Thursday, 24 June 2010
Seanad Éireann Debate
Minister of State at the Department of Communications, Energy and Natural Resources (Deputy Conor Lenihan): I am very pleased to have the opportunity to present the Electricity Regulation (Amendment) (Carbon Revenue Levy) Bill 2010 for consideration by the Seanad. Although it is a relatively short Bill, it has an extremely important purpose. It seeks to recover a substantial portion of the carbon windfall gains that electricity generators are currently receiving through the single electricity market, SEM.
Electricity generators are receiving these windfall gains because of a decision made in March 2008 by the SEM committee. This committee, which is comprised of energy regulators North and South alongside an independent and a deputy independent member, governs the operation of the all-island wholesale electricity market. It determined that regardless of how they receive their carbon allowances, electricity generators must include the full opportunity cost of carbon in wholesale electricity prices. In other words, electricity generators must pass on to consumers the price they would get for selling their carbon allowances on the open market.
However, as generators receive the vast majority of these carbon permits for free, the higher wholesale electricity price leads to increased profits for generators in the market without any significant commensurate cost. This is having a direct impact on the electricity prices paid by consumers. The SEM committee previously estimated that, assuming 100% of the cost of carbon allowances is reflected in the wholesale price of electricity and that the price of carbon allowances is €20 per tonne, prices are about 10% higher than they would have been in the absence of the European Union’s emissions trading scheme.
The cost of carbon has declined considerably from its initial incorporation into wholesale prices but unlike other fossil fuels, particularly gas, it has somewhat recovered from its lowest point and today stands at approximately €15 per metric tonne. The incorporation of carbon is, therefore, having a real and measurable impact on the electricity prices paid by everyone in Ireland, from domestic consumers to the largest industrial undertakings.
As the SEM committee was set up to be a joint jurisdictional body it is not within our power to instruct it to reach an alternative decision. In fact, the committee’s decision paper explicitly stated that it was up to governments to address the issue of windfall gains and noted that doing so would deliver benefits to consumers.
I do not object to the principle of including carbon in electricity prices. After all, it is only right that electricity prices should reflect the true cost of generating electricity, including the environmental impact of generation. However, allowing electricity generators to benefit from this without having to take any measures to cut their carbon emissions or pay for their carbon allowances creates an inequitable situation. This legislation seeks to recover these unearned carbon windfall gains. I am gratified that the opposition has to date supported my efforts to recover these carbon windfall gains.
I propose to outline the methodology of how the levy is calculated and the reason we are taking this approach. The levy is calculated on a transparent and non-discriminatory basis. It will apply to all electricity generators operating in the single electricity market, SEM, which are receiving free carbon allowances and benefiting from the decision of the single electricity market committee.
The formula for calculating the carbon revenue levy is applied to all generators equally, based on the amount of emissions produced by a generator and the average price of carbon over the period the emissions were made. The actual amounts payable by an electricity generator levy will vary from generator to generator.
In an ideal world, rather than allocating allowances free of charge, we would prefer to charge the market rate for any allowances participants receive. However, the European Union as a whole has determined that emissions trading scheme, ETS, participants are entitled to at least 90% of their carbon allowances free of charge during phase two of the ETS which runs from 2008 to 2012. This was set out in article 10 of the EU emissions trading directive — Directive 2003/87/EC — which was created to implement the cap and trade scheme across the EU.
Article 10 of this directive states that for the three-year period beginning 1 January 2005, member states shall allocate at least 95% of the allowances free of charge and for the five-year period beginning 1 January 2008, they shall allocate at least 90% of the allowances free of charge. Any moves to limit or remove this provision would thus be in direct contravention of a European directive and could not be expected to survive a legal challenge. Therefore, in constructing the carbon revenue levy we have been careful to avoid any measures which could be seen to interfere or limit this entitlement to free allowances. This is the reason the levy is based on generators’ emissions rather than a direct tax.
This may seem to be a minor point but it is a key distinction. We are addressing the windfall gains arising from the SEM committee decision, not the basis of the ETS itself, that is, the free allowances. Generators will be required to pay the carbon levy on a quarterly basis. It will be based upon their carbon emissions, multiplied by the average price of carbon over the relevant quarter and adjusted by a further percentage rate. This rate has been set in the legislation at 65%, although the Minister has the power to review this percentage.
The percentage rate of 65% specified in the legislation was chosen for a reason. Setting the rate at this level allows us to recover a substantial portion of the windfall gains from generators but should also ensure that we avoid excessive recovery of funds. As indicated, the easiest and most precise solution would be to charge electricity generators the market price for each free carbon allowance they receive. However, since interference with EU directives would be legally impossible we cannot levy the free allowances and for this reason we had to consider other options.
The market structure of the SEM means that the precise quantification of the windfall gain for each generator in each half hour period would be a technical and administrative nightmare and require significant time and resources to accomplish, if it is even possible. Further complicating this issue is the fact that a generator may have had to purchase a portion of the carbon allowances it is using.
Generators receive their free carbon allocation from the Environmental Protection Agency based on the national allocation plans. The current plan, which covers the period 2008 to 2012, based allowances to generators on an average of their output over the period 2003-04. Whether a generator is required to purchase additional allowances therefore depends upon how much its current output varies from this historical output. Needless to say, if a generator has had to purchase allowances on the market, it will not be earning windfall gains on that portion of its allowances.
