Taxing the consumption of fossil fuels - oil, gas, coal and peat - would be the best way of implementing Ireland's commitment under the 1997 Kyoto Protocol to contain the growth of emissions contributing to global climate change, according to the ESRI.

"Without a major change in policy, current trends will see Ireland greatly exceeding its limit on emissions of greenhouse gases by the end of the next decade", the institute's Medium-Term Review says, adding that the economic costs of meeting the target "will be significant".

Under the EU "burden sharing" deal, designed to reduce greenhouse gas emissions by 8 per cent for the union as a whole by 2010, as agreed in Kyoto, Ireland - as a small, relatively under-developed member-state - must limit its rise in emissions to 13 per cent above their 1990 levels.

"If Ireland is serious about adhering to the Kyoto Protocol, major policy changes will be required . . . which will, either directly or indirectly, raise the cost of emitting greenhouse gases in the future," the ESRI says. It also stresses that all sectors must be treated in an even-handed fashion.

"It is clear that, whatever regime is adopted, households will have to carry a significant burden of adjustment," according to the review. But the cost to society as a whole could be substantially increased if attempts were made to exempt agriculture or particular industrial sectors.

Currently, as the review notes, agriculture accounts for over a third of Ireland's greenhouse gas emissions, primarily due to the methane emitted by livestock. Thus, it recommends changing incentives for farmers to encourage a shift from livestock to some form of forestry.

"As returns to farmers are very low from livestock production, and likely to remain low, it is possible that a significant shift in production could take place while leaving farmers no worse off and possibly even better off." The major obstacle here was the EU's agriculture policies.

"Measures will also have to be taken to restrict the current unfettered consumption of fossil fuels," according to the ESRI. "Whether implemented by a trading regime [in greenhouse gas emissions] or through taxation, this will involve increasing the cost of energy usage."

The review says an alternative to a "suitable tax" on consumption would be to require all producers or importers of primary energy to buy permits from the Government in an auction, with the revenue raised being used to reduce other taxes so that the measure would have a neutral effect.

The review also advocates the adoption of "cheap and efficient" energy-saving measures in new houses. "With a major increase in the housing stock likely to take place over the next decade, there is an opportunity to implement much higher environmental standards." Failure to amend the Building Regulations soon, to provide for such higher standards, would represent the loss of a once-off opportunity, as the growth in household numbers is likely to fall dramatically after 2010, by which time most of the Republic's housing needs will be met.