Carbon tax could net €500m for exchequer

THE introduction of carbon taxes could boost exchequer funds by €500 million a year alongside the setting up of a climate change commission, according to a new economic report.

The increased revenue from the environmental levies could be phased in by the budget in December if needed. The increased revenue could then allow for possible decreases in income tax, the research suggests.

According to the Economic and Social Research Institute (ESRI) report launched yesterday, attempts to roll out serious environmental policy changes have been hampered by opposition from industries as well as the failure of politicians to act.

The report on reducing Ireland’s greenhouse gas emissions suggests setting up a climate change commission which would be independent, examine policies, carry out research and crucially monitor Ireland’s climate performance.

Carbon taxes could initially raise €500m a year, said the report’s author and ESRI economist Sue Scott.

Carbon taxes levied at €10 for every tonne of CO2 produced would see 2 cent added to the price of a litre of petrol, 24 cent added to the cost of a bale of briquettes and €28 put onto a tonne of domestic coal.

Other costs would be added to gas, electricity and light household fuel oil among resources.

The ESRI suggests setting the carbon tax rates at between €10 and €20 for every tonne of CO2 produced. At the higher rate, €500m could be generated for the exchequer.

The report recommends not targeting the vulnerable or less well-off, and suggests compensating them for the environmental taxes with increased welfare payments or fuel allowances.

It notes how environmental tax reform has become a feature in several EU countries, including Sweden who took over the EU presidency this month.

Government subsidies, such as funding for efficient technologies, biofuels and insulation, were insufficient on their own in addressing climate change, said the ESRI. Regulations, policies and legislation were needed to really change attitudes to climate change, it was added.

Other levies could include a ‘border tax’, where charges would be imposed on imports from abroad whose production or importation had caused damage to the environment. The United States had imposed such a tax on shrimp imported from abroad, added Ms Scott.

The report kicks to touch any possibility of nuclear power in Ireland in the near future. It said nuclear power stations would take tens of years to build and are not cost competitive with other forms of electricity.

The Minister for the Environment’s spokesman said yesterday that the ESRI report would be examined. He added: “The minister favours a carbon tax which makes the highest carbon pollutants pay more. The ESRI has already fed into the process of the consideration of a carbon tax by the Commission on Taxation.

“The Commission on Taxation is due to report to the Government shortly on a carbon tax and how it might be implemented,” the spokesman added.