In this weeks blog NERI economist, Paul Goldrick-Kelly discusses his recent Research InBrief on 'Environmental Investment spending: A comparison across three states'.
Scientists and activists have been sounding warnings about a series of distinct but connected ecological crises across a number of domains. While the climate emergency dominates news, human activity has transgressed a number of other planetary boundaries which represent a “safe operating space for humanity”. As of 2022, these include biodiversity loss, Land-system change, the introduction of novel entities like plastics into the environment and biogeochemical flows to accompany the well-known issue of anthropogenic greenhouse gas emissions.
These issues imply a major collective challenge that will have to be addressed at many levels, and imply significant changes to economic and social practices. Investment represents one of the key means by which these changes can be enacted in policy.
In the same way that the comparative emissions records of other similar states might offer some insight into Ireland’s emissions performance, a comparison of environmental investment spending over time might reveal something of Irish policy.
In my latest InBrief, I use the EU’s (2023) Environmental Protection Expenditure Accounts (EPEA) data to assess comparative trends and levels of environmental investment in the Republic of Ireland, Austria and Sweden.
The 2010 to 2019 data are revealing. Sweden, again ranks as the top performer, posting real average growth in environmental spending of about 7.5 per cent each year, growing nearly 90 per cent cumulatively from €1.2 billion to €2.2 billion in 2019 at 2010 prices. The Republic of Ireland and Austria show a major real term decline in environmental investment after 2010, falling by nearly a third in Ireland’s case – from €550 million to €370 million in 2013 - and over half in Austria – €1.3 billion to €630 million in 2013. Both states show recovery by the end of the decade, but this amounts to only a slight increase over 2010 levels in real terms in Ireland (about €10 million or under 2 per cent) and a decline in Austria (a drop of €60 million or nearly 5 per cent).
Adjusting for relative price levels gives some sense of the purchasing power of a euro, accounting for the fact that a euro invested in a state with a relatively high price level does not go as far. Despite Sweden’s relatively high price levels, its PPP adjusted investment per person in the state still significantly outstripped Irish and Austrian values in 2019, at €188 PPP. In Ireland’s case, overall investment spending per head was €129, while in Austria it was around €156, 45 and 21 per cent respectively below Swedish values.
However, a look at the investment data by institutional category reveals some interesting details. The Eurostat data divide the data according to a three-part distinction between general government, corporations as primary or secondary producers and corporations as ancillary producers of environmental goods. The latter categories refer to situations where investment is attributable to the production of environmental protection services for sale, while ancillary production refers to environmental protection investment for own firm consumption.
This divide reveals Irish underinvestment was attributable to very low levels of corporate investment spending relative to its comparators, only comprising some €7 and €8 euro per head – collectively just over one in every nine euros spent in the state. In comparison, Sweden and Austria show far larger private sector investment, in both absolute per capita terms and as a proportion of overall spending. Close to half of Swedish environmental protection investment came from corporations - €35 for primary and secondary activities and €57 for ancillary production. Nearly 95 per cent of Austrian environmental protection investment spending arose from corporate sources. Irish general government spending was the highest in the comparator group at €115 PPP per person, and accounting for nearly nine in every ten investment euro spent.
Ireland’s apparent real underspend in per capita terms, and the comparative drop off following 2010 relative to Sweden, should be the source of some concern given the environmental challenges we face. We should also be aware of certain contextual factors which may drive up spending in some areas – including Ireland’s relatively large public spend, which appears to be primarily be a function of “Wastewater management”, a classification within the EPEA data. The relative absence of private sector investment in protection activity in Ireland in aggregate, and in specific areas like waste and wastewater management, and Protection of ambient air and climate may be indicative of significant challenges for Irish business meeting climate and other ecological goals. A fuller dissection of this data will be the subject of future research. For now, at least in high level terms, the data suggest Ireland may be behind the pack in needed environmental investment.