Paudge Connolly (Cavan-Monaghan, Independent)
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Question 254: To ask the Minister for Finance the timescale for a decision on carbon taxation and emissions trading; his proposals for a re-distribution of receipts from such taxation to reduce the taxation levels on other eco-friendly practices; and if he will make a statement on the matter. [13377/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The climate change strategy says that, from 2002 onwards, taxes will begin to take into account the amounts of greenhouse gases produced in any activity. It is Government policy to take greenhouse gas emission into account when formulating or developing tax policy in any particular area.

In September 2004, the Government decided not to introduce a specific carbon tax, following a thorough examination of the issues involved, including how a carbon tax would be implemented and the associated environmental, economic and social impacts. In addition, my Department carried out an extensive consultation process in which 117 written submissions were received. Following this examination, the Government decided that a carbon tax was not an appropriate policy option and that, instead, it would intensify action on the other measures under the national climate change strategy. The Government concluded that the environmental benefits of a carbon tax would not justify the difficulties that would arise, particularly for households, from the introduction of such a tax. In this respect, the carbon energy tax would have imposed price increases on many products already suffering sharp increases, particularly as a result of increases in international oil prices. While a carbon tax would have involved a range of compensatory measures, these would not fully address the adverse economic and social effects arising. Moreover, a carbon tax would apply to products which are in the main already subject to excise duties and where a new tax is not necessary to increase tax rates.

The carbon energy tax was just one possible element of the Government's approach to meeting Ireland's commitments under the Kyoto Protocol to which the Government remains fully committed. Taxation can play a part in attaining environmental objectives. However, as Minister for Finance, I am concerned to ensure that, in developing policy on tax measures, we take into account any effects on Ireland's international competitiveness, particularly in regard to non-EU countries which compete with us and which may have low taxes on energy. I am also concerned in framing policy about the effect that the imposition of such taxes may have on the consumer price index and how they could impact on the less well off members of our community.

Apart from the carbon tax, the national climate change strategy envisages other initiatives in the tax area with one such example being tax reliefs for "green initiatives". This approach uses the tax system to provide incentives for certain behaviour. In this regard, I would refer the Deputy to the significant biofuels excise relief scheme which I announced in the budget and for which provision has been made in Finance Act 2006, which has recently completed its passage through the Dáil and Seanad. The Act also provides a new 50% VRT relief to promote new flexible fuel vehicles — cars designed to operate on biofuels — for an initial period of two years. Emissions trading is the responsibility of my colleague, the Minister for the Environment, Heritage and Local Government.