Darren O'Rourke (Meath East, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

76. To ask the Minister for Finance the position regarding the application of mineral oil taxation on hydrotreated vegetable oil; and if he will make a statement on the matter. [58465/22]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

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. 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.

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. 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 €41.50 per tonne. MOT and carbon tax rates are published on the Revenue website at www.revenue.ie/en/tax-professionals/tdm/excise/excise-duty-rates/energy-excise-duty-rates.pdf.

The ETD allows for the application of reduced levels of taxation to fuels used for non-propellant purposes. Under MOT law reduced rates of tax apply to certain fuel uses, such as heating. These reduced rates are significantly less that the standard rates that apply to propellant uses. For example, auto-diesel is currently subject to the standard MOT rate of €425.45 per 1,000 litres whereas diesel used for non-propellant purposes, including heating, attracts the reduced rate of €111.14 per 1,000 litres.

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. 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), currently €111.14 per 1,000 litres.

In addition to the reduced rate of MOT applicable to non-propellant uses, a relief from the carbon component of MOT is available, under section 100(5) of Finance Act 1999, for all uses of liquid biofuels. Section 100(5A) provides for a similar relief for biogas used as a propellant. Biofuels and biogas 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. Sections 100(5) and 100(5A) of Finance Act 1999 provide for a MOT carbon component, i.e. carbon tax, relief for biofuels. This means that a biofuel, such as Hydrogenated/Hydrotreated Vegetable Oil (HVO), produced entirely from biomass, is liable for the non-carbon component of MOT only. As already outlined, a substitute fuel used for heating purposes attracts the MGO rate of €111.14 per 1,000 litres. This rate is entirely comprised of carbon tax. Therefore, if the substitute fuel is a biofuel that qualifies for relief, the MOT is fully relieved, i.e. no MOT 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.

The MOT carbon tax relief for biofuels is intended to promote a higher level of biofuel usage for motor and heating purposes and supports Government’s 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.

This reflects a clear policy intention that the use of such fuels be incentivised. In particular, liquid biofuels, such as HVO, that are used for heating purposes qualify for carbon tax relief which means that the effective rate of MOT applicable is currently zero. In order to understand and address any potential misinformation circulating about this matter Revenue was recently in touch with the oils industry and is currently preparing some further clarificatory information on biofuels and MOT to be published on its website in the coming days. I am further advised that Revenue’s “Mineral Oil Tax Warehouse Return User Guide” provides details for the industry on how biofuels blended with other fuels are to be accounted for. This guide is published at www.revenue.ie/en/companies-and-charities/documents/excise/energy-taxes/mineral-oil-tax-warehouse-return-user-guide.pdf