Dan Boyle
Question:5 Mr. Boyle asked the Minister for Finance the Government’s position on the use of environmental fiscal measures in view of its decision not to proceed with a promised carbon tax. [24949/04]
View answerThursday, 14 October 2004
Questions (5)
Oral answers (9 contributions)
Taxation can play a part in attaining environment objectives. However, as Minister for Finance, I am concerned to ensure that in developing policy on tax measures we take into account any effects on Ireland's international competitiveness, particularly with regard to non-EU countries which compete with Ireland and which may have low taxes on energy. I am also concerned in framing policy about the effect that the imposition of such taxes may have on the consumer price index and how they could impact on the less well-off members of our community.
On the question of carbon tax, the Government decided it was not an appropriate policy option and that it would intensify action instead on the non-tax measures under the national climate change strategy. This decision followed an examination of the environmental, economic and social impacts of the proposal. The Government concluded that the environmental benefits of a carbon tax would not justify the difficulties that would arise, particularly for households, from the introduction of such a tax.
Apart from the carbon tax, the national climate change strategy envisages other initiatives in the tax area with one such example being tax reliefs for green initiatives. Essentially, this approach uses the tax system to provide incentives for certain behaviour. Such examples include capital allowances for corporate investment in renewable energy projects which have been available since 1998, and an excise duty differential, granted in budget 2002, to encourage sulphur-free diesel which resulted in the entire diesel market changeover within a few months. In addition, a provision in the Finance Act 2004 provided for the introduction of a scheme for excise tax relief for biofuels. The purpose of the scheme is to allow relief for pilot projects to investigate and evaluate the market for biofuels in Ireland. I am open-minded towards initiatives in the tax area which can impact positively on the environment but in reviewing any such initiatives I must be mindful of competitiveness issues and the impact of any particular measure across the overall community.
Is the Minister aware that Ireland has the least number of environmental fiscal measures of any of the developed countries and is listed as such by the OECD and that his predecessor's decision not to fulfil a budget commitment on carbon tax was largely the result of ignorance of how environmental taxes work? The ESRI has clearly stated that a carbon tax could have raised money which, if recycled, could have been spent on increased social welfare payments, added tax incentives, funding for research and development to encourage activities such as energy efficiency? What the Minister's predecessor has done and what the Minister seems to be maintaining is that a cost will accrue to the Irish taxpayer in a number of years when Ireland has to live up to its Kyoto commitments, a cost which currently can be judged at a value of €1.1 billion. That money will be made from traditional taxation sources. A carbon tax presented an opportunity to cope with that tax load over a longer time period and have it targeted at the source of the problem. We have failed to meet our international commitments.
I do not agree with the Deputy that the decision was born out of ignorance. Considerable work was undertaken in examining proposals for a carbon energy tax, including an extensive consultation process. Following that process, the Government decided that a carbon tax was not an appropriate policy option and that the modest contribution which the tax would have made to tackling emissions would be replaced by alternative measures.
The Government concluded that the environmental benefits would not justify the difficulties that would arise, particularly for households, in the introduction of such tax. Furthermore, the Government cannot ignore developments in the international oil market. The recent price increases reflect the ongoing supply and demand situation in the oil market. In this situation the resultant increase in the real price of energy products will, in any event, give an enhanced incentive to energy conservation.
A carbon tax would have involved a range of compensation, recycling and tax abatement measures. Despite these measures, it would be likely to have some adverse economic and social effects that would not be fully dealt with by compensatory measures. In addition, it would impose price increases on many products already suffering sharp increases and would largely raise revenue from products already subject to existing excise duties and where a new tax is not specifically necessary to increase tax rates.
The Minister should be aware that fuel poverty now exists in society and this Government does not have any measure in place to tackle the problems of fuel poverty. Carbon tax was one such measure that would have allowed revenue to be created and recycled and targeted towards those most in need in society. The Minister in his reply listed less than a handful of measures that could be in any way attributed as environmental tax measures or tax incentive measures. It shows the poverty of the Government's thinking in this area. The Minister's reply as an opening contribution contrasts widely with the answers given earlier on public-private partnerships where the Minister stated he was in favour of new and innovative approaches in terms of finance initiatives, yet he is not prepared the address the same thinking to alternative taxation measures. These different types of taxes would relieve the burden on traditional taxpayers and allow less income tax, less VAT and spending taxes to be collected. It would allow for targeted measures to assist the environment as well as attacking those who are creating environmental problems in our society.
The Deputy is obviously more taxed in his tax than the Government is. A difference of opinion exists. The rationale behind the carbon tax was to change the relative price of fuels based on carbon emission, thereby altering consumption patterns and to encourage energy efficiency and improve environmental quality. Carbon tax would have applied at a relatively low level to all carbon-based fuels, including peat, coal, heating oil, diesel, petrol, natural gas and LPG. The revenue raised from the tax would be recycled and used for a range of purposes, including measures to help alleviate the effects of the poorest in society, as the Deputy stated.
The carbon energy tax as proposed has been just one element of the Government's approach to meeting Ireland's commitment under the Kyoto Protocol to reduce emissions of CO2. The overall reduction required is of the order of 9 million tonnes per annum and the direct effect of the carbon tax would have amounted to a possible maximum reduction of just over half a million tonnes. This modest contribution——
The Minister cannot know that.
——would be replaced by alternative measures, including support for emissions abatement mechanisms such as energy efficiency initiatives and also the purchase of additional carbon emission allowances on the international market.
Regarding alternative policy options which were referred to in the decision not to introduce a carbon tax, they are principally a matter for my colleague, the Minister for the Environment, Heritage and Local Government, who can answer further specific questions on this point. I understand the national climate change strategy provides a broadly-based framework for achieving greenhouse gas emissions reductions in the most efficient and equitable manner while continuing to support growth and prepare for the more ambitious commitments that will be required after 2012. Among the key measures in the strategy are switching towards less carbon-intensive fuels, expanding renewable energy, promoting greater energy efficiency in transport, industry and construction and a range of measures to reduce emissions from agriculture.
Who will pay the bill?
As I said in my reply, I am open-minded towards tax initiatives which can impact positively on the environment but in reviewing any such initiatives, the Government must be mindful of competitiveness and the impact of any measure on the overall community.