The average household needs to find an additional €950 during 2011 to cover energy bills as higher oil prices are passed on by wholesalers and retailers. But must the steady rise in oil prices really have such stark implications for every home? And what should government be doing about it?
Having averaged $85 a barrel over the course of 2010, oil is now trading at around $115 a barrel. With demand from Asia keeping on the pressure, forward contracts suggest that $115 is a reasonably reliable average price for 2011.
In 2010 Ireland spent €4bn importing oil – crudely an average of €1,000 for every man, woman and child, irrespective of age and income and the comparable figure for 2011 is set to be €1,350. With some 2.7 occupants per home on average, this year the additional burden placed on each household due to higher oil costs alone will be an extraordinary €950.
The government is giving the matter little enough attention. First, government is guided to a great extent by the policy assessments of the Economic and Social Research Institute (ESRI).
Sadly, the ESRI has been slow to acknowledge the link between oil costs and economic activity, or to take the next logical step – highlight what can be done on a practical level to stop money leaving the country to buy oil, and circulate it within the local economy instead. (For the wider implications of rising oil prices see the accompanying graph. Again, government-supported economists appear slow to tease out the issues here.)
Accounting firm Ernst & Young has a much better sense of the interaction between economic activity and oil cost, pointing out in February of this year that the Irish economy would shrink if oil prices remained in or around $120 a barrel. Their latest figures, released at the end of May, say Ireland’s economy will contract by 2.3 per cent in 2011, with consumer spending falling four per cent over the course of the year.
Households, including our 14.8% unemployed, are already struggling with other outgoings. And the pressure from mortgages (790,000 of Ireland’s 1.4m homes are mortgaged) and taxes is being compounded by rising oil prices.
Oil prices are likely to rise 30 per cent over the next three years. That’s according to Fatih Birol, chief economist to the International Energy Agency (IEA), in an interview with Australian media at the end of April. The IEA’s track record has been to downplay concerns regarding rising oil prices, which makes Birol’s projection all the more daunting. Translated into prices at the pumps, the IEA forecast would see the cost of a litre of fuel approach €2 within three years, up from €1.45 cent a litre now.
Little can be done fast to change travel habits to ease back on oil use. Transport initiatives – the promotion of walking and cycling and public-transport investment will take time to pay dividends, as many households are ‘locked in’ to long-distance car-commuting. Home insulation and home heating offer far more potential. Insulation is being addressed but there is one significant gap: with the Warmer Homes initiative aimed at households with no or low incomes, and the Better Energy programme tending to cater for higher earners, middle income households can literally be left out in the cold. Still, progress is being made. But while insulation helps to hold in the heat it doesn’t create it in the first place.
This is where wood-burning stoves and boilers come in. However, grant funding was withdrawn from wood boilers under the Better Energy initiative announced on 11 May. No explanation was given.
And more curiously, grants were retained for new oil and gas boilers. This strange decision-making comes at a time when Ireland’s forestry sector is gearing up to supply the commercial and domestic sectors.
Government should encourage wood-thinning initiatives. By James Nix
A recent publication maps out how forestry thinning can provide a reliable supply for commercial scale wood biomass boilers (“Step by Step Guide to Selling Your Timber for Wood Energy: Experiences from the County Clare Wood Energy Project”, Teagasc, Galway).
In Donegal – a county with 60,000 hectares of forest cover – a reliable supply chain has been created for firewood (see www.donegalwoodlandowners.com), with 4.8 cubic metres of seasoned hardwood available for €340 to members of the initiative, for example.
And, in what might serve as a model for small and medium-sized forests across Ireland, the company also offers a range of services to the sector, spanning timber processing, marketing, plantation maintenance and business management.
Ireland won’t be able to staunch oil price rises. But by promoting alternatives to oil we can stimulate the local economy and maximise resilience.
