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State spent 2.5 times more on fossil fuel subsidies than climate supports over past decade

Noteworthy shows that State revenue from an EU carbon trading scheme went into controversial forestry programme and a rural transport scheme.

AT THE TURN of the year, the State’s two leading agencies in charge of documenting Ireland’s carbon footprint published their analysis of how Covid-19 restrictions have altered our emissions profile. 

The Environmental Protection Agency (EPA) and the Sustainable Energy Authority of Ireland (SEAI) found that the drastic fall in activity caused by the pandemic led emissions to drop by 6% in 2020. 

The findings were interpreted as a positive story in dark times. However, the head of the EPA, Laura Burke, warned that this reduction is just the beginning and “will be required annually” to stand any chance of averting the worst impacts of climate change. 

The need for such a drastic fall in emissions lies in the fact that some of the key transition drivers – rapidly decarbonising power generation and ramping up electrification of transport and heating – have been slow to ferment in Ireland.

This has meant we failed to meet our 2020 emissions targets and experts see our 2030 target as difficult to achieve, meaning more money will need to be spent on carbon credits. 

By 2012, we had spent €89.5 million on carbon credits and in 2020 alone we paid out €50 million for renewable energy transfers from Denmark and Estonia.

In our latest project on carbon emissions in Ireland, Noteworthy spent the past few months examining if Irish authorities have been slow to act in providing  policy and financial support to smoothen the transition away from fossil fuels in our largest emitting sectors. 

We can now highlight how: 

  • Over the past decade, fossil fuel subsidies outpaced those for climate protection, much of which go to agri-environmental projects, the success of which has been questioned.
  • Over 50% of State revenue from the EU’s carbon trading system has gone to our  forestry grant system and a rural transport scheme for school children.
  • Some of Ireland’s largest emitting sectors are estimated to have made significant profit from trading excess carbon allowances under the EU trading scheme.
  • Only a fraction of the carbon tax has been specifically ring-fenced for climate action by the State since its introduction in 2010.

In part one of this investigation, out yesterday, Noteworthy examined the emissions records of some of Ireland’s largest companies to see how they are responding to the climate crisis. 

edenderry-power-stations-electricity Bord na Mona's Edenderry peat and biomass-fired power station that was one of three large peat stations to receive subsidies for creating electricity from peat. Source: Eamonn Farrell/Photocall Ireland

 Subsidies keep fossil fuels ticking on

While there are a myriad of views among scientists, economists, policy analysts, industry insiders and climate campaigners about the best policy measures to wean ourselves off fossil fuels, there is strong consensus that we have no chance of hitting stringent climate targets by 2050 without drastic action.

One of the reasons that the shift away from fossil fuels has been so slow is the level of subsidies provided to the industry the world over. One example is the US where it is estimated that over $60 billion in implicit subsidies are dished out to the fossil fuel industry every year. 

While our figures are not as eye-watering as those from the North American giant, things have not fared much better at home where State policy has supported peat-fired power plants for decades under the Public Service Obligation (PSO) levy paid by consumers through our electricity bills. 

Support for peat burning, however, is only a fraction of fossil fuel subsidies provided by the State over the past 20 years, according to a Noteworthy analysis of new Central Statistics Office (CSO) data that shows subsidies in 2019 amounted to €2.4 billion – 69% higher than in 2000 when CSO analysis of such subsidies began. 

The CSO examined both direct subsidies such as the peat levy, as well as indirect subsidies such as revenue foregone by the State through lower excise duty. In total, our analysis shows that indirect subsidies accounted for almost 90% of total subsidies over the past 20 years. 

These subsidies, the CSO has said, are likely to “incentivise behaviour that could be damaging to the environment irrespective of its importance for other policy purposes” such as social policies in the case of the fuel allowance for low-income households.

Subsidies linked to two key areas – aviation and diesel – accounted for the vast majority of total subsidies, both direct and indirect, over this period. The excise exemption for jet kerosene – the most commonly used heavy oil in the industry – makes up almost 25% of indirect subsidies during this period. 

Analysis of statistics dating back two decades shows that the amount of revenue foregone since 2000 on jet kerosene due to this tax exemption was over €8 billion. The fuel is also exempt from carbon taxes. 

