Policies to achieve a Sustainable Society Reducing Greenhouse Gas Emissions and Stimulating the Gree

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Policies to achieve a Sustainable Society -
Reducing Greenhouse Gas Emissions and Stimulating
the Green Economy

• Lisa Ryan
• Research Director

Renewable Energy Summit 24th March 2009
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Outline of Presentation

• Comhar SDC who we are and what we do
• Linking climate change and economic challenges
• Building the Smart Economy
• Carbon tax
• Lessons learned and Comhar SDC proposals
• Revenue Use
• Cap and Share
• Conclusions

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Comhar SDC Who we are

• Established by government in 1999 building on
  experience of social partnership
• Mandate from Minister for Environment
• Independent chairman and 25 members representing
  stakeholders from 5 pillars
• Environmental
• Community
• Economic
• Professional/ academic
• State

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Comhar SDC How we operate

• Recent recommendations
• December 2008 Recommendations on Cap and Share
• October 2008 Recommendations on Budget 2009
• September 2008 Recommendations on Local
  Government Reform
• June 2008 Biodiversity Forum recommendations
  on 2nd National Biodiversity Plan
• May 2008 Recommendations on Sustainable
  Transport Action Plan
• September 2007 Recommendations on Sustainable
  Development Strategy

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Key Presentation Messages

• Hugely demanding legally binding obligations for
  energy and climate change for 2020.
• 4-year window of sharp economic decline to make
  the transition from conventional to
  innovation-led green economy.
• Three key elements in this transition
• Get the price signals right
• Get the other policies working in the same
  direction as the price signals
• Use this window to radically and permanently
  reduce fuel poverty
• Key objective should be to be a leader in Europe
  in green tech and green collar jobs by 2020,
  convert the challenge into an opportunity.

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Irish GHG Emissions Projections
EPA 2009
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Climate change policy drivers

• 23rd January 2008 European Climate Change and
  Energy Package
• The mainstay of the new policy is a core energy
  objective for Europe that the EU should reduce
  greenhouse gas emissions by 20 by 2020.
• Separate Member State targets for non-ETS
  sectors. Ireland 20 reduction by 2020
  transport, agriculture, residential, industry
  main sectors.

Non-ETS emissions share With additional measures
2020 (EPA 2009)
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Transition to Green Economy

• Short breathing space to make the transition.
  Over the 2010-12 period, sharp economic decline
  will result in falling emissions, energy and
  carbon prices.
• Economic decline  - new ESRI forecast 7 fall in
  GNP 2007-2010 - means that up to 2010-12
• Falling emissions may mean that the Kyoto
  target of 62.8 million tonnes of CO2e will be
  nearly met and therefore less payout to buy
  allowances Exchequer savings dividend
• Falling energy prices build up of stocks of
  natural gas, oil, coal
• Falling CO2 allowance  prices in the European
  Union Emissions Trading Scheme (EU ETS), and
  associated fall in project-based allowance prices
  (CERs).

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The Green New Deal (GND) idea

• Three principal objectives
• Revive the world economy, create employment
  opportunities and protect vulnerable groups.
• Reduce carbon dependency, ecosystem degradation
  and water scarcity.
• Further the Millennium Development Goal of ending
  extreme world poverty by 2025.
• (UNEP report 2009)

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Context for Green New Deal idea

• Global
• July 2008 - New Economics Foundation report
• Theme for Barack Obama presidential campaign
• September 2008 Worldwatch Institute Green Jobs
  Towards Decent Work in a Sustainable, Low-Carbon
  World
• Jan 2009 World Economic Forum Green Investing -
  Towards a Clean Energy Infrastructure
• February 2009 UNEP report A Global Green New
  Deal
• Ireland
• Oct 2008 Forfas Report on Environmental Goods and
  Services
• December 2008 Government Report Building
  Irelands Smart Economy A Framework for
  Sustainable Economic Renewal

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Building the Smart Economy ReportAction Areas

