Failing to meet the State’s climate targets could cost the exchequer up to €13 billion a year by 2050, the Government’s budgetary watchdog has warned.
In a fresh report, highlighting the dangers of stalling on climate action, the Irish Fiscal Advisory Council (Ifac) said the main costs to the State would come from European Union fines for missing targets and the loss of tax revenue from the shift to electric motoring.
Inaction would also result in slower growth from weaker productivity and, as a result of “capital destruction” from extreme weather events, both of which come with a fiscal drag.
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Taken together, these costs could amount to as much as 4 per cent of national income by 2050, the Ifac warns.
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“In today’s money, that would be €13 billion [a year],” said Ifac chief economist Niall Conroy.
“But obviously, the numbers will be bigger in 2050 as the economy will be bigger and the cost of everything [will be] higher. But the €13 billion is a good way of expressing it in today’s terms,” said Conroy.
The warning came as a second spike in temperatures is expected across much of western Europe early next week. The most severe and widespread heatwave ever, which has caused hundreds of deaths, is only possible due to the climate crisis driven by fossil fuel burning, scientists have said.
Ifac’s report assessed the long-term fiscal impacts of climate policy.
It noted that the State faced a choice between investing upfront to electrify transport, upgrade buildings and decarbonise or risk paying large, open-ended costs for missing legally binding EU targets.
Minister for Climate Darragh O’Brien has conceded that the Republic will not hit its target of halving carbon emissions by 2030.
In a best-case scenario, the Environmental Protection Agency indicates the State could achieve a carbon emissions reduction of 25 per cent by 2030.
Ifac anticipates that the fines for not meeting our targets in 2030 would be paid in 2032 and that they will range from €6.8 billion to as high as €26 billion.
In its report, the Ifac noted that the €5 billion spent in recent years on temporary fuel and energy supports “could have instead funded more lasting alternatives, like deep retrofits for over 110,000 homes or enhanced €10,000 subsidies for half a million electric vehicles”.
The other main cost to the exchequer here from failing to act will be the loss of tax revenue from the switch to electric motoring.
The ongoing shift towards electric vehicles and electrification means tax revenues tied to fossil fuels will fall significantly.
The switch to electric motoring is expected to cost the exchequer at least €2.5 billion in lost tax revenue a year by 2030, according to one estimate.
The Ifac advocates replacing this lost revenue through measures like congestion charges and distance-based road charges.
“Doing nothing is a high-risk strategy,” said the Ifac.
“It risks leaving Ireland exposed to open-ended costs of missing EU commitments, volatile fossil fuel prices, and the severe economic damages of more extreme weather,” it said.
A credible plan could reduce the overall cost of climate change for the State’s budget balance to just 1 per cent of national income (less than €4 billion in today’s money).
By contrast, doing nothing could result in an annual hit to the public finances as much as two to four times larger by 2050.
“Investing in home retrofits, public transport, renewable energy and the electricity grid can guarantee tangible local benefits, said the Ifac. “It would mean cleaner air, lower healthcare costs, lower running costs for homes and vehicles, and greater energy security.”
