Carbon tax in Budget 2026 to be used to ‘prevent fuel poverty’

Carbon tax gains will be used to “prevent fuel poverty”, Minister for Finance, Paschal Donohoe pledged in his Budget 2026 speech.

Carbon tax will increase in 2026, netting €157 million in a full year for the State, while opposition TDs claim that 300,000 families struggle to pay energy bills.

The Government will earmark carbon tax revenue to aid the less well off, farmers and to support the State’s efforts to meet climate targets, Mr Donohoe told the Dáil on Tuesday.

“We will spend this revenue on social welfare measures and other measures to prevent fuel poverty,” he said.

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This year the warmer homes scheme, which provides free insulation to low-income households “has seen an 11-fold increase relative to 2020 spending″, Mr Donohoe added.

More than 301,000 families had fallen behind on paying their electricity bills by the end of July, according to the latest official figures.

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A further 175,000 were in arrears on their gas bills.

The same figures showed energy costs posing problems to growing numbers of small businesses.

The news prompted opposition calls on the Government to provide cash to people to pay energy bills in Budget 2026.

Ahead of Mr Donohoe’s speech, Rose Conway Walsh, Sinn Féin’s spokeswoman on enterprise, said she hoped he would include an energy credit.

Farmers will also get support from carbon tax revenues in running their businesses in a “greener and more sustainable way”, the Minister said.

In addition, Government will spend the revenue on “just transition”, that is support for workers or businesses that lose out as the State cuts dependence on fossil fuel.

Following the 2020 Finance Act, carbon taxes are due to rise every year through to 2030.

From Wednesday, motor fuel will be taxed at €71 for every tonne of carbon dioxide it emits, a 10.3 per cent increase on the current €63.50 rate.

The new rate will apply to all other fuels from May 1st next year.

The increase will generate an extra €121 million in 2026 and €157 million in a full year, Mr Donohoe calculated.

He also noted that more than 140,000 homes in the Republic had installed their own solar panels.

This provides them with “greater energy affordability for these houses both by reducing their own energy demand and allowing them to sell excess energy to the grid”.

Carbon taxes aim to cut fossil fuel use by driving up their cost.