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Tuesday 3 October 2023 Dublin: 12°C
# Budget2020
Carbon tax: Petrol and diesel prices to rise from midnight, home heating to rise next May
Minister for Finance Paschal Donohoe has announced an increase in the carbon tax of €6 per tonne.

THE GOVERNMENT HAS announced an increase in the carbon tax of €6 per tonne. 

Announcing the measure in his Budget 2020 speech this afternoon, Finance Minister Paschal Donohoe said the tax hike will come into effect at midnight tonight for petrol and diesel.

For home-heating fuels, it will kick in from May 2020. The increase will bring the carbon tax up to €26 per tonne. Donohoe said the increase in the carbon tax will raise €90 million in 2020.

He also today confirmed fuel allowance will increase by €2 next year, bringing the weekly payment to €24.50 per week. The fuel season starts on 30 September and runs for 28 weeks.

The minister said the burden of the carbon tax “falls unequally” and committed to increases in programmes that help to address the causes of fuel poverty.

“I am providing €13 million for the Warmer Homes scheme to provide free energy efficiency upgrades to households deemed to be in or at risk of energy poverty,” he said.

“This reduces the energy required to adequately heat a home, thus reducing a household’s exposure to increases in energy costs.”

The Society of St Vincent de Paul said the decision to defer the increases on home-heating fuels until after the winter months is welcome. However the charity said measures to protect low income households for the impact of increases fall short. 

The Economic and Social Research Institute (ESRI) today released a new study which found a carbon tax could have adverse impacts on GDP, inequality and household income. However, it also found the impact is limited and could be reduced by using a well-designed revenue recycling scheme,.

Rural households will be more affected than urban households because they spend a greater share of their income on carbon goods, including heating fuels and transport diesel. Middle-income households face the highest price impacts in urban areas due to their high consumption of transport fuels.

“The economic and household-level impacts of the proposed carbon tax increase in the all government Climate Action Plan are limited and with a well-designed carbon revenue recycling scheme, it is possible to reduce impacts further and compensate those households most affected,” commented one of the authors of the ESRI report, Kelly de Bruin.

“However, the current plan for a carbon tax would not reduce emissions enough to meet EU targets, particularly if the Irish economy continues to grow and emissions increase accordingly. Additional climate policies are needed to ensure a transition to a low-carbon economy.”

Investment in the Midlands

Minister Donohoe said a portion of the carbon tax revenues next year will be used to fund a package targeted at the Midlands. 

“We know that climate disruption is already impacting our country. In the Midlands in particular, job losses are already being experienced,” the minister said.

Midland communities feel very threatened by the potential closure of Bord Na Móna and ESB power stations in their region.
These companies have sustained families and communities for many decades. While it is accepted that there is a need to change, it is the government’s duty to ensure that no one cohort of citizens, workers, communities or enterprises is left behind by this disruption and the Midlands will be the first region facing this disruption.

He said €20 million will be dedicated to the creation of a new energy efficiency scheme targeted, initially, at the social housing stock in the region. A further €5 million will be provided for peatland rehabilitation.

A dedicated ‘Just Transition Fund’ of €6 million is to be created, devoted to priorities identified by local communities.

Donohoe said investment of this scale in energy efficiency will support over 400 environmentally sustainable jobs, with up to 100 more jobs through expanded peatlands rehabilitation.

Benefit in kind

The minister also announced the government will replace the 1% diesel surcharge introduced last year with a nitrogen oxide emissions-based charge. 

This will apply to all passenger cars registering for the first time in the State from 1 January 2020. The charge will apply on a euro per miligram/kilometre basis, with the rate increasing in line with the level of nitrogen oxide emitted. 

“The surcharge reflects the detrimental effect of these emissions on our environment and will have a particular impact on older, more pollutant cars,” he said. 

The Asthma Society of Ireland said measures such as the carbon tax and the charge on nitrogen oxide aimed at achieving lower levels of ambient air pollution are to be commended:

 In addition, Donohoe announced the government will: 

  • Introduce an environmental rationale for Benefit In Kind for commercial vehicles from 2023;
  • Extend the Benefit In Kind zero rate on electric vehicles to 2022;
  • Extend VRT reliefs for conventional and plug in hybrids to 2020, subject to CO2 thresholds;
  • Reduce qualifying CO2 thresholds for reliefs in respect of Capital Allowances and VAT reclaim on commercial vehicles; and
  • Provide additional relief through the Diesel Rebate Scheme to hauliers to compensate that sector for the increased cost of fuel.

Funds from increased carbon tax revenue will be also ringfenced, he said, to fund new climate action measures such sustainable mobility projects like cycle projects and electric vehicle infrastructure across the country.

Donohoe said the funding will also be used to provide additional resources for Revenue and An Garda Síochána to prevent an increase of cross-border smuggling. 

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