Net Zero and the Trouble Ahead for Ireland

Energy - May 13, 2024

Not much more than a generation ago a fair number of 14 year old Irish school childrem could be  found studying excerpts from Ovid’s master work Metamorphoses where they would encounter Cassandra. Princess of Troy, priestess of Apollo she was cursed with the gift of prophesy. Cursed because though her prophecies were invariably correct nobody would believe her. Economics is the social science home of Cassandras. There is a joke in the discipline that “X” is a very fine economist, he has predicted fourteen of the last five recessions. While during the heady days of the Celtic Tiger there were voices warning of the coming conflagration there is a strange lack doom mongering going on right now. of course there are no end of technical observations and mid to micro level policy proposals and criticisms but no one is announcing that the end is nigh.

There is always the danger in any area of human endeavour that figuratively we prepare to fight the last war not the next. Ireland was and is a very open internationalised economy. It was and is particularly vulnerable to external forces, to asymmetric shocks. Like the maddening of the US mortgage market and the near collapse of the American banking system. Yet we have had our external shocks. We have had a global pandemic. We had had the Russian invasion of Ukraine. So far so good as far as the Irish economy is concerned.  Yes so far but that was the last war. The policy decisions that wrecked us the last time are very different to those that cumulatively may wreck us this time, and without help from any outside factor.

A necessary condition all economic advance since the industrial revolution has  been the availability of abundant affordable energy. Even as over that last half century industry had  become ever more energy efficient it has also become energy hungry. Advanced economies like Ireland’s demand a stable sure supply of energy and right now it is not clear that the energy policies being pursued by Dublin are going to provide that. Policies that in large part are driven by the ideological convictions of the Greens, the smallest component of the three party coalition currently in power.

Ireland has a power problem. Going back at least to 2017 Eirgrid has adverted to the extremely tight supply – demands margins within the system. Over that last 4 years the number of yellow supply warnings has dramatically increased and headlines warning of potential power cuts or supply failures had become common place. A series of mild winter winters maybe been all that has saved us from significant interruptions in electricity supplies. In the discussions around this problem it has become common to focus on the demands on power created by data centres which are indeed power hungry and blame them for the problem. The solution to our problem of supply is to limit demand, no more data centres for Ireland.

The response of the large tech companies to this policy has not been surprising but should be setting of alarm bells in the department of finance if nowhere else. The Business Post reports the concerns of Cloud Infrastructure Ireland, a professional group that represents Apple. Google and Amazon in Ireland. In a document they are quoted as saying in response to the proposals of the Commission for Regulation of Utilities would “send a signal to the market that a portion of Ireland is closed for new investment and business growth”. And  “send a signal to the market that Ireland is unable to provide power to new business investment”.

Just to provide some context on the importance of these three companies who employ about ten thousand people in the Republic and there fellow US tech corporations to the Irish exchequer in 2022 Irish revenue found that only ten US multinationals contributed 57% of the total corporation tax receipts for the year. This occurred in the same year that corporation tax paid increased across almost all sectors of the economy with a marked increase in manufacturing. Foreign-owned multinationals accounted for €19.6 billion or 86.5% of all corporation tax paid. In 2022 corporation tax comfortably overtook VAT as the second largest tranche of tax income to the exchequer representing 27.5% of the total tax take for that year.

In the period 2007/2008 when the building boom of the Tiger years reached its peak with 90,000 units completed over 20% of tax receipts were coming directly or indirectly from the construction industry and it was considered an obvious concern that the state had moved  become actively dependant on those taxes. Today we when we are nearing 30% of tax take from foreign multinationals of whom the top ten contribute nearly 60% of that sum we should be very concerned indeed that our energy policy is saying to them that “Ireland is unable to provide power to new business investment”. Though we might also consider how over 30 years of strong FDI success we still have not thought about what needs to be done to develop a strong indigenous tech or pharma sector that might mitigate on potentially fatal dependence on these very mobile multinationals.

Simply put our in pursuit of Net Zero and decarbonising the economy Ireland has committed to closing its old peat and coal fired power stations but has not been able to replace capacity to keep up with a rapidly expanding population and ever more power hungry economy. An economy which is being pushed continually towards electricity as it main source of energy whether it is in the heating systems that must be used in all new house builds or the determination to transition from the internal combustion engine to all electric powered cars. We have expanded and will continue to expand the renewable base especially with wind but like the rest of the world until we have cracked the problem of storage will continue to need non renewable power generation to guarantee the based load.

We could look to nuclear power as a clean non carbon based alternative but since legislation 1999 made nuclear power generation illegal in the Republic that is off the table. Though we can observe in passing that with the inter connector with Great Britain Irish consumers are in fact using power generated by UK nuclear power stations. The obvious choice in a transition to Net Zero would be Natural Gas which is by a distance the cleanest of the fossil fuels. The north west of the island is thought to have significant reserves of shale gas. It was estimated that they could supply fourteen years worth of Ireland’s gas requirement. To extract the gas would mean fracking however and the response of the government was to ban fracking. The waters around Ireland especially in the Celtic Sea and the Atlantic continental shelf are known to contain reserves of both oil and gas. The minister for the environment and leader of the Green Party Eamonn Ryan announced in 2021

“Through the Climate Act 2021, Ireland has closed the door on new exploration activities for oil and gas. There is no longer a legal basis for granting new licences. In line with Irish Government policy of keeping fossil fuels in the ground, we are also currently legislating to prohibit exploration for and extraction of coal, lignite and oil shale. As a core member of BOGA, Ireland will lead by example and share our experience of legislation so that we can all move towards a fossil free future.”

What Ireland could do is import gas from North America. The Attorney General has made it clear than under EU law Ireland cannot ban the importing or processing of fracked gas. However Ireland has no terminals capable of processing LNG. Nor uniquely in Europe as ws discovered on the outbreak of the was in Ukraine does it have any capacity to store gas in case of supply disruption. When an application was made to build an LNG terminal on the Shannon estuary it was refused planning permission as its construction would be in conflict with the governments greenhouse gas reduction targets.

So in brief the current energy policy of the Irish state is no LNG, no natural natural gas, no fracked gas, no coal, no peat, no nuclear no data centres and no worries after all in Ireland the sun always shines and the wind always blows.