Higher excise on diesel ‘would reduce pollution and raise €500m’

Oireachtas committee assesses impact of various taxes on environment

Increasing the excise duty on diesel to that of petrol would raise more than €500 million for the exchequer while driving down harmful emissions from diesel vehicles, the Oireachtas committee on budgetary oversight heard on Tuesday.

Prof Edgar Morgenroth of Dublin City University's Business School said many European cities were now considering diesel bans to improve air quality, while the Republic still incentivised its use by offering a lower rate of excise duty on each litre purchased.

Prof Morgenroth was appearing before the committee to discuss a research paper he penned in conjunction with the Economic and Social Research Institute (ESRI), which details the impact of various taxes here on the environment, including the lower rate of excise on diesel.

Ireland currently adds 48 cents of excise duty to each litre of diesel purchased compared with 59 cents for petrol. Prof Morgenroth's report concluded that, given diesel's higher rate of emissions of nitrous oxide (NOx) and particulates (PM), both of which have been linked to premature deaths and strokes in humans, raising excise rates on diesel could be justified.


Emissions scandal

The VW Group emissions testing scandal has raised the public’s level of awareness of the higher rates of pollution caused by diesel powered vehicles.

“The higher levels of emissions compared to those claimed by manufacturers, combined with growing traffic volumes, have resulted in poor air quality in many European cities,” Prof Morgenroth told the committee.

He said his study assessed the response of motorists to a change in the price of diesel resulting from “excise equalisation” by using estimates of the price responsiveness of diesel and taking into account the current composition of the vehicle stock.

The study found that an equalisation of excise rates of petrol and diesel to the current rate for petrol would reduce fuel consumption, drive down vehicle-related emissions and provide a revenue boost to the exchequer.

Specifically, it found that NOx emissions would be reduced by 3.8 per cent while PM emissions would be reduced by 4.1 per cent. At the same time, tax revenue could increase by more than €500 million from the extra revenue generated from the higher rate of excise on diesel.


Fianna Fáil’s John Lahart asked Prof Morgenroth what he would say to diesel vehicle owners who bought cars after 2008 in good faith to reduce CO2 emissions and who now found themselves on the wrong side of the pollution equation and potentially facing higher taxes.

Prof Morgenroth said he appreciated that for certain drivers, especially those with regional commutes, diesel cars were still the right choice as cleaner vehicles, such as electric ones, lacked the required infrastructure.

He also said the study analysed an immediate equalisation in duty when the Government may wish to take a more phased approach to allow motorists recalibrate gradually.

Prof Morgenroth also highlighted that 10 per cent of the Republic’s tax base came from transport taxes, which was relatively high internationally, and that the revenue from excise duty on fuel would have to be replaced as the industry shifted to electric vehicles.

The Government’s Project Ireland 2040 development plan promises to ban the purchase of all petrol and diesel vehicles from 2030.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times