Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

The Senator will be aware that the Government is committed to tackling climate change and decarbonising the economy by 2050, and is therefore very much aware of the challenges that subsidies pose to our collective effort to disincentivise fossil fuels. The programme for Government, the climate action plan and the Climate Action and Low Carbon Development Act form a broad policy and legislative framework for moving away from fossil fuels to renewable energy and alternative fuels and technology. However, it is recognised that this must be a gradual transition. While some subsidies may pose difficulties for our environment, there are often long-standing and important social and economic rationales for their existence. Therefore, I believe a balance needs to be struck in phasing out subsidies and incentivising alternatives.

I will now address each of the specific report requests in turn. Marked gas oil, MGO, or green diesel, is a type of fuel primarily intended for use in agriculture. As per recent temporary changes in excise rates, MGO is currently subject to an overall excise rate of 14.9 cent per litre on a VAT-exclusive basis, compared with the overall rate of excise on auto diesel which is 52.6 cent per litre. The provision for this reduced rate is contained the EU energy tax directive and is permitted as it is limited and targeted to primary sectors in the economy. It should be noted, however, that MGO is subject to carbon tax and therefore the trajectory of increases set out in the 2020 Finance Act will apply to it.

The diesel rebate scheme, DRS, provides a relief to the maximum value of 7.5 cent per litre when the price of diesel is above €1.23, VAT inclusive. As with MGO, it is a specific and targeted relief permitted under the current EU legislative energy tax framework. The scheme is a necessary support to essential road users in the short term and is aimed at maintaining the competitiveness of the road haulage sector and minimising the impact for the sector and related businesses which rely on road haulage services. Passenger transport is also benefited by this scheme, which is available to passenger bus operators.

As a fossil fuel subsidy, there have been many calls to curtail this scheme, from an environmental perspective. In light of national and international commitments which seek to remove fossil fuel subsidies, this is a scheme that will have to be scaled back in the future. Indeed, the ongoing revision of the EU energy tax directive proposes to restrict or remove such subsidies. While I recognise the need to remove incentives for fossil fuel use, in the current inflationary context, the DRS remains of significant importance to the viability of essential road users in the immediate short term. The scheme will be kept under review both as part of the annual budgetary process, and in the context of ongoing negotiations of the energy tax directive at EU level.

In the context of aviation kerosene, Ireland is subject to energy taxation rules set out in the EU energy taxation directive. Under the current directive, member states are obliged to exempt certain fuels used for commercial aviation purposes from excise duty. A member state may waive this exemption where it has entered into a bilateral agreement with another member state to tax fuel for intra-community flights. Ireland has not entered into such arrangements to date. With regard to fuel for international transport, the scope for a member state to take a unilateral approach to taxation is currently limited by international law and a range of bilateral and multilateral agreements that operate under the 1944 Convention on International Civil Aviation, also known as the Chicago Convention. As I have mentioned, a proposal for a revised energy tax directive is currently being negotiated and one of the provisions under consideration is the removal of aviation and maritime fuel tax exemptions. Ireland is engaging with the EU Commission and other member states in regard to the proposal.

The Government is committed to emissions reductions. Examining fossil fuel subsides will be an integral part of delivering on that commitment. My Department published a review of fossil fuel subsidies in the transport sector as part of the tax strategy group papers earlier this year. I also note that through my Department’s tax expenditure report, green budgeting and publications from the CSO, there is significant reporting on the monetary value of such subsidies through the tax that is foregone. Furthermore, my Department is engaged in work at the OECD level on international approaches to standardise reporting of fossil fuel subsidies. Given the amount of work that is ongoing in this area, as well as the amount of reporting that is currently taking place, I do not propose to accept the recommendation.