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JOINT COMMITTEE ON ENVIRONMENT AND LOCAL GOVERNMENT debate -
Tuesday, 23 Sep 2003

Vol. 1 No. 15

Carbon Energy Tax: Presentation

We will move on to No. 3 on our agenda, the proposal for the introduction of a carbon energy tax. We were informed by the Department of Finance about the proposal and were asked if we wanted to make a submission. We discussed the matter at our last meeting and copies of the draft report were faxed to members yesterday. Does any member wish to comment?

Having read the document we should compliment the Clerk to the committee, as there was quite a short timeframe involved. We conducted our business responsibly and obtained expert opinion. That, in conjunction with the views expressed by members, meant the Clerk performed a fine balancing act in giving an overview of what the committee felt.

I have no difficulty with the broad thrust of the submission. Unless other members have a difficulty with it, I propose that we forward this submission to the Department of Finance.

I join with Deputy Cregan in complimenting the Clerk. We have had very little time to deal with this large issue and the Clerk has done an excellent job in summarising, as close as humanly possible, the collective view of the committee. However, I am going to suggest a couple of amendments.

The first refers to 2.2. I am not sure the committee should recognise that climate change is not necessarily a big environmental problem in the short-term. Perhaps we should leave it by saying that the committee recognises that climate change will have huge detrimental effects in the long-term. I know the jury is out about whether the good September weather is due to climate change or just good luck.

The major issue I wish to address is 4.4 which states that the committee, mindful of the fact that the introduction of a carbon energy tax will have a disproportionately adverse impact on poorer households, recommends that the households most affected be compensated by a combination of cuts in income tax etc. I do not want to see the revenue generated by this measure filling holes in the budgets of various Departments. The revenue generated should go back to protect the people that will have to pay it, particularly those on lower incomes who are going to be hurt by it. If the thrust of that is agreed, I will leave it to the Clerk to redraft it.

Is the Deputy calling for 2.2 to be scrapped?

With regard to 2.2, in the first line, between the words "not" and "a", we could add the word "as" so that it would read "not as big a problem in the short-term". I think that would be a reasonable amendment. Climate change is not as big a problem in the short-term as the two mentioned in the example.

I commend the Clerk for producing this in such a concise manner and in such a timely fashion. I agree with DeputyGilmore on the need to slightly reword the section in order to get the message across more clearly. The rewording could possibly rule out the need for 6.6. The concept we are trying to get across is that all the revenue will be recycled. That is important from an environmental viewpoint. If we are going to introduce carbon taxes it is important they get public support. If we do not recycle - "recycle" is the word the Minister has used - all the revenue and instead use that money in other Government programmes, it will be hugely unpopular and will make it difficult to introduce these taxes.

We should try to give 6.4 a sense that revenues will be recycled, either in the form of tax decreases elsewhere, increased social welfare benefits or grants for the conversion of homes to make them more energy efficient. We will leave it to the Minister to decide what proportion of those is necessary. The sentence currently reads: "Recommends that the households most affected are compensated by cuts in income tax, increased social welfare benefits," etc. Instead we should say that all revenues from this tax should be fully recycled in the form of cuts in other taxes, increased social welfare payments or grants for conversion to more energy efficient means.

I broadly agree with that. However, there is a need to acknowledge that the introduction of a carbon energy tax will have a disproportionately adverse impact on poorer households. While there are tax cuts and tax cuts, I will not be partisan about it just now.

I also compliment the report. I have a point regarding electricity generation. If one takes the example of Moneypoint, will it be exempt from this legislation? Where wind energy is coming on-stream there should be incentives made available to have a cleaner way of generating electricity. We should express a view that we are concerned with that end of it, especially as the legislation brought before us contained a "polluter pays" principle.

Part of what the Senator is raising is covered in 4.5.

