Aindrias Moynihan (Cork North West, Fianna Fail)
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153. To ask the Minister for Finance the consideration and engagement he has had with the Minister for Public Expenditure and Reform on the current carbon tax and excise duty levies on biofuels for home heating, given the environmental benefits from the use of biofuels; and if he will make a statement on the matter. [55799/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Finance Act 1999 provides for the application of an excise duty, Mineral Oil Tax (MOT) to specified mineral oils, such as petrol, diesel, and kerosene, that are used as motor or heating fuels. MOT comprises two excise components, a carbon component which is commonly referred to as carbon tax and a non-carbon component which is often referred to as “excise”, “fuel excise” or “fuel duty”.

The rate of the MOT carbon component, or carbon tax, is based on charging an amount per tonne of carbon dioxide emitted on combustion of the fuel concerned. Fuels with higher carbon dioxide emissions attract higher rates of carbon tax than fuels with relatively lower emissions. Currently carbon tax rates for propellant fuels, such as petrol and auto-diesel, are based on charging €48.50 per tonne of carbon dioxide emitted. The carbon dioxide emissions basis for non-propellant fuels, including those used for heating purposes, is currently €41.00 per tonne. MOT rates for various fuel types and uses, broken down into carbon and non-carbon components, are published on the Revenue website at www.revenue.ie/en/tax-professionals/tdm/excise/excise-duty-rates/energy-excise-duty-rates.pdf.

Under MOT law a liquid, other than a specified mineral oil, that is used for motor or heating purposes is regarded as a substitute fuel. Where a substitute fuel is used in place of a propellant fuel, it is subject to MOT at the MOT rate that applies to the fuel it is used in place of. For example, a substitute fuel used in place of auto-diesel in a motor vehicle would be taxed at the MOT rate for auto-diesel, currently €425.45 per 1,000 litres.

A substitute fuel used for non-propellant purposes such as heating is chargeable, under section 96(2A)(c) of Finance Act 1999, at the MOT rate that applies to Marked Gas Oil (MGO). The MOT rate on MGO is currently €111.14 per 1,000 litres, comprised entirely of MOT carbon component. There is no differentiation between MOT rates for fuels used for domestic or commercial heating purposes.

For the purposes of MOT, biofuels are treated as substitute fuels. Biofuels are defined in MOT law as substitute fuels made from biomass, with biomass being defined as the biodegradable fraction of products, waste and residues from agriculture (including vegetal and animal substances), forestry and related industries, as well as the biodegradable fraction of industrial and municipal waste. These fuels fall within the definition of substitute fuel products that are made of biomass of animal or vegetal origin. Section 100(5)(a) of Finance Act 1999 provides for a carbon tax relief for biofuels. This means that a biofuel produced entirely from biomass is liable for the non-carbon component of MOT only. Where a biofuel is used for non-propellant purposes such as heating, the MOT rate of €111.14 per 1,000 litres, is therefore fully relieved. With regard to blended fuels produced partially from biomass, the relief applies to the portion of fuel that meets the biofuel criteria set out in MOT legislation.

The MOT carbon tax relief for biofuels is intended to promote a higher level of biofuel usage for motor and heating purposes and supports the Government commitment to incentivising more environmentally friendly alternatives to fossil fuels. As the carbon component of MOT is fully relieved for biofuels, these types of fuels are not impacted by the ten-year trajectory of carbon tax increases which was introduced in Finance Act 2020. This means that, as annual increases in the carbon component of MOT are implemented, the differential in tax costs between biofuels and fossil fuels will continue to widen, further incentivising the uptake of biofuels.