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White Paper: Analysis of the alignment between energy transition pathways for Irish carbon budgets with EU energy and climate targets]

14 min read

Summary

Unless the Irish government commits to more aggressive action and higher spending on the energy transition, Ireland is almost certainly going to miss our legally binding EU commitments by a wide margin and end up with a bill of many billions (maybe tens of billions) of euros. Conversely, committing to these investments would save the country money (even ignoring fines) as well as creating the societal benefits of a low-carbon economy.

Ciara Doherty and Prof. Hannah Daly have published an Analysis of the alignment between energy transition pathways for Irish carbon budgets with EU energy and climate targets ..

I know from the most recent episode of the Hot Mess that things were looking bad, but this report does a great job of getting into the details with one big caveat: it “excludes agriculture and land use, land use change and forestry” (LULUCF) because they are not covered by models used. This is unfortunate because agriculture is clearly the elephant in the room when the report discusses our large predicted misses that will result in tens of billions of euros of future costs. The authors call this out as shortcoming and an area for future work.

The report looks at several energy system scenarios based on the proposed carbon budgets by the Climate Change Advisory Council (CCAC who are required by the 2021 Climate Act to provide recommendations for carbon budgets to Government) as well as the EPA’s “With Existing Measures” (WEM) and “With Additional Measures (WAM) scenarios” which are based on current and planned government actions. These scenarios are then evaluated against the various EU commitments and the national carbon budgets (CBs) and per-sector budgets (Sectorial Emissions Ceilings, SECs). CBs and SECs are supposed to be what get us to meet our EU commitments.

What are these complicated EU requirements? Well there are four categories, some are binding, some are not. They cover different sectors (power, agriculture, industry, transport etc). Some are EU-level, some are national and some are tradable and possibly (it seems undecided), some may be offsetable against other categories. This table shows some of the complexity but does not cover all dimensions (where’s my policy hypercube?):

How are we doing?

Not great. In fact, we’re way off track for almost all targets.

Emission Trading Scheme (ETS): A cap and trade per-sector system that includes electricity and heat production, large scale industrial manufacturing, and intra-EU aviation. No fines, but entities (companies?) have to pay for credits.

This is the brightest spot for Ireland, largely due to it not including agriculture or transport, and our lack of heavy industry and reasonable amount of renewable power generation. In all energy system scenarios we meet this target thanks mostly to large expected drops in GHG emissions from the power sector and industry. And in all but the worst (WEM) we have enough left over to transfer 4% of our ETS allowance to help with the next target, ESR.

It’s worth noting that CCAC scenarios include some amount of BECCS (Bioenergy with Carbon Capture and Storage), a technology that is mostly speculative, by 2035, but it’s only a small fraction of power generation.

Effort Sharing Regulation (ESR): Includes agriculture, road transport, buildings, light industry and waste. Failing to meet Annual Emissions Allocations (AEAs) in any year results in a 1.08 equivalent AEA added to the next year. We can use up to 4% of our ETS allowance to offset AEAs in most scenarios. There’s also something about being able to use “Land Use, Land Use Change and Forestry” (LULCUF) credits for offset here but it seems like accounting rules are changing it’s unclear if there will be offsets available from this from after 2025.

We are going to fall well short of our ESR commitments. The target is a 42% GHG reduction compared to 2005 levels by 2030. WEM has us hitting 9%(!!!), WAM is 26%. The scenarios based on current and proposed carbon budgets are better, but still breach our commitments.

"To remain in compliance Ireland will either have to buy credits from other Member States who have over-performed against their AEAs or be faced with infringement fines for non-compliance." - this has gotten some play in the press and for good reason. Estimates are this could cost Ireland anywhere from €3-16 billion because based on this is looks like it’s going to be a seller’s market and we are going to be one of the most desperate buyers:

I think because agriculture has its own set of scenarios, the report does a somewhat complicated thing of showing how much the energy sector will overshoot/undershoot under different energy system scenarios and agriculture scenarios. Anyway, the answer is not good. There is basically one very ambitious/optimistic scenario where we keep below our targets. In the scenarios based on current and proposed carbon budgets we exceed our targets, and in the WEM/WAM scenarios we blow way way past them.

Also worth noting that cabon budget scenarios assume 100% CCS for cement manufacturing (again, an unproven technology).

Energy Efficiency Directive (ESD): This is binding at the EU level but not at the country, even though there are country-specific targets (so no consequences for countries?). It’s about lowering final energy consumption (FEC). So there is a tension between increased efficiencies and increased demand. The Irish target for 2030 is a 12.6% reduction on 2022 levels.

Under WEM/WAM scenarios, Ireland is likely to exceed the 2030 target by 20% -30%. Things look better for carbon budget scenarios though only the most aggressive (250mt-led) get us there in time

EU 2040: These are GHG budgets for 2030-2050 based on EU commitments from the Paris Agreements. Not formally adopted yet, but target guidance is a 90% reduction in GHG emissions by 2040.

Under WEM Ireland will only reduce GHG emissions by 12% by 2040, and 33% under WAM. CCAC proposals target up to 68% but we’re already not meeting our existing carbon budgets so that doesn’t seem likely unless things change.

Sectoral notes

  • The future of power generation is wind with a bit of solar:
  • Future demand growth will be driven by transport, DCs and industry in that order
  • We might get significant district heating!

What does this mean?

Apart from the prospect of expensive fines and/or carbon credits when we fail to meet our EU commitments, and the general badness of pumping more GHGs into the atmosphere and making climate change that much worse, this sentence jumped out:

"failure to align national and EU targets represents a missed opportunity for economic and societal benefits that the transition to a low-carbon economy could bring."

I think this is a true and important point for motivation. The energy transition is not just something we have to do to mitigate the bad climate impacts that are coming, it’s also an opportunity that Ireland should be grasping with both hands.

And if the above seems a bit wishy-washy, then look at this costing table that finishes out the report

That’s right, the annualised-cost for both the most aggressive GHG reduction plan, and the more modest blended plan are significantly cheaper than the EPA’s WEM/WAM projections, and even the “do nothing” option. This is because mitigation solutions cut fossil fuel costs. It’s the classic capex vs opex tradeoff seen across many renewable projects. And this doesn’t even account for the billions of euros of costs in breaching our commitments or the environmental, social and health benefits of GHG reductions.

Questions I have after reading the report

  • What is the government’s plan in light of all of this? I have not heard anything but I assume/hope it is being taken seriously. Is anyone going to tackle the issue of agriculture emissions seriously?
  • For ESR targets, “countries with a higher GDP per capita assigned more ambitious reduction targets.” - is Ireland being bitten by our artificially inflated GDP?

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