Carbon Tax is Here

Homeowners can expect the cost of heating their homes and fuelling their cars to increase by hundreds of euro a year after the Government introduced a carbon tax in the December Budget.

“The economic and social implications of climate change are immense and it is the responsibility of Governments everywhere to change behaviour to reduce our greenhouse gas emissions.” Minister for Finance Brian Lenihan.

Government subsidies, such as funding for efficient technologies, biofuels and insulation, were insufficient on their own in addressing climate change, said the ESRI. Regulations, policies and legislation were needed to really change attitudes to climate change, it was added.

To encourage innovation by incentivising companies to bring low carbon products and services to the market, they have introduced a carbon tax equivalent to €15 per tonne. Increases to home heating oils and gas will apply from next May. The purpose of a carbon tax is to protect the environment by reducing emissions of carbon dioxide, helping to mitigate climate change, to support business investment in low-carbon growth and to help households reduce energy costs.

Now more than ever there is a drive for sustainability and the exploration of renewable energy systems as an alternative to depleting fossil fuels.

The application of the tax to coal and commercial peat will be subject to a commencement order to allow a robust mechanism to be put in place to counter the sourcing of coal and peat from Northern Ireland where lower environmental standards apply.

The yield from the Carbon Tax will be used to boost energy efficiency, to support rural transport and to alleviate fuel poverty.

There’s been much talk in the past few months about a carbon tax, but what exactly is it and how will it affect us? A carbon tax is an environmental tax on emissions of carbon dioxide which is generally accepted to be the heat-trapping “greenhouse” gas.

The introduction of the carbon tax in December budget was Ireland’s first major taxation step towards changing behaviour to reduce our greenhouse gas emissions. We have already seen the positive effects of earlier changes to the VRT scheme.

Ireland is not the first country to have implemented such a tax and it is vital that lessons should be learned from other European states that have pioneered this tax as a means of stimulating investment in alternative energy sources, while at the same time promoting changes in consumer and business behaviour.

Finland pioneered the concept of a carbon tax in 1990 and other Scandinavian countries soon followed suit. Both Sweden and Denmark introduced a carbon tax in the early 1990s as part of broader energy tax and subsidy packages. Both countries provide various subsidies or exemptions for energy derived from renewable sources, providing viable alternatives for companies.

The ESRI has estimated that the carbon tax will cost the average household between €2 and €3 a week. This breaks down as almost €2 extra on a 40kg bag of coal, 40 cent more for a bale of briquettes, four cent and five cent per litre increases in petrol and diesel respectively and over €52 extra for 1,000 litres of home heating oil.

The carbon tax is being introduced on a phased basis; transport fuels will be hit immediately, whereas liquid fuels and home heating oil will not be subject to the carbon tax until May 2010.

The application of the tax to coal and commercial peat has been deferred to allow a proper system to be put in place to counteract the potential smuggling of coal and peat from Northern Ireland.

Electricity bills will not be affected because the price of carbon is already factored into the costs of electricity. The ESB and other power generators participate in the EU ETS which is implemented in Ireland by the Environmental Protection Agency on behalf of government. A specific exemption from the carbon tax is provided for such participants.

The Commission on Taxation report recommended that the yield from the carbon tax should be revenue-neutral. The minister indicated it would be used to boost energy efficiency, support rural transport, and alleviate fuel poverty. Another €50m of the actual carbon tax yield will be allocated for a new National Retrofit Programme, to improve energy efficiency in homes and providing energy saving assistance to low income households.

Its thought that Carbon taxes will be a feature of economies across the world in the coming years.