CO2 and you: The carbon tax explained
What is it, how much will it cost and how will it work?
The current carbon tax adds about 5.3 cents to a litre of diesel. Photograph: iStock
What is a carbon tax?
A carbon tax is a tax on the use of fossil fuels such as oil, petrol, diesel, gas, coal and peat; anything emitting CO2 when it’s burned. We already have a carbon tax levied at €20 per tonne of CO2. It raises €400 million a year but it goes straight into the general exchequer pot. It adds about €2.10 to the cost of a 40kg bag of coal; 45 cents to a bale of briquettes; and 5.3 cents to a litre of diesel.
Are we facing a hike in carbon tax to €80 a tonne?
The Government’s advisory body, the Climate Change Advisory Council, has strongly recommended Ireland incrementally increase the tax to €80 per tonne by 2030 to make a meaningful reduction in rising carbon emissions.
This would shift human behaviour to using renewable energy and make it increasingly cheaper to adopt less polluting options such as using electric vehicles.
Last year the Government planned to increase the tax in Budget 2019 to €30 per tonne which would have added about €1 to a bag of coal and about 25 cent to a bale of briquettes, as well as increasing oil and gas prices – but decided not to proceed because of Brexit fears, and other concerns about its impact on those reliant on fossil fuels such as people living in rural areas.
What is all this talk about ‘setting a carbon price trajectory’?
The case for carbon taxes is undeniable because it makes the polluter pay. Agreeing a pathway of increases up to €80 per tonne out to 2030 gives consumers, households and businesses time to adjust and change their behaviour/lifestyle, whether it’s moving away from using oil-fired burners to heat homes or driving diesel cars.
What is a ‘fee and dividend’ and a ‘hybrid’ approach?
An all-party Climate Action Committee is about to issue its final report on how Ireland should respond to climate change. The Government has signalled it will adopt its recommendations.
Fine Gael and the Green Party supports raising the tax and returning all the revenue to households as an equal cash payment. It is known as a “fee and dividend” model, which penalises fossil fuel usage and, at the same time, protects people, particularly those on low incomes, from the resulting price rises by returning revenue in an upfront cash payment.
If you spend less than the average person on polluting things, you end up with a cash bonus. If you spend more on polluting things, you end up out of pocket.
Critics, notably Fianna Fáil, say it is too gimmicky and would be hard to administer though it’s in place in other countries.
Labour and Fianna Fáil favour increasing the tax but using the revenue in specific low-carbon measures, such as retrofitting domestic buildings – the hybrid approach. This, however, favours one section of society; those who already own property and tend to be better off.
Solidarity-People Before Profit say carbon tax should be targeted at the profits of the fossil fuel industry, while Sinn Féin says it should not be increased until alternatives are in place like green public transport. The committee is due to finalise its position in coming days.
Does a carbon tax solve our climate change problem?
A carbon tax complements Government actions and gives a signal to every Irish business and householder of what they also have to do, setting us on the long-term path to sustainable home heating, electricity and transport. But this is not going to be enough, given what’s facing the world and Ireland is way out of step with most of Europe on tackling emissions.
Some climate NGOs say it’s not enough that the tax itself is done in a progressive way that protects the vulnerable; the Government has to make less polluting choices as affordable and accessible as possible for people, and it has to be seen to be doing that before the tax starts to rise.
What do the independent experts say?
The ESRI says the fee-and-dividend method would mean that by 2030 our emissions would be 17 per cent lower than in a business-as-usual scenario.
It estimates the effect on the overall economy is broadly neutral with a small increase in inflation being counterbalanced by a small increase in disposable income, as wage rates rise and our balance of payments improves.
The true cost of carbon, if accounting for its warming impact, is likely somewhere in the range of €150-€200 per tonne, it has warned. It’s currently taxed at 10 per cent of that. The result is a huge IOU to future generations.