The cost of climate compliance
Ireland’s failure to meet 2030 emissions reduction targets means that Ireland will need to use carbon credits purchased on the international market and credits purchased from other Member States to meet the shortfall. Similarly, our failure to meet our renewable energy targets meant that Ireland had to purchase statistical transfers from other Member States to reach compliance.
Emission reduction targets and carbon credits
Ireland exceeded out 2020 emissions reduction target by 7.07 Mt CO2eq2. Ireland only holds 2.9 million international credits or AEAs (Annual Emission Allocations) which are eligible under the Emissions Sharing Directive (purchased at a cost of €2.1m between 2091-2021). As a result, Ireland will need to purchase a further 4.15 million international credits for 2020 to be in compliance with our EU targets. The exact cost for this additional 4.15 million credits is not yet available, but current projections estimate that it will not exceed the €8m funding allocated to the Department of Environment and Climate Communications for the purchase of same. By this estimate Ireland will spend €10m on international credits for 2020 compliance alone.
Looking at the period prior to 2020, Ireland spent €89.6m purchasing credits in the first period of the Kyoto Protocol, suggesting that the costs of compliance for 2030 targets could be quite significant if current trends are not reversed.
Renewable Energy and statistical transfers
Ireland failed to meet its 2020 obligation under the renewable Energy Directive and as a result had to negotiate the purchase of ‘statistical transfers’ from two Member States in under to comply with our 2020 obligations. These transfers provide for the purchase by Ireland of specified quantities of renewable energy by virtue of statistical transfers, which Ireland can use towards our 2020 Renewable Energy obligations. The total cost of statistical transfers in 2020 was €50 million consisting of the purchase of statistical transfer of 1,000 GWh from Denmark costing €12.5 million; and the purchase of statistical transfer of 2,500 GWh from Estonia costing €37.5 million.
Compliance costs to 2030
Looking ahead to 2030, the Department of Environment, Climate and Communications and the Department of Public Expenditure and Reform have published a paper estimating the potential cost of compliance with 2030 climate and energy targets. The paper notes that the revised emissions reduction targets for Ireland, as part of the EU Fit for 55 Package (the Commission’s proposal to cut greenhouse gas emissions in the EU by 55% by 2030) will require further measures beyond the Climate Action Plan 2021 in order to bridge the compliance gap. A revised and strengthened National Climate and Energy Plan will be required reflecting the higher EU level targets, and the paper notes that a failure by Government to implement additional measures in the Climate Action Plan 2023 will very likely result in compliance costs for the state.
The paper also notes that if Ireland’s Government, economy and society do not take the necessary, timely climate actions and measures to meet our binding annual targets from 2021 to 2030, significant monies that would otherwise have been invested into our economy could be required to ensure compliance with the emissions targets set in the Effort Sharing Regulation. The paper warns against an assumption that credits will be available to Ireland to make up for a shortfall in meeting targets (as has been to date).
Under the different scenarios presented in the analysis, potential compliance costs range from cumulative compliance costs for the period 2021-2030 of between €3,541m to €8,102m. The paper also presents a range of scenarios for annual compliance costs ranging from €300m to €700m.
A transformational level of change and development across all sectors will be required across the economy if Ireland is to meet its climate targets for 2030 and establish a pathway towards climate neutrality by 2050. Experience to date of setting carbon budgets and sectoral ceilings suggest that the transition for our society and economy will be challenging. Significant upfront investment and policy change in the next two to three years will be crucial to support emissions reductions and enable Ireland to achieve 2030 targets. This upfront investment may not yield returns in terms of emission reductions immediately, but with the correct methodology and climate performance metrics in place, green budgeting will allow Government to track the effectiveness of this investment.
A climate compliance costs framework would allow Government to ensure decisions are made in a timely manner to ensure targets are met, and that the Exchequer is not making up the shortfall in financial terms for a failure to make the transition required to meet our 2030 targets. This framework would also allow Departments to determine what actions and measures are necessary to meet carbon budget sectoral emissions ceilings.
The policy decisions required to invest and to make this transformational change will be difficult and challenging and will require strong leadership, particularly as the benefits will not be realised in the short-term. Investment in offshore wind generation, retrofitting, climate appropriate public transport will all be part of the policy landscape to achieving our 2030 goals.
 Under the Emissions Sharing Directive, targets are expressed as levels of allowed emissions, or “allocations”. The allowed emissions are divided into “Annual Emission Allocations” or AEAs. One AEA is equivalent to one tonne of Carbon Dioxide equivalent