Carbon taxes: Current Government proposals to provide free greenhouse gas emission permits to large Irish industries will damage industrial competitiveness, a leading environmental economist has warned.
The introduction of carbon taxes, coupled with emission trading, will also be vital to Ireland's reduction of greenhouse gases, according to Prof Stephen Smith from University College London.
In a paper to be delivered to today's Budget Perspectives Conference, Prof Smith says that revenues from carbon taxes can be used to reduce the rates of other taxes, and provide advantage to energy-efficient industries. He cautions against the provision of free greenhouse gas emission permits to industries as they can damage the economy.
He says that recent economic research has revealed that there are "substantial economic costs" to this method.
Instead of collecting revenue from selling permits, which could then be used to reduce other taxes, firms would be given rights to pollute at no cost. This system is to be introduced in Ireland next year, with the Environmental Protection Agency deciding on the allocation of permits.
The research also rejects claims made by business lobby groups and Government Departments - including the Department of Enterprise, Trade and Employment - that carbon taxes will have an adverse effect on economic competitiveness.
Prof Smith says the problem is "more a difficulty of short-term adjustment, and a problem of public perception". Ireland has to keep emissions within 13 per cent of 1990 emission levels.
However, it is already more than 30 per cent above 1990 emission levels, and carbon taxes and permit trading will "almost certainly be indispensable" in controlling emissions.