Carbon tax solution essential to meeting emissions goals

‘Fee-and-dividend’ approach offers way of charging companies without hitting households

This week the Joint Oireachtas Committee on Climate Action will discuss whether to recommend an increase in carbon tax in next year’s budget. The Citizens’ Assembly called for such a move and the Climate Advisory Council wants a fourfold rise in the tax, through a gradual series of increases over the next 10 years.

We also have to consider how we use the resulting revenue, so that we meet our social as well as environmental objectives. So far, three different positions have emerged from political parties.

The Green Party’s proposal has been to raise the tax and return all the revenue to every household as an equal cash payment. It is known as a “fee and dividend” model, which charges the importers of coal, oil and gas for the carbon in their fuels, and at the same time protects people, particularly those on low incomes, from the resulting price rises by returning all the revenue in an up-front cash payment.

Critics say it is too gimmicky and would be hard to administer but the State managed something similar when we refunded water charges, and there are working models in other countries which show how the administration can work.


Corporations are also going to have to pay more and governments must also step up to the plate

A second suggestion is to increase the tax and use the revenue in specific low-carbon measures, such as grant aiding the retrofitting of domestic buildings. It has the advantage of promoting verifiable mitigation actions but the disadvantage of benefiting one section of society, who already own property and therefore tend to be better off.

Taxing corporations

The third argument has been to rule out any market pricing mechanisms and instead rely on taxing corporations and using Government spending to deliver the changes we seek. Such advocates say we need to change the entire economic system but even if we ended capitalism overnight, it is unclear how we would allocate resources without some price on the future use of transport, energy and other services.

One thing we all agree on is that a carbon tax on its own will not deliver all the changes we need to make. Corporations are also going to have to pay more and governments must also step up to the plate. We need political leadership to switch from spending on roads to prioritising cycling and public transport. We need a creative administration to design a new Common Agriculture Policy which pays farmers properly for looking after our land. We need to develop a programme for retrofitting every Irish home, taking out the oil or gas boiler and putting in an electric heat pump and properly insulated walls.

The case for the carbon tax is that it complements those 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. We need to do more because Government actions on their own are not going to be enough. The National Development Plan “Project Ireland 2040” was agreed without any climate assessment, but the modelling that has since been done shows it will only bring about a third of the emission reductions we need to deliver by 2030.

Neutral economic effect

The Economic and Social Research Institute has also modelled the fee-and-dividend method of carbon pricing. It shows that by 2030 our emissions would be 17 per cent lower than in the 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 wages rates rise and our balance of payments improves.

The truth is that our entire economy is going to have to change if we are to achieve the complete divestment from fossil fuels that climate scientists say we need. The transition is unlike anything we have done before. To change everything we need to involve everyone, and every place matters. If we allow the debate to be trapped in a discussion about rival political ideologies, we may never move. We should not allow the issue of carbon tax to become the defining question in the whole climate debate. We do not want another water charges dispute, which undermines public confidence in the other big things we have to do.

The most likely outcome of the debate this week is that the committee will call for further analysis and public consultation on the options that are available to us. That period of further consideration might not be a bad thing. We need to get this right and we need the people on our side. I think the fee-and-dividend model works best by delivering for social justice as well as the environment. Others may beg to differ but we need to make up our minds quickly. Our planet is on fire and we need to get to action stations. It will soon be time to choose.

Eamon Ryan is leader of the Green Party