€500 million stealth tax replaces polluter-pays principle

national | environment | press release Monday July 17, 2006 11:29 by Friends of the Earth info at foe dot ie 9 Upper Mount Street, Dublin 2

EPA plan shows true cost of government inaction on Kyoto

Friends of the Earth has described the government's climate pollution plan, published on Friday, as " the ultimate stealth tax". It will cost the public at least €2 million a week according to the environmental justice group. The EPA plan estimates the rise in Ireland's greenhouse gas emissions will be twice what is allowed under the Kyoto Protocol from 2008 to 2012 or, put another way, an average of 7 million tonnes of excess pollution a year[1]. Every tonne of this overshoot will have to be offset by an emissions permit. The government is assuming permit prices will remain steady at around €15 a tonne giving a total cost to Ireland of €105 million a year or €2 million a week for five years[2].

Commenting on how government inaction will cost the consumer and the taxpayer, Friends of the Earth Director, Oisin Coghlan said:
"This is the ultimate stealth tax. The government has replaced the polluter-pays principle with the public-pays principle. On the one hand industry will get their pollution permits for free but raise consumer prices to reflect their value [3]. On the other hand the government will use taxpayers' money to buy permits for the rest of our Kyoto overshoot. It's a double whammy for the average household."

And it doesn't stop there. Permit prices have touched highs of €30 a tonne in the past. At that price the cost to consumers and taxpayers would skyrocket to over €1 billion.

Friends of the Earth believes it is not too late to turn this topsy-turvy situation around. The government could and should be auctioning 10% of the industry permits, instead of giving 99.5% of them away for free as windfall gains to polluters. And the government could and should introduce a carbon charge in the rest of the economy not covered by the emissions trading scheme. That way businesses and consumers are directly encourgaed to cut emissions and only pay their fair share according to how much they pollute.

"Friends of the Earth is calling on the governemnt to replace the current stealth tax with clear carbon pricing across the whole economy. There's still time to make industry pay its fair share for pollution permits. And there's still time to put carbon charging in place so consumers only pay when they pollute rather than PAYE workers paying no matter how much they reduce their own pollution," Mr Coghlan added.

A carbon charge of €15 a tonne would not only cut emissions, the revenue from polluters would also be enough to buy any permits Ireland needs to cover our reduced Kyoto overshoot, reduce other taxes such as PRSI and safeguard the less well-off at risk of fuel-poverty when facing higher energy prices[4].

Background Notes:
[1] Ireland's National Allocation Plan has been submitted to the European Commission by the EPA in preparation for the Kyoto phase of the EU's Emissions Trading Scheme. The plan estimates Ireland's net greenhouse gas emissions will average just over 70 million tonnes a year during 2008-2012 (page 43). This is 26% above the 1990 baseline (55mt) comapred with our Kyoto limit of 13% above 1990 (63mt).
[3] Of the projected 7 million tonne (mt) average overshoot a year the government has announced plans to buy permits for just over half of it (3.6mt). Industry is expected to buy another 2mt on top of the 22mt it will get for free each year. Prices to consumers, however, will rise as if industry had paid for the whole 24mt (see the next note).The government is still hopeful that the final 1.5 mt of the projected annual overshoot can be prevented. Even if that happens, a slight rise in the price of permits would wipe out any savings.
[4] The reason companies will get permits for nothing but charge customers as if they had paid for them is because the permits are valuable assets which the company could simply sell on the market for the going rate. So they will factor into the price they charge their customers the market value of the permits even though they got them for free. This market reality is reinforced by the fact that if the company is increasing production and needs more permits than it recieved from the government it will have to buy them on the open market. In its accounts and its pricing structure the company will not distinguish between the few permits it paid for the majority which it got for nothing.
[5]The emissions trading scheme and the carbon charge would run in parallel from 2008 covering different parts of the economy. Businesses participating in emissions trading scheme would be exempt from the carbon charge. Department of Finance calculations in 2002 (table C, pg 4) suggested that such a charge set at €15 a tonne would reduce emissions by 1.5mt and raise revenues €300m a year.