Department considered raising carbon tax by €10 in budget
The Department of Finance suggested carbon tax could be raised by €10 in last year’s budget to “frontload” the increase and make it more effective in encouraging people to be climate-friendly.
A submission prepared for Paschal Donohoe, the finance minister, explained how carbon tax was designed to change behaviour and that the “more effective” way to do this would be with a large increase to begin with.
The department suggested three options for increased carbon taxes according to the pre-budget submission, which was released under freedom of information legislation.
A €10 rise would bring in €220m if it was applied to all fuels from New Year’s Day, with a plan to then increase it by €5 annually to bring it towards 2030 climate change targets. Another option of increasing it by €5, and then in successive years by €5.50 was also put forward.
However, Mr Donohoe opted for the third €6 option, even though the submission had said:
“It can be argued that frontloading the increases would be more effective from an environmental perspective and would better support the targets in relation to take-up of electric vehicles, home insulation etc.”
The minister was also told that Ireland’s heavy reliance on diesel cars is contributing to the country having the “worst performance” of all EU states when it comes to dangerously high levels of nitrogen oxide (NOx) emissions. “Road transport is a major source of air pollution”, it said, “and emerging evidence suggests a particular problem with NOx levels in urban areas. This is a public health issue [and] options for increasing diesel excise rates are set out.”
The pre-budget submission said the lower rates of tax on diesel were also creating “fuel tourism” where drivers from the North would fill their cars south of the border leading to up to €230m per year for the exchequer but also a significant increase in greenhouse gas emissions.
Mr Donohoe was told equalising tax on petrol and diesel over the course of five years would bring in around €80m a year.
However, this option was not taken with the increased carbon tax taking precedence and the introduction of a new emissions-based charge for new cars.
Other changes introduced include a doubling of the rate of electricity tax on businesses, which was expected to bring in €2.5m.
The submission explained that the tax only applied to a relatively small proportion of the electricity consumed by businesses and that this change represented only a “modest policy option”.
It said: “[It] would have minimal impact on the average electricity tax bill of business customers, in absolute terms and relative to the size of the business.”
A Department of Finance spokesman said: “The budget submissions are designed to assist the minister in making his determination to proceed or not to proceed in a particular policy direction.”