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21 August 2003 Edition

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Taxing the weather


Well, hasn't the weather been wonderful this August? After an uncharacteristically wet July, we experienced what appeared to be a heatwave, and you can tell by all the pink people walking down the street that we certainly took advantage of it.

More than a few of us are commenting on how weird this summer's weather has been and not just in a typical, 'never happy with the weather' Irish way. It has been too wet and too hot. Could this be the global warming we've been warned about?

Well yes, actually. It seems that the heatwave that settled over at least 30 countries in the northern hemisphere this year has signaled that man-made climate change is accelerating.

But the changing weather that results from global warming doesn't just mean sunshine, it also means hurricanes, tornados, snow, monsoons, drought, floods, fire, well you get the drift.

The reason for all this hyper weather activity is quite simple - greenhouse gases. CFCs, as well as a host of other manmade gases, are polluting our atmosphere, eroding the ozone layer and generally killing the planet.

Individual countries, in response, are trying to introduce a carbon tax - a tax aimed at reducing greenhouse gases by financially targeting the energy that produces them. Basically, any fuel that emits CO2 or other gases would become more expensive, making using less fuel or switching to alternative energy sources more appealing.

The EU has debated the tax for the last decade and the 26 Counties is one of the last states to consider introducing it. Not before time either - the 26 Counties produces the highest rate of greenhouse emissions per capita in the entire EU.

The problem with the tax, as always, is that businesses don't want to pay it. Consumers fear it will just be passed directly on to them. But with Minister for the Environment Martin Cullen promising to bring it in by 2004, the question now is not whether we will have a carbon tax - but how much it will be and who will be directly hit by it.


In 1992, many nations of the world met to discuss global environmental problems at the Rio Conference on Climate Change. They determined that one of the primary threats facing the human race, based on its own behaviour, is that of the worldwide climate change caused by global warming. The Convention included an agreement to reduce significantly the emission of greenhouse gasses by all parties to the Convention.

The method chosen by the EU was a tax on energy and CO2 emissions directly. After spending nearly two years discussing the issue, several committees of the European Parliament agreed upon a carbon tax levied on fuel to be applied to all member states.

While some members of the EU had already come up with plans to reduce their production of CO2, several of which involved a CO2 tax (Germany, Belgium, Italy, Luxembourg, Denmark, and the Netherlands), others opposed the tax on various different grounds. Spain, Portugal, Greece, and Ireland objected to implementing the tax based upon their lower level of industrialisation and energy use, and wanted the tax level moderated for their circumstances. However, all members, with the exception of Britain, agreed upon the necessity of an EU-wide carbon tax policy.

The debate begins

There has been heated debate over the effectiveness of such a tax on CO2 emissions in Europe, and whether or not a reduction of CO2 emissions in Western Europe would have much impact globally. There has also been controversy as to what impact the tax would have on the world oil market, on the development of renewable sources of energy and on existing energy businesses within the EU.

There are many opponents of an energy tax, both in the public and private sectors.

Those in the no-tax camp say that a carbon energy tax would make CO2-emitting fuels more expensive in the European Union and decrease imports of such types of fuels. Extensive lobbying campaigns have been undertaken by oil producing states in the Persian Gulf area to protest against carbon taxes.

A more positive outcome of a tax on non-renewable energy sources (CO2 fuels) would result in the development and commercial application of alternative sources of renewable energy. Solar and wind power would become more cost effective and an attractive alternative. Research and development of other sources would most likely accelerate. Oil and coal supplies will not last indefinitely and the EU would have a head start on the rest of the world in the development of new sources of energy.

26 Counties

The 26 Counties produces double the amount of greenhouse emissions it is legally allowed under international regulation, the Kyoto Protocol. If the state does not cut these back to 13% a year, we will have to pay another country that has complied with the regulations €1 billion by the end of this decade.

At the beginning of this year, some of the biggest companies in the 26 Counties mounted a vigorous lobbying campaign against the government's plans to introduce a carbon tax. Records released under the Freedom of Information Act showed that major groups such as Intel, Dell, CRH, Aughinish Alumina and Irish Sugar wrote to the Minister for the Environment expressing alarm at the plans.

Among the biggest employers in the State, the companies argued that the imposition of a carbon tax would put jobs at risk and jeopardise the future of their business. The records also indicated opposition to the plans within Fianna Fáil, with the Limerick TD John Cregan writing to the Minister for Finance, Charlie McCreevy, to highlight the concerns of local employer Aughinish Alumina.

At the end of July, the government kicked off a process of consulting the public and companies on the ramifications of introducing a carbon tax. It suggested implementing a carbon tax on a sliding scale which would begin with charging €7.50 for every tonne of greenhouse gases, rising to €20 per tonne over a period of years.

