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Energy Prices

Dáil Éireann Debate, Tuesday - 14 December 2021

Tuesday, 14 December 2021

Questions (235)

Pearse Doherty


235. Deputy Pearse Doherty asked the Minister for Finance if he will consider, in the absence of a reduction in VAT on domestic energy sources including gas and home heating oil, a discount scheme for low and middle income households that would then be reimbursed to providers in a similar manner to the operation of the free electricity allowance; and if he will make a statement on the matter. [61995/21]

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Written answers (Question to Finance)

The final retail price of fuel is determined by a number of factors which include the costs of production, distribution, global market factors, international exchange rates, taxation, wholesale market contracts as well as individual retail pricing policies. The current spike in energy prices arises principally from the global recovery from the Covid-19 pandemic in conjunction with supply constraint issues and is being witnessed across the European Union as well as many other regions.

Wholesale electricity prices both in Ireland and across Europe have risen substantially in 2021, with high international gas prices, low levels of wind, increasing carbon prices (Emissions Trading System), a lingering 2020 winter, low gas storage reserves and gas supply issues in Europe all contributing to rising wholesale electricity prices.

As the Deputy will be aware, the Government today approved the establishment of the Electricity Costs Emergency Benefit Scheme under which a payment of €100 will be made to each domestic electricity customer as a once off measure to mitigate the effects of the unprecedented rise in electricity prices on domestic electricity customers.

Separately, with regard to home heating fuels and taxation, the Deputy will be aware that a reduced rate of VAT applies to all home heating fuels. In relation to the Carbon Tax increase, I have delayed its application on home heating fuels until May 2022 to allow for the passage of the winter heating season. In addition, in line with Government policy, the additional revenues raised from the increase in carbon tax have been allocated to expenditure measures which ensure a just transition through targeted social welfare measures, investment in energy efficiency and through funding for the agricultural sector.

In light of the current upward trend in energy costs, an additional €174 million in carbon tax revenues is being made available to the Department of Social Protection in 2022, an increase of €105 million on the 2021 allocation of €69 million.

This package of welfare measures is informed by ESRI research which finds that the net impact of the measures is progressive. Analysis undertaken by the ESRI shows that as a result of this targeted policy approach, households in the bottom four income deciles will see all of the cost of the carbon tax increase offset, with the bottom three deciles being better off as a result of these measures. This is a tangible demonstration of the Government’s commitment to achieving a Just Transition.

I would like to remind people that there are still very significant savings to be had by shopping around energy suppliers. I would also note that the most effective way to reduce a household’s energy bills permanently is through improving the energy efficiency of their home. The Government is providing a record level of support for energy efficiency this year. This will continue in 2022 with further investment.

In the long run, the best way to protect Ireland from the impact of international fossil fuel prices is to reduce our dependence on them. We will achieve this through the progressive decarbonisation of Irish society and through the steps that will be taken to meet the Government’s commitment to reach net zero greenhouse gas emissions by 2050.