Michael McGrath (Cork South Central, Fianna Fail)
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The Deputy should note that Government policy with regard to greenhouse gas emissions and taxation is based on the polluter-pays principle, whereby high emission energy products, fuels or vehicles are subject to the highest levels of taxation. National taxation measures are reviewed and examined as part of the annual budgetary cycle and policy options are published in the Tax Strategy Group papers. As set out in the Budget 2024 Tax Strategy Group Paper on Climate Action and Tax, the policy challenge in addressing climate change involves striking the appropriate balance between incentivising uptake of cleaner fuels and technology whilst protecting the more vulnerable in society from energy and transport poverty.

National measures which address high emitting behaviours include the carbon tax, fuel excise and vehicles taxes, which operate on a polluter pays principal. Since 2020 additional revenue raised from increases in the carbon tax is allocated for expenditure measures which ensure a Just Transition including funding targeted social welfare interventions and community energy efficiency investment. Consistently, internal Government analysis using the SWITCH model has found that the increases in the carbon tax have been progressive as a result of the increased social protection payments funded by the carbon tax.

The Government is committed to decarbonising our transport sector and recent Budgets have seen reforms made to Vehicle Registration Tax or VRT, Motor Tax, the introduction of the NOx surcharge and an emissions-based calculation for benefit-in-kind. These tax changes aim to incentivise greener vehicles by ensuring that lower emission vehicles are taxed more favourably and higher emission vehicles pay higher rates. Typically speaking, many high emission new cars tend to have a higher Open Market Selling Price (OMSP). As VRT is calculated as a percentage of OMSP, the highest value and highest emission vehicles are subject to the highest rates of tax. This restructuring is already having a positive impact on the emissions landscape, with significant growth in the lower ‘greener’ Vehicle Registration Tax bands and a drop off in the higher, more ‘pollutant’ bands.

It is recognised that not all emissions are directly subject to indirect taxation. With regard to taxation of aviation fuel, Ireland’s excise duty treatment of fuel used for air navigation is governed by EU law as set out in Directive 2003/96/EC on the taxation of energy products and electricity, commonly known as the Energy Tax Directive. This currently provides for an exemption from taxation for aviation fuel for intra community flights, while international treaties lay the framework for an exemption for fuel used internationally. In July 2021, as part of the Fit for 55 Package, the Commission published a proposal to revise the Energy Tax Directive. The taxation of intra-community flights forms part of this proposal. Ireland has been actively engaged in negotiations of this proposal, which are ongoing.

It should also be noted that industrial emissions from large installations are subject to significant carbon pricing under the EU Emissions Trading System or EU ETS. The aviation industry is subject to the EU ETS.

My Department is committed to its role in using taxation as one of the policy levers which can contribute to Ireland meeting our emission reduction targets. Tax policy with regard to behavioural change, and emissions, is kept under review as part of the Tax Strategy Group (TSG) and Budgetary cycle.