Reform of carbon tax is latest sticking point in government formation talks

Taoiseach tells FG parliamentary party it may be next week before deal is finalised

Reform of the carbon tax has become one of the sticking points in government formation talks, with the Green Party calling for people to be given direct refunds for paying the levy.

The Greens favour the so-called "fee and dividend" model, which sees people given a rebate from the State to compensate for higher costs they may incur as a result of increasing carbon tax.

Taoiseach Leo Varadkar on Tuesday evening told the Fine Gael parliamentary party it may be next week before a deal between Fine Gael, Fianna Fáil and the Greens is finalised.

The budget agreed between the Government and Fianna Fáil last October, as part of the confidence-and-supply deal, increased carbon tax by €6 a tonne to €26 a tonne. The current Government target is to increase the tax to €80 a tonne by 2030. The Greens have called for a rise to €100 a tonne over the same period.


Although the Taoiseach had previously suggested adopting a similar model to the "fee and dividend" approach favoured by the Greens, Fine Gael and Fianna Fáil last year settled on a model which saw some of the revenue raised from carbon tax ringfenced. This money was then channelled into measures to tackle climate change, such as investing in new agricultural environmental schemes, rural transport, greenways and walkaways as well as a fund to help areas of the midlands where Bord na Móna and the ESB are significant employers.

Fianna Fáil and Fine Gael are said to be firmly of the view that the so-called “hypothecated” model they agreed on last year should remain.

It is understood that one solution being considered in the talks would see a greater level of money generated through the carbon tax then given back to some people through the social welfare system.


The issue of investment in roads infrastructure is also continuing to cause difficulties, with the Greens insisting on an independent audit of all the roads projects either underway or at the planning stage. The Greens want a 2:1 split in favour of spending on public transport over roads. However the two larger parties want to sustain investment in roads in addition to investment in cycling and walking infrastructure.

Mr Varadkar last week emphasised the importance of roads projects – a "red-line issue" – as set out in the Project Ireland 2040 plan, as well as support for rural Ireland and middle Ireland.

The government formation talks were also told last week that many contracts have been signed for Project Ireland projects and both Fianna Fáil and Fine Gael accept that capital investment must be reviewed.

However, it is maintained by those in the bigger parties that this should be done by the next Cabinet but the Greens favour a different approach to detail what stages all roads projects are at.


Separately, Fianna Fáil councillors in Leitrim have written to party leader Micheál Martin, deputy leader Dara Calleary and general secretary Sean Dorgan opposing coalition with Fine Gael and the Greens.

The letter signed by six councillors said they “fear for the future of the party following our participation in government as proposed”. It said they had discussed “our once great party going into government with Fine Gael and the Green Party”.

“We are unanimous in our opposition to this, and we are also very disappointed that local councillors and party members have little or no say in decision-making anymore.”

Tánaiste Simon Coveney on Tuesday night told the Fine Gael parliamentary party that fiscal responsibility will be at the core of any programme for government agreed between the parties, adding that such a document will reflect Fine Gael's influence.