Every cent needed to support Ireland’s move to low-carbon economy

The move announced by the Taoiseach to ringfence future carbon tax revenues to directly fund climate actions and to support those worst affected by rising penalties for using fossil fuels is a big piece of the decarbonisation jigsaw.

We are committed to increasing carbon tax to €80 per tonne of carbon by 2030. This will generate the billions of euros necessary to help transition the Irish economy, on top of some € 30 billion under the National Development Plan. Given the mammoth task ahead, no one contended the revenues should go into the general pool of exchequer funds.

The other option was a "fee and dividend" given back to households, as advocated by the Green Party. It works in transforming human behaviour away from fossil fuel consumption. We as a small economy probably don't have the luxury of such benevolence given the scale of decarbonisation that Ireland has to urgently pursue, though the Taoiseach flagged this option may still be possible in some form.

In short, every cent will be needed to fund specific climate actions and to support those worst impacted – those in fuel poverty, and especially workers and farmers affected by the inevitable decline of old industry and a transformation in how we produce food.

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Addressing the emissions gap

Ireland is facing a huge challenge in having to arrest rising emissions, including dramatic reduction targets up to 2030 being demanded by the EU, while it has committed to an immensely demanding target of net-zero carbon emissions by 2050.

All this will entail a radical and costly overhaul of the entire economy and the whole of society

The EU is now seeking even more ambition, notably a 55 per cent reduction of emissions by 2030 based on 1990 levels, which is an even bigger ask for Ireland. Significantly, the Government says it supports the EU’s wish for greater ambition under the Paris Agreement, but perhaps wisely has not committed to this given the scale of decarbonisation required to be undertaken by the country.

All this, in any event, will entail a radical and costly overhaul of the entire economy and the whole of society; the replacement of old industry and infrastructure with new industry and infrastructure built around renewable energy.

Capacity gaps

In addition, Ireland is facing significant capacity gaps. This arises, firstly, in relation to the ability to generate energy, especially electricity, to serve a growing population and expanding economy, where demand from a large number of data centres will be very high.

The scale of emerging ambition under the Government’s climate action plan will also place considerable pressures on the public service to deliver, backed by the right blend of expertise – again a considerable additional cost to decarbonisation.

What now?

The announcement by the Taoiseach at the UN Climate Action Summit provides clarity for key players. His announcement that Ireland is to end gas and oil exploration will provide stark indications to the fossil fuel sector of how the economy will pivot over coming decades.

The next piece of clarity will be provided by the Minister for Finance, Paschal Donohoe, on how much carbon tax will increase by in the next budget. That is likely to be a hike of at least €10 per tonne, providing a timely boost to climate action coffers.