DOMESTIC FUELS:THE INTRODUCTION of a carbon tax will result in increases in prices of petrol, diesel, coal, gas and other forms of domestic fuel like peat briquettes, the commission has said.
The carbon tax was specifically mentioned in the commission’s terms of reference and it has decided that it should apply to fossil fuels consumed in Ireland, based on the proportion of carbon in each.
That will mean that the increase in price will be higher for coal and peat than it will be for petrol and diesel.
The commission does not recommend the pricing point of the tax but does say that it should match the price of carbon in the EU’s Emissions Trading Scheme (ETS).
But because of the volatility of carbon price under the ETS, the commission has also suggested that the Government sets a minimum floor price. It does not specify what this price should be but suggests €20 per tonne of CO2 as appropriate, a figure that has been recommended by the ESRI and other bodies.
“A floor price for carbon would be appropriate. We suggest that a rate of €20 might be reasonable in meeting the objectives of a carbon tax as outlined above.
“The advantages of a floor price include certainty and revenue yield.
“Our general philosophy [is that] taxes should not be too cyclical,” states the commission.
If that price is implemented by Government, it will mean increases of 5-8 cent in the price of petrol and diesel; a rise of almost 50 cent for a bale of briquettes; as well as an increase of €60 in the price of a tonne of coal.
Using ESRI figures, the commission notes that a tax of €20 per tonne of CO2 would raise revenue for the State of €480 million in 2010, rising to €500 million in 2012.
The commission says the measures will be revenue neutral. Accordingly, it recommends that the gradual phasing out of VRT over a 10-year period and its replacement with taxes on motor usage.
It also recommends amendments to the VAT directive to allow lower VAT rates for energy-efficient goods and services.
It also expresses approval for a focused car scrappage scheme confined to purchases of electric cars and vehicles with very low emissions.
A carbon tax should be levied at the earliest point of supply and should be visible at the point of final consumption.
“We want to ensue that behavioural change aspects are maximised and it is not seen as ‘just another tax’.”
The commission notes that “the relative success of environmental policy cannot be measured in terms of tax yield, as a measure that is comparatively minor in revenue terms may be very important in environmental terms”.
In justifying the setting of a floor price, the commission notes that prices for carbon under the ETS has been very volatile. They fell from €20 per tonne in November 2008 to €8 in June.