ESRI report suggests carbon tax would be 'regressive' as it could hit poorer households harder

ESRI report suggests carbon tax would be 'regressive' as it could hit poorer households harder

The introduction of a so-called congestion charge into Dublin would be a "lazy option", according to the Dublin Chamber of Commerce.

It comes after a report released this morning suggested it would reduce carbon emissions.

However, public transport links in Dublin would need to significantly improve if a charge is going to be considered, the Dublin Chamber of Commerce said.

The report by the ESRI looked at the impact of increasing carbon tax and stated a congestion charge model could help bring down emissions.

It suggested that such a charge could encourage more commuters to use public transport instead of their own cars.

London has a similar model in place, which charges commuters who enter the city centre in their own cars during the morning rush hour.

Graeme McQueen from the Dublin Chamber of Commerce believes the suggestion of a congestion charge is "a lazy option".

He said: "At the moment there are still far too many people around the city who don't have a compelling public transport offering, they don't even have a good bus network, let alone a rail offering or a Luas line.

"We need to focus on that first. Once we get the public transport up to speed, then we can look at how we can incentivise more people out of their cars to take public transport."

The report also found that increasing carbon taxes would reduce emissions, but income inequality would get worse.

The ESRI claimed that, as poorer households spend more of their income on energy than richer people, carbon tax is regressive, while researchers said a well-designed carbon tax could reduce emissions and alleviate income inequality.

Using data from the Household Budget Survey (HBS) from 2015-2016 - and methods to simulate how much people would buy once a carbon tax was applied - it is estimated a reduction of carbon emissions by 3.9% for a carbon tax increase of €30 per tonne, and by 10.2% for a carbon tax increase of €80 per tonne.

"Poorer households spend a greater proportion of their expenditure on energy, and therefore on carbon tax, than richer households", the ESRI said.

"Carbon taxation is therefore found to be regressive."

"However, if the revenues raised by the tax are returned to households, the overall negative effect on income distribution can be corrected."

It said that if every household is allocated an equal share of the revenues from the carbon tax, income inequality is reduced by 0.5% and 1% - when compared with the overall income inequality of a no tax scenario.

If the revenues are recycled in a manner that targets poorer households, it said that inequality is reduced even more - by 1.2% and 2.8%.

"Further reductions in carbon emissions could also come from new policy measures, such as congestion charging or improved public transportation.

"Such measures would influence the degree to which consumers switch from high carbon consumption to lower carbon alternatives".

The article's author, Miguel Tovar Reaños, said: "This research finds that environmental and distributional policy goals are not necessarily in conflict if the policy is designed correctly.

"Using Irish data, we confirm that carbon taxation is an effective way of reducing carbon emissions, which has been found to be the case in other jurisdictions worldwide."

"The existing tax and social welfare system is the obvious way to recycle the revenues in a targeted manner.

"This is also likely to be cheaper to administer than a 'carbon cheque'.

"Forthcoming research will discuss how to cycle the revenues through the tax and welfare system for Ireland."

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