We also face the difficulty whereby a certain proportion of the emissions from each generator would be attributable to in-house consumption, that is, electricity that is consumed directly by the generator and not sold into the market. Since it is not sold into the market, generators are not earning a return for this output yet are required to surrender allowances for it. Therefore, there is no windfall gain for this element of a generator’s emissions.
It should be remembered that generators are required to bid in opportunity costs of carbon on a day ahead basis. All scheduled generators then receive the system marginal price. The system marginal price, therefore, reflects the anticipated opportunity cost of carbon of the marginal plant. However, the method of calculation for the levy is the simple arithmetic average of the daily price of carbon allowances over the levy period rather than what generators actually bid and receive for carbon. While the difference between the two figures is unlikely to be significant, it is yet another abstraction we have had to create to ensure the levy can work effectively in practice.
For these reasons, we have had to adjust the levy amount downwards by a percentage rate and 65% is our best estimate of a figure that raises significant levy proceeds while avoiding excessive recovery. This rate can be modified by ministerial order, following advice from the Commission on the operation of the levy and a public consultation.
After listening to the concerns expressed by Deputies on Second and Committee Stages regarding the application of the levy to plant covered by public service obligation or PSO orders, the Minister conducted a further review of all ongoing public service obligation contracts to confirm that no generator is benefiting from the Commission decision on carbon costs. As a result of this investigation, it was determined that two electricity generators covered by the public service obligation could have the opportunity to benefit to a small degree from the SEM committee decision requiring generators to pass through the opportunity cost of carbon. The generators in question are Aughinish Alumina and Tynagh. These two generators will benefit if they sell a small proportion of their output outside the PSO scheme. They are thus earning carbon windfall gains on this small portion of their output as it is sold directly into the wholesale pool and the generators receive the market price for it, which includes the opportunity cost of carbon.
To address this matter, the Report Stage amendments introduced by the Minister limit the exemption for certain qualifying PSO plant. Any output which is sold into the market and is outside the scope of the capacity and differences agreements or PSO contract these companies have with ESB will now be subject to the levy. In practice, the two companies’ levy liabilities are likely to be very small since the vast majority of their output in both cases is subject to their PSO contract.
I stated earlier that the overarching goal for this legislation is to create a fully transparent levy that recovers a substantial portion of carbon windfall gains while treating generators equitably. The amendments made on Report Stage in the Dáil ensure that no emissions producing generators benefiting from the SEM committee decision on carbon costs are exempt from the levy.
The only electricity generators remaining that do not have to pay the carbon levy are those covered by a PSO order made under section 39 of the Electricity Regulation Act. These generators are excluded because they do not earn carbon windfall gains and, as such, there is no underlying rationale for including them in the carbon revenue levy.
PSO generators do not earn carbon windfall gains because they do not earn revenues from the market in the same way as other generators. Rather they receive a guaranteed fixed return. This fixed return is generally above the prevailing system marginal price. Hence, when fossil fuel prices are high and the market price is high there is little or no premium paid to these PSO plant. However, when market prices are low this premium can be large.
The effect of the SEM committee decision requiring generators to incorporate the opportunity cost of carbon into electricity prices was to raise the wholesale cost of electricity, similarly to what would have been the case had there been an increase in fossil fuel prices. This directly reduced the cost of the PSO levy to consumers. Therefore while overall compensation to PSO plant was unchanged, the cost of the PSO to consumers declined by that portion of the rise in electricity prices that was attributable to carbon. As a result, electricity consumers rather than the PSO plant benefited from the incorporation of carbon.
Imposing the carbon levy on the PSO plant would essentially be a zero sum game. The amounts we would collect from the PSO plant by applying the carbon levy to them would be passed directly on to consumers through an increase in the PSO levy. The levy applies to all consumers. The Minister has stated we will use the funds raised by the levy to offset electricity prices for large energy users. Therefore imposing the levy upon PSO plant would raise prices to domestic consumers while the increased revenue from this would reduce electricity prices for large energy users. This would be an additional burden on consumers and given that the removal of the exemption would have no impact on the operation of the peat plant and steps have already been taken to address the small amount of windfall gains being earned by other PSO generators, the Minister is satisfied that the treatment of PSO plant in this legislation is justifiable and equitable.
Funds raised by the levy will go into or be used for the benefit of the Exchequer. This provision is similar to those contained in the legislation dealing with the disbursement of dividends from the State energy companies, for example. Any funds from the levy will be disbursed with the full consent of the Minister for Finance. It will be done in a clear and transparent fashion and will be fully reported on in the accounts for the levy account which are to be audited by the Comptroller and Auditor General and laid before the Houses of the Oireachtas on an annual basis. The Minister has signalled his intent to use funds raised by the levy to protect the competitiveness of Irish enterprise. Electricity costs form a key part of the competitive pressures on enterprise in Ireland, particularly on energy-intensive exporters or those that are part of large multinationals which regularly review and benchmark costs across multiple locations. The Government is of the view that it is imperative to take all possible actions to support the enterprise sector and employment by focusing efforts on reducing costs where we can for large energy users which are typically significant employers with both indigenous and multinational bases.