I do not have a problem with 4.5. It is slightly different from the point I am raising. We should express our concerns on the polluter pays principle. For example, in the area of electricity generation a plant should not be allowed to be run into the ground without a major stakeholder putting in anything to clean up an environment. The person who buys a tonne of coal could pay €20 while the company that uses a million tonnes of coal might pay nothing towards a problem that it is causing.

I wish to raise a point on 3.4. It should be emphasised that carbon tax alone is not a solution. One of the conclusions of the Department of Finance document is that there is a necessity to ensure that the other sector-specific measures set out are vigorously pursed. Both the ESRI and RPA representatives pointed out that it is only one of a number of measures that will have to be taken. That has to be borne in mind. It could be added to 3.4.

I compliment the Clerk on this submission.

We decided on 6.6 in regard to re-wording the last three words to "promote alternative safer energy".

If we change 6.5 we could eliminate 6.6.

Have we changed?

No; we discussed 6.5, but if we change 6.4, as suggested, one would be more inclined to eliminate 6.6.

Should we be making suggestions on other energy saving measures?

I would not think so. It is a submission which concerns the proposal for the carbon energy tax. That is the duty which we were given and that is what we agreed on the first occasion. We can deal with the other matters at a later time.

It is important that we revisit that.

A possible wording of 6.4 which would take into account DeputyGilmore's concerns, would recognise it will have a disproportionately adverse effect on poor households, is that we leave 6.4 as it is up to the word "recommends" and then we finish the sentence by stating that, "all revenues for the tax will be recycled and this will involve increased social welfare benefits as well as other cuts in income tax and grants for the conversion of homes to more energy efficient means". We are looking for a re-wording rather than a change of the sense.

Did the Minister refer to the fact that the revenue would remain within the system to continue to protect the environment? It is important that we insist that the revenue be recycled into the protection of the environment.

There is a slight difference in that the effect of the recycling of the revenue will be to protect the environment because it will enable people to convert. I am asking that the revenue be redirected back at those who are going to feel the pinch of this. The ESRI told us last week that the people who will be most affected are those without central heating, are burning turf or coal and are generally poorer households. When the revenue is being collected in full, we are told, it will raise €500 million. I do not want the revenue from a tax on poor people to be used to encourage people to drop from the 2.5 litre to the 2 litre gas-guzzler that they drive around in. Rather, I want it to go back to the people who are paying it. The committee needs to be clear that, if poor people are to be hit with a tax which will affect them more than others, that money must go back into helping them with income tax, increasing social welfare or providing grants for conversion to natural gas.

In the Deputy's first contribution he mentioned that this tax would have a disproportionately adverse effect on poor households and that he wanted to ensure that the revenue generated would be used to compensatethese people. Can we come up with a suitable wording?

We are lucky that the ESRI has done detailed econometric analysis of this issue and it has stated that if we give about 23% of the revenue raised back in social welfare increases, it fully compensates those on the lowest incomes or those in vulnerable positions from the adverse affects. In this case, one is still left with 75% of the income which could be redistributed elsewhere. Much as I would love to see that spent on environmental improvements, I accept the ERSI's analysis that we should use a significant amount of that money to reduce labour tax and VAT because we need to be mindful of protecting the economy. It may seem strange for a Green Party member to be saying that but I want this carbon tax to be a success and be popular. To do that, according to the ESRI's detailed analysis, means that we recycle all the revenue in different ways through social welfare increases, VAT reductions and labour tax reductions and a small amount to grants to move to more energy efficient mechanisms. It is not up to us to say exactly what the percentage of each should be but we should promote the principle that all the money is recycled into those areas.

We may be in an area which is more appropriate to the Committee Stage of the Finance Bill. However, the 23% which was identified by the ESRI comprehends only those who are on social welfare and family income supplement. There are also people on low incomes that are not comprehended by that.

They will benefit from the tax cuts and VAT reductions which I propose we use the revenue to effect.

