The Government has been advised that electricity prices for consumers will rise by up to 4 per cent because of the cost to energy firms of complying with the Kyoto Protocol to reduce greenhouse gas emissions.
In a report given to Cabinet yesterday consultants advised that the proposed cap on the levels of greenhouse gas emissions will result in rises in the cost of electricity to industry and householders between 2008 and 2012.
Under the proposals, approved by the Government yesterday, large firms and electricity companies will be allowed to produce just over 23 million tonnes of greenhouse gases per year between 2008 and 2012 under the State's National Allocation Plan, required under the Kyoto Protocol.
This will be divided among more than 100 companies in the State. However, it will leave a shortfall of between three million and five million tonnes of emissions by industry, which will be made up mainly by companies purchasing "carbon credits" on the international market, which will allow them higher emissions. The annual cost of carbon credits is currently at €27 a tonne.
The report, by Byrne Ó Cléirigh consultants and ICF Consulting, believes that this price will reduce to €15 a tonne in the long-term, although investment banker analysts have predicted the price could rise to up to €50 a tonne, leaving Irish firms with a bill over the five-year period of anywhere between €300 million and €1 billion.
The consultants have estimated that the cost to electricity firms such as the ESB of adhering to the emission limits, through buying credits or using new technology to reduce emissions, will see the wholesale electricity price rise by between 4 and 8 per cent between 2008 and 2012. The retail price of electricity will rise by 2 to 4 per cent.
The potential rise in electricity prices comes as a new report by the Environmental Protection Agency showed that the downward trend for greenhouse gas emissions has been reversed and are on the rise again. Irish consumers and businesses produced 68.46 million tonnes of carbon dioxide and greenhouse gases in 2004, an increase of just less than 1 per cent on 2003. This is 23 per cent higher than the levels Ireland was producing in 1990.
Under the Kyoto Protocol, Ireland is committed to keeping its emissions at 13 per cent above 1990 levels, or a cap of just over 63 million tonnes.
The breakdown of the 2004 figures show that agriculture remains the single largest contributor to the overall emissions, at 29 per cent of the total. This is followed by energy, which is power generation and oil refining, at just over 23 per cent and transport at 18.4 per cent.
The increases of greenhouse gases since 1990 have been driven to a large extent by the transport sector. Emission levels have more than doubled from 5.66 million tonnes a year to 12.1 million tonnes in 2004.