This levy is a temporary measure and will come to an end at the close of 2012, as after that date all carbon allowances will be auctioned, rather than allocated to generators for free. This will ensure the true value of carbon is factored into European electricity prices. It will end the issue of windfall profits for electricity generators and add an additional incentive for investment in low carbon electricity generation. It is hoped to enact the legislation by the end of June. For every month the legislation is not enacted, approximately €6 million to €7 million will be lost to the levy and electricity generators will continue to enjoy these unearned windfall gains.
Although we have made major strides in improving our energy cost competitiveness in the past 12 months, we cannot become complacent. The Bill is a vital measure that will deliver a tangible boost to the competitiveness of Irish industry. The Minister will be working closely with the CER to ensure the speedy implementation of the Bill’s provisions, following enactment.
Elsewhere in the market we have more than 800 MW of new and highly efficient generation capacity coming on-line. The new ESB Aghada station was officially opened recently and the Bord Gáis Éireann plant in Whitegate will open in the coming months. There will be no shortage of competition between efficient generators in the SEM this year, as these new generators, with significant new wind power capacity, will help to reduce carbon emissions and provide benefits for all electricity consumers. This new investment, combined with the measures in the legislation, will ensure the future outlook for Irish energy prices will remain positive. I look forward to hearing the views of Senators on the legislation.
Senator Paudie Coffey: I welcome the Minister of State to the House to debate this important Bill. Fine Gael welcomes its general thrust. We tabled amendments in the Lower House and will also table amendments in this Chamber to try to make improvements, where necessary.
This is a very complex issue and a new departure in electricity generation and the cost of electricity to consumers. All sides of the House acknowledge that people are not generally aware of the increased costs from their electricity bills. This applies equally to households and businesses. The purpose of the levy is to incentivise the reduction of carbon-based emissions related to electricity generation. Most find the issue difficult to understand. As the Minister of State outlined, free allowances apply for the period from 2008 to 2012. However, the SEM committee agreed that generators would collect the levy and they have been doing so since 2008. The costs have been based on generators’ average figures in the 2003-04 period. In those years the Celtic tiger was at its peak. Electricity generation and certainly consumption levels are now lower than they were in those years. Does this factor have any impact on costs?
It is regrettable that the Government did not move sooner to introduce legislation to introduce this windfall levy. In June 2008 Deputy Coveney introduced a Private Members’ motion in the Dáil calling on the Government to recoup the cost. Unfortunately, the Government parties voted to reject the motion. The Minister of State referred to a loss to the Exchequer of €6 million to €7 million a month if we delay in implementing the legislation. Given that it could have been implemented two years ago, a considerable amount has already been lost to the Exchequer. Is there any mechanism under this legislation which could be use to recoup the arrears?
Fine Gael introduced its motion at a time when the economy was coming under pressure. Our proposal was that the levy should be used to reduce the rate of VAT from 13.5% to12.5%, which was a very reasonable proposal. It was money which had been collected from citizens and should have been utilised in a way that would have benefited them. Reducing the rate of VAT would have stimulated the economy, increased retail trade and helped our competitiveness. Unfortunately, the Government turned a deaf ear to that very positive Fine Gael proposal made more than two years ago. At the time it indicated that the Attorney General had difficulties with the legislation and was not sure whether it could be implemented. Obviously, the Attorney General has now cleared the way and agreed to allow the Government to introduce the legislation. What has happened in the past two years to changed that way of thinking?
The Minister of State from Carlow has arrived in the House. I refer to a matter affecting her constituency, the draft national renewable energy action plan. It is welcome that we have practical and tangible targets that we can achieve. I am a member of the Joint Committee on Climate Change and Energy Security, to which officials from the Department of Communications, Energy and Natural Resources brought a report two weeks ago. Many of the stakeholders affected by the targets set in the plan consider they have not been adequately consulted, which could have consequences for various industries. I will give one example that applies to the Minister of State’s constituency.
Renewable energy targets in electricity generation in respect of co-burning have been set. Bord na Móna has proposed that the by-products of the timber industry, the off-cuts, shavings and wood chips, be used in co-burning with its product. The plan to be submitted to the European Commission contains targets in that regard. There are concerns expressed by SmartPly and Medite. Medite is based in Clonmel, while SmartPly is based in the Port of Waterford. These two companies employ 300 people in manufacturing board from timber by-products such as wood chips and wood shavings. The value of goods they export comes to €160 million per annum. Their manufacturing processes reuse and recycle all of the natural timber by-products. The industry indicates that it is a very finite resource and that insufficient timber is being grown here. They are very concerned that if wood chips and wood shavings are diverted towards co-burning as proposed in the Government plan to be sent to the European Commission at the end of the month, it could put these industries in jeopardy. We need to consider the impact of such targets in moving from fossil fuel based electricity generation to renewables based electricity generation. I am all for renewables based electricity generation, but we need to consider the impact if we are to divert an entire stream of by-products from the timber industry from successful manufacturing companies such as Medite and SmartPly which are under the auspices of Coillte. They generate €160 million per annum in the export of their goods. The issue should be considered very carefully and as it relates to the Minister of State’s constituency. She should look at it and bring it to the attention of the Minister.