While the Energy Tax Directive requires that states exempt certain aviation fuels from excise duty, countries can waive exemption via bilateral agreements with other states for intra-community flights. The State, however, has not taken any action to date. 

The State is also in control of its decision to support diesel over the past two decades through lower excise duty on autodiesel, lower excise duty on marked gas oil used in agriculture – referred to as ‘green diesel’ – and VAT refunds on diesel for business use. 

Research from the ESRI in 2018 found that, while such measures have a relatively small effect on an individual basis, they produce an overall negative effect on emissions in combination. The report found that removing the excise gap between diesel and petrol could reduce CO2 emissions by 2.4%, as well as having a positive impact on air quality. 

 
https://public.flourish.studio/visualisation/5972352/

To view an interactive version of this graph, click here.

Climate Action supports well behind

While subsidies and indirect support for activities that protect the environment or reduce the use and extraction of natural resources has increased in recent years, the CSO data indicates that rates still pale in comparison to fossil fuel supports. 

In 2019, environmental subsidies and similar transfers were a little over €1 billion – €85 million lower than in 2018 and less than half of the €2.35 billion in fossil fuel subsidies. 

Since the CSO started closely tracking environmental supports in 2010, €8 billion has been paid out compared to over €20.5 billion in fossil fuel subsidies. 

Between 2010 and 2019, only around 15% of environmental transfers went to renewable energy production, while 30% went to public administration for the likes of wastewater management and 34% to biodiversity protection measures in agriculture, forestry and fishing. 

The largest biodiversity-related scheme in 2019 was GLAS, an agri-environmental payment scheme that has had a modest emissions reduction role that is outweighed by agricultural expansion, according to the State’s latest evaluation of the scheme.
https://public.flourish.studio/visualisation/5925892/

To view an interactive version of this graph, click here.

Emissions trading scheme issues

The CSO also found that supports under the EU Emissions Trading System (ETS) accounted for 6% of fossil fuel subsidies in 2019

The system is the world’s largest emissions permit market and the 100-odd Irish installations involved – including large power stations, refineries, cement factories, aviation, and agri-food processors – account for around 25% of our annual emissions.

Every year, installations are given a cap on emissions that they can freely produce. If this cap is hit, they can trade allowances to cover additional emissions produced. One allowance unit is the equivalent of 1 tonne of carbon dioxide equivalent (CO2 eq). 

Revenue considers that expenditure on the purchase of emissions allowances is treated as a deductible expense of the trade. Relief is provided for those under the EU ETS system as it is “considered the appropriate carbon pricing mechanism for large scale installations”

While emissions from Irish enterprises, excluding aviation, fell 20.6% between 2005 and 2016, and hit their lowest level in 2020, emissions are not falling as rapidly as they could.

According to the EPA’s preliminary analysis for 2020 figures, the emissions fall for companies under the trading scheme of 6.4% was well below the average fall of 11 to 12% across Europe. 

The environmental watchdog said that the decrease is due to the impact of lower production during the pandemic, combined with a drop in power generation emissions.

In the longer-term, the low carbon price in the market has been blamed for slower than expected emissions declines. The price has previously dropped as low as €3 before rising sharply around 201 and hitting around €43 per tonne this year. 

According to the European Commission’s 2017 Stern-Stiglitz report produced by leading economists, a carbon price of between $50-100 per tonne is needed by 2030 to meet the Paris Agreement goals in a cost-effective way while also fostering growth. 

The Climate Change Advisory Council has also found that the EU ETS has not encouraged adequate decarbonisation as allowance prices have been too low. 

Free allowances set low

Another issue pointed to for delays in emissions reductions from companies under the trading scheme is the high rate of free emissions allowances given to companies.

A government decision conveyed to the EPA in 2006 called at least 89.5% of the total allowances to be allocated free of charge to installations between 2008 and 2012.

This issue was a topic of contention in mid-2008 with Fine Gael, then in opposition, raising a motion for a windfall tax on the profits of electricity generators there were given free carbon allowances. 

“Generators have received an allocation of carbon allowances from the Government that will allow them to emit carbon for free during the period from 2008 to 2012,” Simon Coveney said at the time. 

A 2019 study from the EPA found that an “overallocation of free allowances” combined with the recession meant that a price signal was not reached to encourage firms to invest in carbon reduction technologies.

