Double-digit rise in tax on fuel needed to curb carbon emissions

Dublin Economics Workshop hears call for shift from ownership taxes such as VRT and motor tax towards usage taxes such as excise duty on fuels and congestion charges

Car emissions: the environmental damage caused by emitting an additional tonne of carbon dioxide is estimated at approximately €100. Photograph: iStock

Excise duty on diesel and petrol would have to go up by 14 cent and 12 cent a litre respectively to meet recent estimates on the social cost of carbon, the Dublin Economic Workshop’s annual conference in Wexford heard on Friday.

Dublin City University (DCU) economist Edgar Morgenroth said the environmental damage caused by emitting an additional tonne of carbon dioxide is estimated at approximately €100. The State’s carbon tax is currently levied at a rate €56 per tonne of emissions.

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Lifting the tax to reflect this social cost would result in significant increases in excise duty on transport fuels, he said.

“If one applies the social cost of carbon of €100, the carbon component of mineral fuel tax should increase by 14 cent per litre of diesel and by 12 cent per litre of petrol,” he said. As the cost of these environmental damages increases, so too must the price placed on emitting, Dr Morgenroth told delegates.

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The Government has legislated for annual increases to the carbon tax of approximately €7.50, until 2029, and €6.50 in 2030 when the rate is due to reach €100 per tonne of carbon dioxide.

Dr Morgenroth advocated a shift away from ownership taxes such as vehicle registration tax and motor tax towards usage taxes such as the current excise duty regime but also possibly congestion charges. He said research showed this was a “more effective way of taxing in terms of behaviour change”.

The Commission on Taxation and Welfare in 2022 advocated the introduction of congestion charges in Dublin and other urban centres similar to those already in operation in London, Stockholm and Milan.

In his address, the academic noted that while one of the social costs of driving was carbon emissions, it was not the only one. Another underappreciated one was the damage done to roads by vehicles, wear and tear that is strongly correlated to the weight of the vehicle.

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Despite being responsible for just 2 per cent of the kilometres driven each year on Irish roads, tractors do six times more road damage than all the cars combined Dr Morgenroth said, “and that’s assuming they [the tractors] don’t carry any load”.

“Roads get damaged by use but very few people talk about this,” he said.

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Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times