Fine Gael more or less welcomes the Bill, although we will submit amendments on Committee and Report Stages to improve it. Collection of the windfall is a complex area and there should be more transparency in this respect. The Minister of State, Deputy Conor Lenihan, outlined in his contribution the complexity of the collection process, and this will apply to all generators rather than just the ESB. Close scrutiny will be required and I welcome the fact that the Comptroller and Auditor General and all the State agencies will keep a close eye on how the money is collected and spent.
Money has been collected on the backs of ordinary consumers, domestic householders and businesses. They are not fully aware that it has been collected over the past two years and will be collected for a further two years. It is important this money be used to the best advantage by the Exchequer. Fine Gael proposals have been very positive and were a mechanism to try to stimulate employment and our economy by reducing VAT. The Government should consider this positive proposal with the best intentions in stimulating the economy.
Like Senator Coffey, I welcome the Bill and the general thrust is definitely in the right direction for the reasons outlined by the Minister of State. Carbon credits can be seen as a licence to pollute and they cover a position where people will be able to purchase such credits in future when stipulated emission levels are not being met. Whereas one might be critical of this, it is a sensible approach taken at EU level which is seen to address significant CO2 emissions that severely impact on climate change and the environment in general. It can equally be argued that the credits provide a reward for those who effectively reduce emissions, as that opportunity cost can be passed on. This stems from EU Directive 87/2003/EC and generators generally get the allowances for free. This is providing for a windfall gain. The Minister of State referred to this as unearned carbon windfall gains and the unearned aspect is an important element.
Given our energy market, one of the issues we have as a small island on the periphery of Europe is our competitiveness generally. Energy costs, like the labour costs about which we have spoken many times in the House, are significant and with our energy market it is important to get to the stage where we have best practice and the most competitive rates we can get within the European Union. If we fail to do so, our economic growth will be adversely affected as a consequence. Initiatives such as the North-South and east-west interconnectors, with our investment in green energies such as wind and wave power, will in time perhaps put us in a position to generate beyond our usage and thus allow export of electricity. That is the ideal position.
I have noticed since the introduction of this topic and the publication of the Bill that there have been press reports speculating on the possibility of legal challenges to the provisions of the Bill. I note that countries such as Germany, France and Spain have introduced legislative measures that were struck down as in breach of the EU directive when challenged in court. I am told that there are other examples, including Finland, where this has not happened as legislation has been shaped in such a way as to avoid such challenges. Will the Minister of State outline in more detail how our legislation might compare with those successful countries and earmark the distinction between what we are doing and what happened in those countries where the legislation was found to be in contravention of regulations?
The Minister of State estimated what will accumulate as a consequence of this measure. Some press reports indicated industry sources have made this estimate as high as €200 million. Will the Minister of State, therefore provide some clarification in this regard? In the good old days the Department of Finance tended to under estimate the revenue stream from all sorts of taxation measures. It found itself under estimating the extent of the difficulties we faced but these deficiencies seem to have been corrected and do not happen now to the same extent.
A new market is evolving in the energy field with regard to carbon credits which can be bought and sold. There is a significant range in the market, with figures of €12 to €25 per tonne mentioned. The idea is that the measures taken today will improve our competitiveness by allowing credits which are windfall measures accruing to energy companies to be credited to the major users of electricity here, including large multinationals and strong employers which form the backbone of the economy.
At a time of high unemployment especially but at any time in general, it is important that our focus is on the productive sector of the economy. To some extent, we may have lost sight of this in the past, with the bloating of the public sector which is paid for by productivity in the private sector. That should not be forgotten. A side effect is that generating companies which are getting unearned carbon windfall gains could see subsidisation. If we want energy companies to be competitive and to produce at the lowest possible sustainable cost, the more economic and competitive pressures they see, the better. There can be short-term revenues, a fact we have recognised in the Exchequer finances. The property windfall tax allowed us to escalate costs to a level we now see as unsustainable. It is important to take action such as outlined in the Bill to correct such issues.
I have mentioned that the levy is temporary and the Minister of State has outlined that it will terminate on 31 December 2012, when the European Union will begin to auction carbon allowances to EU member states. Companies will then be in a position to buy them from the State.
There is one matter with which I am not entirely in agreement and which might perhaps be revisited. I refer to the fact that the funds which will accrue to the Exchequer will be disposed of for its benefit, at the direction of the Minister for Community, Equality and Gaeltacht Affairs and with the consent of the Minister for Finance. Revenues from these sources can sometimes be used to subsidise inefficiencies within the public sector.
Senator Jim Walsh: I would like the revenues that will accrue from this measure to be ring-fenced and used specifically in the energy sector, particularly in promoting the green energy sector and encouraging greater efficiencies within it. I would not like the money to which I refer to become part of overall Exchequer finances. It should be specifically used for the purpose for which it was envisaged, namely, encouraging cleaner electricity production and reducing carbon emissions to a significant degree. However, I accept that the State will probably be obliged to purchase carbon credits and that this will give rise to a cost for the Exchequer.
