Ibec backs introduction of carbon tax, short-term carbon budgets
The largest organisation representing businesses here is backing the introduction of a rising carbon tax, as well as short-term carbon budgets that would restrict greenhouse gas emissions in particular sectors.
Ibec has also called for changes to the planning system to facilitate a transition to a low-carbon economy and wants supports and incentives to be provided by the Government to meet the €40 billion bill.
The proposals are contained in a new report by the organisation, which outlines its vision for a smart low-carbon economy by 2050.
“Climate change is the single greatest challenge faced by humankind today,” said Ibec Chief Executive, Danny McCoy.
“As part of a wider global response, Ireland needs to play its part by taking decisive action to decouple emissions from population and economic growth, and to transition to a competitive low carbon economy.”
“For Irish business, such a transition presents a ‘no regrets’ opportunity to build a better Ireland,” he added.
According to the report, Irish business fully supports the transition to a low-carbon economy and the Government’s long-term climate ambition.
However, it says achieving this by 2050 will require reductions in emissions in the electricity and transport systems of up to 92%, in the built environment of up to 99%, and an increase of up to 64% in forest cover.
The body wants the carbon tax to be set at €30 per tonne in 2020 and would like to see it rise by a further €5 per tonne every year until it reaches €80 in 2030.
It says the revenue from the tax should be ring-fenced to support low-carbon investment, with a portion used to support poor households and vulnerable business sectors with no practical alternatives to fossil fuels.
Continually reducing short-term carbon budgets also must be introduced for sectors that are outside of the Emissions Trading System, the report says.
This would have the effect of giving better predictability to Ireland’s emission targets and obligations it claims, as well as more certainty to investors.
A “Just Transition” taskforce should also be established, it suggests, and a national social dialogue on climate action should take place.
Building on the work conducted by the Joint Oireachtas Committee on Climate Action in 2019, this would bring together industry, trade unions, environmental groups, local representative and political parties to build a national consensus it proposes.
The planning system also needs to be amended, the document says, to take account of climate action, as set out in the National Planning Framework, it claims.
Changes would need to include better support for the roll-out of strategic energy infrastructure, public transport, afforestation and carbon sequestration, it says.
Supports and incentives also need to be offered by the Government, it says, to help businesses and households with the high upfront costs of moving to low carbon lives.
This shift, the report claims, will require more than €40bn of new capital investment by 2030, with the bulk of that coming through private investment.
In order to ensure a smooth changeover to a lower carbon economy, the decarbonisation process should happen on a phased basis, it recommends.
The security of supply out to 2035 should be studied by the Government as part of the process.
Ibec chief executive Danny McCoy said that Irish businesses are committed to going down the low carbon route as their consumers are demanding the change in direction.
Mr McCoy also said that businesses require certainty around their production base and it is clear that in the future fossil fuels are going to be much more expensive and so they need to make the change to a low carbon environment. “It makes sense, it is a ‘no regrets’ strategy,” he stated.
Ibec wants the carbon tax to be set at €30 per tonne in 2020 and would like to see it rise by a further €5 per tonne every year until it reaches €80 in 2030.
Danny McCoy said that depending on the nature of the relationship between a business and their customers, some of this extra cost will be passed on to the consumer.
“The imposition may be on one sector but who ultimately bears the incidence is really important. That is why in our report we talk about a “just transition”, including a dialogue across our society to ensure there is a just transition to see who is going to be impacted,” he said.
Ibec expects employment growth to slow down in 2019
The organisation representing employers here has warned the biggest challenge facing business is the ongoing capacity constraints in the labour market.
Ibec says the shortages will cause growth in employment to slow this year as the economy approaches full employment and firms struggle to fill vacancies.
In its first quarterly Economic Outlook of 2019, Ibec says the Irish economy is currently in a sweet spot.
“You’re seeing household incomes grow by about 6% on aggregate. So per person, they’re back at record levels,” commented Gerard Brady, Head of Tax and Fiscal Policy with Ibec.
“You’re seeing strong growth in employment and wages, both at around 3%. All of that points towards strong domestic activity going into this year,” Mr Brady added.
But the organisation warns that the current pace of growth will not last indefinitely.
“We’re seeing signs in Germany, China and the US and elsewhere that the global economy is starting to slow and for a small open economy like ours, that means our growth will start to slow too,” Gerard Brady said.
“Despite Brexit uncertainty, there’s still really strong investment and, off the back of that, there’s strong export growth.
Outside the pharmaceutical sector, which had an exceptional year growing by over €10 billion, there is a sign of a slowdown in exports and as global growth slows, growth in exports will slow,” he added.
Today’s report says that the Brexit pause is welcome, it has left businesses to manage costly uncertainty.
And if a solution isn’t found before October, it claims sterling will depreciate, investment will be cancelled, consumer confidence will fall, prices will rise and trade will be disrupted.
Outside of Brexit, it cautions that there are signs of a slowdown coming in many other of our key trading partners, including Germany, China and the US.
As a result, Ibec forecasts growth will slow to 4% this year and 2.7% next, assuming a deal on the UK’s exit from the EU is reached.
If there is no deal, it predicts growth in 2020 while still positive, will be half of what it would have been.
Ibec also says it remains majorly concerned that unexpected corporate tax overruns are being used to fund unexpected current spending, mainly in health.
“That source of income is very volatile. There are big concerns about the amount collected and spent – about €14 billion cumulatively since 2015 – from unexpected corporate tax. If that continues into the future, or if it’s more volatile, it leaves the state open if there’s a downturn in those tax receipts in the future. It’s something we’re worried about,” Gerard Brady said.
Ibec also expresses worries about skills shortages in certain sectors which it says have now turned into labour shortages.
It forecasts that this will cause employment growth to slow to 2% this year as we reach full employment and firms struggle to fill vacancies.
The organisation also suggests that increased participation amongst older cohorts could alleviate some of these pressures.
Wage growth is another risk pointed to by the report, with wages rising 3.5% in the last quarter of 2018.
“Over the medium-term this pace of real wage increases will mean margin compression for business, and ultimately sharper increases in inflation, unless we have much greater success in improving productivity in our domestic sectors,” it says.
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