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Carbon tax could see emissions drop by 10% and increased tax revenue could benefit poorer families

Last year, Finance Minister Paschal Donohue considered introducing higher carbon taxes but ditched the idea at the last minute.

Image: Shutterstock/Giem6395

A CARBON TAX could reduce emissions by up to 10% and reduce income inequality despite concerns poorer families would be worst hit by a tax, research from the Economic and Social Research Institute has claimed.

A paper published today claims an increase to €30 per tonne on carbon emissions would see an almost 4% drop in emissions, with a gradual increase of up to €80 per tonne by 2030 delivering a 10% drop in carbon emissions.

Carbon tax currently applies to carbon dioxide emissions from the burning of turf, coal and other fossil fuels. It is charged at €20 per tonne of CO2 and is applied at the point of sale.

The research specifically relates to the effect the tax would have on running private vehicles and home heating and means citizens would see an additional weekly expense of €3 initially, which would rise to around €7 by 2030.

This framework is based on the Oireachtas Joint Committee on Climate Action recommendation of a gradual increase of up to €80 on carbon tax.

Lead author of the research, Miguel Angel Tovar said the impact that would have on households would depend on individual income levels.

Income inequality

However, the paper also examines the ways in which income inequality can be positively impacted by the introduction of increased carbon taxes.

It states that the revenue raised through the increase in carbon taxes could be targeted towards poorer families and reduce income inequality by up to 1% initially, with the gradual tax increases leading to income inequality being reduced by up to 2.8% by 2030.

“One way of recycling the income raised through a carbon tax is by having a carbon cheque, which other countries call flat allocation,” Angel Tovar explained. 

“It is a mechanism by which the revenues reach each household evenly but there is also some different administrative costs in this.”

“But the main idea here is instead of giving a cheque, we may be giving money in social welfare transfers to those on lower incomes.

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“You can give them the money through means tested benefits which is established already and so you could give them more money and the administrative costs thus get diminished.

“One issue is the environmental target and the other issue is income inequality and you can tackle both when you apply the carbon tax, raising [revenue] and giving it out based on income level.”

Last year, Finance minister Paschal Donohue considered introducing higher carbon taxes in Budget 2019 but ditched the idea at the last minute.

Both Donohue and Taoiseach Leo Varadkar have said there is a long-term trajectory involving carbon taxes required if Ireland is to meet its climate change objectives.

A report from the ESRI last year, which was welcomed by the government, concluded that the current carbon tax has a minimal impact on consumers and producers, and did not act as an incentive to decarbonise.

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