Denis Naughten (Roscommon-Galway, Independent) | Oireachtas source

Carbon tax is supposed to be an environmental tax to drive behavioural change when it comes to the use of fossil fuels. In such circumstances the most effective tax is the one that brings in little revenue because it is doing what it should do, namely, driving behavioural change.

Consider the plastic bag tax. It was so successful that it soon became a problem because one of the key concerns of the Government was what to do to get more revenue. The focus of environmental taxes should never be on revenue, it should be motivating behavioural change. The current carbon tax model is flawed in this regard, because the goal is about bringing in more taxes that, sadly, are being used at least in part to replace spending lines across government.

If we are serious about moving away from the dependence on fossil fuels then we need a model of carbon taxation that is actually fluid. I mean this to be a model that takes into consideration the ever-changing cost of a barrel of oil. Carbon taxes should vary with the cost of a barrel of oil because even if carbon taxes increase significantly but the price of oil collapses, then it will not bring about the type of step change that we actually require. For example, a decade ago it was believed that the carbon taxes then introduced would drive the type of change needed in our economies. That was based on a projected increase of the price of a barrel of oil before shale fracking technology and other factors distorted the market. So, the price of Brent crude oil went from $114 per barrel in June 2014 to just $20 per barrel in January 2016, undermining that policy tool. At the opposite end of the spectrum, when the price of a barrel of oil increases sharply this has a direct impact on the cost of living for families, as well as having a devastating impact on a small open economy. We are seeing that impact today because Ireland is more exposed than most EU countries to oil price volatility.

Carbon taxes should be fluid. For every increase in the price of a barrel of oil the carbon tax should be lowered to lessen the impact of that increased cost to consumers and families, providing a practical measure to address the impact of inflation. The opposite scenario should apply. For every decrease in the price of oil the carbon tax should be increased by a defined amount. Yes, we should have a clear trajectory to ensure that we have a carbon tax rate of not less than €100 per tonne by 2030, but I believe this is best given effect by setting a minimum effective floor price for a barrel of oil at €210 per barrel in 2030, with an associated trajectory developed from now out to 2030. We should ask the OECD to develop such a model in conjunction with the Government.

We have introduced minimum pricing of alcohol so why not introduce it for oil? On this occasion, let us not hand the additional money back to the oil companies. By setting a floor price for a barrel of oil that increases incrementally up to 2030 we can decouple production from the retail price of oil and its resulting impact on inflation. Moving to a minimum floor price for petrol, diesel, home heating oil and gas ensures that such taxation measures are less vulnerable to short-term volatility in commodity oil prices, thus are less likely to place undue financial hardship on Irish families when oil prices spike. This would also act as a powerful signal for private sector investment decisions, orientating them towards decarbonising options rather than just hedging against oil price volatility.

The novel approach I am proposing would also address the risk of falling fossil fuel prices that can undermine the policy move away from fossil fuels. This will achieve our policy objective of driving behavioural change and importantly will also reduce our global economic reliance on fossil fuels.

See this speech in context