Budget 2012: carbon tax, motor tax and motivations

Aoife Ní Lochlainn: As we get closer to the budget day (or budget days), the shape of Government plans is becoming clearer. We know, both from leaks and from the Government’s own admissions, that there will be no changes to income tax and that the majority of revenue raising will come from increases in indirect taxes.

A two per cent rise in VAT will provide the biggest source of increased revenue for the state, followed by a household charge and increases to the carbon tax and motor tax. The introduction of a property charge has been heavily debated over the last number of months and will, more than likely, continue to attract serious attention. Likewise, the decision to raise the higher rate of VAT has also attracted much comment; given its regressive nature and the implications for household consumption it will no doubt continue to do so. But how much attention will changes to the motor tax regime and increases to the carbon tax receive?

Carbon tax was introduced in Budget 2010 with the aim of providing price for carbon. It was introduced at the level of €15 a tonne and applied only to oil and gas. A carbon tax at this relatively low level will not produce a meaningful reduction in emissions. International evidence suggests that carbon taxes are most effective when combined with other policy instruments and subject to few exemptions.

As argued by the ESRI, the relative effectiveness of carbon taxes is mixed and depends on various factors such as the elasticity of energy demand and the design of the tax itself. The value of a modest carbon tax lies in its role as a price signal to consumers and businesses that Ireland is serious about carbon reduction, while raising revenue which can be used for emissions reduction programmes such as home insulation. The Government seems set to increase the carbon tax to €20 per tonne. TASC, in its pre-budget submission proposed an increase to €22 a tonne, putting the carbon tax above the current ETS level of €21.50.

However, although the rise in the carbon tax has been well-flagged and to be welcomed from an environmental perspective, it must be accompanied by measures to protect those at risk from fuel poverty. Provision must be made for an increase to the fuel allowance and the continued investment in home insulation, both private and public. If rises in the carbon tax are not accompanied by such measures then the public will conclude that the increase is a revenue raising measure rather than an environmental measure.

The motor industry has already made clear its objections to any further change to the motor tax system, as have some environmental groups. Friends of the Earth described the proposal as unfair to those who had purchased greener cars and 'a stab in the back’ for motorists”. Motor tax and VRT were restructured in 2008 to take account of carbon emissions from vehicles. This had a substantial effect in terms of new car ownership, with consumers choosing more fuel efficient cars and many drivers switching to diesel. Richard Tol and Hugh Hennessy in an ESRI paper (2011) describe the shift to diesel cars as dramatic and conclude that this shift results in lower but not substantially lower emissions, as diesel cars are heavier. They predict a rise in emissions from car travel over the next 15 years due to an increasing car stock and a preference for larger cars. This rise, they argue, “is offset by the switch towards diesel cars”, but “as distances driven do not change (and indeed may well increase), the drop in emissions is limited”.

A €5 increase in the carbon tax is projected to increase the price of petrol and diesel by 1 cent per litre. When viewed with the restructuring and increase in motor tax, motorists and the motorists’ lobby will no doubt claim that they are unjustly bearing the brunt of the increase in taxation. The effect of this may well be to change the debate on carbon tax and motor taxation policies from one on emissions reduction to attacks on motorists. Support for environmental policies are hard won and it is incumbent upon policy makers to ensure that the public understands the policies and their aims. The public embraced the changes to the VRT and motor tax systems and may regard any further changes to these systems extremely cynically. This may have the effect of making it harder to gain public acceptance of environmental policies in the future.

However, the Minister could address some of these concerns by presenting a carbon budget as his predecessor did. This would allow the public to understand the environmental aims behind the policies. Furthermore, it would demonstrate that there is a co-ordinated approach within government to emissions reductions. Carbon tax and the switch to more fuel efficient cars have their place in the policy basket, but like other environmental measures, they work better when co-ordinated with other emission reductions policies.

While reducing emissions (or indeed slowing the growth of emissions) through promoting fuel efficiency is valuable, its effect would be greater if accompanied by other measures, such as the development of better public transport. However, the Government has already delayed key public transport infrastructure projects such as the Interconnector and parts of the Western Rail Corridor, and it indicated earlier in the year that the CIE group will see a large cut in its funding (PSOs). Therefore, as highlighted by Toll and Hennessy, even with better fuel efficiency, emissions from private car use will rise due to the distances travelled.

One must conclude, therefore, that climate change concerns do not figure largely in budgetary decisions. A possible decrease in emissions from increases in the carbon tax is a welcome side-effect perhaps, but if viewed alongside the possible changes in motor tax and the decreases in support for public transport, it is clear that there is little co-ordination on this issue. If Ireland is to reach its 2020 target of a 20 per cent decrease in emissions, then better co-ordination is required. The recent decision to delay climate change legislation does not bode well for future policy making. Without the co-ordinated approach to policy making that would be required by legislation, budgetary decisions will continue to be made in a haphazard fashion, with environmental aims last on the list of policy concerns.

Uno duce, una voce

Nat O'Connor: I cannot allow two recent stories in the papers to go by without comment.

Today's Irish Independent reports (in a story about Enda Kenny) that "Brian Cowen's handlers are issuing instructions to the media about what questions the Taoiseach can be asked."

The report goes on to say:
"Mr Cowen is objecting to being questioned about national issues when he travels around the country.

