Carbon tax crunch on the horizon as budget is sure to go green
The forthcoming budget is likely to see a major shift towards so-called environmental taxes.
It will come as no surprise should the Government decide to ramp up carbon tax, VRT and excise ahead of it’s 2020 commitments to reduced its greenhouse gas emissions by 20%.
Already carbon tax is applied to fossil fuels at a rate of €20 per tonne. Excise is applied to petrol, diesel and other mineral oils. VRT is applied at varying rates on vehicles depending on their CO2 emissions.
A range of tax supports are available to encourage a switch to environmentally friendly equipment. For instance unregistered farmers can avail of Vat refunds on photovoltaic solar panels and wind turbines used on their farms.
Energy efficient equipment can qualify for a 100% write off (capital allowances) over one year rather than the usual eight-year period.
Fully electric cars can be provided to employees at a zero rate of benefit-in-kind with an indication that this position will be maintained for at least three years.
However as the 2020 deadline draws nearer it’s clear the Government will need to make some radical changes to arrest the expansion of emissions let alone bring them into reverse. A further reduction to a total of 30% below 2005 levels is our target for 2030.
The Climate Change Advisory Council has in recent weeks highlighted that we as a nation are entirely off track when it comes to meeting our targets. Instead of achieving the necessary 1m tonnes per annum reduction in carbon dioxide emissions in line with our own national policy, Ireland is increasing emissions at a rate of 2.1m tonnes per annum.
In fact, over recent years our total emissions have increased, by 3.6% in 2016, and an expected further rise in 2017 and 2018 predominantly as a result of the pickup in the economy, increased manufacturing and increased transport.
Figures from the EPA National Emissions Inventory 2018 show emissions produced by agriculture have remained near static since 1990, though there is an expectation they will increase due to the expansion of the national dairy herd.
The EPA’s emissions projections indicate that, by 2020, a slight reduction of less than 1% of the target will be achieved. Their projections indicate strong growth in emissions nationally and across key sectors in the coming decade resulting from strong economic growth and relatively low oil prices.
Even by implementing additional measures already proposed it will take at least a decade to make any meaningful change to emissions when peat-fired electricity generation will come to an end.
The report notes agricultural emissions are projected to rise by 3.3%-4.4%, or between 0.7m and 1.3m tonnes of carbon dioxide equivalent, by 2020, relative to 2016 levels, as a result of increased milk production and nitrogen usage.
The introduction of measures such as GLAS (Green Low Carbon Agri-Environmental Scheme) and the regulations surrounding the spreading of slurry by trailed shoe for farmers who are in nitrates derogation demonstrate how farmers are required to play their part in reducing their emissions.
The Climate Change Advisory Council has recommended that carbon tax is increased from €20 per tonne to €30 per tonne in 2019 rising to €80 per tonne by 2030.
The current carbon charge of €20 per tonne adds 5.3c per litre to the cost of diesel, increasing the carbon tax to €30 would result in a price hike of 2.65c per litre for 2019 rising to an extra 15.9c per litre by 2030. Vat is chargeable on top of these price hikes.
As heavy users of diesel, large farmers and contractors would face increased costs running into thousands of euro per year under such a scenario.
The report outlines projections that Ireland will miss its 2020 target by 16m tonnes of carbon equivalent whereas the EU as a whole is expected to meet its target. Ireland will be required to either pay fines or purchase carbon credits from countries who have exceeded their emission reduction targets.
Nationally the failure to arrest our carbon output will cost us dearly. The annual cost of purchasing credits has been estimated at between €200m and €600m.
It is likely that future action to reduce emissions will involve both a carrot and stick approach. Farmers can expect tax changes in this year’s budget as agriculture will not be granted immunity.
A greater emphasis will also be placed on forestry and agroforestry as the Government will hope to capitalise on carbon credits associated with land usage changes.
