Explainer: What are the main options for a carbon tax in Ireland?

What is a carbon tax?

A carbon tax is a penalty on oil, petrol, diesel, gas, coal and peat; any fuel that emits CO2 when burned, such as in heating a home or driving a car.

We already have a carbon tax levied at €20 per tonne of CO2, which was introduced by a Fianna Fáil-Green coalition in 2010. It raises some €400 million a year but goes straight into the Exchequer pot rather than funding green alternatives. 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?

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The Government now has a strong mandate to increase carbon taxes in the 2020 Budget, details of which will be announced this autumn, if it’s still in power at that point.

This is primarily because of a unanimous decision of the Oireachtas Committee on Climate Action in finalising its recent report on how Ireland should decarbonise. Sinn Féin and People Before Profit (PBP) were the only parties to oppose the move.

Minister for Climate Action Richard Bruton has confirmed this is the likely course of action. The tax is set to increase to €30 per tonne. But the emphasis will be about "carbon pricing" and putting in place a penalty for damaging the environment.

There will be a clear signal to increase the tax steadily to €80 per tonne by 2030, when it will no longer be possible to buy briquettes but all other fossil fuels will be much more expensive.

Supporters of the tax say it’s critical to shifting human behaviour to the extent necessary to decarbonise Ireland. This means shifting to using renewable energy and making it increasingly cheaper to adopt less polluting options such as using an electric vehicle, or a heat pump in the home rather than an oil burner.

Last year, the Government planned to increase the tax to €30 per tonne but controversially backed off because of Brexit fears and concerns about its impact on those reliant on fossil fuels.

Is a carbon tax unfair on those dependent of fossil fuels?

Carbon taxes, if incorrectly or unfairly applied, hit people who are very dependent on fossil fuels or those who live in “fuel poverty”; invariably the less well off. This is particularly true for people living in rural areas, who may not have an alternative to a diesel or petrol car. Many cannot afford to switch to an EV, for example, based on current prices.

But it’s possible to protect the less well off. One way is to give the revenue back to consumers or householders by way of dividend and to increase fuel allowances for those on social welfare.

The latest ESRI analysis confirms its earlier research, indicating carbon taxes work and if well designed with supports for the less well off, can significantly reduce emissions. When combined with other measures such as improved public transport or congestion charges, it can yield substantial reductions.

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.

Remarkably, this can shift behaviours in big numbers towards using less polluting fuels, though some dismiss this approach as a gimmick.

PBP wants carbon tax to be targeted at the profits of the fossil fuel industry, while Sinn Féin says it should not be increased until alternatives, such as green public transport, are in place.

What is the significance of ‘setting a carbon price trajectory’?

The case for carbon taxes is undeniable because it makes the polluter pay. A clear pathway of increases gives consumers, households and businesses time to adjust and change their behaviour/lifestyle.

Will the €80 per tonne carbon tax rate be the end point?

A carbon tax will complement moves to reduce emissions but a wide range of climate actions are essential given what’s facing the world due to global warming caused by human activity. Going beyond the €80 per tonne rate after 2030 is inevitable. The true cost of carbon, if accounting for its warming impact, is at least €200 per tonne.

What happens next?

A policy of increasing carbon taxes will be endorsed in a whole-of-government report on tackling climate disruption, due to be published shortly.

A consultation process will then be initiated to consider how those most dependent on fossil fuels can be protected, and on how the revenue raised will be used to support the transition. Options include funding or subsidising the adoption of renewable technology or the retrofitting of homes to make them fuel efficient and zero-carbon.