There is mounting pressure on the Government to take action to ease energy costs for households and businesses amid rising prices caused by war in the Middle East.
The Coalition is taking a cautious approach, keeping any intervention under review, while resisting Opposition and lobby group calls for immediate measures.
But what are the options open to Government? How much might they cost? And how likely are they to be implemented?
Q: What are the options?
A: The previous coalition’s response to rising energy costs caused by Russia’s 2022 invasion of Ukraine gives an idea of action that could be taken. Wide-ranging temporary cost-of-living measures costing billions of euro were brought in and continued over the years that followed. They included excise cuts for fuel; reduced VAT on energy bills and a series of household electricity credits. There were also lump sum welfare payments; reduced student fees; and lower transport fares.
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Q: What could be done about the cost of motor fuel?
A: With petrol and diesel topping €2-per-litre in some places, there has been much focus on how to offer relief for motorists and hauliers. Excise on petrol and diesel was cut within two weeks of the start of the war in Ukraine, but this does not come cheap.
The initial temporary reduction was extended, and the exchequer took in €500 million less in 2022 than in 2021. The excise cuts were not fully phased out until 2024. It is perhaps the quickest measure the Government could take now, but it is politically difficult to unwind.
Q: Any prospect of moves on carbon tax?
A: The last coalition – which included the Green Party – never halted planned carbon tax increases as it responded to the war in Ukraine.
The current Government, minus the Greens, is also showing no sign of changing course on this. A carbon tax increase on home heating oil is due in May, timed to coincide with lower demand after winter. Sinn Féin and others have called for this increase to be stopped.
Tánaiste and Minister for Finance Simon Harris last week responded to such demands saying planned carbon tax increases are legislated for since 2020, and pointing out that proceeds fund retrofitting homes and helping those at risk of fuel poverty. Carbon tax brings in more than €1 billion per year overall, and it aligns with climate action ambitions. It is highly unlikely the Government will scrap the planned increase.
Q: Will anything be done to help with energy bills?
A: Rising gas prices are expected to lead to higher electricity bills. The use of electricity credits are not currently being countenanced within Government.
The €600 worth of electricity credits in budget in 2023 alone was expected to cost €1.2 billion. Overall, some €1,500 of electricity credits were paid to all households, regardless of need, in recent years.
The current Government has emphasised a preference for targeted supports since taking office. One such measure in last year’s budget is the fuel allowance increase and expansion to cover 50,000 more low income households, and they will get the payments this month.
Another existing support is the reduced 9 per cent VAT rate on electricity and gas bills, though its impact on household finances is relatively minor. The average annual saving has been put at about €53 for an electricity bill.
Q: What are the chances of supports being introduced soon?
A: Uncertain. The Coalition is approaching the issue with caution.
There was discussion about increased energy prices at Cabinet on Monday, but no specific action was recommended at this time. The situation will be monitored.
There is a view within Government that the response to energy price hikes should come at a European level. Ministers want to see what proposals may emerge from Brussels.
The Coalition is for now holding off on decisions to ramp up supports. Its hand may be forced should the war in Iran become prolonged.
Speaking to reporters on Monday, Harris said the Government is “keeping everything under review” when asked about any interventions to help struggling households.
He also stressed the importance of making the “right decisions”. He added: “Something that could seem right this month could indeed turn out to be wrong next month. So we’re monitoring this situation very, very carefully”.
The Coalition is for now holding off on decisions to ramp up supports. Its hand may be forced should the war in Iran become prolonged.
