THE GOVERNMENT has repealed the multimillion euro carbon levy on fossil fuel-based energy generation, which had allowed energy companies to increase wholesale electricity prices.

The levy had raised an estimated €75 million for the exchequer in 2011 and a further €45 million between its implementation in July 2010 and the end of that year.

It was repealed with immediate effect on Friday.

The policy was brought in by former Minister for Energy Eamon Ryan in 2010 to prevent the operators of gas and coal-burning electricity plants from making windfall profits by including a notional “opportunity cost” of EU carbon credits in their wholesale prices, when they actually received these credits for free.

But in February, the Supreme Court ruled that energy companies could lawfully include the cost of the carbon levy itself in their prices when selling electricity into the island of Ireland’s single electricity market.

The case was brought to the Supreme Court by Viridian Power, the operator of a gas-fired power station in north Dublin, after it lost a similar case in the High Court in 2010.

The Supreme Court judgment did not challenge the carbon levy legislation itself, only the Single Electricity Market Committee’s attempt to prohibit energy companies from recouping the cost of the levy in their prices, a spokeswoman for Minister for Energy Pat Rabbitte said.

Nonetheless, the Minister “has decided to end the charging of [the levy] to mitigate the increased costs the inclusion of [the levy] has on electricity prices”, she added.

A spokesman for Viridian Power welcomed the repeal, describing it as “the appropriate thing to do for customers” because the levy “added costs in the electricity market”.

Under the EU’s emissions trading system, the energy and industry sectors must surrender a carbon credit for each tonne of the greenhouse gas that they emit.

From next year, Irish energy companies will have to buy these credits at auctions or on the secondary carbon market. This is intended to act as a disincentive to climate change-causing pollution.

But in the current, preliminary phase of emissions trading, European energy companies receive most or all of their allowances free from the EU.

Nevertheless, Irish firms have been passing on a notional “opportunity cost” of carbon credits in their prices, which means that rather than being penalised for polluting they can actually make windfall profits under the emissions trading system.

The carbon levy had taxed energy companies every three months for their carbon emissions over the period multiplied by 65 per cent the average cost of EU carbon credits over the period.

In 2011, the Republic’s power sector emitted 13.7 million tonnes of carbon, EU data shows.

On Friday, carbon credits for December 2012 delivery, the benchmark contract, closed at €6.91 per tonne on the ICE Futures Europe carbon exchange in London.

Green Party leader Eamon Ryan said he was disappointed at the Supreme Court ruling, because the levy had been in line with the “polluter pays principle”.

“An important balance was provided so the corporate sector was paying its carbon share. It was only for a limited duration, until the end of the Kyoto period and I thought it was an appropriate response,” Mr Ryan said of the levy.

The carbon revenue levy was separate from the carbon tax on fuels, which remains in effect.