A new charge on all new petrol and diesel cars, as well as on used imports, is expected to be introduced in next week’s budget.
Numerous sources have said Minister for Finance Paschal Donohoe is likely to announce a new environmental health surcharge which would be linked to nitrogen oxide and other pollutants.
Both Taoiseach Leo Varadkar and Fianna Fáil leader Micheál Martin have said there will be climate change policies in next Tuesday's no-deal Brexit budget, with a carbon tax increase of between €5 and €10 per tonne expected.
Department of Finance officials had already earmarked an environmental health surcharge for vehicles as a potential new policy, and numerous sources involved in drafting the budget confirmed it is under strong consideration.
It would replace the 1 per cent VRT surcharge on diesel vehicles and would be paid on top of VRT.
It would apply on the "polluter pays" principle, which would mean higher surcharges for higher-emitting cars. This would hit in particular higher-emitting secondhand cars which are imported to Ireland and are then subject to VRT.
The exact rate at which such a charge will apply is not yet known, although the Department of Finance last summer laid out a number of options based on nitrogen oxide emissions. The options were for charges of €5, €7.50 or €10 per mg/km of NOx.
An average new diesel car, with an NOx level of 43mg/km, would face charges of €215, €323 and €430 respectively, while the average new petrol car would face €115, €173 and €230. The charge would likely be significantly higher for used imports.
The existing diesel surcharge is seen as problematic since a new diesel car worth €30,000 is paying twice the levy as a secondhand, higher emissions imported car valued at €15,000.