Background

Over the last decade there has been a growing attention to the challenge of quantifying the impact of the environment on the economy, and of the economy on the environment. How do we take account of how natural resources are used and abused by economic activities, including economic growth?

Sir Nicholas Stern’s Review of the Economics of Climate Change, a report on the effect of global warming on the world’s economy, is one of the notable examples. Others have been reported in irish environment, e.g., Putting a Price on Nature: Internalizing the Costs of Exploiting Natural Resources (June 2013); The UK National Ecosystem Assessment (July 2011).

The Irish Environmental Protection Agency (EPA) recently funded research by the Economic & Social Research Institute (ESRI), through EPA’s important STRIVE Research Programme, to further earlier work by ESRI on a sustainable development model, called (ISus), that ties economic development to environmental pressures on key resources.

In its report, Towards a Green Net National Product for Ireland (June 2013), ESRI uses data available for 1990-2013, makes assumptions about macroeconomics, or how the economy will perform in the future, projects environmental emissions to 2030, then assesses the impacts of the emissions on the economy. The macroeconomic projections, for 2010-2030, include energy prices, gross output for key sectors, population, recent austerity measures and expectations of slow growth to the economy.

The first section of the report summarises the germane research papers on the subject. The second section applies this research to four environmental policy issues: climate; transport; agriculture; and, waste. We will concentrate on the policy analysis, but first we need to take an unavoidable, but brief, detour into economic jargon.

Green Net National Product (GNNP)

To get to the concept of GNNP we start with Gross Domestic Product (GDP), which is the sum of value added to an economy, or the market value of all goods and services produced within a country, and perhaps the most widely used measure of national income. Gross National Product (GNP) deducts from GDP any profits repatriated by a foreign company and adds remittances from abroad. Since the Irish economy has been heavily reliant on investment from foreign companies, GNP has often been used for economic analysis and policy considerations applicable to Ireland.

Net National Product (NNP) is GNP plus net investment in capital goods, or gross investment minus depreciation. This measure takes account of changes of wealth. Finally we reach Green Net National Product (GNNP), which takes NNP and subtracts the costs of the degradation of the environment and the depletion of natural resources.

Some General Findings

One of the interesting findings that start the report is that while the business sector typically complains that government regulations, especially environmental regulations, hurt competitiveness (and cause job loss and reduced profits), that’s not accurate. As an example, “For most sectors, energy taxes show a positive effect on the return on capital.” At viii. Research indicates that energy taxes encourage firms to innovate, which results in improved competitiveness and enhanced productivity. Some sectors, such as textiles and wood products, actually show increased employment from energy taxes since these sectors can employ low-skilled workers instead of investing in capital projects to offset taxes.

In terms of impacts on households, the report indicates that carbon taxes hit hardest on households within commuting areas, because of the heavy reliance on transport by cars. If just direct emissions (use of energy for heating, lighting and transport) are used, rural households have higher emissions, again because of reliance on private transport and longer journeys by car. If indirect emissions (e.g., from production of goods consumed and from public transport services) are included, then urban households emit more. And richer households have higher emissions because they use more energy and buy and use more things. At viii. While carbon or emission policies affect different types of households differently, research shows that policies can make the polluter pay at the same time that vulnerable groups can be protected.

The ESRI analysis suggests that between 1997 and 2007, environmental damage across the entire economy decreased by about 30%, in large part because of the rise of service sectors and improvements in emission intensity of industry which ESRI attributes to EPA’s licensing regime. The ESRI acknowledges that limited data on water resource use represents a significant gap in environmental accounts and that water metering data should help close this gap.

Climate Change

The good news is that Ireland will meet its greenhouse gas (GHG) emission targets for 2008-2012 under the Kyoto Protocol. The bad news is that obligations to meet GHG targets after 2012 will not be met.

Under the European Union’s (EU) Effort Sharing Decision, that sets limits for GHG emissions from sectors not covered by the EU Emission Trading Scheme (ETS), the ESRI projects that Ireland will be about 5% below 2005 levels whereas it is obligated to reduce emissions by 20% below 2005 levels by 2020. Ireland’s failure in the non-ETS sectors will only deepen as the EU develops its long-term goal of a 80-95% reduction in emissions by 2050, compared to 1990.

The industrial sector is projected to be fairly static for GHG emissions. Some growth is expected for emission of fluorinated GHGs (F-gases) that have increased significantly over the past several decades. But the EU is proposing to tighten regulations on F-gases and substantial reductions are anticipated. See Susanna (Ala-Kurikka) Williams, “The Battle Over Fluorinated Greenhouse Gases Begins,” Commentary in irish environment (July 2013); “Fluorinated Greenhouse Gases,” iePEDIA in irish environment (July 2013).

