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The cost of missing EU fines coupled with revenue loss from the shift towards electric vehicles and electrification could see Ireland short €13 billion a year by 2050, according to a new report from the Irish Fiscal Advisory Council (IFAC).
The State fiscal watchdog’s report, The Hidden Costs of Inaction, makes the case that without substantial climate-related action, costs to the Exchequer could reach two percent of modified gross national income (GNI*) by 2050, rising to potentially as high as four percent of GNI*.
In today’s money, the worst case scenario works out at approximately €13 billion annually.
The report follows on from a previous IFAC analysis that argued that the State may have to pay out €8 to €26 billion in fines if it fails to meet its binding 2030 climate targets. In that report, the organisation said that if the Government implemented the measures in its own Climate Action Plan before that deadline, it could reduce the range to €3 to €12 billion.
The latest report picks up on that theme, the Council suggesting that following through on climate commitments “would act as a vital insurance policy” against an excessive hit to the national budget.
It outlines three scenarios: coordinated climate action with the international community that sees a successful implementation of “net zero”; inaction, where Ireland misses its targets as other countries keep to their current policies; and uncoordinated action, where Ireland aims to achieve net zero targets while other countries do not.
Comparing the scenarios, the IFAC said that among the “key insights” that emerged were that the State faces a choice between funding green transition measures or risking fines for missing targets.
It also said that “regardless of the path chosen”, Ireland will have to replace lost fossil fuel revenues as a result of the ongoing shift towards electric vehicles and electrification, trends expected to result in tax revenues related to fossil fuels falling “significantly”.
“Even if the State takes no further climate action, these revenues will still decline. The Government must devise a strategy to replace this lost revenue, potentially through measures like distance-based road charges,” the Council said.
“A credible strategy could reduce the overall impact of climate action on Ireland’s annual budget balance substantially to just 1% of GNI*… By contrast, wider inaction, coupled with no credible plan to replace revenues could double annual impacts out to 2050 on average (2% of GNI*), even rising to as much as four times the cost in time (4% of GNI* by 2050),” the report reads.
Commenting on the report, the IFAC Chairperson, Seamus Coffey said: “We can wait for global action and leave our economy exposed to big budget risks and volatile energy prices”.
“Or we can take control by investing in our own homes, transport, and energy networks. Spending the money here in Ireland would help ensure lower living costs and better health outcomes for citizens, making it the sensible approach,” Mr Coffey said.
The Environmental Protection Agency (EPA) in May estimated that Ireland is on track to miss its 2030 greenhouse gas emission reduction targets by a “wide margin”.
The EPA’s projections suggested that even with the full implementation of additional climate policies currently being discussed, the country could achieve a reduction of just 25 percent by 2030, compared to the national target of 51 percent.
However, if the currently existing measures are all that is taken into account, the EPA forecast that Ireland will only reduce emissions by 13 percent by 2030.
Ireland is bound by two targets for reducing greenhouse gas emissions, one coming from domestic legislation and the other from the European Union.
The national Climate Act mandates that a reduction of 51 percent by 2030, compared to 2018 levels, be reached, and that the country achieve climate neutrality by 2050.
Meanwhile, the EU’s ‘Effort Sharing Regulation’ rules that Ireland must achieve a 42 percent emissions reduction in various sectors by 2030.
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