The 2020 carbon tax increase – is it still justified?

Photo by Dexter Fernandes from Pexels

Last Friday 1 May marks the first day the new carbon tax rules take effect on Irish households. The household carbon tax was raised by €6 to €26 per tonne of carbon dioxide in the budget 2020. This is the first step towards the Government’s commitment of increasing the price of carbon from €20 to €80 a tonne by 2030.

The increase on auto fuels came into effect on 9 October 2019 when the budget was first drawn up but the increase to household was delayed until last Friday – after the winter heating season. The increase is expected to raise €90m in 2020. All of this will be ringfenced to fund new climate action measures. Set out in the infographic below are details of what the government plans to spend this carbon tax revenue on.

 

When the budget was drawn up in October, the main economic challenge facing the country was Brexit and preparation for a No-Deal Brexit underpinned the budget. But climate change was earmarked as a significant challenge also. This additional tax was brought in to generate funding to invest in carbon reducing projects. The core idea being, if carbon is more expensive, consumers are incentivised to consider low carbon reducing alternatives.

At the time, the finance minister Paschal Donohue, committed to the €90m generated in 2020 being invested in electrical vehicle schemes and to re-investment in the midlands where climate disruption is already impacting jobs with the closure of the Bord na Mona power station.  Among other projects such as greenway/ urban cycling pursuits, €5m was to be allocated to peatland rehabilitation which will support the reduction of greenhouse gas emissions and enhanced bio-divisity.

The below video from RTE Prime Time, sums up some of the challenges posed by the new carbon tax. The hike in the price of carbon means 900 litres of home heating oil may increase in price by between €15 and €16, a 12.5kg bale of briquettes could cost around 15c more and a 40kg bag of coal may go up by more than 70c. There is a concern that the tax will be a financial burden on the poorer in society at a time when there are not sufficient low-carbon energy alternatives, so they have no choice but to use it. As such, part of the government’s plan for the €90m generated in 2020 is a €2 increase in the weekly fuel allowance. But will that be enough?

 

Today we are living in the strangest of times. 1 May has been and gone and there has been little to no mention  in the media of these new carbon tax rules coming into play. Coronavirus dominates the headlines such that everything else seems to slip under the radar. But this should not be allowed to slip. Clarity is required on this tax.

When it was agreed in October 2019, there was a clear plan of action for the revenue generated as part of an agenda to reduce carbon emissions. The first estimates from the government on the impact of the Covid-19 crisis indicate government borrowing will be about €23 billion. With debt like that to pay, will the government still be able to invest the revenue into carbon reducing projects? And if not, should this tax go ahead or is putting too much strain on a country that is already burdened down with the weight of the costs of a pandemic that is causing jobs to be lost and businesses to close?