Shedding light on emission debate

Comment: Kyoto decision to limit carbon dioxide amounts has attracted attention, too much of which is unbalanced at best; inaccurate and misleading at worst

Substantial rises in greenhouse gases, primarily carbon dioxide (CO2), have been shown to cause discernible effects on the global climate.

The Kyoto Protocol sought to tackle the problem by requiring developed countries to reduce emissions 5 per cent below 1990 levels by 2012.

Emissions trading, designed to provide incentives for firms to reduce emissions, was identified as a key mechanism to achieve these targets.

If Kyoto is ratified, global emissions trading will begin in 2008.

In preparation, the EU designed a three-year pilot EU-wide scheme to start in January 2005.

A recent Cabinet decision allocated 67.5 million tonnes of CO2 allowances to 97 installations, 16 of which are power generation sites. Ireland's National Allocation Plan (NAP), prepared by the Environmental Protection Agency, sub-divided the overall 67.5 million tonnes to individual site allowances.

This critical decision, which sought to balance environmental and economic considerations, has attracted attention, too much of which is unbalanced at best; inaccurate and misleading at worst.

Let us consider the more damaging claims.

Industry in general, and the 97 sites granted allocations in particular, generate all Ireland's greenhouse gas.

This is patently false. Irish emissions are generated by different sectors: industry 7 per cent; transport 14 per cent; agriculture 32 per cent; and energy 25 per cent.

The 97 sites generate less than 33 per cent of emissions and accurately reflect Ireland's industrial sector, which is amongst the most modern and energy efficient in Europe: note that, although industrial production rose a remarkable 225 per cent in 10 years, energy consumption rose a mere 32 per cent. Not much scope there for further reduction.

Industry has obtained an unfairly generous allocation.

Not true. The facts show the NAP has imposed cuts, some exceeding 20 per cent, with a heavy cost attaching to each and every site, in a pilot scheme that has no targets and is only required to put us on a pathway to Kyoto. The pilot's very purpose was "learning by doing" to prepare companies for international trading for which the Government has indicated even deeper cuts. In fact, Ireland's NAP has reduced industry's ability to compete, by capping emissions at less than needed and imposing unknown - but significant - costs on growth.

CO2 allocation is an asset.

This is nonsense. How could Irish companies consider as an asset an allowance that is less than is required, will continually decrease, and will revert to the State in the event of closure? If the State were handing out free assets, queues would have formed outside EPA headquarters. In fact, rather than bestowing an asset, the Government has put these companies under even greater cost pressure.

Government has lost a potential revenue stream.

Some media coverage castigated both the EPA and Government for not auctioning all allowances, thereby losing a potential revenue stream. In fact, neither had a choice as to how the allowances were distributed: member states were directed to allocate at least 95 per cent free of charge for the pilot, in view of the cost burden participants will bear.

The decision will lead to massive fines for Ireland.

Not true. These companies, even though they are modern, energy-efficient and responsible for less than one third of Ireland's emissions, must now carry onerous emissions limits with a heavy price-tag. Under the scheme they, not Ireland, will be fined.

So much for the spurious problems. Now what about the real concerns?

At enterprise level, Irish companies have the following options: to reduce emissions to their limit by lowering production or improving efficiencies; to buy allowances from other EU sites if available; or to pay the pilot phase penalty of €40 per tonne, rising to €100 per tonne thereafter. The very real prospect of the pilot scheme having insufficient allowances, perhaps causing substantially increased CO2 prices, raises serious worries. In addition, participants will bear the formidable costs of permits, company audits, transactions, monitoring and verification.

At national level, IBEC supports emissions trading as a least-cost method to achieve environmental commitments in a worldwide carbon market.

At the same time, Irish business must have serious reservations about a system that is mandatory only for the EU, and excludes such huge trading blocs as China, Russia, the USA, Australia and the developing countries.

Implementing a mandatory scheme without Kyoto ratification cannot prevent global warming risks, but it does place EU companies at considerable competitive disadvantages as energy intensive companies leave the EU for cheaper, less demanding locations. The possible damage to EU trade is incalculable.

The challenge of climate change will impose costs on all sections of society. Ill-judged, inaccurate criticisms of the emissions trading sector, which must withstand the first impact of corrective measures, are both cheap and dangerous. Simplistic tub-thumping will help no-one.

• Donal Buckley is head of IBEC's environment unit.