Do we need a carbon tax? No - such a tax would be inefficient and hurt Irish business's ability to compete internationally, says Donal Buckley of IBEC
Imagine it is summer 2006, and a carbon tax has been in place for the past 18 months. It is now crystal-clear that this tax was not the solution to Ireland's climate change difficulties. It has proved to be unnecessary and unworkable.
Not merely has it failed to meet its objective, but it has had significant negative impacts on employment, inflation and competitiveness. These impacts were avoidable as more efficient and effective options were available. Why then did we let this happen?
In 2003 it was agreed that climate change posed a tremendous challenge to Ireland and that action was required. The Government proposed a carbon tax as a key action to address climate change, which had the supposed clear objective, not of raising revenue, but of reducing emissions by changing behaviour towards energy efficiency.
Looking back on 2003, we can accurately assess whether the new tax brought about the required behavioural change and what alternative available options we should have taken to achieve reductions.
The answer as viewed from 2006 will be No on both fronts. In three years' time the carbon tax will be universally seen as a crude measure to address a complex problem. It has not changed behaviour; better alternative means were missed.
Other representatives have indicated that the carbon tax will not change the behaviour of drivers or those heating their homes. As regards business, such a tax cannot change the behaviour of the already very clean Irish industry.
When a company has achieved maximum levels of environmental efficiency and is struggling to compete, the only "behaviour" such a tax will have is to put that enterprise out of business.
Climate change is a society-wide problem. All sectors emit greenhouse gases, so it logically follows that all must contribute to the solution. In Ireland the main emitters are agriculture 32 per cent, power generation 25 per cent, business (including industrial, commercial and institutional facilities) 15 per cent, transport 14 per cent and residential 10 per cent.
Business recognises its responsibilities and is committed to playing its part. It has made very significant progress in growing the economy in a sustainable manner. GDP has grown much faster than energy usage and CO2 emissions.
In the decade between 1990 and 2000 total primary energy requirement increased by 48 per cent, whereas GDP increased by almost 102 per cent.
In addition, industrial production increased by a remarkable 224 per cent in that decade, whereas energy consumption by the industrial sector increased by a mere 32 per cent. Over this period the energy intensity of the economy has transformed from almost the worst in Europe to one of the best.
Relatively Irish industry is at the cutting edge; more than 600 Irish companies are well advanced in applying Best Available Technology (BAT). Through continuous improvement many have already achieved, and will sustain, optimum energy efficiency. Clearly, a large segment of industry will be unable to improve efficiency, because they already operate to best practice.
Those companies that have benchmarked against international efficiency standards are usually found to be at the leading edge. It must be obvious that a tax which seeks to effect better practice in energy efficiency cannot work where companies have already achieved best practice. They should be rewarded, not penalised.
Taxes can change behaviour. I would argue that such "behavioural" taxes should be evaluated on the change they effect as opposed to the revenue they raise. The more revenue raised, the less behaviour has changed.
Hence the plastic-bag levy succeeded; it changed behaviour by reducing usage by 95 per cent while raising less than €10 million per annum tax revenue.
By contrast, the proposed carbon tax is projected to raise up to €625 million per annum though only achieving a small reduction in emissions. This demonstrates that the proposed carbon tax will add cost to business without environmental benefit.
Are there alternatives?
A carbon tax is unnecessary. There are cheaper and more effective alternatives, such as negotiated agreements and emissions-trading, which will address the vast bulk of business-sector emissions. These offer essential flexibility for business, are more efficient, can deliver greater certainty in meeting environmental targets and, crucially, will actually reduce CO2 emissions to the atmosphere.
In addition, forestry development and wind energy could lessen the burden and so must be encouraged.
To date the Government has relied on domestic measures to deliver emission reductions, whereas the use of non-domestic Kyoto mechanisms would dramatically reduce both the level of domestic cuts and the overall cost burden on the economy. This is the option which our EU trading partners, who despite facing less challenging targets, are exploiting.
So what effect will it have?
The economy and the environment are interlinked, with high levels of environmental protection much more likely to come from a competitive and prosperous economy than from one that is uncompetitive and in decline. Less economic growth leads to fewer jobs and consequentially fewer resources available for environmental protection.
I am convinced that we can combine high levels of environmental protection with strong economic development.
Competitiveness is equally critical to both the success of the Irish economy and to protection of the environment. It is a fact that countries with strong economies have the best environmental performance; contrast Sweden and Romania.
A recent IBEC commissioned report, The Competitiveness and Environmental Impact of Energy Taxation on Irish Industry (2000), highlighted that a carbon tax would increase inflation and electricity prices and result in a loss of competitiveness and jobs. It may cause companies to relocate to countries with less stringent environmental standards. The net result will be a loss of employment to Ireland, with little overall environmental benefit.
A carbon tax fails the two tests: it will not work, nor is it needed, and it will undoubtedly damage the business sector.
The prospect of climate change is a matter for genuine public concern; it must be addressed. Economic growth and environmental protection are interdependent; a carbon tax will benefit neither.
Donal Buckley is head of IBEC'S environment unit