• Securing the Enterprise Economy and improving
  competitiveness investments in infrastructure,
  improving public finances, taxes, reducing admin
  burden for businesses, retraining people,
  agrifood sector, and international financial
  services sector.
• Building the Ideas Economy innovation fund for
  SMEs, taxation for RD and startups, RD funds,
• Enhancing the Environment and Securing Energy
  Supplies increased renewable electricity (40
  in 2020), smart meters, installation of
  insulation in 25,000 houses, STTAP, carbon tax,
  action plan on green enterprise.
• Investing in Critical Infrastructure STTAP,
  broadband and energy/electricity, Dublin airport,
  NDP priorities, DTA, NSS review, rural
  development programme.
• Efficient and Effective Public Services and Smart
  Regulation procurement centralised in some
  areas, special group on public service numbers
  report in June, system of Regulatory Impact
  Assessment.

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Forfas Report (Oct 2008) on Environmental Goods
and Services

• Potential areas of opportunity
• Renewable Energy
• Efficient energy use and management (including
  eco-construction)
• Waste management, recovery and recycling
• Water and wastewater treatment (largest subsector
  in EGS)
• Environmental consulting and services

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Three elements to transition process

• Get the price signals right the time to do it
  is now when energy prices generally are in
  decline.
• Get other policies working in the same direction
  as the price signals.
• Progress and gaps
• Green purchasing no programme yet
• All direct State investment needs to have a focus
  on progressing energy efficiency, greenhouse gas
  reduction, innovation, and support for green
  jobs.
• Information Building Energy Efficiency (BER)
  and time of day metering a good start but
  information that is relevant, accurate and timely
  needs to be pervasive
• Research and development  - crucial for
  competitiveness because innovation is the way to
  stay ahead. Funding mechanisms being put in place
  Science Foundation Ireland, Programme for
  Research in Third Level Education 5 etc.  but
  accelerated action needed to link enterprise to
  innovation
• Regulations that require high energy efficiency
  and low environmental impact. New home
  regulations a good start, but challenge lies in
  retrofit.
• Subsidies every subsidy and grant should have
  energy and carbon efficiency as conditionality.
  Warmer homes a good start.
• Use this window to radically and permanently
  reduce fuel poverty
• Poor are vulnerable to high energy and carbon
  prices. Dedicate a share of carbon revenues to
  achieve this objective, mostly in form of
  investment rather than income transfer
• Comhar SDC working in all of these areas, but
  focus of this presentation is on getting the
  prices right.

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Market-based policy instruments

• Environmental policy traditionally based on
  command and control-style regulation
• Market-based instruments (MBI) correct market
  failure by creating a price signal (Carbon tax,
  ETS, road pricing, cap and share). This sends a
  message to
• Businesses that there is return on investment in
  energy-saving activities
• Consumers to purchase green (energy-saving, best
  in class, less wasteful) products,
• Investors to make long-term investments in green
  businesses and jobs,
• Policymakers (local and national) that climate
  change programmes can raise revenue and will save
  money in the long-run.
• MBIs improve environmental performance a least
  cost
• Opportunity exists to invest revenue in green
  economy

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Fiscal instruments really work

• Irish vehicle taxes example
• Change from engine size to CO2 emissions based
  system from July 1st 2008.
• Preliminary data shows significant change from
  higher to lower CO2 emitting vehicles ?
  successful.

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Irish vehicle taxes
Motor and VRT taxes a function of car CO2
emissions since 1st July 2008.
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New car sales in Ireland 2008
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Irish vehicle sales breakdown 2000-2008
Source Energy in Ireland (EPSSU SEI 2008)
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Carbon tax Lessons learned from 2003Perceived
barriers to Carbon tax

• Most of industry is already part of the EU ETS
  and carbon taxation would lead to double
  taxation
• Reduction in industry competitiveness
• Not effective in terms of CO2 emissions reduced
  while energy prices have risen over the past
  years, energy consumption also rose
• Issue of fuel poverty among low income
  households
• Inequitable burden on rural dwellers due to high
  price of transport fuels.