"In an unprecedented move, the Fianna Fail press office yesterday issued a schedule for Mr Cowen's trip to Cork this afternoon with the instruction 'the Taoiseach will only take questions related to his visit to Cork'.

"Mr Cowen's spokesman said the Taoiseach would rather focus on the topics he is dealing with on the trip."

In a democracy, and not only during an unprecedented national crisis, it is the right of citizens and journalists to ask the Taoiseach any question that they believe to be of public interest.

Meanwhile, a controversy rages between the Minister for the Environment, Heritage and Local Government and the ESRI. In particular, the Minister is quoted as saying:

"I do regret that they have been drawn into what is clearly a public relations campaign on behalf of Dublin City Council and Covanta and it is no coincidence that the report was released today and it is simply to undermine Government waste policy,”, and

“Certainly in my time in public life, I’ve never come across anything like this where ESRI is used in that way and I think they departed from their normal standards in that regard,”

It is welcome that the Minister's consultants (Eunomia) should argue with the ESRI about the method used, the data included, etc. That's healthy. Many people on this blog also argue with the ESRI about methods and data.

But for the Minister to accuse the ESRI of public relations campaigning for Dublin City Council and "departure from professional standards" undermines the role of evidence in informing policy-making. That doesn't just undermine the ESRI, it undermines any organisation that presents evidence and reasoned arguments for or against policy, particularly when the issues are complex, and different theories and models can be used.

If the Taoiseach is not to be questionned and the Minister for the Environment is not to be disagreed with, what next? Uno duce, una voce?

The Pro-Nuclear bias of the Irish Academy of Engineers review of Irish Energy Policy

John Barry: The Irish Academy of Engineers Review of Ireland's Energy in the Context of a Changing Economy has been discussed over on irisheconomy.ie. I was amused to see in the report itself lots of references to the need for non-ideological and 'evidence based' science to underpin energy decisions in Ireland in more recessionary times. I was amused in that looking at the expert panel there are not one, but two 'ideologically' committed pro-nuclear advocates, which rather em.. undermines the 'non-ideological' 'evidence base' for the report's conclusion that, guess what, Ireland needs to scale back renewables and promote nuclear! One of the recommendations of the Review is that the government, "Support the consideration of all feasible mainstream technology options with long term potential and remove inappropriate constaints such as the legislative barrier against nuclear generation." That both Ed Walsh (former president of University of Limerick and well-know pro-nuclear and climate change sceptic) and Frank Turvey (founder of BENE - Better Environment through Nnclear Energy - though of course not listed as such in the report) were part of the expert group which produced the report does weaken its claims of objectivity. In fact, I've nothing against ideologically motivated debates about energy and technology - anyone who thinks one can seperate the two are fooling themselves.

The Ryanair Model of Development?

James Wickham: Ryanair is an Irish success story. Ryanair’s high profile CEO, Michael O’Leary, is one of the country’s home grown billionaires. And Ryanair’s success can be taken as a metaphor for one unnoticed feature of the Celtic Tiger: the extent to which it succeeded by ‘externalising’ problems.

After all, part of the Ryanair experience is not only that you reach more places more cheaply than you ever thought possible, you are also asked to pay for things for which you never thought airlines could charge. Ryanair externalises costs onto its passengers, but also has expertise in externalising its other costs. The environmental costs of air travel are now well known, and Ryanair specialises in short-haul travel, which has the highest environmental impact. While campaigning against subsidies for state airlines, Ryanair has benefited massively from regional subsidies to local airports. Ryanair even ensures that its staff contribute to their own training costs.

The most obvious example of this externalisation process is the environment. What is remarkable about the Irish boom is how old fashioned it was. Whereas for years it has been clear that economic growth can come in more or less energy intensive forms, we accepted the old equation that economic growth equals environmental damage. In particular the boom led to massive urban sprawl - which in turn ensured high levels of private car usage with all the consequent environmental impacts. Dublin’s sprawl was highlighted as an example of bad planning by the EU’s Environmental Protection Agency. Importantly, this was a political choice. Instead of an effective land use planning policy, we had a Ryanair policy – leave the mess for someone else to clear up.

Although it’s probably politically incorrect to say so, immigration policy is another example of externalisation. Despite the massive increase in employment during the boom, Ireland never achieved the levels of employment normal in countries such as Denmark. For example, in 2006 the overall employment rate in Ireland was 68.6%; in Germany it was not much lower at 67.5%, but in Denmark it was 77.4%. Ensuring that the unemployed, the very unskilled and many women could take up jobs would have required a proper ‘activation’ policy with counselling and training, it would have required a proper childcare policy. How much easier just to import labour!

And for all the propaganda about ‘our wonderful education system’, much of the need for skilled labour also came from a failure to motivate, train and educate people in Ireland. Thus whereas domestic technical education was originally expanded in order to facilitate high technology industry and services, Ian Bruff and I have shown how the Irish software sector rapidly became dependent on the import of qualified labour from around the world (‘Skill Shortages are not what they seem’, New Technology Work & Employment vol 23, pp. 30-43).

Clearly a small labour market such as Ireland’s will always need to import some specialist labour, just as those with specialist qualifications will always be more likely to emigrate. However, to some extent immigration policy was a substitute for an effective educational policy, including the weakness of any formal vocational education system. In this sense the educational costs of Irish growth were also externalised.

And I won’t even mention the idea of economic development by competing in terms of ‘light touch regulation’...