The Bill contains a provision in respect of certain exceptions that can be made. I do not know the extent to which this will fit with the regulations or the criteria laid down in respect of these exceptions. I have some sympathy for companies such as Endesa which has located its operations in my constituency and made a significant investment in acquiring energy production assets in this country. It has purchased plants at Tarbert, County Kerry and Great Island in south-west Wexford. The carbon levy will be applied to it in the same way it applies to the ESB. That is despite the fact that it has purchased the facilities to which I refer, from the ESB and at market rates. I do not know if Endesa and companies like it have made provision for this additional cost. I am not seeking favour for the Endesa project. However, I am asking that Endesa and companies like it which have made a significant investment in order to enter the market not be placed at a competitive disadvantage vis-à-vis those companies which have invested in developing their production facilities in the past by being obliged to service the cost of the purchases they have made, while also meeting the cost of the carbon levy. Serious consideration must be given to the position of companies such as that to which I refer in order to ensure their position will be safeguarded and that there will be a genuinely competitive energy market in this country.
My final point relates to the single electricity market for the island which evolved in recent years and which has been welcomed on both sides of the Border. This is a good development because it has given rise to the level of consumption necessary to sustain competition. I hope the levy will not distort the market. I am unsure about the position in Northern Ireland on the levy. I may be incorrect, but I understand it will apply in the Republic but not in Northern Ireland. If that is the case and if, as a result, there will be a differential or distortion in this regard, will the Minister clarify what will be done to ameliorate its effects? Have initiatives been taken to ensure what is a good measure will also be applied to the electricity generation companies in Northern Ireland?
Senator Feargal Quinn: I welcome the Minister of State. I gave a lengthy interview on Ryan Tubridy’s show approximately three years ago, towards the end of which I was asked that if I was starting out now, into what business would I go. I stated at the time that anything to do with renewable energy — wave, wind or tidal — was the route to take. I have received many letters and other communications in the interim from people who have outlined the alternative energy projects with which they have become involved. There is a great deal of work taking place in this area and we must recognise that the advent of climate change targets has altered attitudes.
It is interesting to see just how much activity is taking place in certain areas. At Clongriffin, which is near the area in north County Dublin where I live and adjacent to the constituency Senator Brady represents, five wind turbines were erected approximately two years ago but they are not in use. I wonder what has gone wrong. These turbines were in use when they were first erected but that is no longer the case.
In recent years, particularly during the Celtic tiger era, when trying to explain to people from abroad why Ireland attracted so much foreign direct investment and had become so successful, I found myself referring to our low tax base, access to the European Union and our highly educated, English-speaking population. The people in question are now informing me that high wage, rental and energy costs have priced us out of the market. In such circumstances, anything we can do to make the country more competitive in the future will be extremely important.
I am concerned that the implementation of a carbon revenue levy will have a negative impact on the economy and may hinder its recovery. I accept that the Bill relates to a particular aspect of the economy, namely, electricity generation, but I am of the view that not enough questions have been asked about the imposition of a carbon levy at what I believe to be the most inappropriate juncture. A carbon tax has already been imposed in respect of gas and other fuels and some estimate that this has given rise to a 6% increase in the cost of gas to businesses. This can be called a levy, but it is a tax which is imposing an additional cost on businesses and placing them at a disadvantage vis-à-vis their international competitors.
Several EU member states such as France are extremely sceptical about imposing national carbon levies because they are of the view that they cannot commit their economies to further strain in a competitive market. The French energy Minister stated his country’s energy tax was being postponed indefinitely so as not to “damage the competitiveness of French companies” and indicated his concern that it would be too risky for France to go it alone without the rest of the European Union. Several new reports have contested claims that more jobs would be created if a carbon levy was introduced. For example, a new French Government study concludes there would be a significant risk of carbon leakage if such a levy was brought in. By carbon leakage they mean industries would move to other parts of the world in order to avoid punitive climate change costs.
In an even wider context, countries such as Germany believe the European Union should not move without global agreement on the cutting of CO2 emissions. It is interesting to note that the Union is abandoning the drive to unilaterally commit to cutting greenhouse gas emissions by 30%. Last month, when asked about speeding up the reduction of CO2 emissions, the Union’s Climate Action Commissioner, Connie Hedegaard, observed, “Are the conditions right now? Would it make sense at this moment? My answer would be no.” I agree with the Commissioner. Many politicians across Europe appear to have picked up on public sentiment to the effect that the priority now is not solely the reduction of CO2 emissions or imposing massive hindrances on businesses and that we should focus on job creation and a return to prosperity. We should resume the debate on imposing measures such as the carbon levy only when the country has returned to a position of robust economic growth. We should now concentrate on every small measure that would help businesses to survive, thrive and expand in order that they can pick up when the economy recovers which l hope will happen soon. I have serious concerns that the priority should be the creation of jobs and the encouragement of enterprise — we may have to put the reduction of emissions on the back burner.
I am concerned that new figures show the carbon charge will generate €250 million this year but only €130 million is going to schemes earmarked for this money. I would be interested to see the plans for the remainder of that sum.
The key objectives of this Bill are to amend the Electricity Regulation Act to place a requirement on electricity generators to pay a levy on the revenues from the SEN which are attributable to emissions and that it becomes a function of the Commission for Energy Regulation to calculate, collect and manage the carbon revenue levy.