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Carbon tax in Ireland post-2007

• The Programme for Government agreed in July 2007
  states that
• Appropriate fiscal instruments, including a
  carbon levy, will be phased in on a
  revenue-neutral basis over the lifetime of this
  Government.
• Commission on Taxation established in Feb 2008 to
  review the structure, efficiency and
  appropriateness of the Irish taxation system. The
  terms of reference for the Commission are
• To introduce measures to further lower carbon
  emissions and to phase in on a revenue neutral
  basis appropriate fiscal measures including a
  carbon levy over the lifetime of the Government.
  
• The Commission is invited to consider the
  consider the structure of the taxation system and
  specifically to
• Investigate fiscal measures to protect and
  enhance the environment including the
  introduction of a carbon tax.

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Comhar SDC Carbon Tax 2010 Proposals

• Scope limit to non-ETS sectors (really
  transport, residential, small industry, services
  sectors)
• Tax level set equivalent to ETS futures price
• Timing phase-in beginning immediately
• Potential direct emissions reduction 1
• Further related reductions expected for
  announcement effect, reinvestment in further
  energy-saving measures
• Recycle carbon tax revenue in targeted manner.

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Modelling results (2008)
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Carbon Tax Revenue use

• Estimated annual revenue at forward ETS price of
  10-25 per t CO2 between 250-680 million in
  2010
• Potential of carbon tax to reduce emissions and
  encourage sustainable economic growth by using
  revenue to invest in Green New Deal package
• Reduces public mistrust of government use of
  funds
• Necessary to counter regressivity of carbon tax
• Fuel poverty exists with no programmes in many
  areas
• Energy-saving schemes needed but reduced funds
  available.

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Carbon Tax Revenue use proposals

• Proposal to use revenue to
• Reduce labour taxes and compensate low income
  groups (40-47)
• Invest in energy-saving activities (30)
• Voluntary energy agreement rewards
• Public good activities, i.e. public transport,
  rural transport schemes,
• Environmental Goods and Services
• Research and development.
• Eliminate fuel poverty (15-20).

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Cap and share scheme (1)

• Alternative scheme for residential and transport
  sectors, particularly interesting at more
  ambitious emissions reduction targets.
• Operation
• Government sets cap on fossil fuel importer
  emissions
• Total cap divided by no. of Irish households and
  allowance certificate awarded to each
• Fuel importers pass through additional costs to
  consumers who reduce energy consumption to reduce
  their exposure to higher prices
• Households cash in certificates at market prices
  at banks and are compensated for rising prices.
• Quite similar to a carbon tax with lump sum
  compensation to households.

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Cap and Share scheme (2)

• Advantages
• Public engagement aids acceptability
• Lower income households relatively highest gains
• More acceptable than carbon taxes at tighter
  emissions limits and resulting carbon prices
• Relatively simple to operate compared with many
  personal emissions trading schemes.
• Weaknesses
• Transaction costs potentially high
• Utility losses through opportunity costs to
  reduce other distortionary taxes.

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Cap and Share Scheme modelling results
Source Cambridge Econometrics (E3ME model)
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Comhar SDC recommendations Cap and Share scheme

• A combination of a cap and share and carbon tax
  schemes should be considered in the medium to
  longer term
• Fossil fuel usage from households could be
  covered by a cap and share scheme
• Carbon tax levied on non-ETS businesses revenue
  from the carbon tax recycled back to
  energy-efficient activities and innovation in
  businesses.
• Working party needed to make recommendations on
  implementation of a cap and share scheme.
• Particular attention should be given to
• (i) integration of a cap and share scheme with
  other policies, for example in Northern Ireland,
  and the resulting impact on fuel tourism
• (ii) whether rural dwellers and other vulnerable
  groups would require additional compensation and
  
• (iii) to assess the administrative requirements
  and costs of such a scheme.
• Cap and Share scheme should be based on the PPS
  system and electoral roll, with consideration
  given to the treatment of children.

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Next steps for Comhar SDC work
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Key Conclusions

• Significant economic and climate change
  challenges present and future
• New sources of revenue required to stimulate
  long-term sustainable economy
• Opportunities for change exist
• Focus on getting
• Price signals
• Policy
• Equity

right
Growth of Green Economy
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Further information

• Lisa.ryan_at_environ.ie
• www.comharsdc.ie