Transcript Paper 1-PPS

The Irish Carbon Tax
Frank Convery and Louise Dunne
University College Dublin
•
•
•
•
•
Economy & Emissions
History & Lead-up
Key features of Tax
Other Environmental Taxes in Ireland
Next steps
Ireland CO2 equivalent emissions & GDP
(OECD (2010), EPA (2009a))
Ireland CO2 emissions/GDP (using
exchange rates) 1970 – 2007 (IEA,
2009)
Recent History
From 2000 onwards carbon taxes in government discussions:
•2000: The National Climate Change Strategy
•2002: Budget Speech
Huge opposition from business
•2004: the Minister announced that the Government has concluded its
examination of carbon energy tax proposals and had decided not to introduce
such a tax
•2007: National election, after which the party with the largest number of seats
(Fianna Fail) combined with the much smaller Green Party to form a
Government. Combating climate change was prioritized by the Green Party
•2007: Programme for Government commits to reducing its greenhouse gas
emission by 3% annually over the lifetime of the Government and identifies the
phasing in of appropriate fiscal instruments, including a carbon levy, on a
revenue neutral basis over the lifetime of the Government as a key policy
instrument.
Commission on Taxation (2009)
• Terms of reference in relation to carbon tax were quite
specific: Commence work immediately in the area of
the carbon tax, because it required a new tax charge
and structure and were reminded that the report
would assist the Government in assessing the structure
and implementation of a carbon levy in Budget 2010.
• The Commission received submissions from Irish
stakeholders during the process.
• Recommendation 9.1 of the final Commission report is
that ‘A carbon tax on fossil fuels should be introduced’
(p. 342) of €20 per ton CO2 (to be linked to the
international carbon market in subsequent years).
Key features of Irish Carbon tax
•
•
•
•
•
•
A carbon tax at a rate of €15 per tonne of carbon was introduced on fossil fuels in
December 2009. The tax applied to petrol and auto-diesel with effect from
midnight, 9 December 2009; and from 1 May 2010 to Kerosene, Marked Gas Oil,
Liquid Petroleum Gas (LPG), Fuel Oil and Natural Gas.
Amount of €15 applied as close to EUETS price and seen as bearable and a good
starting point
Coal and Peat are covered but subject to a Ministerial order so no specific date yet.
One of the big problems is smuggling of coal across border from N. Ireland.
The carbon charge was applied also to aviation gasoline, which is aligned to the
petrol rate, and the rates for heavy oil used for recreational flying and boating,
which are aligned to the auto-diesel rate (Department of Finance, 2010).
The charge is also applied to heavy oil and liquid petroleum gas that is used for
horticultural production in a glasshouse, or for the cultivation of mushrooms.
There is relief provided for biofuel, and for biofuel that is mixed or blended with
hydrocarbon oil where the biofuel accounts for more than 10 per cent of that
mixture or blend (Ibid.)
Administratively it is an upstream tax, as there are a small number of suppliers.
Key features of Irish Carbon tax
• Exemption from the tax applies to participants in the EU Emissions
Trading Scheme (ETS) in respect of fuels so covered. On that basis,
electricity is not covered by this tax. There is a full relief from the
tax for gas and solid fuel which is shown to the satisfaction of the
Revenue Commissioners to have been supplied for use in the
generation of electricity, and for a partial relief from the tax for any
gas delivered for use in an installation that is covered by a
greenhouse gas emissions permit.
• Estimated to raise €330M per annum (50% from transport; 30%
other oils; 20% gas, coal, peat)
• Pure Carbon tax – Ireland a forerunner
• No specific earmarking but revenue to be provided for
– Boosting energy efficiency
– Rural transport
– Compensating lower socio-economic groups
Impact on Emissions
•
•
The table below assumes a carbon tax of €20/tCO2, rising to €38 t/CO2 in 2020 with
revenue used to reduce income taxes (Tol et al., 2008). Most of the reductions are
in the power generation sector. Without climate policy, carbon dioxide emissions
in 2020 would be 10% higher. Most of the emission reduction is realized in
electricity, where emissions fall by 34%. This compares to a target of 20%. In the
rest of the economy, emission reduction is only 1%. This compares to a target
reduction of 39%.
The impact of climate policy on 2020 carbon dioxide emissions (000 tCO2
equivalent) (Tol et al., 2008, p.9)
CO2 from
power
generation
CO2 from
other sources
Total CO2
No policy
Tax + ETS
Difference
Target
15,307
10,074
5,232
-34%
-20%
42,273
42,680
532
-1%
-39%
58,049
52,285
5,765
-10%
-27%
Other exemption negotiations
• Negotiations were underway to allow full or
partial exemptions/rebates to companies in
strong binding agreements. The Commission on
Taxation (2009) report suggested the carbon tax
design should allow for the possibility that
companies with legally binding action-based
and/or target-based emissions reduction
agreements with Sustainable Energy Ireland (SEI)
could be accommodated. (ISI 393/EN 16001)
• However, these firms will not be exempt
Equity
• The overall expected additional costs on households is €2-€3 per
week . Extra cost ranges from €150 p.a. (€100 direct & €50 indirect)
in lowest socio-economic decile to €300 p.a. at highest level. The
average is approx. €240 p.a. (€140 direct and €100 indirect)
• Inflation effects estimated to be 0.35% in a full year
• Accompanying measures announced are aimed at improving the
energy efficiency of low-income households. €50m of carbon tax
yield will be used to help those at risk of fuel poverty and €130
million allocated for energy efficiency measures. A vouched fuel
allowance scheme will be introduced to offset the increases for low
income families, which still has to announced in detail. An InterDepartmental/Agency Group on Affordable Energy convened by the
Department of Communications, Energy and Natural Resources is
due to make recommendations on the precise nature of the
measures.
