The Government’s plan to increase carbon tax gradually over a period of years to reduce the use of fossil fuels is attracting increased controversy due to the surge in energy prices. It is still the right thing to proceed as planned. However, carefully thought-out measures are also needed to help less well-off households now being hit hard by higher energy costs.
This may seem a contradictory approach – but it isn't. Proceeding with the carbon tax increase sends an important signal. It is part of a multi-year process designed to reduce fossil fuel use to combat climate change, a policy goal where Ireland is now facing very challenging targets. It is also a vital part of the coalition agreement and abandoning it would cause severe difficult for Eamon Ryan, the minister overseeing the climate change programme, and his Green party colleagues.
We don’t know what will now happen to energy prices over the coming years. So it makes sense to leave the carbon tax increases in place, while using other – temporary – measures to compensate those who need help. With the increase of €7.50 per tonne of CO2 for this year already in place on motor fuels , the issue is the impact on home heating bills, due to come into effect in May. In terms of gas – where bills have shot higher – this will be modest at an additional €1.50 a month on average. The additional cost on a 900-litre heating oil fill would be €20, again only a fraction of the massive rise in this fuel and equating to less than 2 per cent of the price.
Taoiseach Micheál Martin has said that measures will be brought in to “offset” the increase. A cut in VAT on fuels, the likely next move, has yet to be cleared by Brussels and may not be possible. Some further temporary reduction in excise duties could be considered. Beyond that the Government has a range of measures available through the welfare system and via taxes to target specific groups.
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The State cannot compensate everyone for higher energy prices. In this debate carbon taxes are a bit of a distraction – a lightning rod but not the central issue. Higher energy costs leave Ireland worse off, because we are an energy importer – there is only so much the Government can do and it needs to focus its resources on those who need it most.
The carbon tax is a well thought-out structure, with revenues ring-fenced for a variety of social protection programmes, energy efficiency investments and supports for areas like electric vehicle grants, greenways, a just transition fund and supports for green farming. Much remains to be done to support society towards the required transition, but a clear link between carbon tax and this spending makes sense. It is another reason to keep the planned process of gradual annual increases in place.