Climate change costs to reach 'billions of euro a year' - IFAC

The costs of climate change to the Government will rise to billions of euro a year by the end of this decade, according to a new report from the Irish Fiscal Advisory Council.

The report entitled 'What Climate Change Means for Ireland's Public Finances' analyses the costs of non-compliance with emissions targets, the expected reduction in certain tax revenues and estimates of expenditure on retrofitting programmes and supports for agriculture.

The report also highlights the potential knock-on implications for the insurance industry of significant flooding events and what this might mean for the Exchequer.

The report refers to projections that Ireland will only achieve a 29% reduction in greenhouse gas emissions by 2030, compared to a targeted 50% reduction.

This would trigger payments under the EU’s Emissions Trading System (ETS).

Citing a report by the Irish Government Economic and Evaluation Service (IGEES) published earlier this year, the cost of this could amount to €3.5 billion by 2030 and an annual cost of €700m thereafter.

The report also explores, under a number of assumptions, what might happen to tax revenue even if Ireland did achieve its emissions targets.

It concludes tax revenue could be reduced by 0.9% of GNI* or €2.5 billion in today's terms per annum.

This is expected to increase to 1.6% of GNI* or € 4.4 billion over the longer term as more drivers switch to electric cars, reducing excise duty receipts on motor fuels and paying lower levels of road tax.

IFAC also attempts to calculate what the government may have to spend to attempt to achieve our emissions reduction targets.

This is considered to be mostly contributions towards home retrofitting and supports for the agricultural sector.

This could amount to 0.6 and 1.1% GNI* or between €1.6 billion and €3 billion per annum out to 2030.

The report also mentions the unpredictable costs of bad weather events, particularly flooding. When these events occur, they could cost around €500m in today's money.

It says limiting them may require more than the current €100m a year already allocated for flood defences in the National Development Plan.

The report estimates that a one-in-ten-year flooding event in Dublin could cost between €333m and €2.9 billion with 14,514 properties at risk.

IFAC warns there is "potentially a very large contingent liability for the State" if the insurance industry faces an increased liability from flooding events.

It says this liability increases "the more severe climate change becomes".

Speaking on RTÉ's Morning Ireland, the report's author, Dr Eddie Casey, urged the Government to deploy a "speed limit", like the National spending rule, to plan ahead.

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He said taxes from petrol and diesel will be reduced as people move to electric vehicles, and the Government needs to plan for this, either by replacement taxes or increases in income tax.

"Plan, plan, plan. It's the only way we are going to get out of this," Dr Casey said.

"What we're seeing is this big ramp up after 2026. All of the changes are going to happen really quickly thereafter.

"We're going to be planning for aging costs as well, and we're already seeing some of the effects from the health system.

"So the only way we can do proper planning is have something like a speed limit, like the National spending rule that we can say, this is a sensible plan.

"We'll have sustainable revenues. We don't have to worry about how much corporation tax is coming in this week, next week, or what the economy is doing over the course of the cycle.

"We can just plan over the long term and have a realistic sense of what sustainable revenues are going to look like. This is the only way we're going to deal with it."