I agree with Senator Quinn. We are talking about wind energy, but I have met people who have bought wind energy chargers and cost is a huge factor. In some cases people do not anticipate these high costs and the machines are high maintenance. I live in Clongriffin and the chargers have been out of action there for some time. The contractor who installed them has gone into liquidation and there is a row between Dublin City Council and other contractors that we are trying to end.
People cannot understand their electricity bills. The customer pays for the electricity he or she uses, but there are standing charges that people cannot understand. There should not be any such charges. I made inquiries of the ESB and was told that the charges were different in rural areas because it was more expensive to provide electricity in such areas than in urban areas. That is irrelevant. If I provide a telephone service, I am paid for it and that is all. Something should be done about standing charges. People see it as another way to collect money. If a man works, he receives a salary and that is all. We should look at this issue because cost is a major factor, about which we should be concerned. If we want people to use alternative energy resources, we should make it easy for them to do so. There is not sufficient information on the costs involved for those who buy wind energy generators.
Senator Jerry Buttimer: This Bill is long overdue; it is a scandal that we had to wait so long for it. Electricity generation has changed; it is now a complex market. However, it should not be; there should be transparency.
There are two groups — consumers and businesses. The best thing the Minister did was to introduce smart meters. I have one in my house and it allows the user to monitor the use of electricity at all times. Meters should be installed in every household. If we are serious about reducing carbon-based emissions, we must educate all citizens, not just industry and enterprises.
In the last two years the country has lost hundreds of millions of euros in revenue. I listened to Senator Walsh’s remarks and disagree with his comments on the use of the money raised. From reading the explanatory memoranda, it goes to the Department of Finance which has the right to disperse it accordingly. It is wrong for the Senator to talk about inefficiencies in the public service and say he hopes the money will not be used for it when the Bill must be about the protection of consumers. As Deputy Coveney said in the Dáil, we have promoted the concept of windfall taxes for generators since June 2008. We support the principle in the Bill. We tabled amendments in the Dáil, not for political purposes but to enhance and strengthen the Bill. The Minister accepted some but not others.
We debated the issue of job creation earlier this week. Tackling competitiveness is critical to our future economic recovery. Senator Quinn posed a question about the imposition of the carbon levy in current circumstances. I hope the reduction in electricity costs for industry will occur because we must be serious about job creation; we must make reference to the market value of the carbon allowance and make generators pay.
Looking at the EU emissions trading scheme, Deputy Coveney remarked in the Dáil that the major challenge facing the Minister was to find a method to reduce electricity prices. That remains true. We must take a holistic approach. We have been saying the Government must claw back the unearned gains from the power generators through a special windfall tax which will be determined annually by a reference to the market value of the carbon allowance.
The energy pricing market is complex but it must be transparent and capable of being understood by all. The are implications for Ireland when this legislation is passed. While Fine Gael does not oppose it, I am not sure where the Labour Party stands on it. It might perhaps devise a policy as we speak. I should not say that, however. I will leave it to Senator Ó Brolcháin whose party is in government for the moment.
Issues such as whether electricity generators have a cushion in terms of unearned profits arise. The single electricity market committee which oversees the operation of the electricity market here stated in March that “action to recover the windfall gains from the full pass through of carbon allowances would, therefore, be a matter for Government”. This is right. I would not like if the regulator were to determine to whom the gains would be passed. As stated by the single electricity market committee, the recovery of the windfall gains could deliver benefits for consumers, which is the most important point of all. This measure must result in benefit to the consumer.
I cannot recall the year the Kyoto Protocol was signed. Perhaps Senator Ó Brolcháin might tell me the year in which it was signed. Former US President, Mr. Bush, must accept blame in this matter. If every country had willingly signed up to and actively participated in that agreement, we would be in a better position. The Irish consumer who has paid directly in recent years must be given a break.
Senator Jerry Buttimer: I apologise. Fine Gael supports the overall principles of the Bill. It is important the consumer benefits from this and that we provide stimulus for the domestic economy to grow. This can be done by reducing our energy costs and the financial gains being passed to the economy to assist in rebuilding our competitiveness, be it in the tourism industry or elsewhere, I do not mind. This legislation is overdue. I thank the Minister of State for coming to the House today.
The purpose of this Bill is to recover a substantial proportion of the carbon windfall gains being made by electricity generators through the single electricity market, SEM. As Senator Buttimer correctly stated, we are speaking of a windfall tax on generators. Senator Quinn appears to think that high electricity prices in themselves are a detriment to business. There is no guarantee that the windfalls received by companies will be passed on to consumers. It is sensible for the Government to introduce this measure which will generate income for it which can rightly be spent, as all carbon measures are, on a revenue neutral basis, assisting industry to be more efficient in terms of its energy use. That is a point which people keep missing in regard to carbon measures. People focus on the fact that money is being generated rather than on the fact that money is also saved, which is an important point and the purpose of the carbon levy. The carbon levy will, on the one hand, generate money from the use of carbon and, on the other, decrease the use of energy in order that the overall cost of energy to households and businesses is reduced.
