 First of all, I suppose the fact that we have an ETS is due to a substantial extent to the skill and stewardship of Avril Doyle, who's with us, and who steered the thing through a very fractious process in the European Parliament. So I think we should give Avril a round of applause. I'm going to dwell on two stories. I suppose one is the European story and where we're at and what the thinking is about what to do, and then talk a little bit about our local situation, the carbon tax specifically. I have loads of slides, but they'll all be available. So I'll be galloping over some of them with hardly a pause, so don't get alarmed. If you're a nerdy type of person who wants to know more, you can go back and look at them. Acknowledgements first. I stole some slides from Martin Howley and Paul Duffy. I went to their presentation on Friday and immediately loaded up my memory stick, so I'm very, very grateful. Luke Redmond helped me as well. The key conclusion, I suppose, that I have concluded, I think, that we do need an intervention, and I'll make that case on the price of the allowances. How to do that is still a very, very open question. I think for us there would be two dividends, two very significant dividends. The first is that it will reduce the public service obligation for wind energy. And if we're serious as we are, I think, about becoming a major exporter of the wind-based power, it would help a lot to have a price wedge that would make it an attractive and sustainable export. Also, we have a big problem here in that we have a very high carbon tax relative to the allowance price now, and that's extremely inefficient economically at several, several levels, and narrowing that gap is very, very desirable. For the European Union, the gas revolution in the States, as we all know in this room, is pushing a lot of cheap coal into the global economy, including obviously the European system. And there is quite an issue now in terms of coal attractiveness in the electricity market, and a higher carbon allowance price would help. It won't bridge, but it will narrow the incentive strongly. In terms of how the price floor is very attractive to economists, because we love the idea of essentially of a tax. And a price of 20 euro a ton, for example, as you say, is a floor price. It's not a runner, in my opinion, because essentially it will be seen legally as a tax. It will require unanimity and therefore can't happen. It creates other issues, of course, that you have a lot of allowances then that are surplus to what you need and what you do with them or what happens to them. The volume, then, is the other choice to influence the volume. The back loading, which is the current proposal exactly, but kind of an options analysis by the Commission, is a bit peculiar in my opinion. The idea, as a lot of you will know, is to essentially auction much less in the first few years than is planned for, and to hold the surplus over and push them back into the market from 2016. You get, of course, a price increase initially because people need to buy allowances to cover their emissions. But, of course, then it will be followed by price collapse. So I don't see that really being a useful approach. The question then becomes permanent reduction, but how and when is the question. And one possibility is to link to the more binding non-trading emissions cap. The trouble there is, of course, that that bindingness is becoming less and less. For example, the latest evidence we have in Ireland here is that our overshoot on the current projections will be only 1.7 million tons. It was several million tons two years ago, and that presumably applies elsewhere as well. Another option that doesn't seem to have got any traction in the policy system is to just add another sector to the ETS, which would be road transport. Give road transport a very tight cap and just put it in, and that would have definitely have a price effect. The second local kind of conclusion is that we're likely to go up to 25-year-old tons from December because the government needs the money, basically. It's a nice symmetry. Each five euros brings in about 100 million into the ex-jacker, so it's not a trivial. It'll be running close to half a billion euros from the tax. Obviously, to me at least, it should be extended to coal and peat. It's not a big revenue generator. Basically, we're stymying the wood market at the moment by refusing to tax coal and peat. It means a solid fuel market, basically, is skewed against woody biomass. The other challenge we have, as I'll show, we've had this rather dramatic change in the peat composition in Ireland because of the way we recalibrated the VRT, the vehicle registration tax and the annual tax. The ex-jacker is very annoyed about this because revenues have collapsed. So the trick for the next budget will be to recalibrate that so that it brings in a lot more money but keeps the carbon incentive intact. So I put in a bunch of references here. I cite Barbara's paper here on environmental effectiveness. It's the definitive paper in this area. I did a survey of the literature a couple of years ago and surveyed 50 scholars and they put her paper on top as the definitive paper, so it's no mean achievement. Of course, I put my own thing on top here as well. The latest thing in the academic world, by the way, is citation. It's no longer the number of publications, it's the number of citations. And you'll notice now that every academic cites himself or herself utterly incestuously and gratuitously. So I'm being part of that noble tradition. I won't dwell on the... Anyway, I think it is important to have the references for those of you who want to. As Barbara said, we've had abatement, we've had a little bit of innovation, but basically the price we've got is not supporting step change in technology. Interestingly, when you go back to 2007, when the package was proposed, the price projection taking into account the access to international credits and the renewable energy targets and assuming all of those would happen as they are happening, the price was estimated to be about 30 euros. So it's quite dramatic really what has actually happened to the price. The best laid schemes and so on, as Robert Burns puts it, this is now... Luke Redmond gave me this thing. This is the price. These are average annual prices. And you see in 2008 it was over 20. 