Carbon tax could make ‘everybody better off’, Oireachtas committee told

A carbon tax can be introduced in a way that makes "everybody better off", if the revenue raised is recycled in the correct way, an Oireachtas committee was told on Wednesday.

The Oireachtas committee on climate action heard yesterday that while carbon taxes are in essence regressive, in that they are levied on low and high income earners equally, that can be offset through mechanisms to redistribute the revenues raised.

"As is the case in all high-income countries, increasing carbon tax is regressive, which means that less affluent households would pay more in carbon tax as a proportion of their total income, than the most affluent households," the committee was told by Dr Muireann Lynch, a research officer with the Economic and Social Research Institute (ESRI).

However, she said using the revenue raised in a targeted way would end up benefiting people across different income levels – and those who changed their behaviour could expect an even greater benefit.

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“The devil is in the detail, but at the broad level, you can make everyone better off,” she said. “You can redistribute the revenues in a progressive manner.”

Dr Lynch said research undertaken in the ESRI found that if revenues are recycled through increasing tax credits and social welfare payments, rather than through a lump sum, “all income deciles are also rendered better off on average”.

This contrasts with an approach of giving every household an equal share of revenues. While this approach would still make every income decile - a way of measuring and segmenting the population by their income - better off, there would be some disparities, Dr Lynch said. “23 per cent of households, across all deciles, are worse off, even after compensation, including 21 per cent of the households in the lowest income deciles,” she said.

Public services

Dr Trisha Kielty, a researcher with the St Vincent de Paul, also urged increased investment in public services to help lower income households deal with higher fuel costs after the introduction of a carbon tax.

“Unless there is greater investment in income supports, public transport and energy efficiency schemes, low income households will have to absorb these costs as they are unable to afford the switch to climate friendly alternatives. Energy poverty will increase as a result.”

The committee was also attended by officials from the Department of Finance and the Department of Climate Action, who found themselves the target of strong criticism from members who said the civil servants had failed to produce a draft policy paper requested by the committee on fuel poverty by the end of July this year.

Hildegarde Naughten, the committee chair, asked why the draft policy paper had not been produced, while Fianna Fáil's Jack Chambers asked how the public could be expected to buy into challenging actions needed to address climate change if "at first port of call, we're seeing a failure" of government departments to produce research that had been asked of them.

“If the recommendations we are making as a committee are collapsing on day one . . . it doesn’t fit with the high-levelled principled rhetoric we’re seeing on this issue elsewhere,” he said.

People before Profit TD Bríd Smith accused the civil servants present of “obfuscation”.

“It’s utterly frustrating,” she said.

Officials from the Department of Finance were also unable to say whether any progress had been made on another recommendation made in the committee’s landmark report on climate change, published in March. The report had mandated the department to commission an enquiry into the revenue that could be realised through the introduction of a carbon tax on the profits of corporations and firms directly linked to the production and sale of gas, oil, coal and other fossil fuels.