Carbon tax to drive up fuel costs

 

The new carbon tax at a rate of €15 per tonne will result in increases of 4.2 cent in the price of petrol and almost 5c in the price of diesel from midnight tonight.

The Minister for Finance Brian Lenihan announced the measure in today’s Budget speech, saying it was designed to change behaviour to reduce greenhouse gas emissions.

“The most effective way to to put a price on carbon. This will encourage innovation by incentivising companies to bring low carbon products and services to the market,” he said.

The measure will yield a total of €250 million next year and some €330 million in a full year.

Notably, the Minister said that not all of the revenue would be ringfenced to encourage lower carbon emissions. He said some would be used to boost energy efficiency, some to support rural transport and some to alleviate fuel poverty.

He added that the tax “will also allow us to maintain or reduce payroll costs”, an indication that it will not be revenue neutral.

Some €50 million of the revenue will be used to fund measures for households at risk of fuel poverty to make their homes warmer.

The excise changes for oil, gas and kerosene will come into effect from tonight but price increases in coal, peat will not occur until May 2010.

The changes will lead to increase of an estimated 39 cent for a bale of peat briquettes and €1.79 for a 40kg bag of coal.

The latest study from the ESRI estimates the changes will cost households an average of between €2 and €3 per week, or up to €156 per year.