New climate fund is arguably the single most important element of Budget 2024 and a historic first

The run-up to Budget 2024 had the usual horse-trading with multiple leaks on bread and butter issues and airwaves dominated by talk of cost-of-living and housing measures.

It might have been a year when the climate crisis showed its teeth like never before, but it barely got a mention beyond vague references to likely increases in climate funding.

Yet, what has emerged — a €14 billion infrastructure, climate and nature fund, to lock in money for inevitable challenges ahead — was prudent. Described as part of “a step change in how we plan for the future”, it is, arguably, the single most important element in Budget 2024.

Golden era

The Irish Fiscal Advisory Council warned recently that the cost of climate change to the State could add up to a €5.5 billion financial hit in the latter years of the decade. This was likely to coincide with the golden era of bumper corporate tax receipts ending.

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This prediction registered among the Coalition parties, and across Government, but the writing was on the wall for some time. Rising emissions in too many sectors mean we are likely to blow the legally binding carbon budget up to 2025, with the 2030 target already under pressure.

Most significantly, climate taskforces working on implementing the Government’s climate-action plan, including public servants and private sector experts, had identified likely climate funding gaps up to 2030.

These are to be addressed, largely, through the infrastructure, climate and nature fund. A separate Green Party analysis concludes its scale and scope will address those gaps. Hence its verdict that, from their perspective, “this is the most significant policy development in the budget” — especially as it allows strategic investment to address the worsening climate and biodiversity crises.

About €2 billion will be paid into the fund each year from the exchequer. It will be made available to support State investment should the public finances come under strain from a slowing economy in the years to come.

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The aim is to avoid the State facing the same pressure that arose after the last financial crash when investment spending was cut sharply. Rules will be put in place in relation to drawing down the money.

This strategic fund is one of the first of its kind in the world and means investment in crucial environmental projects will be prioritised in future. The initial €3.15 billion allocation is in addition to funding earmarked for climate and nature in the National Development Plan, besides forming part of a larger, countercyclical fund the Government is creating using the temporary surge in corporation taxes on which Ireland is banking.

As Minister for Finance Michael McGrath flagged, it will address “known challenges” and costs in a climate scenario where “no one will escape”.

Natural habitats

Although the projects to be funded have not yet been decided, it is likely the focus will be on cutting Ireland’s use of fossil fuels, making public and private building stocks more energy efficient, restoring natural habitats and improving water quality in rivers and lakes.

It will also be used for projects in the climate action plan, notably retrofitting; district heating; supports for farmers who undertake nature protection; and support for decarbonising businesses.

The idea for a longer-term direct fund emerged from Green Party calls for a dedicated nature restoration fund. It is understood the idea was broadened to address pressing climate and green infrastructure requirements.

But for the first time investment in nature at scale will be possible, notably through the National Parks & Wildlife Service. The recent announcement of a new National Park in Dowth, Co Meath, is one such example of a project that could be supported.

Although most of this fund will remain untouched until it is needed, the €3.15 billion portion devoted to climate and nature will be made available between 2026 and 2030 even if the economy continues to grow.

This is in recognition of how pressing the need is for investment in this area — and an acknowledgment Ireland cannot afford to lose any further time in the battle against climate change and nature loss.

Green economy

As Minister for Public Expenditure Paschal Donohoe noted, the investment makes sense from an economic and business point of view as it will position Ireland at the forefront of the new green economy.

There are obvious risks from a continued incremental climate response. A failure to invest sufficiently in climate action and nature restoration could leave Ireland open to billions of euros in EU fines.

This, in effect, would mean the Republic subsidising other EU countries to carry out the same work and reap the rewards themselves. By investing now, the Government believes it will avoid such fines while ensuring a competitive advantage over those countries that fail to do so.