Green budgeting a priority to measuring progress to 2030 targets

Posted on Monday, 20 March 2023
Emissions

Ireland faces some critical decisions on climate mitigation and investment in the next seven years.  The significant investments and policy change required to meet out national and international climate commitments will need to be frontloaded in the next two to three years to support emissions reductions later in the decade if we are to have any chance to meet our 2030 targets.  In order to make sure we make the right investments in the right policies now, Government must embed green budgeting across all Government policies and within the budgetary and economic policy making framework.  This should include climate related expenditure (both allocated and actual spend), outcomes from climate related expenditure, compliance costs relating to current and future climate targets, and a system of climate metrics so that resources allocated to climate related spending are measured against a particular set of outcomes such as emissions reductions.

Green budgeting – the Irish experience

Green budgeting is a process whereby the environmental contributions of budgetary items and policies are identified and assessed with respect to specific performance indicators, with the objective of better aligning budgetary policies with environmental goals. Ireland’s approach to and definition of green budgeting is set out by the Department of Public Expenditure and Reform which outlines that green budgeting is the use of the budgetary system to promote and achieve improved environmental outcomes. It is an explicit recognition that the budgetary process is not a neutral process, but reflects long standing societal choices about how resources are deployed.

Government’s approach to green budgeting is set out as:

“Green budgeting is a new concept which seeks to embed climate and environmental goals within the budgetary process. The purpose of green budgeting is to ensure that, given their importance, there is sufficient consideration of climate and environmental effects within policy making. This means not just a greater appreciation of the impacts of specific climate and environmental measures but also an appreciation of the impacts other unrelated policies may have on climate and environmental outcomes, whether these policies encompass expenditure, taxation and/or regulation. Green budgeting recognises that budgeting is not a neutral administrative process, but that expenditure decisions, whether purposely or inadvertently, have climate and environmental impacts and that these should be taken into account when making policy decisions. Green budgeting also recognises that fiscal policies can support the transition to a low carbon economy”.

Since 2018, as part of Ireland’s green budgeting process, and as a means of tracking Government expenditure on climate related issues, the Revised Estimates for Public Services Volume now includes a table which seeks to identify Exchequer climate-related expenditure through the sub-heads under which individual Departments classify their expenditure.  This allows Government to identify and track climate related expenditure, however it is not linked explicitly to environmental targets or outcomes.  A recent assessment by the Parliamentary Budget Office on Climate Related Spending 2023 contains some interesting findings which should be used to revise and reform green budgeting policy in Ireland.  Among the key findings are:

  • Climate related spending amounted to €3.5 billion in 2023 or 4.5% of gross spending, excluding capital carryover.
  • Climate related expenditures are disproportionately significant within the capital carryover, amounting to 15.6% of all capital carryover in 2023, exceeding €107m .
  • It would be a cause of concern if this trend continued as this would suggest ongoing difficulties in spending on climate related matters, and therefore difficulties in delivering climate objectives.
  • Climate related spending as current reported in the Revised Estimates only demonstrates the allocation of spending deemed to be explicitly climate related.  It does not track actual spending versus allocation, tangible outputs associated with specific resources.  To date there are no performance related metrics to climate allocations.
  • The PBO commends the Courts Service for its inclusion of climate related context and impact indicators since the Revised Estimates for Public Services 2022. These context and impact indicators track the energy usage of the Courts Service, specifically: electricity consumption, thermal fuel consumption, total primary energy requirement and carbon emissions. 
  • If green budgeting is to be progressed in Ireland it is essential that more Votes incorporate similar measures of their energy use and climate impact urgently.
  • Performance metrics must be developed for climate related spending. These metrics would measure the outputs produced by the spending. For example, an energy retrofit scheme could have metrics for the square meterage of solar panels installed.  This would track the tangible outputs from spending of public monies.
  • The provision of hot water and heating to the public service are a significant contributor to Ireland’s total greenhouse gas emissions.  Measuring and reporting on energy usage and emissions by Government Departments are thus essential prerequisites to measuring the environmental impact of public services and of the measures implemented to reduce or offset that impact.

In advance of Budget 2024, the Department of Public Expenditure and Reform, in consultation with all Government Departments should, as part of the green budgeting process, develop a series of performance metrics against which climate related spending can be measured.  These metrics can be updated over time as more data becomes available and policies are rolled out.  Such metrics are vital to ensure that we can track the long-term impact of up-front investments in climate mitigation and emission reduction policies.

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)[1]  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[2] 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[3].  The paper notes that the revised emissions reduction targets for Ireland, as part of the EU Fit for 55 Package[4] (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.   

Investment

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. 

[1] 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  

[2] https://assets.gov.ie/246850/5982d0ec-1590-4caf-8c40-ce8bf178f5fc.pdf

[3] https://assets.gov.ie/246850/5982d0ec-1590-4caf-8c40-ce8bf178f5fc.pdf

[4] https://climate.ec.europa.eu/eu-action/european-green-deal/2030-climate-target-plan_en