REDUCED TAX REVENUE on fossil fuels in years to come as society shifts to clean sources of energy means the government needs to start planning now for the future, a financial expert and climate expert both agree.

A new report published today by the Irish Fiscal Advisory Council (IFAC) looks at what climate change means for Ireland’s public finances.

Leading climate scientists have warned that the impacts of climate change are already causing severe and widespread disruption to people’s lives in multiple ways across various regions of the world.  

Ireland’s overarching climate targets are to reduce greenhouse gas emissions by 51% compared to 2018 by 2030 and to reach net-zero by 2050. 

The Irish government will need to spend between €1.6 and €3 billion per year from 2026 to 2030 to make necessary reductions to emissions, new IFAC report has found, and could remain high at between €1.1 to €1.9 billion from 2031 to 2050.  

Ifac outlined in its report that climate change will have “substantial impacts” on the public finances, estimating that yearly tax revenues could fall by €2.5 billion by 2030 as the State collects lower taxes on fuel and energy use.  

In terms of spending, much of the ongoing investment is likely to be in areas such as retrofitting homes to improve their energy efficiency and in providing supports to farmers to adopt climate-friendly practices and protect the environment.

Paying less tax

Friends of the Earth Chief Executive Oisín Coghlan said that the report shows how adopting measures means the public will pay less tax on fuels as they switch to renewable sources and benefit from government investment.

Speaking to The Journal, Coghlan said that the report shows that “people will pay less tax as we go toward zero emissions”.

The longer we wait, the more expensive it gets… The sooner you act, the cheaper it is.

“The ‘hit’ to the public purse being talked about is not this idea of ‘environmentalists want to cost you money’,” he said.

“You’ll be paying less taxes because you’ll be using less petrol. The State will be spending more money to make sure you can afford to have a fossil free, clean, healthy, warmer, cheaper-to-run home and the government will pay farmers more money [to take climate action],” he said.

He described the report as a piece of “really useful analysis” that shows the need for the government to plan.

“The climate problem in general is a planning problem. Our targets and binding limits are so challenging because we didn’t start 20 years ago.

“We didn’t plan for this and now we’re trying to do in one decade what we could have taken three decades to do.”

IFAC Chief Economist Dr Eddie Casey also said this morning that planning for the future is key.

Speaking on RTÉ Radio One’s Morning Ireland programme, he said his message to the government is “plan, plan, plan”.

“It’s not just this we need to plan for. It’s also ageing [population] costs, which are going to ramp up, and we’re already seeing some of the effects in the health system,” Dr Casey said.

He said the government needs a “sensible” plan for “sustainable revenues” so that it is not in a position of relying on corporation tax, which can increase or decrease from year to year.

He said that the carbon tax will also “dry up over time” as people move away from using the fossil fuels the tax is levied on. 

The cost of inaction

As the climate crisis worsens, failing to take action to prevent temperatures from warming further would have massive costs for economies, nature, and people’s lives.

Ireland has pledged to achieve carbon neutrality by 2050 and to adhere to specific carbon budgets between 2021 and 2035.

However, Ifac noted that current projections indicate that Ireland may fall short of these targets.

This could result in compliance costs at an EU level (the costs of failing to meet targets) of €0.35 billion annually up to 2030, with costs increasing to €0.7 billion per year thereafter, it said. 

Additionally, extreme weather events — made more frequent and more intense by climate change — can cause heavy financial and personal losses.

As Ireland experiences more frequent extreme weather events, such as flooding and wildfires, Ifac said the government may need to allocate resources to respond effectively.

The authors noted these costs could reach around €0.5 billion. Additional costs to adapt to climate change costs may also be required, including additional funds for flood defences.

Ifac’s report also acknowledged “opportunities in moving towards a more sustainable growth model, including through lower imports of fossil fuels and less pollution”. However, this report did not quantify these benefits. 

The council noted that Ireland’s temperatures are increasing, rainfall levels rising, and extreme weather events becoming more frequent.

Coghlan said that failing to invest in climate action in the short-term will end up more expensive in the long-term.

“For many people who make an argument about do we really need to take climate action, it’s an economic one, that our economy ‘needs to be powering ahead and we don’t want to do things that may jeopardise our immediate short-term growth’,” he said.

“But we are a small, open economy. If global climate breakdown accelerates the way it seems to be, our trade with China, our trade with Japan, and our trade with the US will not survive.

“That [perspective] discounts the risks of climate breakdown to our society and economy and civilisations.”

In a statement, Dr Casey said the report is “a first step towards understanding the potential budgetary impact of climate change and the transition to a greener economy”.

“Our work suggests the impacts will be substantial. They begin to bite after 2026 — a period not covered by official budgetary forecasts and hence not factored into most plans,” Dr Casey said.

Addressing climate change will have costs but also opportunities for Ireland. We need concrete plans to meet these challenges so that we can build a more sustainable and resilient future.

The report concluded that while some aspects of Ireland’s climate transition will be costly, “the changes will be necessary to achieve Ireland’s requirements”.

“More broadly, the costs of inaction, particularly if mirrored by other countries, could be far greater if it means a greater likelihood of more catastrophic outcomes related to climate change,” the report stated.

The Ifac is an independent body established to assess and evaluate Ireland’s fiscal policy.

Additional reporting by Lauren Boland