The study also surveyed 51 companies under the trading system, many from emissions-heavy industries, including 14 in pharmaceuticals, nine power generators, seven agri-food businesses and two airports, finding that only a small proportion were investing in clean technology.  

This is a European-wide problem, according to new research from Jessica Green, associate professor of political science at the University of Toronto, who analysed 37 studies that looked at emissions trading schemes across the world. 

Green’s analysis found that the impact of the EU-ETS “has been extremely limited” and that free allowances and offsets “can further reduce potential impacts on business as usual”. 

Studies of the EU-ETS system analysed in her paper point to “limited average annual reductions – ranging from 0% to 1.5% per annum”, falling well short of emissions reductions needed to limit warming in line with the Paris Agreement. 

Green found little evidence that carbon pricing promotes decarbonisation. Instead, the drivers of these “modest reductions” are fuel switching, enhanced efficiency and reduced fuel consumption. This, she said, is “well short of the societal transformations” needed to halt rising emissions. 
https://public.flourish.studio/visualisation/5984123/

To view an interactive version of this graph, click here.

Is there a financial advantage from the trading system?

The EPA report also noted that free allocations have been traded as assets rather than surrendered for emissions by Irish companies under the EU-ETS. 

“It appears that lack of stringency resulted in a pay-as-you-go approach and a lack of strategic trading experience for Irish firms,” it stated. 

2016 paper from CE Delft – a Dutch research organisation specialised in environmental issues – found that this is an EU-wide problem, with over €8 billion of freely allocated emissions used for creating additional profits from 2008 to 2014.

It estimated that 26% of free allocations in Ireland were traded as assets rather than surrendered for emissions during this period, with the paper identifying the cement industry as main beneficiary, along with refineries and petrochemical companies. 

In total, the paper estimates that over €160 million were made in profits by Irish companies between 2008 and 2015 from overallocation of allowances. The primary recipient identified in the study was CRH.

The global building materials business told Noteworthy that it traded emissions allowances during this period “in accordance with the principles of the scheme”.

It said that proceeds from the trading of allowances enabled it to reinvest in emissions reducing technology and that it has a “significant and ongoing programme of investment in emissions reduction measures at all its production plants”.

EU ETS review not welcomed by all

The EU ETS was revised in 2018 in a bid to achieve the bloc’s 2030 emission reduction targets, with allowances set to decline from 2021. The EU has already stated to withdraw allowances from the market in a bid to keep carbon prices above €30.

These proposals were not welcomed by several Irish sectors under the EU ETS system, however, according to records released to Noteworthy under Freedom of Information (FOI). 

According to a summary of submissions to a consultation on the proposed reforms released by the Department of Public Expenditure (DPER), both IBEC and Cement Manufacturers Ireland (CMI) put forward their concerns. 

The DPER document states that IBEC argued that companies should receive enough allowances to cover their production, while CMI put forward the argument that the reduced free allowances will penalise the best performing installations in Europe.

The Irish Dairy Industries Association put forward the argument that the existing free allocation system based on historical production was “too rigid and distortive”, according to the DPER report. 

Despite the reformed model, more than six billion allowances are expected to be allocated for free during the next EU-ETS phase from 2021 out to the end of the decade.
https://public.flourish.studio/visualisation/5925575/

To view an interactive version of this graph, click here.

State revenue from trading scheme

Under EU regulations, at least 50% of the revenue generated by States from auctioning allowances under the scheme should be used to finance climate action. 

Auction revenue generated was €367.3m between 2013 and 2018 and the Minister for Climate Eamon Ryan recently said that almost €250 million was generated in 2019 and 2020. 

Under EU regulations, states must report annually on how they use this revenue, although the level of detail provided is patchy, according to the European Commission – including that for Ireland.

The EU body’s analysis of the use of auction revenue between 2013 and 2015 found that Ireland was among 10 countries where “detail on specific uses of the revenue is low”.

It said that our revenue was channelled to climate-related expenditures with “varying levels of details on programmes and projects”.

Unlike most EU states, we do not ring-fence auction revenue for specific purposes, although the Department of Climate told Noteworthy that amounts equivalent to 100% of the revenue – less administrative costs – goes toward emission reduction activities. 

