Colm McCarthy: dodging costs of tackling climate change

Geopolitical competition between the USA and China is entering a phase where global leadership in tackling climate change is up for grabs. Donald Trump’s policy measures to date have scaled back the American commitment.

Per-capita US emissions, the highest in the world, are destined to retain that position. The Biden administration’s subsidies to renewables are being scaled back and the president has committed to pushing down the cost of ‘gas’ (automobile fuel) at the pump, currently priced at about half the retail price in Europe.

China, now accounting for double the USA’s aggregate emissions, is pushing ahead with renewables and is building more nuclear stations.

These three - the USA, China and the EU - account for over half of worldwide emissions between them and only the EU is likely to earn a pass grade from the climate scientists, with a fail for the USA and must try harder for China.

If these three do not contain emissions, there is a powerful demonstration effect: growing countries such as India and Brazil will have little motive to incur the costs of mitigation if the biggest emitters will endanger the planet’s shared atmosphere anyway.

The planet has just one atmosphere, but around 200 governments, each with incentives to urge the benefits of climate action on others while dodging the costs.

Europe, with almost double the USA’s population when EU non-members are included, has around half America’s annual emissions

The European Union, of which the United Kingdom remains a kind of pavilion member for some purposes, is aligned with its departed neighbour on the broad thrust of defence and climate policy – the British encouragement of wind and solar continues and the UK is active in expanding nuclear generation. Europe, with almost double the USA’s population when EU non-members are included, has around half America’s annual emissions.

Taxes

A mixture of taxes on fossil fuels, subsidies (overt and hidden) to renewables and targets for emission reductions in member states has helped to keep European emissions in check. But, worldwide, the effort has not been matched and the climate scientists are getting gloomier.

Ireland’s contribution has been to agree to ambitious targets for emissions reduction, allocated across economic sectors, which are unlikely to be met. Failure to meet them could trigger fines from the EU, especially if only a few small countries are in breach.

The miscreants would have to purchase quotas of un-emitted carbon, with figures over €20bn mentioned, from whichever countries met their targets.

The prospect of having to pay these fines is not included in the budget arithmetic, since the Irish Government does not provide adequately, or at all, for contingent and deferred liabilities in its forward-looking budgetary planning.

This argument is ingenious, in effect promoting the notion that further subsidies (to themselves) would have no cost

However, the prospect has been given great prominence by lobbyists for bigger subsidies to renewables, arguing that, since we will have to spend this money anyhow from 2030 onwards, better to spend it now and try to hit the targets.

This argument is ingenious, in effect promoting the notion that further subsidies (to themselves) would have no cost. It falls down on two points – the EU fines are not certain and, on past form will not be activated if some more significant countries are also non-compliant, and the fresh subsidies they seek are unlikely to deliver in the timescale envisaged.

Scepticism

None of the media coverage has raised the obvious question about these targets, namely the wisdom of the targets themselves and the contingent liability for the national Exchequer created by their notification to the EU.

What analysis was undertaken at the time in the responsible government departments? If the full amount has to be paid, was sufficient attention accorded by officials at the time to the widespread scepticism that the targets were realistic?

If this was a piece of careless virtue signalling, the bill which might come due will dwarf the overshoot on the National Children’s Hospital many times over.

If European climate policies are top of the class compared with the USA, they are not without inconsistencies. EU policy includes free trade in farm produce designed to ensure that production locates itself in the regions of Europe best suited to the chosen outputs.

The framework does not prohibit the cultivation of bananas in Donegal or of olives in Greece, since there is no need.

Whatever the composition of overall demand for food, there are no obvious reasons why farmers in the regions favoured by soil and climate for grazing should be retrospectively targeted on the back of climate concerns.

This is the same EU which has chosen taxation instruments to discourage excessive consumption of fossil fuels including oil and gas, but mandates a zero-VAT rate on all food products regardless.

The regular assertions that Irish farming is responsible for 35% and 40% of emissions, to be countered with intrusive regulation, reflects idiosyncratic measurement methods employed by Eurostat and targets for Irish emissions which never made sense.