Ireland was one of the European countries hardest hit during the ‘08-‘09 financial crisis. Despite economic collapse and mounting debt, the Irish Government made a resounding commitment to carbon reduction. To the uninitiated it would seem that passing measures that would restrict economic development in any way during a time of economic crisis is an action nothing short of suicidal, collaring the Celtic Tiger as one might say. However, given Ireland’s unique economic, social, and geographic characteristics, the carbon control policies have been wildly successful.

Directly, all fuels that are linked with carbon emissions are taxed proportionally to their relative marginal social cost. Additionally, fees and taxes were levied on all new automobiles in proportion to their fuel efficiency and expected environmental impact. Garbage collection is now priced by weight of output, with the omission of properly sorted recyclables, which are collected free of charge. Together these measures reduce the CO₂ emissions from fossil flues and methane from decomposing garbage.

The net result is a 15% reduction in CO₂ emissions since the implementation in 2008. While some of the total emission reduction can be credited to a slowing economy at the beginning of the policy, emissions continued to fall despite a moderate economic rally in 2011. This growth rate (or reduction rate as it may be more aptly described) puts Ireland well on its way to fulfilling its Kyoto protocol obligations.  Breaking down the 2011 reductions by industry shows that energy emissions are down by 10.5%, residential emissions are down by 15.6%, industry and commercial emissions are down by 10.7%, transportation emissions are down 2.7% and agricultural emissions are down 1.9%.

The tax revenue raised by the policy has played a crucial role in Ireland’s obligation to pay back the bailout it received at the peak of its economic crisis. Over the first three years the policy raised 1.3 billion euros, money that was used in large part to pay back its finical backers. Some in the Irish government are now making the case to raise the taxes further to increase the rate of pay back, however, I was unable to find any source capable of providing an antiquate dynamic analysis of the effect of bumping the tax further.

Despite the undeniable effectiveness of the policy at diminishing the net carbon emissions, the policy is not without its opponents. First and most glaringly is the effect upon low income citizens. Low income citizens have the least flexibility in choice of automobiles. Highbred and other cutting edge low emission vehicles are often out of the price range of even moderate income families.  As such, these families will end up paying a larger percentage of the tax at the time of purchase of a new vehicle, as well as more tax per mile due to the poor mileage of the vehicle.  This would have the greatest effect on the rural poor who have the fewest alternative transportation choices and the furthest average trip distance. It is worth a note that the fuel efficiency is only in place on new cars, not used. In any case, lower income individuals with used cars will still be paying a higher tax rate per mile traveled as they are priced out of the most efficient technologies.

Export industries face massive challenges in remaining cost competitive. The agricultural sector is the largest GHG emitter with 32.1% of total emissions. Considering Irish producers must compete with countries in North and South America and Africa with little or no carbon tax policy as well as other production advantages, a stringent tax policy complicates Ireland’s competitiveness on the global stage. In my opinion, any attempt to protect domestic producers through import or export policy could cause diplomatic issues and or dead weight loss to the economy. It seems for the time being the Irish production economy has its hands tied

It is also important to point out that little of the tax revenue is being directed into the Irish economy in form of growth, but rather being used to pay off outstanding debt. While paying off the bailout is an understandable priority, failing to reinvest in the domestic economy indirectly affects other sources of tax revenue. As citizens cut back on purchases, the tax revenue of a given products supply chain diminishes.  Ideally the tax revenue would be reinvested in infrastructure for more efficient access of good and services to help to offset some of the economic reduction. While reduction in GHG emissions will benefit citizens in the long run in the form of a reduced social cost, in the short term the increase in cost of living stands to hurt the economy at all levels and may work against economic growth. In the long term, as Ireland pays off its obligations, it can redirect more of this tax revenue into its own economy. Smart investment in green technology and infrastructure will help to further reduce the country’s carbon emissions and help to stimulate economic growth.

For the time being Ireland’s carbon policy is working. Carbon emissions continues fall, GDP grows, and Ireland manages to maintain its obligations to its benefactors. Only time will tell if Ireland’s carbon tax pays off, both in terms of the environment and the economy. Despite the drawbacks of the policy, as it stands, it appears that the carbon tax is a net win for Ireland.

Statistics and figures cited in this blog were drawn from the Oct 11 2012 EPA report of 2011 emissions. This report can be found at;

http://www.epa.ie/news/pr/2012/name,33923,en.html

Further information was found in the Dec 27 2012 New York Times article, “Carbon Taxes Make Ireland Even Greener,” available at;

http://www.nytimes.com/2012/12/28/science/earth/in-ireland-carbon-taxes-pay-off.html?pagewanted=all&_r=0

Posted: 02|7|13 at 11:20 pm. Filed under: Uncategorized.
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