2009 is a drop below 15. And of course the actual price now is dropped down to about here. So there's this kind of secular decline in price. So we're miles away from the 30 euros that the modeling in 2007 had predicted. The commercial sustainability argument I think is an important one, new generation. The other key problem for the commission, you see, they have set aside 300 million allowances to support carbon capture and storage. The assumption was that that would bring in about 30 euros a ton and that would be enough to fund... At current prices of course, essentially carbon capture and storage is dead in the water because the resources don't even come close. I won't go through this quote, but it's a piece that's a quote from Kenneth Matthews. I'd be interested in people's views on whether his proposition is true. But essentially he says that with a 20 euro price, wind would be commercially competitive in the Irish market. If that's true, it's really very, very significant. It means if we can get that price up to that point, we won't have to subsidize wind and we have a real export opportunity. The coal dependency is interesting. You can see Poland has 87, nearly 90% basically coal dependent and so on. Polish friends tell me now, and coal is mentioned in Poland, people cross themselves. It's replaced the Virgin Mary as the latest kind of religious icon. But it's really, it's just an enormous preoccupation. But you see even ourselves, this is interesting, are very coal dependent at the moment and as is Germany. Hei makes this argument basically that in Germany, I've asked him for the data but he hasn't given it to me yet, but a lot of the old plant in Germany now needs replacing. And at the present time, the logic of replacing it with coal is absolutely compelling because you can buy forward now at very, very competitive prices in coal plant. And of course, if that happens, if the German plant turns over back into coal or not back into coal but continues with coal, then of course it makes everything else very difficult. These data probably aren't visible from the back, but it's essentially the recession that Barbara has, I suppose there's a few, this is the verifiable emissions, 2100 down to 1.8 billion big, big drop in emissions. GDP growth rate essentially, if you take the minus, this is the European Union, minus 4.3 in 2009. If you add all these numbers up, we're a negative growth really since 2008 and all the prospects are international. Credit use, huge increase. So I think the data you have Barbara might be a little bit on date that has gone from 82 up to 252 million. And there's a whole bank of that stuff in the pipeline apparently. So essentially you have this big, big surplus building up here in the system. So the recession really is the key, absolutely definitive explanation for what's been happening relative to what was projected in 2007. I want to, these are the Irish sorry case here of financial liabilities where at 81.8% of GDP basically. And the US is slightly above us, but the rest of the Eurozone is still, still we know us. The big supporters for intervention or power gen, and there's this very interesting quote from Kite from Ian, he says, before the ETS climate change was a threat, but actually we realized it's one of our biggest opportunities. I think this is, if we decarbonize, we can spread into other areas and decarbonize them. I don't know what he means by that, but it's significant in that essentially the biggest player in the market now and what your electric says Europe does basically. So if you're looking at the real politic of it, I think you're going to. Both the other sectors are very happy with very low prices. I wouldn't want to hold out to them. This is the member state, the kind of political dynamics. You have very big players in favor of intervention, but you have Poland and Slovakia in particular, virulently opposed and others worried. I mean the big worry always with any civil service is that government never does anything quickly and it never knows when to quit. So once you open the box, God only knows where the thing will end up. So a lot of countries are worried about that. These are the commission's back-loading options. They presented three. I love Henry Kissinger's quote where he says, every time I ask for choices, I'm always given three, two absurd ones and the preferred one is always typed in the middle. And if you look at the commission proposal, it fits exactly Henry's interpretation. If we act on their proposal, of course, we'll get a price bubble, then we'll have a collapse. There's a view in Europe when you talk to people that this is kind of a holding action and that they'll do this as a fix and then do other things, plan B to follow. I've talked about this before. The trouble with allowing