Ireland risks up to €26 billion in penalties by missing EU climate targets – what's at stake?

Irish Times

24-04-2025

The recent joint report from the Irish Fiscal Advisory Council and the Climate Change Advisory Council made for sobering reading. Published in March,
A Colossal Missed Opportunity
– Ireland's Climate Action and the Potential Costs of Missing Targets, looked at the possible costs Ireland faces if it fails to meet its agreed EU climate commitments.
These require domestic reductions in greenhouse gas emissions, an increasing share of renewable energy, and improved energy efficiency. The report estimates that Ireland could potentially have to pay out between €8 billion and €26 billion to its EU partners if it does not step up climate action swiftly.
If the Government implements the additional measures in its own
Climate Action Plan
by 2030, it could reduce the amount due to between €3 billion and €12 billion – better but still enormous.
At issue are key pieces of EU legislation, including the Effort Sharing Regulation, which Ireland and other European countries agreed to adopt in 2018. It covers emissions from domestic transport, buildings, small industry, waste, and agriculture. Ireland is already near the bottom of the league when it comes to emissions reductions covered by this regulation.
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Two other pieces of legislation could pose smaller but still significant costs. These cover land use and forestry, and the share of energy coming from renewable sources.
The targets are all part of the EU's effort to achieve carbon neutrality by 2050. Failing to meet these commitments could result in substantial costs.
For starters, Ireland would need to purchase allocations from other member states that had overperformed against their annual emission allocations.
This could be both expensive and difficult as few member states are likely to overperform and just eight are likely to have allocations to sell.
Furthermore, the shortfalls expected for three large member states – Germany, Italy, and France – could be substantial.
Indeed, the report cautions that Germany's expected shortfall is so great as to mean that it might require more than half of the emissions allocations likely to be available for purchase.
This could result in a bidding war which would leave Ireland with limited or no access to the allocations necessary to, in effect, purchase its compliance.
If Ireland somehow manages to obtain emissions allocations, it will then have to spend billions of euro to purchase them.
Under land use regulations, Ireland has agreed to use nature-based solutions and practices to improve land and forestry management in order to reduce and offset emissions.
Ireland looks set to fall short of its agreed commitments under this regulation too. To comply, Ireland will need to purchase further emissions allowances, known as Land Removal Units, again at a cost of billions of euros.
And that's on top of any costs arising from missing the targets under the EU's Renewable Energy Directive, which commits us to achieving a 43 per cent share of renewable energy in gross final energy consumption by 2030, alongside additional sub-targets for specific sectors such as heating, cooling and transport.
Knuckle down
The risks inherent in missing our regulatory targets are stark but it's not too late to mitigate them. According to the report's authors, Ireland could still just 'knuckle down' and meet its targets.
That would require significant investments and policy changes but would also mean improving citizens' lives here rather than transferring large sums to our European neighbours which would be required were we to buy compliance, it points out.
The fact that emissions allowances might be thin on the ground due to larger states like Italy, Germany and France having to buy them to make up for their own shortcomings is a cause for hope for some. There is a belief in some quarters that if a number of influential member states miss their targets, a reprieve will be given.
That is wishful thinking, not just given the law as it currently stands but also because there are vested interests in ensuring the law is strictly adhered to. Not every country is in the same boat, after all. Both Spain and Portugal, for example, are likely to exceed their targets, which would allow them to sell surplus allowances to others, generating valuable revenues for them.
But even when lumped in with other laggards, Ireland's position as a small country makes it vulnerable. The financial burden of the Effort Sharing Regulation, for example, is up to five times greater here than for larger countries such as Germany, France or Italy, when looked at as a share of their economies.
It's why stepping up efforts on climate action now and meeting our targets makes the most sense, not least because it would avoid the risk of Ireland getting into a cycle of deepening emissions reductions requirements, and the need for sudden policy shifts.
Recent events have already highlighted how climate action can benefit people. Ireland's reliance on imported fossil fuels left it exposed to geopolitical disruptions and price rises during the cost-of-living crisis, for example, while, more recently, Storm Éowyn showed the need for more secure and stable energy infrastructure.
Then there is the cost, which would represent a massive transfer of wealth to Ireland's neighbours. And remember, having transferred these amounts, Ireland would still be obliged to meet its commitments.
By way of illustration, for €12 billion spent now – just one-tenth of the capital spending planned out to 2030 – the Government could, the report suggests, reduce the costs of buying 700,000 new electric cars to less than €15,000 per vehicle, allow the Government to ramp up charging infrastructure and cover the estimated additional costs of upgrading Ireland's energy grid, as well as support forestry and the rewetting of peatlands.
Not taking actions such as these is the 'colossal missed opportunity' to reduce emissions and deliver significant improvements in Irish society, it says.
Swifter action would do more than just avoid hefty payments and meet Ireland's agreed commitments. It would transform Ireland to a healthier, more sustainable, and more energy-secure society, the report contends.
Eddie Casey, chief economist, Irish Fiscal Advisory Council
'It is very serious, but we can get back on track,' says Eddie Casey, chief economist with the Irish Fiscal Advisory Council, who suggests that just a few big policy changes could take us a long way, including ramping up the electrification of the State and upgrading the energy grid to ensure more renewable energy can be brought online.
Supporting the rollout of the national fleet could help too. Any move that would reduce the cost of EVs will help break down the cost barriers that impede many purchasers. Moves to make forestry more attractive will pay dividends and restoration of bog lands could help too, he adds.
'Rewetting peatlands that were historically drained turns them from being carbon emitters into carbon sinks, and doesn't cost a lot of money to do,' he points out.
Such measures won't just provide environmental benefits, they will allow the Government to focus on what can be done with money that would otherwise have to be spent on compliance and penalties. 'But there is no room for complacency,' he says.