transition.

However, it is nowhere near the €20 billion figure outlined by the IMF, which equates to 5 per cent of GDP (gross domestic product).

“Ireland has adopted an ambitious and far-reaching climate action plan, which will require strong and sustained policy efforts to meet the new emission reduction targets consistent with the EU climate goals,” the IMF’s report said.

“Complementing a gradually increasing carbon price with a wide range of sector-specific policies will help reduce the transition costs and protect vulnerable groups in the shift to a greener, more sustainable, and fairer economy,” it said.

The IMF noted that Ireland’s progress in climate change mitigation over the past two decades has been slow and uneven due to high economic and population growth and the sectoral specific emissions.

Missed targets

It noted Ireland had missed its EU2020 climate targets by a significant margin. It also flagged the building and agricultural sectors as problematic areas when it came to reducing emissions.

“Challenges are particularly large in the buildings and agricultural sectors, which together contribute three times as much to emissions in Ireland than they do in other EU countries,” it said.

The fund, however, said there was growing awareness of the significant climate change-related risks in Ireland – coastal flooding and weather variability – “which has made policy discussions on effective climate policies more pressing”.

“Credible carbon pricing within a well-designed package of mutually reinforcing policies needs to be at the heart of Ireland’s climate policy, consistent with the current EU climate agenda,” it said.

The IMF said the recent increase in carbon tax announced in Budget 2021 was an important first step towards making carbon pricing more effective and places Ireland above the EU average while boosting investment in low-emission public transport, energy-efficient housing, and renewable energy production.

“The post-Covid recovery provides an opportunity to accelerate the adoption of climate-friendly policies in sync with EU-level initiatives, including by boosting public investment in transportation networks and electricity grids for clean energy, subsidising building renovation to achieve greater energy efficiency, and supporting R&D in new low-emission technologies and carbon sequestration, including through agronomic measures and the restoration of peatlands,” the IMF said.