5. Deputy Eamon Ryan asked the Minister for Public Expenditure and Reform the carbon price that applies to the cost benefit analysis assessments for capital projects; and the reforms he is considering in regard to this price and mechanism. (Question 47497/17 asked on 09 Nov 2017)

Deputy Eamon Ryan: At the meeting of the Citizens’ Assembly at the weekend there was a real sense of dismay at the lack of political leadership in tackling climate change in this country. Among the various criticisms which Professor John FitzGerald, the head of the Climate Change Advisory Council, made was that the Minister’s Department does not have an appropriate mechanism for measuring, valuing and pricing carbon in respect of investment decisions. What price are we using? What reforms does the Minister intend to introduce in order that we can start leading on climate change rather than being a laggard, as we are currently recognised universally?

Deputy Paschal Donohoe: As set out in public spending code, robust and rigorous project appraisal is central to securing value for money from public capital investment.  Value for money, VFM, relates not just to the efficiency of investment but to its effectiveness.  The public spending code maintained by my Department therefore contains detailed technical guidance on the methodology for carrying out cost-benefit analysis.

Section E-05 of the public spending code, which can be found at www.publicspendingcode.per.gov.ie, sets out parameter values for monetising carbon currently used in cost-benefit analysis.  This guidance is based on work carried out by an interdepartmental working group which completed its work in 2014.  The group recommended that price of carbon on the EU emission trading system, ETS, on the European Climate Exchange should be used where possible and set out an approach for using futures pricing on the EU ETS to use for future time periods.  Where futures prices are not available, the group recommended the use, up to 2050, of the price projections for the ETS set out in the reference scenario in the EU 2030 framework for climate and energy policy.

To give an illustrative example, which is presented in table 2 of the relevant section of the public spending code, it is estimated that the shadow price of carbon for 2018 to 2019 will be €7.29 per tonne, based on average futures prices on the EU ETS over the period from 22 January to 25 March 2014.  As set out in that section, for the period from 2020, the projected price rises from €10 per tonne in 2020, in 2010 prices, to €100 per tonne in 2050.

Additional information not given on the floor of the House

As the impacts of climate change are expected to be pervasive in Ireland’s environment, society, economy and natural resources, it is, of course, essential that the Government’s expenditure choices are informed by an assessment of the full range of such impacts at the appraisal stage. This means being able to capture the broadest possible range of potential costs as well as the range of benefits that might also accrue.

Consequently, in line with the advice of the Climate Change Advisory Council, the national mitigation plan contains a specific action for “a review of guidance on public expenditure appraisal and evaluation to ensure their suitability to capturing key costs and benefits of climate measures” for completion in 2018.  This will include consideration to ensure that an appropriate range of shadow prices of carbon are available to public bodies undertaking expenditure appraisal. The review will seek to determine if the existing appraisal framework provides the best available advice on measuring and reporting on the costs and benefits, including those measures with climate change effects.  It is expected that an updated public spending code will also be able to better inform investment decisions.

It is, of course, also important to be aware that the public spending code clearly acknowledges that the economic costs and benefits are not the only factors influencing policy decisions regarding public expenditure. There may also be social or other public policy considerations which inform the decision-making process.

At the recent meeting of the Citizens’ Assembly on how the State can make Ireland a leader in tackling climate change, there was unanimity that the State should take a leadership role in addressing climate change.  This will be a core objective of the forthcoming ten-year capital plan.  This leadership role will need to be underpinned by key actions such as ensuring that there is an effective price signal for investment project appraisal achieved through an appropriate price of carbon in the public spending code.

Deputy Eamon Ryan: The code the Minister is using and the price he is setting are not working. I will take a number of measures as evidence. The European Commissioner for Transport was over recently. She said that 90% of her budget goes on public transport in recognition of the fact that we have to decarbonise our entire transport system in record time. What do we have in this country? The national planning framework brings us back, by about two or three decades, to the same old model of roads, roads, roads. We do not have a single public rail project ready to go to tender. At the heart of that problem is the Minister’s Department’s lack of belief in public transport and renewable energy and its lack of belief that it has a role in taking action on climate change. I am sorry but something has to change. If the national capital plan, which the Minister will publish in coming weeks, is anything like the model of the national planning framework, we will be heading on a path to growing emissions and we will not be delivering the other social benefits which come with building a new, clean system of public transport. We are going badly wrong on climate and it is up to the Minister, as one of the key people involved, to turn it around. Will he change that code? Will he change the pricing mechanism? Something is badly wrong in his Department if it cannot see that a high-carbon future for transport, energy and agriculture is not the right thing for this country.

Deputy Paschal Donohoe: If the Deputy has any suggestions on the price we are using for carbon that he wants me to take on board, I will be very happy to hear it. I assure him that my views and those of my Department are reflected in the increased funding being made available to the Department of Transport, Tourism and Sport and in the Government’s commitment to the metro project. That is because of my commitment to investing in public transport. Despite what the Deputy said, I believe that when we outline the ten-year capital plan later in the year, he will see that commitment maintained.

Deputy Eamon Ryan: In every area I look, I see a lack of commitment. With regard to transport, the metro is arriving 20 years late. We should have built it 20 years ago, as set out in the transport plan at that time. Instead, we just built the roads. We are not building the DART interconnector. Where is that as another significant and important transport project in this city? Where is the light rail project for Cork? I was in Cork at the weekend. We are talking about Cork having 500,000 people. There are no public transport projects of any scale ready to go in the city. The same applies in Waterford, Limerick and Galway. All our cities are grinding to a halt because of the lack of commitment.

With regard to renewable energy, we are making a submission tomorrow on where we should go. The Government states there should be no increase in renewables integration although we believe the figure could increase to 75% if we were serious.

The Minister asked me what pricing system I would have. First, I would move away from the emissions trading scheme, which is universally recognised as a brokering system in setting the price of carbon. I would include immediately in the current national capital plan a proper price, not €7 per tonne, for needed investments. It is nothing like the real cost of the pollution the carbon is causing and the damage to our reputation, which is declining by the day because we are climate laggards.

Deputy Paschal Donohoe: In other considerations, particularly regarding the development of roads, I must also take into account road safety and the maintenance of the local and regional road network, for example. I cannot take responsibility for decisions made 20 years ago. What I can do is take responsibility for decisions I have to make now, and that is what I am doing. In engaging with the Department of Transport, Tourism and Sport, I have tried to provide for doing more about the metro and supporting our rail network, notwithstanding the current difficulties. There is also provision for the supply of more buses. That is a response to the commitment the Minister for Transport, Tourism and Sport, Deputy Shane Ross, and his Department have made in this area.