The carbon tax is one of many policies in place that are aimed at reducing greenhouse gas emissions. The Oireachtas has legislated, through the 2020 Finance Act, to progressively increase the rate of carbon tax each year so that it will reach a rate of €100 per tonne of carbon dioxide emissions by 2030. The increase in 2022 will be €7.50 bringing the overall rate to €41 per tonne. The increase will apply from 13 October 2021 for diesel and petrol and from 1 May 2022 for all other fuels to allow for the winter heating season. A predictable schedule of carbon tax increases, in conjunction with other measures such as investment in active mobility and energy efficiency measures, and a progressive replacement of the private car fleet to electric vehicles, will allow households and businesses to plan for increases in carbon tax and, over time, this will change consumption and investment decisions.
Research commissioned by my Department and published by the ESRI in 2019 has analysed the effects of increasing carbon taxes on the use of fossil fuels. The report, "The economic and distributional impacts of an increased carbon tax with different revenue recycling schemes,” published on 8 October 2019, found that an incremental increase in the carbon tax reaching €80 per tonne in 2030, would help reduce economy-wide emissions by approximately 15% in 2030, compared to no increase in the carbon tax.
As set out in the National Development Plan 2021-2030, over the period 2021 – 2030 the planned carbon tax increases may allow for €9.5 billion in additional revenue. €5 billion of the expected €9.5 billion in additional carbon tax receipts will be invested in energy efficiency, including underpinning the forthcoming National Retrofit Plan which will be an integral part of the Climate Action Plan that will be published in the coming weeks.
€1.5 billion of additional current funding will be made available over 2021 – 2030 for new schemes that will assist farmers in the decarbonisation of the agricultural sector and this will be detailed in the Government’s implementation programme for the new Common Agricultural Policy 2023 – 2027, which will be published later this year and will take effect from 2023 onwards.
The remaining €3 billion in funding will be explicitly used to ensure that increases in the carbon tax are progressive by tackling fuel poverty and providing for a just transition, with ESRI research, published in advance of Budget 2021, demonstrating that recycling just one third of the revenue raised from the carbon tax increases leaves the lowest income fifth of households on average better off, and reduces poverty. Adjustments to relevant social welfare schemes in the context of Budget 2022 will be announced by the Minister for Social Protection.