Dáil Éireann debate -
Thursday, 19 Oct 1995

Vol. 457 No. 3

Written Answers. - Carbon Taxes.

Eric J. Byrne

Question:

42 Mr. E. Byrne asked the Minister for Finance if his attention has been drawn to the paper presented to the European Institute of Fiscal Studies by the Deputy Director General of the European Commission Environment Directorate regarding carbon taxes; if his attention has further been drawn to the Irish Business Employer Confederation's rejection of carbon taxes on both a national and an EU basis; and if he will make a statement on the matter. [15233/95]

Trevor Sargent

Question:

60 Mr. Sargent asked the Minister for Finance the plans, if any, he has to implement the ESRI recommendations in the report entitled The Economic Effects of Carbon Taxes, 1992, namely that if a carbon tax along the lines of that proposed by the European Commission were introduced unilaterally in Ireland and the revenue used to reduce PRSI and compensate the less well off, then approximately 9,000 jobs would be created. [15243/95]

Minister for Finance (Mr. Quinn)

I propose to take Question Nos. 42 and 60 together. I presume that the paper that Deputy Byrne is referring to is the one which was presented at the Foundation for Fiscal Studies by the Deputy Director General of the European Commission Environment Directorate. I am aware of the substance of that paper and of IBEC's position on carbon-energy taxes.

The main thrust of the Deputy Director General's paper is that taxes should be shifted from labour to energy. IBEC, however, while supporting efforts to increase energy efficiency, considers that carbon energy tax would increase unemployment.

The policy agreement, A Government of Renewal, states that, in the context of protecting the environment, a National Sustainable Development strategy would be prepared. It will address all areas of Government policy which impact on the environment. The same policy document also indicated that the Government will contribute to the preparation of a pan-European taxation policy on carbon and fossil fuel inputs.

While the benefits of shifting taxation from labour can be endorsed in principle, we would need to be assured about the full implications of additional taxation on energy products. While the former would reduce the direct cost of employment, additional tax on non-renewable resources would inevitably cause an increase in inflation. If, in turn, this were to lead to demands for higher wages in compensation, the benefits of reduced labour taxes could be quickly offset. In addition, unilateral action by either Ireland or the EU as a whole in this area could very likely result in some industries moving to locations which would not be as concerned about the environment, leading to loss of employment here. This potential effect would need to be borne in mind in examining the overall effect on employment.

With regard to the estimates of increased employment by the ESRI, I would refer to the reply given by my predecessor to a similar question of 1 December 1993 on this issue and to my reply of 25 January 1995 in which I explained that the ESRI's estimate of 9,000 jobs, in a study published in 1992, emerged from an illustrative exercise which envisaged unilateral adoption by Ireland of a carbon-energy tax applied at the rate $10 per barrel of oil equivalent for a period of ten years up to the year 2,000. It assumed that all the proceeds of the tax would be applied to reducing PRSI contributions. Because of the nature of the study, it could not address sector specific effects such as closure or relocation of plants in certain industries — effects which would diminish the positive employment impact found by the ESRI.

As regards carbon-energy taxation proposals, the Government decided in June 1993 that Ireland should not oppose the principle of the introduction of an EU carbon-energy tax, provided that, inter alia, our concerns regarding the competitiveness of EC industry generally and of energy intensive firms that face competition from non-EC firms that are not subject to similar charges were satisfactorily addressed. The European Council, meeting in Essen last December, noted the Commission's intention of submitting guidelines to enable each member state to apply a carbon-energy tax on the basis of common parameters if it so desires; the Council of Economic and Finance Ministers was instructed to consider appropriate parameters. This approach is in contrast to previous efforts to establish a mandatory EU wide regime in this area. The Commission has now presented proposals in the matter. They propose that a framework would be put in place to allow member states who wish to have such tax the opportunity to do so but no member state would have to actually charge the tax during a transition period up to 2,000. However, at the end of the transition period, the Commission proposals envisage the tax being applied by all member states. These proposals are now being examined by Ireland, along with the other EU member states.