A complicated impact from climate change legislation can be seen in the Single Electricity Market (SEM), applicable to the island of Ireland. The EU is considering changing, or backloading, the auction of allowances under the ETS, which would have the effect of raising the price of electricity on the island. Also affecting electricity prices in the SEM is the UK policy of a carbon price floor of £16 per tonne of carbon dioxide (CO2), rising to £30 in 2020. A carbon price floor will be applicable to electricity generated within Northern Ireland (NI) and in turn impact on the SEM price for electricity on the island. Incidentally, GHG emissions from electricity power plants in NI would be attributed to NI, even if electricity is distributed in Republic of Ireland (RoI). Here NI has a clear example of what China complains about – being blamed for GHG emissions generated in producing goods shipped elsewhere.

Returning to the bottom line assessment, not only will Ireland not meet its obligations post 2020, but it cannot until it commits to a low-carbon economy, and steadfastly blocking any such commitment are agriculture and transport that together account for about 75% of Ireland’s non-ETS emissions.

Agriculture

The report posits that, “A sustainable agricultural sector is one that is inherently profitable and does not pollute soil, water, or air.” At 37. Without the report saying so directly, the only conclusion to be drawn from ESRI’s review is that Irish agriculture is not sustainable.

Agriculture remains a heavily subsidized sector with direct income payments providing 47% to 202% of family farm income (2010). At 37. At the same time it accounts for about a third of all GHG emissions, and 42% of non-ETS emissions; it continues to be a major source of surface and ground water pollution from excess nutrients; and, it creates problems from ammonia emissions and biodiversity losses. All of the problems or challenges associated with agriculture are about to get worse. The government’s Harvest 2020 plan for the agriculture sector allows for a significant increase in dairy and other farm production, as much as a 50% growth. It has been estimated that the implementation of Harvest 2020 will contribute an additional 1 million tones of GHG emissions each year by 2020, as well as significant additions to nutrient discharges and ammonia emissions.

Two arguments are most often advanced for the justification of Harvest 2020. First, Teagasc, the Agricultrual and Food Development Authority in Ireland, suggests that there is the “potential” for carbon mitigation measures in agriculture that will offset, to some extent, the growth in GHG emissions from Harvest 2020. Of course the most damaging GHG from agriculture is methane, not carbon, and there is no indication how methane can be controlled within the agriculture sector. Moreover, while there are various research and demonstration projects exploring these potential mitigation measures, there is no indication in the ESRI report that any significant measures have actually been adopted by the farming community. Moreover, the report notes that, for an unexplained reason, “After 2021 a conservative assumption is that there will be no growth in emissions from the sector.” At 30. There is little in all of this to have confidence that GHG emissions from agriculture will abate. As a result, Ireland cannot meet its GHG obligations after 2020.

The second argument for Harvest 2020 is that Irish farming is a grass-fed activity that is more GHG-efficient than other forms of agriculture, which rely heavily on fossil-fuel energy sources. It is then argued that it makes no sense from a “global climate policy perspective” to cut back on Irish food production just because it emits significant methane and GHG emissions when as a result other countries will increase their food production to make up for Ireland’s cut backs, and these other countries emit more carbon than Ireland. The argument always ends with a plea for the EU to change its way of managing agricultural emissions, in effect asking for another dispensation for Ireland to increase its emissions in exchange for other less-grass-fed-based systems cutting back. See the Interview with Michael Barry of the Irish Dairy Industries Association in the Podcast section of irish environment (February 2013) for further discussion of this argument.

One can only imagine how receptive the EU member states will be to such an agricultural bail-out for Ireland, on top of the CAP payments, and the bank bail out.

If the necessary reductions from agriculture fail to materialize, where will Ireland get the reductions in GHGs to meet their legal obligations – from requiring everybody to drive less, or requiring industry to further reduce emissions?

Several other points raised by ESRI deserve attention. Currently nutrient plans allow farmers to spread excessive nutrients on individual fields as long as the entire farm is in compliance. As ESRI points out, excess nutrients on a particular field can easily pollute a watercourse adjacent to or near that field. The report suggests it is time to move to a field or even plot-level nutrient management system of regulation. Research also shows that effective nutrient management can lower need for, and costs of, inorganic fertilizers.

An encouraging note is sounded by the report in discussing the potential for bioenergy. ESRI acknowledges the problems created with the switch to bioenergy crops with negative land-use changes, declining food production, and resulting higher food prices. But using grassland to produce bioenergy offers an important opportunity, in addition to coppice willow and miscanthus as crops. Grass is considered a non-food cellulosic material and subject to favorable treatment in the EU proposed directive on renewable energy fuels. Over 90% of agricultural land is grassland and even a small portion used for bioenergy would make a significant contribution to renewable energy targets. In addition using just 10% of grassland to produce biomethane could fuel over 55% of the Irish private car fleet. Advantages of using grassland for bioenergy is that farmers already have the expertise and experience of working grass and “Fields used for energy crops could be used for stock grazing after silage harvests.” At 39. Switching to bioenergy, it is suggested, makes particular sense for beef producers which are heavily dependent on direct payments. In such a switch we could see GHG emissions declining for both the agriculture and transport sectors.

