DUBLIN (Reuters) – The cost of meeting Ireland’s climate targets in full may cost the state up to 5.5 billion euros ($5.8 billion) a year or 2% of modified gross national income from 2026-2030, its independent fiscal watchdog estimated on Wednesday.
The impact will be felt through an erosion in tax receipts from a shift away from fossil fuels and increased public spending, mainly on compensating farm incomes and retrofitting older homes, the Irish Fiscal Advisory Council (IFAC) said.
Ireland was one of the few euro zone economies to post a budget surplus last year, and the government has pledged to set aside the majority of large projected future surpluses in a new sovereign wealth fund that could meet costs linked to climate change and an aging population.
The proposed fund would probably only help with costs beyond 2030 and IFAC urged the government to start planning sooner, noting that tax and spending forecasts only go out to 2026.
The climate costs also come on top of the 7-8 billion euros a year the finance ministry estimates will be needed by 2030 to fund rising pension costs.
The watchdog estimated that assuming no policy changes, tax revenues could fall by 2.5 billion euros per annum by 2030, rising to as much as 4.4 billion or 1.6% of modified gross national income (GNI*) in the long run.
That will be primarily due to a sharp decline in tax on fuel and energy use, the lower VAT rates on electricity, and reductions in vehicle registration tax and motor tax.
It said projections on public spending are highly uncertain and depend on the extent of private sector involvement, but that the government may face costs of between 0.6 and 1.1% of GNI* or 1.6 billion to 3 billion each year from 2026 to 2030, falling to 0.4 and 0.7% of GNI* from 2031 to 2050.
With Ireland currently forecast to miss its EU targets to cut greenhouse gas emissions by 51% by 2030, IFAC added that non-compliance costs could reach 3.5 billion euros by the end of the decade.
($1 = 0.9517 euros)
(Reporting by Padraic Halpin; editing by Mark Heinrich)
