Thomas Gould (Cork North Central, Sinn Fein)
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71. To ask the Minister for Finance the reason that biofuels are subject to a carbon tax. [56818/22]

Holly Cairns (Cork South West, Social Democrats)
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76. To ask the Minister for Finance his views on ensuring that biofuels are exempted from carbon tax and excise duty. [57011/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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I propose to take Questions Nos. 71 and 76 together.

Ireland’s taxation of fuel is governed by European Union law as set out in Directive 2003/96/EC, commonly known as the Energy Tax Directive (ETD). The ETD prescribes minimum tax rates for fuel with which all Member States must comply. There are three national legislative frameworks which provide for the charging of excise duty on different fuel types in the State. Firstly, ETD provisions in relation to liquid fuels used for motor or heating purposes are transposed into national law in Finance Act 1999. This law provides for the application of excise duty in the form of Mineral Oil Tax (MOT) to liquid fuels. It also provides for the application of MOT to natural gas used for propellant purposes, referred to as Mineral Oil Tax on Vehicle Gas (MOTVG). Secondly, Natural Gas Carbon Tax (NGCT) law, as set out in Finance Act 2010, provides for the taxation of natural gas used for non-propellant purposes. Finally, regarding solid fuel, the ETD mandates that coal be subject to taxation. Finance Act 2010 provides for Solid Fuel Carbon Tax (SFCT) to apply to coal and also to peat and peat products.

MOT is comprised of a non-carbon component and a carbon component with the carbon component being commonly referred to as carbon tax. The non-carbon component of MOT is often referred to as “excise”, “fuel excise”, “fuel tax” or “fuel duty” but it is important to note that both components are part of MOT which is an excise duty. NGCT and SFCT are also excise duties, but they are “pure” carbon taxes in that they do not comprise any non-carbon component. MOT, NGCT and SFCT rates 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, the carbon component of MOT is fully relieved for liquid biofuels and biogas that are produced from biomass. Section 94 of finance Act 1999 defines biomass 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. Where a liquid biofuel, or a biogas, meets the criteria of being produced entirely from biomass, it is liable for the non-carbon component of MOT only, i.e. no carbon tax applies. 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.

As already mentioned, biogas used for propellant purposes qualifies for relief from the MOT carbon component. Natural gas used for non-propellant purposes is subject to NGCT. However, biogas used in place of natural gas for non-propellant purposes falls outside the scope of NGCT meaning that it is not subject to fuel taxation, i.e. no carbon tax applies.

With regard to SFCT, a partial relief is available for biomass products. For the purposes of SFCT, biomass products are defined as any solid fuel product with a biomass content of 30 per cent or more. The rate of SFCT relief depends on the biomass proportion of the product and full details are published on the Revenue website at www.revenue.ie/en/companies-and-charities/excise-and-licences/energy-taxes/solid-fuel-carbon-tax/rate-of-tax.aspx

The biofuel reliefs and exclusions from MOT carbon tax, NGCT and SFCT are intended to promote a higher level of biofuel usage for motor and heating purposes and support Government’s commitment to incentivising more environmentally friendly alternatives to fossil fuels. The carbon tax reliefs and exclusions result in biofuels that are subject to SFCT being partially insulated from the ten-year trajectory of carbon tax increases which was introduced in Finance Act 2020. With regard to MOT and NGCT, biofuels are not impacted by the ten-year trajectory. This means that as annual carbon tax increases are implemented, the differential in tax costs between biofuels and fossil fuels will continue to widen, further incentivising the uptake of biofuels.