We need to get the general idea right. We will reach that fine detail when we see specific proposals in the Finance Bill. The general principle is that one can recycle the tax in any number of ways and I am clear that I want to propose that the recycling of this tax is targeted at those who will be most severely affected by it. Many people will not notice the carbon tax but it will make a big hole in other people's weekly budget and I want to see that latter protected.

I am happy with that sentiment. I do not know whether we should ask the Clerk to the committee to write that sentence or whether Deputy Gilmore should draft it.

He is on a good run at the moment.

I wish to address one other issue, during which time perhaps Deputy Gilmore could draft a sentence to express that.

There is no great difference in members' views.

I agree with DeputyGilmore in that I understood from last week's hearings that business will not pay, particularly big business. On 6.5, I wonder whether it is necessary for us to insert that clause since we know from the Minister's consultation paper that firms engaging in emissions trading will not be subject to the tax. That would rule out many of the companies about which some of the Deputies have concerns such as Aughinish Alumina or Moneypoint since they will not be affected by the tax. I have a personal problem with that but it seems to be set and we need not address the issue.

If we go beyond that and say that, in other exceptional circumstances, we should allow businesses not to pay the tax whether they are investing in combined heat and power plants or not, we are opening a Pandora's box where every business man or woman will say that his or her circumstances are exceptional and that he or she will do their bit for the environment if they are left alone and the carbon tax should not therefore apply. As an environmental committee, we should not support our moving in that direction because every business will say it is exceptional and the State will have to get involved in detailed negotiations on why every individual company should or should not pay carbon taxes. I accept that companies engaged in emissions trading will not pay it but if we go beyond that, we will be more biased against the consumer in favour of large businesses and the environment committee should not support such a proposal.

I am of the opposite opinion and would like to see this paragraph remain in the submission. All the expert opinion I have received is that heavy industry involved in emissions trading would not have to pay carbon tax. While that is not written in stone, it is an assumption we should also assume and we should include it in our submission because it is so important. While carbon tax will have a more difficult effect on the less well off, it is incorrect to say that industry will not pay because such companies will pay by means of emissions trading. It is very important. Also, to go a step further, companies such as Aughinish Alumina, which is about to tender for the provision of a CPH plant, should receive recognition for that and should be given a more advantageous tendering process, because it can do what we are asking in a way that is cleaner and greener than anybody else. It is of paramount importance that we acknowledge what it is trying to achieve and it is also important that we recognise all those companies that will be involved in emissions trading - although there are very few - should not be liable for carbon tax. The opinion of the committee should be in line with those of the Department and the EPA.

To encompass Deputy Cregan's views, we could simply change 6.5 so that it states that the committee recommends that those engaged in emissions trading, who are also heavily investing in combined heat and power, be exempted from carbon tax, and delete the words that are currently in place because their effect is broader than what the Deputy intends. Would the Deputy be happy with that?

I wish to return to thequestion of the ESB and the exemption ofMoneypoint. If vast amounts of finance are being collected by an operation which continues to pollute the air - if scrubbers are not incorporated in a development from the start, for example - that would be wrong. We should note that the committee is not happy about this under the polluter pays principle.

We will include extra wording to cover that. We will change the document along the lines suggested and within the next couple of days I will make a copy available. If any member has a serious difficulty with it he or she can then come back and have a chat about it. We must deal with it by 30 September, so we only have a few days. Is it agreed then that, subject to the changes mentioned, we will make the submission? Agreed.

Further to Deputy Ryan's question about redirection, the proposal is to keep most of the wording that is already contained in the draft. The suggested wording is: "The committee, mindful of the fact that the introduction of a carbon energy tax will have a disproportionate effect on poorer households, recommends that the revenue raised by the tax be redistributed to compensate the households most affected by a combination of cuts in income tax, increased social welfare benefits and grants for converting their homes to more efficient energy uses."

All right.

The joint committee adjourned at 1.25 p.m.sine die.
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