Plan to combat pollution rewards the ’dirty’

Plan to combat pollution rewards the ’dirty’
Published: 26 March 2004

An Irish government scheme to combat global warming is self-defeating because it rewards "dirty firms" and encourages them to stay in business, an Economic and Social Research Institute (ESRI) publication claims. ESRI analyst Professor John Fitzgerald said Ireland’s efforts to reduce greenhouse gasemissions were bad policy and unnecessarily expensive.  Writing in the ESRI’s Economic Quarterly, Prof Fitzgerald critically assesses the"well-intentioned but badly designed" European policy that Ireland is pursuing to combatthe increasing problem of global warming.

Each EU member state has agreed to limit greenhouse gas emissions for the period from2008 to 2012 relative to emissions in 1990.  Ireland secured a 13 per cent increase on 1990 levels but this target has already been greatlyexceeded and, in order to fulfil Irish EU obligations, levels should be brought down.  A key instrument in achieving this reduction will be a permits scheme that will apply to a range of energy-intensive sectors, such as electricity generation and cement.

According to Prof Fitzgerald, the Irish plan allocates these permits free to the sectors thatare involved in the scheme.  Therefore, the price of power will rise by the cost of the permits but the generators will receive the permits for free, creating a large windfall gain for shareholders.  "Because of a promise of a second round of permits from 2008 for surviving firms, it will pay dirty firms to stay in business, defeating the point of the scheme," Prof Fitzgeraldexplained.

The badly designed EU trading scheme needs to be replaced by the auctioning of all the quotas, he continued.  "The only exceptions should be for plant in sectors that are carbon intensive and that face real competition from outside the EU," said Prof Fitzgerald.  Such a reform would still ensure the necessary reduction in EU emissions.  And it would cap the loss of competitiveness to the Irish economy in particular and to the EU economy in general from the current ill-conceived policy, Prof Fitzgerald concluded.