Seán Connick (Wexford, Fianna Fail)

I thank the Senator for raising this matter. I wish to deal for a short time with the issue of climate change and both the European and the national response to what is widely recognised as one of the greatest dilemmas facing mankind. I need not spell out the potential devastation that will ensue for farmers and everyone else should the world not respond in an appropriate way to the need to reduce carbon emissions.

Heads of State and Government of the European Union committed to reduce the Union's collective emissions of greenhouse gases to a level 20% below 1990 emissions levels and they agreed to do so by 2020. An EU burden sharing agreement was drawn up, whereby each member state would adopt an emissions reduction target appropriate to its GDP and capacity to deliver emissions reductions. Under the agreement, Ireland is required to reduce national emissions by 20% compared to 2005 levels by 2020. In the event of a new, international agreement to reduce global emissions, the European Union has further committed to reduce its collective emissions by up to 30% compared to 1990 levels. Each litre of gas oil, whether used in a tractor or a diesel engine car, will generate between 2.7 kg and 3.2 kg of carbon dioxide. In 2007 greenhouse gas emissions associated with the combustion of diesel oil in the agriculture sector were in excess of 800,000 tonnes of CO2 equivalent. The emissions reductions Ireland has agreed will not be achieved without specific measures being put in place to realise them. The introduction of a carbon tax on fossil fuels is one measure designed to encourage such reductions.

The renewed programme for Government emphasised the importance of investment in incentivising the behavioural change that would deliver sustainable development. The programme contained a commitment to introduce a carbon tax in budget 2010. Accordingly, the Finance Bill 2010 introduced carbon taxation of mineral oils. The tax will apply to petrol, autodiesel, kerosene, marked gas oil, liquid petroleum gas, fuel oil and natural gas. These increases which, when VAT is included, amounted to 4.2 cent on a litre of petrol and 4.9 cent on a litre of diesel arose from the application in budget 2010 of a carbon charge on these fuels at a rate equivalent to €15 per tonne of CO2 emitted. It should be recognised that the existing excise duty on marked gas oil, also known as green diesel or agricultural diesel is 4.7 cent per litre. This compares to an excise duty rate of 41 cent per litre in the case of autodiesel, almost ten times higher than agricultural diesel. That is a significant concession that must be borne in mind in this debate.

In introducing the carbon levy the Minister for the Environment, Heritage and Local Government indicated that the principle of carbon pricing was widely accepted as the most effective way to secure emissions reductions. It is the basis of the European Union's emissions trading scheme which applies to the bigger emitters such as power generators and industrial plants. The aim of the tax is to use the increase in cost as a catalyst to effect behavioural change in consumers and thereby cause a subsequent reduction in emissions associated with their consumption of fossil fuels. The tax is a specific rather than an ad valorem tax levied according to the amount of carbon produced by the consumption of a litre of diesel rather than as a percentage of the retail price. Consequently, in terms of achieving its purpose to reduce emissions, a duty levied on an ad valorem basis would not have been appropriate. While it may appear at face value that the price of agricultural diesel has been increased disproportionately compared to that of autodiesel, owing to the difference in the percentage change in price, this is a function of the fact that agricultural diesel has a lower base value owing to the considerably lower level of excise duty on that product.

In terms of the effects on emissions, it is estimated that the carbon levy will reduce emissions in the non-traded sector of the economy by an average of 150,000 tonnes per annum in the period 2008 to 2012. Assuming full implementation of the levy at the rate envisaged, savings in a full year would be of the order of 275,000 tonnes but this saving would not be expected in the first year of implementation. In the case of the agriculture sector, the introduction of the carbon levy on marked gas oil with effect from 1 May will result in an 8.7% increase in its price.

While the agriculture sector generally tends to be more resilient to global economic shocks, this has not been the case in the recent economic downturn. The year 2009 was particularly difficult, as a combination of factors such as the global economic downturn, the weakening of sterling against the euro and lower commodity prices impacted negatively on the sector. Dairy and cereal markets were particularly adversely affected by lower commodity prices. Despite these difficulties, the agrifood sector continues to account for a significant proportion of the economy, including 7.1% of gross value added and 7.8% of employment, and is the primary outlet for the produce and output of the country's 128,000 family farms. The sector exports to 140 markets worldwide. Following the great difficulty in dairy markets last year, prices have improved, but this recovery is fragile. Considerable stocks have been accumulated in EU and US dairy markets and it is very important that these stocks are managed in a way that does not destabilise the recovering market.

An internal analysis by my Department of the direct impact of the carbon levy on the agriculture sector suggests the average increase in the cost of production across all farms will be approximately €230 per farm. There is a considerable degree of variability across the various farm systems. That assumes no change in fuel use by farmers. However, the expectation is farmers, like everyone else, will seek to reduce fuel use and, therefore, reduce costs. That said, I fully appreciate that the imposition of the levy places a considerable burden on farmers, contractors and, in particular, tillage farmers. In an ideal world there would not be any need for such measures, but, as we all know, this world is far from ideal. I intend to closely monitor the implementation of the tax with my Government colleagues to ensure it operates as intended. I also intend to ensure guidance material to inform farmers of how best they can reduce their on-farm energy use, particularly fossil fuel usage, is provided for the widest possible audience.