I agree with Senator Buttimer’s remarks in regard to smart meters. I am delighted to hear he has a smart meter in his home. I do not have one in mine and would be grateful if this process could be moved on. Every house should have a smart meter. We need to ensure there is minimal energy use at industry and domestic levels. This is done by way of measures such as the one now being introduced. This measure is a relatively minor one which seeks to ensure the extra money accruing to generators as a result of new EU rules is not kept by them and that some of it is put into the public coffers. At times of great difficulty in terms of finances it is important that such measures are introduced.
On carbon infrastructure in general, there appears to be a view in this and the other House that in respect of measures in regard to carbon and energy security in general we can have it all one way and not the other, namely, that we cannot tax people and can spend money on insulation and energy reduction measures. This simply is not possible in these difficult times. We cannot spend money which does not in the first instance accrue to the Government. That defies the laws of gravity. The general view appears to be that we can provide all types of services from revenues which are increasingly decreasing without having to introduce new taxation measures or cutting costs. I am increasingly frustrated by people who put forward one side of the balance sheet. I am glad to note that in this instance the Fine Gael Party is looking at both sides of the balance sheet. That is important. This year’s budget will be difficult. Every measure we can introduce to ensure the most vulnerable people in society are not hit is important.
On energy, the warmer home scheme in particular needs to be better funded. We need to ensure people who are struggling with energy and fuel poverty are taken care of and to ensure their expenditure in terms of energy costs is reduced to a minimum. I have no doubt the Labour Party will be with me on that point. However, all of this must be funded. One way of funding this is to introduce measures such as this one. We cannot magic the money from nowhere. Local authorities put their resources into the warmer home scheme thus ensuring as many social houses as possible are insulated. Fuel poverty will be a greater issue in this country in the future.
There is much talk about climate change and carbon reduction. Energy security is also an important issue. People who believe that with an ever-dwindling supply of oil, prices will somehow decrease are wrong. The price of fossil fuels has been drifting steadily upward.
The Government’s efforts regarding renewable and non-carbon producing energy resources are extremely commendable. In the past two years we have more than doubled production of electricity from renewable energy resources. That is a great achievement by the Government. We need to get to 100%. There was much talk today about the Queen of England coming to visit in the future. I am wary of the idea of exporting all the renewable energy we produce directly to Britain. Many suggest this, including a group called the Spirit of Ireland. We need to ensure the country becomes 100% self-sufficient in producing its own energy. This is absolutely possible and the way forward. When we reach a figure of 100%, we can then look at exporting.
Senator Michael McCarthy: This Bill was passed by the Dáil within the past two days and there was general agreement on it in that House. No one disagrees with the thrust of the Bill which I welcome. However, I will comment on a number of issues.
Senator Ó Brolcháin mentioned the dwindling supply of oil and the expectation that the price of oil will come down. While prices at the pumps have been increasing steadily — although there has been a decrease in the past month — the price of a barrel of oil has remained roughly the same. In rural areas, where public transport is unreliable, people depend on private transport. A person living in a rural area must have a car. Even in areas where there are buses the routes do not always serve the towns to which the people wish to travel. This dependence on cars and, therefore, on petrol and diesel places a huge burden on people on lower incomes and in areas that have suffered economically. The increase in the cost of petrol and diesel is difficult when there are not feasible alternatives. I do not say we should not have these alternatives, because they would be expensive and we must take an economic view. Nevertheless, we must consider those who are on lower incomes have been badly affected by the economic downturn or are in households where jobs have been lost and it is a struggle to meet mortgage payments and utility bills. A small increase in the price of a litre of diesel, for example, from €1.209 to €1.229, makes a huge difference to a 60 litre fill every month for someone who is struggling on a restricted income.
Senator Brady raised the issue of standing charges on electricity bills. What is that standing charge for and why is it always factored in? With many other utilities one simply pays for what one uses. The principle is similar to the practice of suppliers paying “hello” money to supermarkets. In the 1980s, when video libraries were popping up as fast as head shops, they had a membership fee, almost like a gym. The electricity standing charge is significant. Despite the emphasis on energy efficiency schemes we are not even half way there. There are still people who are living in houses that are not energy efficient and they have high heating bills. They then must pay a standing charge to the ESB. Many of us have helped constituents in applying for the household benefits package. I recently met people I had helped in applying for the scheme and they had seen a significant reduction in their bill. These people are in their late 60s and had not been aware of their entitlement until I brought it to their attention. The scheme has made a meaningful difference to the income of that household. When one is living on a State pension of €220, a reduction of more than half in one’s ESB bill is significant. I feared the scheme might have been cut by the Government but, thankfully, that was not the case. It is a lifeline to people who are earning much less than when they were in the workforce and earning good money. It is also a worthwhile scheme for people who are under 66 and are not on pensions or qualifying payments. The ESB standing charge is not cheap and it is difficult for someone to pay this bill every couple of months. Can we have an indication of what the standing charge is for? When one considers the profit the ESB made during the years, it would be reasonable to investigate its standing charge even further.
