ESRI report calls for tax on greenhouse gases

Ireland may have to consider a 5 per cent across-the-board increase in energy prices, including electricity charges, if it is to meet EU targets for a cut in greenhouse gas emissions, according to a major report published today.

The report, compiled by the Economic and Social Research Institute, is the first to make an attempt at quantifying the cost of measures to reduce the emissions of carbon-dioxide, nitrous-oxide and methane which are linked to global warming.

It notes that the EU's stance for the forthcoming Kyoto summit on climate change involves a commitment to reduce its emissions of these greenhouse gases by 15 per cent by 2010, taking 1990 levels as the baseline.

As part of this approach, Ireland has accepted a "cap" on emissions in 2010 of 15 per cent above the 1990 level. But given current rates of economic growth, the report warns that emissions would rise by over 50 per cent in a "do nothing" scenario.

The projected emissions are based on the ESRI's own forecast that Ireland's GDP will increase by around 5 per cent a year until 2010. This means that GDP in 13 years' time would be nearly three times as high as it was in 1990.

Because of limited data available, the ESRI concentrates on electricity generation as the main target for action. But it does not exclude the transport sector or agriculture from its calculations.

Farmers, whose cattle are responsible for Ireland's high methane levels, should not be insulated from policy changes, it says, adding that their contribution could be reduced by shifting market supports away from livestock.

On transport, it says rising traffic volumes are imposing increasing costs through congestion. This was a reason to consider policy measures such as the need for greatly increased investment in public transport. However, it cautions that this alone would not be sufficient to curb a projected 115 per cent increase in emissions from transport, saying that fiscal measures, such as taxes or charges, "must play a vital role in traffic management in the future".

If the 2010 emissions target was to be met exclusively from within the electricity sector, the cost would involve a 5 per cent increase in charges. "The rise in prices would represent a real cost to the economy rather similar in character (though not in magnitude) to that which occurred as a result of the 1970s oil price crises," says the ESRI.

It would "probably involve" closing all existing solid fuel stations even though they may not have reached the end of their useful lives by 2010.

Shifting most electricity generation to more efficient and less polluting "combined cycle" gas turbines, as the report suggests, could "double or treble the new investment needed in generation in Ireland over the next 15 years as existing plant was replaced".

However, it warns that concentrating on gas as the fuel for almost all electricity generation would leave Ireland "very exposed" to disturbances in the European gas market.

"With the exception of wind power, which for technical reasons can only provide a limited share of total generation at the moment, other forms of renewable energy - in particular biomass - are likely to be very expensive using technology available today," says the report.

When climate change first became an issue, the ESRI says it "seems a pity" that Ireland did not strongly advocate the use of fiscal instruments as the best method of achieving a substantial reduction in emissions - for example, through an EU-wide carbon tax.

With the "polluter pays principle" in mind, the report says Ireland "should accept the need to restrict emissions within the EU in the long term while advocating a strategy which would minimise the economic cost to the EU as a whole".

The best solution, it suggests, would be to use a greenhouse gas tax and apply it to all polluters - including farmers. The level of this tax would probably be quite low and the revenue it raised would be used to reduce other distorting taxes, such as PRSI.

Whatever regime is chosen at an EU level, the report says it is essential that all sectors are treated equally. "Any attempt to insulate individual sectors, such as agriculture, smelting or turf-fired electricity generation, could greatly increase the economic cost to Ireland."