Dáil Éireann Debate, Tuesday - 10 October 2023
94. Deputy Michael Healy-Rae asked the Minister for Finance if the classification of hydrotreated vegetable oil from a substitute fuel to a biofuel will be considered in the forthcoming Finance Act (details supplied); and if he will make a statement on the matter. [43457/23]
View answerAs the Deputy will be aware, it is a longstanding practice of the Minister for Finance not to comment, in advance of the Budget, on any tax matters that might be the subject of Budget decisions. However some general information is provided below.
Finance Act 1999 provides for the application of excise duty in the form of Mineral Oil Tax (MOT) to liquid fuels used for motor or heating purposes. MOT is comprised of a non-carbon component and a carbon component. The carbon component is referred to in legislation as the carbon charge, but it is more commonly referred to as the carbon tax. The non-carbon component of MOT is often referred to simply as “excise”, “fuel excise”, “fuel tax” or “fuel duty”, but it is important to note that both it and the carbon tax are the two components of MOT which is an excise duty.
MOT law specifies excise duty rates for certain liquid fuels such as petrol, auto-diesel, kerosene and marked gas oil (MGO). Fuels used for propellant purposes (e.g. for powering motor vehicles) are subject to standard rates of MOT whereas fuels used for non-propellant purposes, such as heating, are subject to reduced MOT rates. Any liquid fuel which is not specified in MOT law is defined by that law as a “substitute fuel” and is subject to MOT. Under the law, the rate of MOT applicable to a substitute fuel is determined by the use to which it is put: thus a substitute fuel used in place of auto-diesel attracts the auto-diesel rate of MOT, and the petrol rate of MOT applies to a petrol substitute. Substitute fuels which are used for reduced rate purposes, such as heating, attract the MGO rate of MOT.
MOT law defines a biofuel as any substitute fuel made from biomass. Biomass is further defined as the biodegradable fraction of products, waste and residues from agriculture (including vegetal and animal substances), forestry and related industries, as well as the biodegradable fraction of industrial and municipal waste. Different types of biofuels, such as hydrotreated vegetable oil, are not specified in legislation, meaning that any liquid fuel that meets the criteria of being produced from biomass is treated as a biofuel for MOT purposes. It is important to note that the MOT treatment of a particular biofuel – like all substitute fuels – is determined by its use.
Under MOT law biofuels are not classified separately to substitute fuels, they are a subcategory of substitute fuels. As already outlined, substitute fuels used for reduced rate purposes, such as heating, attract the MGO rate of MOT. Section 100(5) of Finance Act 1999, which has been in place since 2012, provides that biofuels are relieved from the carbon component of MOT. The table below summarises current MOT rates applicable to substitute fuels and details the differentiated treatment of substitute fuels of non-biomass origin and substitute fuels produced from biomass, i.e. biofuels.
|
MOT rates per 1,000 litres effective from 1 September 2023 |
|||
|
Substitute fuel use |
Non-carbon component |
Carbon component |
Total MOT |
|
Non-biofuel used Instead of petrol |
€476.80 |
€112.23 |
€589.03 |
|
Biofuel used Instead of petrol |
€476.80 |
Fully relieved |
€476.80 |
|
Non-biofuel used instead of auto-diesel |
€376.94 |
€129.81 |
€506.75 |
|
Biofuel used instead of auto-diesel |
€376.94 |
Fully relieved |
€376.94 |
|
Non-biofuel used for non-propellant (e.g. heating) purposes |
€17.62 |
€131.47 |
€149.09 |
|
Biofuel used for non-propellant (e.g. heating) purposes |
€17.62 |
Fully relieved |
€17.62 |
As the rates above indicate, biofuels used for heating qualify for the reduced MOT rate applicable to all non-propellant purposes and are also relieved from carbon taxation. Inclusive of VAT, the current MOT cost on a litre of biofuel used for heating is two cents (€0.02). This preferential tax treatment is intended to promote a higher level of biofuel usage and supports the Government’s commitment to incentivising more environmentally friendly alternatives to fossil fuels. As the carbon component of MOT is fully relieved for biofuels for both propellant and non-propellant purposes, these fuels are not impacted by the ten-year trajectory of carbon tax increases which was introduced in Finance Act 2020. This means that, as annual increases in the carbon tax take effect, the differential in tax costs between biofuels and fossil fuels will continue to widen, further incentivising the uptake of biofuels.