I do not know how much money will accrue to the Minister for Communications, Energy and Natural Resources as a result of this legislation. I imagine it will be substantial. While it is said it will be used to pay for energy efficiency programmes, there is no provision in the Bill to allow for this. It is my understanding that the money that will accrue from the Bill will go to the Department of Finance. If there is no legislative provision allowing for the money to be ring-fenced for the schemes in the Department of Communications, Energy and Natural Resources, it will go back to the Department of Finance and may be used to plug the black hole that is Anglo Irish Bank. That is where all the money seems to be going nowadays. When there is not a legislative provision to ensure the money is ring-fenced, I fear what will happen. I accept the Minister’s bona fides when he says this is his intention, but if there is no legislative provision we all know what will happen. The money will go back to the Department of Finance and that will be the end of it.
I remember the debate on the abolition of the first time buyer’s grant. It is a distant memory. As we move away from controversial issues we tend to forget about them. I hope that will not happen in this case. The sports capital programmes in the former Department of Arts, Sport and Tourism have been abandoned. Where did their national lottery funding go? While I have asked that question repeatedly, I have not received an answer. What happened to the money from the sports capital programmes?
I repeat this point for the benefit of the Minister, Deputy Éamon Ryan, who has returned to the House. The Bill contains no provision to ensure the money accruing from the legislation will be ring-fenced for energy efficiency schemes or programmes that support that principle. It is not a good idea to allow that money to go back to the Department of Finance, given where that Department has been spending taxpayers’ money in recent times.
I remain to be convinced of the value of schemes such as the geothermal scheme. The technology for heating a home by extracting heat from the ground is impressive. However, I know of a number of cases where electricity bills issued subsequent to the installation of that system have been horrifically high. It is usually unclear whether this is the fault of the pump, the system, the installation or the general scheme. If we want people to consider or investigate alternative sources of heating which we are all agreed is good, it is not good for question marks to hang over these alternative systems. We need to be convinced. We need to be confident and satisfied that the product we are buying does exactly what is says on the tin and reaches a certain standard. An alternative energy scheme must not only result in environmentally friendly practices and reduce CO2 emissions, it must also be cost effective. If we do not have confidence in a system it will run into deep trouble.
I welcome the Bill which is excellent legislation. The Minister has explained how the single electricity market will benefit the consumer and I hope it will. I also hope the Minister will take note of the comments by Senator McCarthy on ringfencing some of the possible savings. The cost of electricity here is enormous; one need only look at one’s home electricity bill. Like Senator Buttimer, I have a smart meter, an excellent tool that shows how to make great savings by using the night rate for the dishwasher, washing machine and deep freeze. That said, electricity is very expensive and ways must be found to reduce prices, not only for domestic consumers but to big businesses which now find it very difficult to compete with competitors in other parts of the world. They deserve every break they can get and if this Bill will be helpful to them, it is to be welcomed warmly.
We all acknowledge that Ireland is a small economy and for that reason we need to bring in experience and expertise in regard to energy saving devices and alternative energy systems, if not for every aspect of these. Some do not agree with tax breaks but I do. They have been used to good effect even though they blew up the housing market. If there were tax breaks in the area of alternative energy and they were monitored properly, there could be great benefits. Many who are making a great deal of money would avail of tax breaks in this field, whether for their own home benefit or to make a contribution to the national grid.
Recently I travelled through Spain and France and was amazed at the level of wind and solar farming in Spain which is miles ahead of us. People here wonder why things move so slowly, whether it is a matter of getting on to the national grid or some other problem. Looking on, it seems there is a problem or hold-up in some area. I also spoke to people in Greece where between 4% and 7% of the overall energy supply is produced with wave energy. I was astonished to hear that 7% of that country’s energy supply was produced with wave energy because Greece is situated on the Mediterranean. I realise it might be more difficult to put some of those systems in place on the Atlantic seaboard.
We like the way the Minister, Deputy Ryan, is working but the pace of progress is very slow, as people acknowledge. Will the Minister consider the introduction of tax breaks in the next budget? They could be the way forward for alternative energy production. If they were put in place, a considerable number of people would avail of them.
Minister for Communications, Energy and Natural Resources (Deputy Eamon Ryan): I am sorry I was not present for the earlier contributions, but I have a note of points made by Senators and will respond to them.
First, it is not possible to tax retrospectively for the periods before this legislation comes into effect. A development last year was the rebate of more than €300 million provided from the ESB for all consumers on a market-neutral basis which largely addressed the carbon windfall from that period. Although we did not have this mechanism we used alternative ones to try to help bring down prices and keep Ireland competitive.
The value of the levy in any given year will depend on the market price of carbon. In recent years this has varied from €12 to just under €30 and currently costs just under €15 a tonne. On that basis, there will be a yield of approximately €75 million. Those receipts will be committed not to anything in the legislation but, through the Exchequer process, to recycling to reduce or prevent the rise of the cost of electricity to large energy users. That was done tactically and deliberately on the basis of protecting the small number of companies for which electricity provides a significant component of their costs. It is as much a jobs initiative as anything else.
We will have the opportunity on Committee Stage which I believe will take place next week to go into some of the technical details of the Bill. This is a technical area and looking into electricity markets can be complex. The approach taken by the Government is the right one, although I would say this. I very much appreciate the general support from Senators and look forward to the passing of this Bill in order that we can benefit Irish consumers in the electricity market. I thank the Cathaoirleach.
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