While switching to bioenergy can require initial capital investment, and fossil fuels remain cheap, nevertheless one does wonder why the government talks so much about Harvest 2020 and less about other more sustainable options.

 Cornaveigh

Transport

Besides agriculture, transport remains the intractable obstacle to a low-carbon economy. The report states that Ireland has a large rural population in comparison with other countries and that population has relied on cars with very limited public transportation. By one account Ireland is #111 in countries by rural population (per capita) with 395 rural people per 1,000, compared with Poland which is #115, with 379 per 1,000; the UK which is #177, with 103 per 1,000; and Burundi which is #1, with 900 per 1,000. See, Sources. It would be interesting to see to what extent transport for rural populations in comparable countries was similar to Ireland, or not.

The conclusion drawn by ESRI is that the option is not to reduce usage of cars but the emissions per vehicle with reliance on electric vehicles and renewable transport fuels (like biomethane).

Transport emissions actually declined by 22% between 2007 and 2011, due to the recession, but also because of changes in the vehicle registration and motor tax (that supported use of low-carbon emission vehicles), and implementation of a biofuels scheme. Unfortunately, GHGs are expected to grow for the transport sector by 20% between 2010 and 2020.

The ESRI analysis indicates that while use of electric cars is far below what was expected and what is needed, it remains one hopeful way out of the transport problem. Studies show that if only 10% of the car stock was electric the emissions, from electricity generation, would be only 2-3% of the total vehicle emissions. Moreover, achieving comparable emission reductions from transport-related taxes would have severe economic impacts, with loss of revenue for the Exchequer. The taxes, nominally environmental, become revenue-generating sources and lose their usefulness in producing low-carbon results. What seems clear is that the fossil fuel is the problem, not the car, so that a carbon tax on fuel is more effective in reducing carbon emissions. A carbon tax on fuel also supports the polluter pays principle.

At the end of the analysis, the report states that, “There are no simple near-term solutions to dramatically reduce transport emissions.” At 42. While that may be realistic, it would be helpful for the government to develop procurement policies to support greener transport technology.

Waste

As with transport emissions, the economic crisis helped to reduce the amount of waste generated in Ireland and it is expected that the lower rates will continue until about 2020, when they will begin to rise again. Fortunately many of the waste management advances implemented over the past several decades will continue to impact positively on waste generation. Those advances include greater recycling rates, more recovery and lower reliance on landfills, assuming the Poolbeg incinerator and the Carranstown incinerator reach full operational capacity. Fifteen of the 28 landfills active in 2010 will soon reach capacity

The challenges ahead include mandatory household collection and pay-by-use tariffs. The revised waste management policy (July 2012) requires all householders to demonstrate they are using an authorized waste collection service or are otherwise managing their waste in an environmentally appropriate way. The policy is intended to eliminate fly-tipping, littering and backyard burning of waste (and resulting dioxin emissions).

The report concludes that when households have to pay for waste collection and disposal, the pay-per-use pricing is most effective in incentivizing waste reduction and segregation. Pay-per-use involves households paying every time a bag is taken or a bin is lifted, and excludes any flat fees. ESRI also found that within pay-per-use pricing, weight-based-charging is more transparent as all households pay in the same unit (e.g., tonnes).

One particular difficulty in waste collection is the issue of segregation of different forms of waste, e.g., biodegradable municipal waste, municipal solid waste, household waste, biowaste. The report suggests that improving the segregation of organic waste, for instance, can be as important as increasing the volume of organic waste collected that has not been appropriately segregated.

Sources

Towards a Green Net National Product for Ireland (June 2013).  www.epa.ie/pubs/reports/research/econ/strivereport103.html

“Putting a Price on Nature: Internalizing the Costs of Exploiting Natural Resources (June 2013) www.irishenvironment.com/reports/putting-a-price-on-nature-internalizing-the-costs-of-exploiting-natural-resources/

The UK National Ecosystem Assessment (July 2011). www.irishenvironment.com/reports/the-uk-national-ecosystem-assessment/

“Rural Population per Capita by Country.” www.nationmaster.com/graph/peo_rur_pop_percap-people-rural-population-per-capita

Editor’s Update: 01 Aug 2013

Jared Bernstein and Dean Baker, “What Is ‘Seinfeld’ Worth? BADA GDP!” New York Times (01 Aug 2013). www.nytimes.com/2013/08/01/opinion/what-is-seinfeld-worth.html?_r=0

In an assessment of new accounting rules affecting calculation of GDP, the authors note certain criticisms, including: “The failure to account for environmental degradation is a serious shortcoming of our measurement system. If we use hydraulic fracturing to reach deep pools of natural gas and in the process pollute groundwater, we will count only the value of the gas. There is no subtraction for the polluted groundwater or the greenhouse gas emitted when the gas is burned.”