The Commission on Taxation has recommended the introduction of a carbon tax which will yield revenue for the Irish State of €480 million in 2010, rising to €500 million in 2012 (based on ERSI figures). It is proposed that the tax should be levied at the earliest point of supply and should be visible at the point of final consumption. It is proposed that the tax should apply to fossil fuels consumed in Ireland, and that it should be based on tonnes of CO2 emitted by each fuel. The resulting increase in price would therefore be higher for coal and peat than it would be for petrol and diesel.
The Commission states that the rate should match the price of carbon available under the EU emissions trading scheme (ETS). Due to the fluctuations in carbon prices under the ETS, the Commission has also suggested that the Government sets a minimum floor price. Setting a minimum floor price will, according to the Commission, give a sense of certainty and help to change behavioural patterns. The Commission suggests that a price of €20 per tonne of CO2 would be appropriate (as recommended by the ESRI).
The Commission also states that the measures should be revenue neutral and recommends the gradual phasing out of Vehicle Registration Tax over a 10-year period and its replacement with taxes on motor usage. It also proposes amendments to the VAT directive, allowing for lower VAT rates for energy-efficient goods and services.
The Commission recommends that carbon tax revenue should be used, in the first instance, to combat fuel poverty. It is suggested by the Commission that measures to address fuel poverty should be biased towards schemes that target energy efficiency. The report also stresses the importance of the incentive created by the carbon tax to reduce emissions and that measures preserving the incentive of the tax to change polluting behaviour are preferable.
The Commission has forwarded its proposal on a carbon tax to the Government and it remains to be seen whether the current or future Governments will succeed in bringing the carbon tax into law. The presence of a Green Party minority as part of the Government Coalition must make it more likely that a carbon tax will be introduced. If a decision is made at Cabinet to introduce a carbon tax, the tax would most likely be introduced as part of the Finance Bill.