Economics, Politics and Public Policy

Just some quick thoughts on the new energy levy being introduced by the Government. Ronan Lyons posted an incredibly interesting blog post on the tiny harms it would do to FDI in Ireland. I agree with most of what he says. However, I have some problems with it that are unrelated to FDI, and then I am going to look at some of his assumptions.

The first of my problems is with the indigenous SME sector in Ireland. Is it insane of me to think that we should probably stop fetishising FDI and look at what is best for sustainable Irish jobs. The fact of life in the 21^st century (in, as Lyons concedes a massive services based economy) is that supply of services are incredibly footloose. FDI can up sticks and leave when things go bad. However, indigenous industry through normal bounds of rationality tends to stay in its country of origin, putting up with a larger hit to revenue before it offshores. The RTE article that Lyons links to in his post is almost half comprised of warnings from ISME about the harms to SMEs.

Secondly are households. Already hit by unemployment, interest rate hikes and falling wages they are now being milked to subsidise the failings of a semi-state company. Normal people should not be penalized more for the inability of the ESB to modernize or run its business effectively and competently. The ESB should be forced to reform and improve without taxpayer assistance, even if the introduction of “competition” has not yet managed to do this.

Thirdly then, what exactly is the subsidy for? It is to pay for energy security, in the form of subsidies to the peat industry and the creation of more windfarms and other sustainable energies. Firstly, why are we subsidizing the peat industry? Karl Deeter put it very succinctly in this tweet.

Peat bogs are very good at fixing CO2 in the atmosphere, due to plants and stuff that live in them. Instead we give subsidies to people to dig them up and burn them, releasing CO2. And this is a progressive “Green” policy? Madness. At the same time any thought of investing in nuclear technology is laughed at. While I have read that Ireland is too small to make investing in nuclear technology feasible, we could at least build a couple of interconnectors to the UK and, if we’re going to subsidise anything, part fund a nuclear reactor over there. One nuclear reactor could provide the energy needs for the whole country, cheaply (After the admittedly massive capital costs) and cleanly.

So lastly then, to things I didn’t agree with in Ronan Lyons post. He basically used an argument of relative irrelevance. That since energy costs are the 4^th most important factor in attracting FDI it doesn’t matter that they’re going up, since everything else is so high already. I don’t agree with him that getting upset about the harm to competitiveness of utilities hikes will distract from fixing the overpricing problems of the other 3. I don't think that just because land and labour are overpriced in Ireland it gives a free pass for the government to make utilities overpriced also. If anything it is more of an argument to not introduce the levy, since it is merely compounding the overpricing problem. He quite clearly argues that Ireland has a competitiveness problem particularly among the 3 more important factors Lyons identifies. That problem isn’t going to go away if it is compounded by a disregard for other factors (no matter how small).