Pa Daly
Question:160. Deputy Pa Daly asked the Minister for Finance to report on carbon tax increases planned as part of the Programme for Government; and if he will make a statement on the matter. [5220/25]
View answerThursday, 13 February 2025
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During the Programme for Government negotiations, it was agreed to continue with the planned carbon tax increases which align with recommendations from the Climate Change Advisory Council and scientific experts, and to continue to use the additional revenues to fund social welfare measures, agri-environmental schemes and retrofitting.
This approach encourages a shift away from fossil fuels and ensures that those who are most vulnerable receive targeted support, making the transition to a sustainable future, fair and equitable.
Carbon taxes are excise duties that apply to most liquid fuels, to natural gas and to coal and peat. Liquid fuels and natural gas used as propellants are subject to carbon taxation as a component of Mineral Oil Tax. Natural gas used for non-propellant purposes is subject to Natural Gas Carbon Tax. Coal, peat, and peat products used as fuel are subject to Solid Fuel Carbon Tax.
Budget 2010 announced the introduction of a carbon tax on fossil fuels in Ireland. Carbon taxation of petrol and auto-diesel came into effect in December 2009. It was extended to other liquid fuels and natural gas in 2010, and to solid fuels in 2013. Ireland’s carbon tax regime is a carbon pricing mechanism which directly links the taxation of fossil fuels to carbon dioxide emissions: a single price is set for a tonne of carbon dioxide, and this price is then applied as a tax to each fuel according to the level of carbon dioxide emitted by that fuel when it is combusted. In this way, the carbon tax applying to each fuel reflects the level of emissions that it causes when used.
The 2020 Programme for Government committed to increase the basis of carbon tax rates from €26 to €100 per tonne of carbon dioxide by 2030, and to use the additional revenue generated in specific expenditure programmes. Finance Act 2020 legislated for annual increases to the carbon tax of €7.50 up until 2029 and €6.50 in 2030, when the rate will reach €100 per tonne of carbon dioxide.
Under legislation providing for the carbon tax trajectory, the annual increases to the amount charged per tonne of carbon dioxide emissions apply to auto-fuels in October (at Budget time) and to all other fuels (including heating fuels) the following May (when the heating season is over).
There are three separate legislative frameworks within tax law to apply the carbon taxation regime across liquid fuels, natural gas and solid fuels.
Natural Gas Carbon Tax (NGCT) and Solid Fuel Carbon Tax (SFCT) rates are currently based on a charge of €56 per tonne of carbon dioxide emissions. This amount is legislated to increase to €63.50 on 1 May 2025 with further increases each May to 2030. Tables with current and future NGCT and SFCT rates, as provided for in legislation, are available in the Excise Duty Rates - Energy Products and Electricity Taxes Manual which is published on the Revenue website at www.revenue.ie/en/tax-professionals/tdm/excise/excise-duty-rates/energy-excise-duty-rates.pdf.
Carbon taxation of liquid fuels, and vehicle gas is applied as Mineral Oil Tax (MOT). MOT comprises a carbon and a non-carbon component. The carbon component is also referred to as carbon tax. MOT carbon component rates for petrol and auto-diesel, which are currently based on charging €63.50 per tonne of carbon dioxide, are legislated to increase each October up to and including 2029. Rates for other fuels liable to MOT (such as heating kerosene and Marked Gas Oil) are currently based on charging €56 per tonne of carbon dioxide. These rates are legislated to increase on 1 May 2025 and each May thereafter up to and including 2030. A table of current MOT rates, broken down into their carbon and non-carbon components, is available in the Excise Duty Rates - Energy Products and Electricity Taxes Manual available at www.revenue.ie/en/tax-professionals/tdm/excise/excise-duty-rates/energy-excise-duty-rates.pdf.
Inclusive of VAT, carbon tax rate increases, up to the final year of the trajectory, will annually add approximately 2.1 cents to a litre of petrol, 2.5 cents to auto-diesel, 2.2 cents to heating kerosene and 2.3 cents to Marked Gas Oil. I am advised by Revenue that a non-statutory consolidation of MOT law, which includes total MOT rates and MOT carbon component rates up to 2030 in tabular form, is published on the Revenue website at www.revenue.ie/en/companies-and-charities/documents/excise/legislation/mot-primary-law.pdf. Carbon tax rate increases as per
Schedule 2a of Finance Act 2020 are published on page 40 of this document.
It is important to note that in order to incentivise the uptake of more sustainable and renewable fuels, there is a carbon tax relief for biofuel. Liquid biofuels are fully relieved from the carbon component of Mineral Oil Tax, meaning the effective rate of tax is the non-carbon component of Mineral Oil Tax.