Brian Lenihan Jnr (Dublin West, Fianna Fail)

These amendments raise complex and difficult issues and I will address amendment No. 33 first.

I previously indicated the only exemptions from the carbon tax are for those companies within the EU emissions trading scheme, where a carbon pricing mechanism is already in place. I did not offer any exemptions for sectors outside the ETS. For combined heat and power technology, the amendment addresses that. Combined heat and power used outside the ETS will not be exempt from the carbon charge.

The Government acknowledges, however, the environmental benefit that can accrue from the use of high efficiency CHP technology. The Finance (No. 2) Act 2008 provided that expenditure on CHP technology is allowable under the scheme of accelerated capital allowances. That scheme allows companies to claim 100% tax capital allowances on expenditure on certain energy efficient equipment in the year of purchase. It is not, therefore, appropriate to put in place a further tax subsidy.

We must ensure the carbon tax has a broad base and I do not want to undermine that principle. The long-term impact of the carbon tax will be to incentivise energy efficient processes such as combined heat and power. The intention of the legislation is that where it is used outside the ETS scheme it will not be exempt. That is the general principle I have applied in that context.

Deputy Bruton's amendment No. 32 raises more complex issues. It is concerned with a full exemption for the mineralogical processes, including the burning of coal for the production of cement, from the carbon charge in the case of gas and coal. The cement industry in Ireland relies by and large on coal on an intensive basis for generation of the product. The Bill provides that a full exemption will apply to ETS installations in the powergen sector but ETS installations in other sectors will be required to comply with an EU minimum rate. It is far lower than the rate of carbon tax, around 2%. In practice, no additional charge arises in the case of mineral oils as the existing mineral oil tax rates satisfy the EU minimum rates and these companies within the ETS continue to pay those minimum rates.

Implications arise, however, in the case of gas and coal. These products have not been taxed or, in the case of coal, have effectively not been taxed up to this point. There are difficult issues about the relationship between the ETS scheme and any domestic taxing statute. The carbon tax, therefore, brings gas and coal into the tax net for the first time and, consequently, the Bill provides for the application of the EU minimum rate. The EU minimum rate in the case of gas is about a sixth of the carbon tax rate, about €0.54 per megawatt hour. While the introduction of carbon tax on coal and other solid fuels remains subject to a commencement order, when coal becomes the subject to the carbon tax, the rate will apply to ETS installations at €4.18 per tonne, a ninth of the full rate. That is the provision in the Bill.

Since Deputy Bruton raised the question, I engaged with the cement industry and discussed its difficulties. It worked hard to generate exemptions within the EU scheme for coal in this context and has undertaken to share its legal advice with me and I will be reflecting on that before the consideration of this matter by Seanad Éireann. It is not an easy matter. If it was in any sense uncompetitive, it would require the industry to refund the State the sum involved in the event a breach was identified. There is a legal risk here that must be evaluated.

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