Fuel poverty in Ireland
• In 2005, 15% of households spent over 10% of
their income on energy and this is expected to
rise to 19% of households in 2010 (due to energy
prices rising higher than incomes) (Tol et al.,
2008).
• New tax is regressive, but this can be addressed
with compensation measures. However, this will
miss approximately 55,000 households
• Regional distribution issues in commuter belt
Fuel Tourism
• It is estimated that between 5 and 9% of petrol and up
to 20% of diesel sold in Ireland was consumed abroad
(drivers from Northern Ireland and trucks getting on
ferries) (Fitzgerald et al., 2008). This data is from
models rather than sales figures.
• Highly dependent on Euro/Sterling exchanges and
relative excise in UK and Republic of Ireland over time.
• The carbon tax would be expected to reduce the extent
of this and associated CO2 (though it would rise in UK).
The overall loss to the Irish exchequer is estimated to
be €9M
Other issues
• Although methane from agriculture is up to
30% of Irish greenhouse gas emissions it was
not included in new taxes in the 2010 budget
due to political considerations, problems of
measurement and complex administration
• July 2010: Tax on the carbon windfall profits of
utilities - they had benefitted from the free
allocation of allowances in the EU ETS
Why now?
• Ireland has had a coalition government between
one of the major political parties and the Green
party for the past 3 years which led to the
Programme for Government discussed above and
the commitment to introduce a carbon tax within
the lifetime of the government.
• Timing: due to the recession of the past 2 years,
there is a need for general tax revenue.
• Ireland has been promoting a framework of
transitioning to a ‘Smart Economy’ (which
includes environmental sustainability image)
Why now?
• There have been good statistics, modelling and forecasting available
to government from various think tanks, researchers and NGOs as
well as a increasing consensus amongst commentators that the
polluter pays principle is an important aspect of dealing with
environmental problems
• As the tax does not apply to large emitters who are part of the EU
ETS, and the large emitters who are not part of this entered into
negotiations with the government to employ voluntary agreements
instead of a carbon tax, the most influential lobby groups did not
oppose the tax.
• The lengthy and detailed stakeholder consultation process that the
Commission on Taxation invited resulted in this new tax being well
thought-out, more politically acceptable and nuanced than it would
have been without this.
Other Environmental taxes – paving
the way
Plastic Bag levy
– Initially set at €0.15 per bag and was raised to €0.22 in
2007
– Number of bags sold dropped from 1 billion to 85
million in the first year
– Plastic bag levy revenues (approximately €120 million
up to end-2008 ) are earmarked for the
‘Environmental Fund’
– There is no evidence from the household survey that
even those who are unemployed feel that it is ‘unfair.'
Transport taxation system
The Irish tax treatment of motor transport comprises:
–
–
–
–
Once off purchase tax: vehicle registration tax (VRT)
Annual charge: motor tax, regardless of usage level
Usage charge: auto fuel taxes, comprising excise duty and VAT
Fiscal measures to encourage more environmentally friendly travel
• 2008: “Rebalancing” of vehicle registration tax (VRT) with tax based
on emissions rather than engine size
• Motor tax was also rebalanced and changes were made to the
capital allowances and leasing regime for business cars, to link the
availability of relief to CO2 emission levels.
• Changed patterns of new car purchase very rapidly – (85% of new
cars now in lower emission bands)
• Air travel tax (2009)
Landfill tax
• Introduced in 2002 to encourage the diversion of waste
away from landfill and generate revenues that can be
applied in support of waste minimisation and recycling
initiatives.
• Goes to ‘Environmental Fund’
• The initial rate was €15 per tonne. This increased to
€20 in 2008, and to €25 in 2009
• A €13 million fund has been set up to encourage
businesses to become involved in manufacturing
recycled waste into products that can be sold on.
Currently, Ireland exports 1.5 million tonnes – threequarters of all annual recycled waste
Waste Charges
• By 2005 pay as you throw by waste or volume mandatory (34 local
authorities) (However, reports of private operators offering flat fees again
recently)
• Annual charges for collection and disposal of 120 litres of waste a week
range from €195 per annum to €440. Some local authorities also charge
for recycling and/or composting bins.
Next steps
•
•
•
•
Ex post analysis on revenue, carbon emissions
Documenting extent of regressivity
Leakage
Public opinion