In the midst of the indignation over the repudiation by the US of the Kyoto protocol and its ceilings on greenhouse gas emissions, there has perhaps been too little talk of how Ireland will actually meet its own obligations under the treaty. It will not be easy, but is entirely possible as long as the Government sticks to its recently-announced commitment to a carbon tax from the end of 2004. It would have been easier if the tax were in place already.
Courtesy of the Celtic Tiger, Ireland's emissions of greenhouse gases in 2002 are likely to exceed their 1990 levels by between 10 and 15 per cent - in other words, the State will have hit its Kyoto ceiling of a 13 per cent increase (over 1990) eight years ahead of time. If policies are unchanged, emission increases are likely to be 27 per cent above the 1990 level by 2010.
Last week the EU agreed the framework of the first carbon emissions trading market. Under the system, based on the successful US model for sulphur dioxide emissions, companies which fail to meet emission targets will be able to buy "pollution rights" from those whose improved efficiencies have brought them in under target. Economists estimate that such carbon emission permits are likely to trade for some €20 per tonne by the 2008-2012 period. The new market should eventually contribute, to some extent, to meeting the targets. But Ireland must take its own specific measures.
Applying a carbon tax at that level of €20 per tonne across the economy could reduce the Irish overshoot on Kyoto from 27 per cent to 18 per cent over the same period, the ESRI estimates.
Although the tax could add some 0.6 per cent to inflation, the ESRI argues that if the revenues - potentially up to €860 million if introduced in 2003 - are used to fund direct income tax cuts, its model suggests the net effect would actually be to increase output in the economy. "The negative impact of the carbon tax on competitiveness would be more than offset by the positive impact of a cut in direct taxation," the ESRI's John FitzGerald argues. "It would be worth doing even without the environmental benefits of the carbon tax."
Such taxation, particularly when affecting domestic heating and electricity prices, will be politically controversial because it bears heaviest on the poor. It will be crucial to implement the ESRI's recommendation that up to 25 per cent of the receipts be targeted at compensating the most vulnerable.