Dáil Éireann Debate, Tuesday - 29 November 2022
231. Deputy Alan Dillon asked the Minister for Finance if he recognises biofuels as a fossil fuel; if biofuels will be subjected to carbon tax or excise duty if they are used for home heating; and if he will make a statement on the matter. [59192/22]
View answer232. Deputy Alan Dillon asked the Minister for Finance the reason that hydrotreated vegetable oil that is used in home heating is taxed as a road fuel; and if he will make a statement on the matter. [59193/22]
View answerI propose to take Questions Nos. 231 and 232 together.
As outlined in my responses over recent weeks to various questions about biofuels and Hydrogenated/Hydrotreated Vegetable Oil (HVO), the State’s legislation on the taxation of fuels - as governed by Council Directive 2003/96/EC of 27 October 2003, commonly known as the Energy Tax Directive (ETD) - relieves or excludes biofuels that are produced entirely from biomass, from carbon taxation.
There are three national legislative frameworks which provide for the charging of excise duty on different fuel types in the State. Firstly, Finance Act 1999 provides for the application of excise duty in the form of Mineral Oil Tax (MOT) to liquid fuels. It also provides for the application of MOT to natural gas used for propellant purposes, referred to as Mineral Oil Tax on Vehicle Gas (MOTVG). MOT is comprised of a non-carbon component and a carbon component with the carbon component being commonly referred to as carbon tax. The non-carbon component of MOT is often referred to as “excise”, “fuel excise”, “fuel tax” or “fuel duty” but it is important to note that both components are part of MOT which is an excise duty.
Under MOT law reduced tax rates apply to certain fuel uses, such as heating. This means that heating oils are not subject to the significantly higher rates of MOT that apply to road vehicle propellants. In addition to the reduced MOT rates applicable to heating fuels, a relief from the carbon component, or carbon tax, is available for all uses of liquid biofuels. Therefore, a biofuel such as HVO is liable for the non-carbon component of MOT only. A substitute fuel used for heating purposes attracts the MGO rate of €111.14 per 1,000 litres. As this rate is currently comprised entirely of carbon tax, where a substitute fuel used for heating is a biofuel, a full relief from MOT applies.
The second legislative framework dealing with fuel taxation is Natural Gas Carbon Tax (NGCT), as set out in Finance Act 2010, which provides for the taxation of natural gas used for non-propellant purposes. NGCT is a “pure” carbon tax in that there is no non-carbon component to it. Biogas falls outside the scope of NGCT meaning that NGCT does not apply to biogas used for non-propellant purposes such as heating.
Finally, regarding solid fuel, the ETD mandates that coal is subject to taxation. Finance Act 2010 provides for Solid Fuel Carbon Tax (SFCT) to apply to coal and also to peat and peat products.
Like NGCT, SFCT is a “pure” carbon tax. Under SFCT law a partial relief is available for biomass products which are defined as any solid fuel product with a biomass content of 30 per cent or more.
As this explanation shows, fuels produced from biomass are relieved or excluded from the carbon tax under all three of the State’s legal frameworks for taxing fuels. This reflects a clear policy to incentivise the use of such fuels. Because biofuels are partially or fully relieved, or outside the scope of carbon taxation they are insulated from the impacts of the ten-year trajectory of carbon tax increases introduced in Finance Act 2020. Therefore, as annual increases in carbon taxes are implemented, the tax differential between biofuels and fossil fuels will continue to widen, further incentivising the uptake of biofuels.
