Fundamental economic changes needed to meet new carbon goals

New targets have big implications for households, businesses and the State

If the Government targets transport, this could require a scrappage scheme for up to 800,000 old diesel and petrol vehicles to be replaced by electric vehicles.

If the Government targets transport, this could require a scrappage scheme for up to 800,000 old diesel and petrol vehicles to be replaced by electric vehicles.

 

The huge economic implications for households, businesses and the State of the drive to cut greenhouse gas emissions are brought into sharp focus by the latest report from the Climate Change Advisory Council.

Its new targets for carbon reduction point towards hugely difficult political calls – not least how to pay for an additional up-front cost amounting to an estimated €5 billion per annum to achieve the green transition, much of it from the public purse.This is to pay for “transformational change” in the key sectors – industry, agriculture, transport, households and energy.Ministers must also decide how the carbon emission reduction targets are to be broken down between sectors – a hugely contentious process.

The scale of the challenge was underlined by recent figures showing that despite a shutdown in much of the economy in 2020, greenhouse gas emissions fell by only 3.6 per cent, just over half the 7 per cent annual fall which had been targeted in the Programme for Government.

The council has now tweaked the targets and said that an average annual reduction of 4.8 per cent in emissions is needed in the period 2021 to 2025 and 8.3 per cent on average each year from 2026 to 2030. With 2021 nearly over and strong growth likely to be pushing emissions up, this doesn’t give much real leeway – and the council underlines that investment and action is needed now to pay off in the later years.

The economic case for this rests on the massive, longer-term costs of not acting. As the council’s report points out, traditional economic cost/benefit analysis struggles to deal with this, given the huge, longer-term costs of failure.

The big question is how to decouple economic growth from rising carbon emissions – to make growth sustainable. This will require State resources to be redirected from other areas or taxes to be raised to pay the bills and compensate those worst-hit.

Agriculture and transport

Politically a key issue will now be how to spread the adjustments of the new national targets between different sectors. Doing less on agriculture, for example, would mean doing more in other areas like transport.

The €5 billion a year estimate of additional up-front investment – to achieve the target of a 51 per cent emissions reduction by 2030 over 2018 levels – amounts to almost 2.5 per cent of annual national output.

Not all this will come from the Government – but much of it will. Analysis by McKinsey consultants for the council suggested that up to half of the measures they examined for the low carbon transition to 2030 could have a standalone business case, due for example to fuel savings. These should be paid for by the private sector, the council says, but the others will require public subsidy. And here there are some big calls.

If, for example, the Government chooses to aim for a large part of the necessary transition to come from the transport sector, this could require a widescale scrappage scheme for up to 800,000 old diesel and petrol vehicles in the years ahead to be replaced by electric vehicles. A minimum of 600,000 electric cars and 130,000 vans would be needed by 2030, the report estimates but up to 1.5 million would be required if more emissions cuts are sought from transport.

Vehicle scrappage

Government subsidies would be needed for a scrappage scheme, particularly as many of the oldest vehicles are owned by less-well off households. Meanwhile, those owning older houses would require subsidies for expensive retrofitting projects – here the council believes a target of 600,000 households retrofitted may be needed by 2030, compared to the existing Government target of 500,000 homes. It would take many years for households to recoup the costs of a full retrofit – without State support, it just won’t happen.

The economic calculus of going green is not straightforward. In retrofitting, up to 40,000 new jobs could be created to do the work, along with more than 30,000 to make the required materials if this was done in Ireland. On the other side of the ledger, there could be losses of up to 13,000 agriculture and food jobs if this sector was required to make a 20 per cent emissions cut by 2030 and up to 45,000 for a 40 per cent cut.

Agriculture and food is possibly the clearest example of where climate goals run up against existing policy. Ireland has built up its dairy herd and industry in recent years, but the council finds that to meet more ambitious targets reductions in output levels will be needed. Technological improvements can help, it says, but more will be needed.

The job of Government now is to decide how the new targets will be met, assuming they are approved by the Oireachtas. Communicating the scale of what lies ahead is then a big challenge.

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