The option of increasing tax on diesel to cut dangerous emissions was discarded by the outgoing government amid concerns of upsetting road hauliers and increasing the cost of doing business in Ireland.
A second possibility of raising carbon tax on solid fuel was also ignored by then Minister of Finance Michael Noonan because of fears over smuggling from across the border and a possible rise in “fuel poverty”.
The two options were contained in a pre-Budget submission prepared for Finance Minister Michael Noonan last September, which has been obtained under Freedom of Information legislation by Village.
The submission on “energy and environmental options” was discussed in advance of Budget 2016 but none of the suggestions contained within it were acted upon despite growing pressure on Ireland to meet its 2020 emissions targets.
The economic cost of air pollution in Ireland has been estimated by the World Health Organisation at $2.5 billion annually but the Department of Finance submission suggests that political concerns may have played a more important role in last year’s internal Departmental debate.
An Taisce said the decision not to make the tax changes illustrated how little priority had been afforded the environment by the outgoing government of Fine Gael and Labour.
Calls from the Organisation for Economic Cooperation and Development (OECD) for “equalisation” of excise rates on petrol and diesel were disregarded, with the Department submission highlighting potentially “strong opposition”, particularly from road hauliers.
The submission explained: “There is a significant difference between the rates of excise on petrol and diesel in Ireland.
“This increased during the [economic] crisis when increase in excise on mineral oils were used to raise revenue but at the same time increases in diesel were tempered in order to protect business as much as possible”.
The submission said that changes to vehicle registration tax and the different rates had now incentivised the purchase of diesel vehicles.
However, it explained: “It should be noted that diesel is a dirtier fuel than petrol as emissions also include higher levels of nitrous oxides and particle matter”.
It said the lower tax rate on diesel of 48 cent per litre failed to take account of the “social and health” impacts from its use and made three proposals on how the system could be reformed.
A plan to increase the rate of tax on diesel to equal that on petrol (59 cent per litre) would have yielded an extra €298 million a year to the Exchequer.
The opposite idea of reducing tax on petrol to bring it into line with diesel would have cost the State €172 million annually.
A third idea – of letting the tax rates meet at half way (53 cent per litre) – would have brought in an extra €65 million in revenue each year, the submission explained.
However, in the end the excise rates remained untouched with the executive summary of the submission explaining: “Any increase in excise [on diesel] would have a negative effect on the cost of doing business in the State.
The Irish Road Haulier’s Association have campaigned for a reduction in costs and any increase in the rate of excise is likely to be met with strong opposition”.
The submission later explained that the tax rate on diesel – 5.5% above the EU average – along with the additional costs of being an island state were affecting “Ireland’s overall competitiveness”.
John Gibbons of An Taisce’s Climate Change Committee said: “There is no justification for diesel to be cheaper. This suggestion of having the tax rates meet in the middle would have actually given a profit to the State”.
Proposals for an increase in carbon tax were also jettisoned by the Department. The submission explained that the carbon tax had been extended to solid fuels in 2012 but was now causing people to source fuel from across the border.
It said: “A rate increase could lead to an upsurge in solid fuels being sourced from Northern Ireland and further exacerbate the issue”.
An Taisce’s John Gibbons said it was absurd for a government department to be setting policy on the basis of the possibility of illegal smuggling. He commented: “Since when do we set policy like this in response to people breaking the law. The answer to this is enforcement. We do not apply this logic to cigarettes so why would we do it for fuel?”.
The submission also suggested that increased carbon taxes could exacerbate the problem of “fuel poverty”. “According to the ESRI, low income households are more likely to use cheaper but more carbon intensive solid fuels”, it explained.
However, John Gibbons said this was awed logic and that allowing the poorest households continue to use such fuel was just increasing “health inequality” instead.
“If your concern is for fuel poverty”, said Gibbons, “then the answer is not cheaper solid fuels. Retrofitting is the answer, not cheap coal or other similar fuels. We are penalising these communities even further with ill health. It is a very poor argument.
“I think we have seen from 2011 to 2016, the outgoing government never prioritised environmental issues. They were happy to make noise about it and go through the motions but in terms of translating that into policy, it just hasn’t happened”.
A third proposal was also included in the Department of Finance submission for an increased electricity tax for business use.
The rate is currently set at 50 cent per MegaWatt hour (MWh), which is the lowest permissible rate under the EU Energy Tax Directive. It was suggested that this could be increased to €1. However, the proposal, which would have generated an extra €4.5 million each year, also slipped off the table and was not introduced.
As a Budget summary released by the Department of Finance explained: “There are no changes to any of the rates for electricity, mineral oil, solid fuel carbon or natural gas carbon taxes”.
Asked for comment, the Department of Finance said: “In the course of preparing for the budget a range of options are presented to the Minister for Finance across all tax heads. Ultimately, the decision to implement particular options is a matter for the Minister and the Government”.