Climate action progress could attract investment, experts say, amid looming hefty EU fines

Irish Examiner

a day ago

The Government's delayed approach to complying with climate-related targets and agreements may threaten Ireland's position as an attractive place to do business, according to collaborators of a major report.
Marie Donnelly, chair of the Climate Change Advisory Council (CCAC), along with budgetary watchdog Ifac's chief economist Eddie Casey cautioned, since the publication of their report in March, that a likely hefty EU fine for incompliance with agreements could impact foreign direct investment (FDI) opportunities.
'There's good reason to say, given what we are seeing internationally happening and all this uncertainty that is threatening Ireland's competitiveness, that we're going to lean into these areas that are helping (FDI) and attracting multinationals to stay here,' said Mr Casey.
The report, 'A Colossal Missed Opportunity — Ireland's climate action and the potential costs of missing targets', found the Government could be on the hook for fines between €8bn and €26bn if it fails to meet its agreed EU climate commitments outlined in legislation.
'The danger is that this is quite close to reality because the additional measures that they have said they will enact, they haven't followed through on yet,' said Mr Casey.
If the Government implements the additional measures in its own Climate Action Plan by 2030, it could reduce the fine range to €3bn to €12bn.
'With every crisis, you have opportunities too,' he said.
Mr Casey stressed the significance of investing in the renewable sector and meeting climate agreements to maintain relationships with multinationals, especially as trade tensions continue to simmer amid US president Donald Trump's tariff threats and his ambition to lure large firms back to the US.
Eddie Casey, chief economist, Ifac.
'Thankfully, it looks like the Government is taking more urgency following the tariffs debacle to really get a grip on how they can deliver and accelerate it,' said Mr Casey.
Ifac has long warned against the Government's overdependence on corporation tax for financial padding in annual budgets, however three quarters of the corporation tax haul last year was from US companies and around 40% was collected from just three companies.
'We are incredibly reliant on them and we don't want to lose that,' said Mr Casey.
Multinationals have become increasingly interested in locations with a renewable energy supply and a reinforced energy grid as they come under mounting pressure to fuel their electricity-guzzling data centres in a more sustainable way.
'They've been really worried for a long time about Ireland's ability to actually deliver energy so they can, as a tech firm, have a larger data centre,' said Mr Casey.
Ms Donnelly echoed Mr Casey's comments and said the EU's Green Deal and its clean competitiveness agenda 'are effectively the same thing'.
'Europe understands that we have to have energy both for our society and our economy,' she continued.
'It's clear that the energy we currently use is neither sustainable, it doesn't have supply security, it can blow the cost of living out of the water, it's largely drawn by not very politically stable parts of the world and it's very bad for our climate because it's full of emissions,' she said.
These legally binding EU agreements that Ireland has entered require domestic reductions in greenhouse gas emissions, an increasing share of renewable energy, and improved energy efficiency.
A key piece of the legislation is the Effort Sharing Regulation, which Ireland and other EU countries agreed to adopt in 2018.
It covers emissions from domestic transport, buildings, small industry, waste, and agriculture. If Ireland emits more than allowed, the state will have to purchase the gap from overperforming countries — those that reduce their emissions more than required.
Other countries, including Spain and Portugal, have been overperforming in terms of their climate mandates because they have taken money from other countries that are underperforming.
However, Ireland has around five times the cost of missing targets compared to a larger economy such as Germany which is underperforming. However, Mr Casey explained that Germany can afford to miss targets.
Marie Donnelly, chair of the Climate Change Advisory Council (CCAC).
Ireland has shown Europe it is capable of economic miracles, including its recovery from the banking crisis in 2008 to boasting healthy public finances after years of volatility, including covid lockdowns, soaring inflation and interest rate hikes.
However, Ireland has not been as skillful in performing miracles when it comes to its emissions targets.
In 2022, Ireland had the second-highest emissions of greenhouse gases per capita in the EU at 11.7 tonnes of carbon dioxide, figures from the Central Statistics Office showed. Ireland's emissions were 56% higher than the EU average of 7.5 tonnes.
Meanwhile, the most recent projections from environmental agency EPA showed Ireland can achieve a 25% reduction of emissions by 2030, which is considerably short of the 42% reduction target.
In addition, Ireland fell below its renewable energy share target baseline share in 2021, 2022 and 2023 and could face costs from purchasing compliance for falling below its baseline share in 2021 and 2022 but as things stand, not for 2023, according to the climate report.
This is because countries have one year to return above their baseline share. Ireland is expected to return above its baseline share in 2024.
Ireland's slow movement towards climate progress may be driven by a lack of serious consequences to date.
'There is a view amongst some that this is never going to happen, that they wouldn't be fined,' said Ms Donnelly. She repeated the point that if Ireland does get fined, the bill will without doubt be at least an eye-watering €8bn.
Mr Casey also said that 'if they're not going to do it, they're basically breaking the law. The State would have the resources to do that without having to hike taxes or cut spending on any ongoing supports,' he said.
Mr Casey added that if this were to happen, it 'would be a colossal wasted opportunity because that is money that could be put towards loads of potential measures that would meet the targets'.
If Ireland does not comply with the EU's mandate, the money that Ireland will be fined will transfer to other countries in Europe.