Greens in government: Can their plan work economically?

Changed utterly. We are still peering through the fog trying to work out the implications for the economy and national finances of the Covid-19 crisis. But a huge hole is opening up in the public finances – borrowing could be €30 billion this year – and there will be less to spend everywhere in the years ahead.

Delivering the green agenda, which was always going to be difficult , now looks ever more challenging.

As well as the imperative of delivering, there are also opportunities if we can do so – for inward investment, for exports and for our lifestyles.

In an era where every investor and consumer is demanding that companies “go green” and Covid-19 will lead to a new focus on sustainability and safety, there has to be a long-term economic upside.

Governments dithered on Covid-19. Will it be the same on climate change?

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Timing is a political issue with green policies – climate change is slow, and there are always other immediate priorities, no more so than now

It is getting there that will be the challenge. The government talks have featured a discussion on climate targets – with the Greens pressing for a 7 per cent a year reduction in emissions. What you aim for is important, but so far we have done a good job in missing targets. The bigger issue is what we are actually going to do. And how we are going to pay for it?

In the light of Covid-19, the outlook for the economy and the public finances has changed fundamentally.

In the short term tens of billions will have to be spent on combatting the extraordinary economic hit. After that there will be a budgetary reckoning and a need to get the public finances back into some kind of order.

This does not mean green issues need to be forgotten or put on the back burner. But we do need to spend where we can get the best return.

The immediate challenge, according to Edgar Morgenroth, economics professor at DCU, will be to use some of the spending on restarting the economy to also achieve other goals in areas like the green economy – like leaving more of Dublin city centre traffic-free or having more people continue working from home. However, he does not believe the Government has yet "got its head around planning for the next phase and moving forward".

A lower level of economic activity will also cut carbon emissions in the short term. Economist John FitzGerald, who chairs the Climate Change Advisory Council which advises the government on policy, estimates that the collapse in activity might knock 5 per cent to 10 per cent off emissions this year. Some other estimates of the reduction go slightly higher.

Yet even with this gap in economic activity, our emissions target for 2030 and on to 2050 will require fundamental changes. There is a big political challenge in framing this for the public, outlining both the opportunities it creates and the economic costs.

And there are longer-term questions about our economic growth model. For example, do we continue to target multinational data centre investment with its huge energy use?

And how does the drive to deliver food ever more cheaply to consumers sit with the need for sustainability in all its aspects. (It doesn’t! )

Timing is a political issue with green policies – climate change is slow, and there are always other immediate priorities, no more so than now.

And while many people sign up to the concept that “something must be done” they do not necessarily believe that they should be the ones to pay for it, to change their lifestyles or to pay higher tax on the fuel they put in their cars.

As well as the planned rise in carbon tax – a vital component of the plan – the crisis and falling oil prices may also require change in the EU-wide regime applying to big businesses. It is about encouraging them to invest in new fuels and technologies, as well as using less of the carbon-emitting ones.

The negotiations now under way will see the Greens aim to tilt the Government’s existing investment programme in a “greener” direction, spending more on public transport, cycling and walking, and less on roads. There will also be much talk of protecting people who may lose out.

But after the Covid crash will the money be there to even deliver all the existing investment programme on schedule?

One in every five euro in the investment programme up to 2040 – or €23 billion in total – is due to go directly on green projects.

But with massive borrowing on the cards, it is likely that the next government will at some stage, perhaps later next year or in 2022, face a choice. It can cut day-to-day spending, hike taxes, or push out investment spending until later or choose a mix of all three.

When the crunch comes it is vital that projects central to achieving our climate change goals are not axed – cutting investment is always easier politically. So it is important that the programme for the next government chooses the right projects to prioritise, and decides this on a logical and costed basis.

Some of the projects in our existing climate change plan have raised eyebrows in terms of “doability”.

Take the goal of having close to a million electric vehicles on the road by 2030. A study by the Irish Government Economic Evaluation Service calculated that the subsidy now from the State for each electric vehicle is between €10,000 and €13,000. Thus the cost, if these incentives were maintained, could total €9 billion plus by 2030 – and that is in addition to €1.5 billion lost in motor tax, VAT and fuel oil.

We could expect the price of electric vehicles to fall in comparison with others as technology improves, and this would mean less need for incentives as more charging points appear. So, the subsidy cost will fall, but clear thinking is needed on how this will all be planned.

The other big contributors to our carbon emissions are agriculture, industry, energy and households. Policies are needed in all areas if we are to have any chance of putting emissions on a sharp downward path.

Transport is a key area, and we already see the push and pull in the government talks between investment in roads and public transport. Prof FitzGerald argues that the Dublin BusConnects project is a vital step to improve public transport over the next few years and get people out of cars.

Other big spending projects will only have a contribution in the longer term to carbon emissions.

The Dublin Metro, for example, is part of a vision which encompasses people living in denser developments closer to the city centre and travelling to work by public transport rather than commuting. But it will not cut carbon emissions until it is up and running in around a decade’s time.

Other questions will also come onto the table. Can the State fund the cost of retrofitting houses? The target in the climate plan is for 500,000 houses at a likely cost of €30,000 to €40,000 each. No, is the answer, or not in total anyhow.

Should the State target some of its own properties first? How should better-off homeowners be helped to do this, and is it realistic that they will take on the significant disruption and upfront cost involved for a longer-term payback?

Or are there better places to direct the national effort? Prof FitzGerald suggests a less ambitious initial programme of helping people to change oil boilers for gas, for example. The Greens might not like the support for gas-use this entails, but we do need to find some quick wins.

And then there is agriculture, estimated to be the single greatest emitter of greenhouse gases at just under a third of the total, though there is some debate about measurement here, notably in relation to methane.

In a letter to a colleague reported in The Irish Times, Robert Watt, secretary general of the Department of Public Expenditure, said that a 5 per cent cut in the national herd could achieve more than the entire energy efficiency part of the climate programme centred on the retrofitting plan.

Prof FitzGerald says that with beef farming no longer a profitable enterprise for many, a strategy involving the input of farmers needs to be developed involving incentives and supports to move to areas like woodland, which may in time make a positive carbon-reduction contribution.

Yet the farming lobby is sceptical, and transferring farms to new enterprises is a significant move. Former TD Timmy Dooley opined at the Oireachtas Climate Committee that it is "like telling a musician to go and play basketball".

The challenge for farmers is just one example of the enormous changes needed if we are to get carbon emissions down. The exit from the Covid-19 crisis will give us some opportunities to start anew, but it also presents us with the age-old challenge that getting things to change in a time when there is less cash around is just a lot more difficult.

Ruthless prioritisation and realism will be needed if this is to happen, starting with the question of where we can get the best bang for our carbon-reduction buck.