At the highest rate it would add 67c to a bale of peat briquettes and €2.11 to a 40kg bag of coal. The average household energy bill would go up by 6% and a company's energy bill by 9%.

With the notable exception of the Department of Environment and Local Government (DELG), almost every other senior ministry has been fighting off this tax since 2001. The nay-saying Departments appear to be utterly persuaded by the big business case that the tax will prejudice that famous tiger economy "competitiveness". Nothing could be further from the truth.

Learning from others

Denmark, with its similar size and population, offers a good cross-comparison with Ireland. The initial catalyst for energy taxation in Denmark was the severe impact of the oil shocks in the 1970s. Up to this time, Denmark had a 95% dependency on foreign resources. This fell dramatically over the next two decades. When oil prices subsided in the '80s, tax on non-renewable energy was scaled up to maintain the incentive for energy efficiency.

The savings on energy imports have been substantial and the economy has benefited as a result. CO2 emissions have been reduced by nearly 10%, even though the economy has grown strongly over that period. The Danish Ministry of Economic Affairs does not believe that the taxation has had any negative impact on its competitiveness - in fact export markets have developed while there has been a lesser reliance on import markets.

Our emissions, however, are still growing - at the fastest rate in the EU. Carbon tax should have been introduced in 2002, according to commitments given by the government in the National Climate Change Strategy. At this rate, we will soon be approaching the per capita level of the USA of 25.4 tonnes. Irish business, in its opposition to the carbon tax, is clearly demonstrating that it feels far happier being closer to Boston than it is to Berlin.

One strategy being bandied about by some government departments, instead of the tax, is the importation of emission allowances. This is a scheme set up by Europe to allow one country to buy another's emission allowance if that country doesn't need it. At the moment there is a low estimate for the cost of bought-in emissions rates - a steal at €275 million per year starting in 2008, and a high estimate of over €320 million per year. After 2012, the price may be expected to escalate rapidly as targets are tightened.

The 26 Counties needs a carbon tax, but Minister Cullen has to ensure that the tax is directed along the lines of 'the polluter pays' principle and not direct it at ordinary householders.

In 2003, Finance Minister Charlie McCreevy vetoed the inclusion of an energy tax in the budget, saying that he would instead announce it towards the end of 2004. However in the same budget, McCreevy cut the tax relief for wind farms, an obvious way of reducing our dependancy on fossil fuels and discharges of greenhouse gases.

Given their way, Irish businesses would not pay tax on anything. The current Finance Minister is bending over backwards to ensure that this is the case. The argument to bring in the tax is under pressure, even though it has already been proven that carbon tax does not adversely effect competitiveness or create job losses. Most importantly for all our futures, such a tax would help bring down greenhouse emissions, which can only be a good thing.

The case for a Carbon Tax

  • The tax is about reducing the consumption of fossil fuels.
  • Seven members of the EU already have a carbon tax including three of the largest states: France, Germany and Britain. None of these are currently losing competitiveness.
  • Several of the countries with a carbon tax have been rising in international comparisons of industrial competitiveness in recent years, at about the same rate that Ireland has been falling.
  • Irish per capita emissions of carbon dioxide are by far the highest in the EU, and the fifth highest in the world.
  • At over 18 tonnes of CO2 per head, Irish emissions are approaching double the EU average of 10.8.

Revenue from the tax could:

  • Supply 1.3 million homes with carbon-free electricity,
  • Produce 7,000 construction jobs and 1,200 longer-term jobs in the renewable energy industry
  • Reduce Irish emissions by around 5 million tonnes of CO2 per year within four years.
  • Such a reduction could be worth up to €125 million per year and is capable of levering a further 5 million tonnes for Irish businesses, who prefer to buy their reductions rather than actually create them.
  • Under the rules of the Protocol, without domestic reductions being made in the first place, access to emissions trading is prohibited.

What Are Greenhouse Gases?

Once, all climate changes occurred naturally, but during the Industrial Revolution, we began altering our climate and environment through changing agricultural and industrial practices. Through fossil fuel burning and deforestation, we are affecting the mixture of gases in the atmosphere.

Some greenhouse gases occur naturally in the atmosphere, while others result from human activities. Naturally occurring greenhouse gases include water vapour, carbon dioxide (CO2), methane, nitrous oxide, and ozone. Certain human activities, however, add to the levels of most of these naturally occurring gases:

Carbon dioxide is released to the atmosphere when solid waste, fossil fuels (oil, natural gas, and coal), and wood and wood products are burned.

Methane is emitted during the production and transport of coal, natural gas, and oil. Methane emissions also result from the decomposition of organic wastes in municipal solid waste landfills, and the raising of livestock.

Nitrous oxide is emitted during agricultural and industrial activities, as well as during combustion of solid waste and fossil fuels.

Very powerful greenhouse gases that are not naturally occurring include hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6), which are generated in a variety of industrial processes.

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