John FitzGerald: To be carbon-free by 2050 this budget must raise taxes on polluting fuels

Over the past 18 months a lot of attention has been focused on legislating for much tougher targets for reducing greenhouse gas emissions by 2030. This increase in ambition is to be welcomed, but the concentration on targets seems to have distracted from actually implementing policies to make those targets a reality.

One of our biggest failures in translating rhetoric into action is the regime that requires a permit from a slow and dysfunctional licensing system to either plant or harvest trees, although it’s an avowed policy aim to encourage more forestry in order to sequester carbon.

The new Common Agricultural Policy regulations, to be announced later this year, offer a crucial opportunity to drive change in farming practices.

However, across a range of other sectors, the budget is a key policy tool to drive emissions reduction. Fiscal measures can play an important role to drive climate-friendly options for transport and home heating. If we are to be carbon-free by 2050, the budget must add new impetus, through its combination of spending and tax measures, to lift the pace of carbon reduction.

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Carbon tax

To date, there has been a broad consensus in the Oireachtas that carbon tax should rise each year to reach €100 a tonne of carbon dioxide by 2030. The recent spike in fossil fuel prices will, no doubt, encourage some to want to resile from this commitment.

However, pricing dirty fuels to reflect their negative environmental impacts is an essential lever to drive climate-friendly choices by business and consumers. The certainty that the price of dirty fuels will rise steadily will drive investments in green technologies, as these become progressively more cost-effective.

Carbon tax operates as a ratchet mechanism: the current price spike will disappear, but the carbon tax will ensure that the price of polluting will trend upwards.

The negative effects of higher energy prices on those on low incomes can be and should be offset by using some of the carbon tax revenue to raise welfare payments, just as happened in the last two budgets. Without that ongoing revenue stream from carbon tax, it would be much more difficult to find enough cash to adequately protect those on low incomes.

Retrofitting

The budget also needs to make a difference by directing significant resources to retrofitting social housing. As the landlord, the State has the responsibility to provide low-emissions public housing. As well as reducing overall emissions, properly-insulated homes will cut fuel bills for this group of low-income tenants. Tackling fuel poverty through this mechanism will also improve the health and wellbeing of the occupants.

With a shortage of skilled building workers, there is, however, a trade-off between how many of this workforce are deployed on retrofitting, or on building new homes. Equally there is a trade-off between providing capital for retrofitting and capital for new building. However, if we are serious about tackling climate change, we need to ensure that retrofitting gets a fair share of both financial and human capital resources.

Car tax

Probably the biggest shake-up which is needed in the budget involves how we tax cars and their use. Here there are a number of competing objectives. The government receives around €5 billion in revenue from motor transport, most of which will disappear from the exchequer when all this transport is decarbonised. Thus, in parallel with the drive to replace fossil fuel cars with electric vehicles (EVs), the State needs to transition to a more robust source of revenue from the transport sector.

The tax regime also needs to encourage acceleration of the move to EVs. To date, this has been done by means of a subsidy. However, with so many other calls for funding to tackle climate change, the Government will need to rely less on carrots, and use sticks also to drive change.

We know that altering tax on new cars played an important role in changing consumers’ behaviour in driving a switch from diesel. Charging higher registration taxes on new fossil fuel vehicles, which would still be quite usable in the 2030s, would raise the share of electric vehicles in the national fleet.

Congestion charge

London’s experience of congestion charging has also shown how effective such a measure can be in reducing emissions, and encouraging a switch to sustainable public transport, as well as dramatically reducing traffic snarls. The time for such a big change will be when Bus Connects comes on stream. However, the coming budget should prepare the necessary groundwork. The budget also needs to provide enough funding to kickstart and make progress on the public transport commitments in the National Development Plan.

So let’s hope next week’s budget is a carbon-free one.