Noteworthy was provided a breakdown of revenue use from 2013 to 2019 that shows most went to a school transport scheme (41.3%), energy efficiency projects (20.5%), to support developing states (19%) and to the State’s afforestation scheme (16.8%).
https://public.flourish.studio/visualisation/5926697/

To view an interactive version of this graph, click here.

Since 2013, €203 million has gone to support school transport for children who live in remote areas from their nearest school. The scheme is operated by Bus Éireann on behalf of the Department of Education and received the majority of funding in 2018 and 2019. 

In addition, €82 million has been allocated to grants under the State’s afforestation programme that has been widely criticised over its environmental credentials as revealed in a recent Noteworthy investigation.

When asked if the funds were ring-fenced for native woodland planting, the Department said that the funding “was not delineated by type of forestry”. We have one of the highest rates of plantation forestry in the EU, making up over half of our entire forest estate. 

“The Government has committed in its Programme for Government to develop a new strategy to expand afforestation, particularly Close to Nature Forestry and agro-forestry,” it said. 

Our use of auction revenue is quite different to the rest of the EU, with a 2017 European Commission study finding that, between 2013 and 2015, EU states used revenues on renewable energy projects (40%), energy efficiency (27%) and sustainable transport (10.9%). 

The Department said that the Minister for Climate, Eamon Ryan, intends to review the use of future auction receipts to “ensure it aligns with Ireland’s increased climate ambition”.

A little over €100 million from the auction earnings also went to the SEAI’s Better Energy Programme for measures intended to increase energy efficiency and insulation.  

A recent European Court of Auditors examination of the Better Energy Warmer Homes Scheme – co-funded by the EU – found that the energy rating of many homes did not improve, “confirming that the investments did not yield much in terms of energy savings”.

Following the audit, the Irish authorities reported that energy ratings did not improve for 52% of households renovated under the scheme in 2017, and was in the process of reviewing data for 2014, 2015, 2016 and 2018 to verify how many did not have their energy rating improved.

The Department of Climate said the scheme underwent a “significant change in mid-2018”, expanding to include more extensive retrofitting measures such external wall insulation. 

“This has resulted in deeper retrofits and more dramatic results for homeowners,” it said, leading to “substantial improvements” in the energy ratings of many participants. 

Carbon Tax ring-fencing

Until recently, there has also no ring-fencing of funds from the carbon tax on fossil fuels such as natural gas, oils, coal and peat. It is based on the amount of CO2 emitted when the fuel is combusted and covers around 50% of all economy-wide CO2 emissions

The tax was recently increased to much contention, with concerns over what the tax would be spent on. Last June, deputy Seán Fleming – now Minister of State at the Department of Finance - raised concern that €2 billion was collected between 2015 and 2019 without any reference to where it was spent or reporting to the Oireachtas.

The Department of Finance confirmed to us that the “Government has only explicitly tracked climate related spending [with revenue from the carbon tax] from 2019 onwards”.

The Department also confirmed to Noteworthy that “only the funds attributable to the increases in the carbon tax announced in Budget 2020 and Budget 2021 are hypothecated [ring-fenced] to specific actions” outlined above.

“Otherwise, it is Government policy that carbon tax receipts fund general Government expenditure – from social protection to health and education,” the Department said.

It said that “total Government climate-related spending is multiples of total carbon tax receipts”, and expects spending to reach €2 billion in 2020, up from €1.6 billion in 2019.

In the Government’s breakdown of proposed spending of revenue generated by the carbon tax in 2021, it is outlined that €100m will go toward the Warmer Homes scheme – an increase of 300% compared with average spending levels over 2015 – 2019.

Over €150m will go to increases in child payments, living alone allowance and increase in the fuel allowance and €20m toward results-based pilot schemes for farmers who improve biodiversity and carbon management of their land.

The remainder of the ring-fenced €238 million will go toward peatlands, cycling and electric vehicle infrastructure, as well as a Just Transition fund for workers impacted by the move away from fossil fuels. 

***

In part one, out yesterday, Noteworthy examined the individual emissions records of some of Ireland’s largest companies to see how they are responding to the climate crisis. 

***

This investigation was carried out by Niall Sargent of Noteworthy. It was proposed and funded by you, our readers. 

Noteworthy is the investigative journalism platform from TheJournal.ie. You can support our work by helping to fund one of our other investigation proposals or submitting an idea for a story. Click here to find out more >>

We have a number of other climate-related proposals which you can view here

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