the net allowances into the system, essentially you create one cap rather than two and you probably won't get enough constraint to have the kind of effect on prices. The road transport inclusion I think is much more interesting and it deserves more attention than it's got. And of course the preferred environmental solution is just to take allowances permanently out of the system and just park them forever. The Oak Wind Institute is typical of the kind of thinking that's going in the think tank world. Take out 1.4 billion for at least a decade, increase the annual reduction to 3.9%, and don't allow any growth in complementary credits. External credits and that would kind of bring you up to about 20 Euro a ton. Interestingly the legislation on energy efficiency as you know has a provision that encourages the commission to intervene or to propose intervention in the event that energy efficiency implementation essentially reduces the price dramatically and the modeling shows that that could happen. The minimum allowance price I've explained why I think that's a bad idea and turning quickly to our local situation I think we have probably a better story to tell in the whole climate area than we give ourselves credit for. The GDP link seems to be being broken so we've had a lot of emission reduction because of GDP reduction of course but it seems to be more significant than that. We're doing some interesting things on policy intervention. I won't dwell on that sad story but this is the kind of GDP picture this is from Paul Duffy's data. So you can see basically the very dramatic break in trend basically from 1990. You have the same pattern with per capita emissions. The very striking gap in emissions relative to electricity output which is driven of course largely by their renewables. This is the carbon per unit of electricity generated dropping from 0.9 in 1990 to 0.49 so almost a 50% drop per unit of electricity consumed. This is the fuel mix which you'll all be familiar with. I'm a bit surprised all these numbers appear as I press buttons. This is a technology I'm not. This is our ETS emissions and you can see the steady decline basically minus 9.2%. Carbon tax we brought it in December 2009. The rate has gone up to 20 and it's probably going to go up to 25. The coverage is all non-traded except agriculture and solid fuel. We're joining, I misspelled Lutheran. I'm embarrassed to say that but we're joining the virtuous Lutherans because of course this phenomenon France is in here incorrectly actually France doesn't have the carbon tax. So we have joined the Lutherans as the carbon tax leaders in Europe. And the price effect is very significant. This is for every five euro increment. You can see with natural gas it's nearly a 2% change in price. So in other words with a 25 euro price you get a 10% increase. So everybody's burning natural gas to heat is paying, will be paying 10% more because of the carbon tax. It's a bit lower for kerosene which surprises me but that's what the data tells us. And we are getting a consumption or a response that we have a big improvement. This is the climate corrected data and you can see that the per household consumption has been dropping quite significantly once you correct for climate. So 2010 for example was the coldest winter for decades so you get a bubble so you have to adjust for the climate. What we don't know is how significant the carbon tax is but it's definitely having an effect and of course it would have a much bigger effect if we taxed peat and coal because essentially we're cross subsidizing solid fuel at present. The transport changing the VRT and iron road tax as again most Irish people here will know the outcome has been quite dramatic in terms of the new car fleet where the emissions per new car are 22% lower than before the change. And this is the kind of liters per 100 kilometers performance and you can see that it's a kind of a secular decline in the private car fleet. Of course correlation is not causation. I love Stephen Leacock's quote when he says when I state that my lectures are followed almost immediately by the Union of South Africa the banana riots in Trinidad and the Turco-Italian War I think the reader conforms some opinion of their importance and we academics are very prone to make these leaps of faith about correlation. This is what I've already said basically that we have these two dividends if we fix the price. The choices of how to do it I think the only ones that make sense really are to bring transport into ETS or to permanently take stuff out of the supply side. If we keep going this is the worrying thing before I start looking at the data I would have been a non-intervention person but the commission document makes a pretty strong case that if we keep in recession which is quite likely for the next two years with the backup of supply the price could go down to zero. So I would say there's at least a 50% chance of a zero price in ETS if we don't do something. So my judgment would be that the costs of that outcome are taking a significant risk of that outcome are higher than the uncertainty costs of intervening to essentially manipulate the price. Carbon tax we need to extend it really. I'm surprised again that the wood-based lobby doesn't seem to have agitates. Look at the household consumption data for Ireland that the SEAI have. You can see everything has been falling except wood and peat. It stayed stable and that isn't an accident. It's happened because the price and conditions are supporting that. I've made that point. So thank you very much indeed.