Barry Ward (Dún Laoghaire, Fine Gael)
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610. To ask the Minister for Finance his views on the merits on financially incentivising the use of HVO fuel instead of diesel to support achieving Ireland’s climate emission targets; and if he will make a statement on the matter. [21065/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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All liquid fuels, including biofuels such as hydrotreated/hydrogenated vegetable oil (HVO), are subject to Value-Added Tax (VAT), and to excise duty in the form of Mineral Oil Tax (MOT).

It should be noted that in order to incentivise the uptake of more sustainable and renewable fuels the legal frameworks for Mineral Oil Tax provide that biofuels, such as HVO, are relieved from carbon taxation.

Biofuels which are produced from biomass qualify for relief from the carbon component of MOT under section 100(5) of Finance Act 1999 (as amended). This means that biofuels, such as HVO, bio-ethanol and Fatty Acid Methyl Ester (FAME), are only subject to the non-carbon component of MOT. In the case of blended fuels, the biofuel relief applies to the biofuel portion. I am advised by Revenue that current effective MOT rates on biofuels, along with comparable MOT rates for fossil fuels, such as auto-diesel, are published on Revenue’s website at www.revenue.ie/en/companies-and-charities/excise-and-licences/mineral-oil-tax/liquid-substitute-fuels/index.aspx.

As biofuels are relieved of the carbon component of MOT, they are not impacted by annual carbon tax increases. As a result, the MOT rate differential between biofuels and fossil fuels will continue to widen as the 10-year carbon tax trajectory up to 2030 is implemented. The carbon tax rate trajectory provides a clear long-term signal to industry and society alike that our future involves a move away from fossil fuels.

I am advised by Revenue that in 2024 the tax forgone under the MOT biofuel relief is estimated at approximately €73 million. This estimate is based on an analysis of MOT returns data across all fuel types and a breakdown in respect of specific biofuels, such as HVO, is not available.

As regards VAT, the VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law is obliged to comply. In general, the EU VAT Directive provides that all goods and services are liable to VAT at the standard rate unless they fall within Annex III of the Directive, in respect of which Member States may apply a lower rate of VAT.

Motor fuels such as petrol, including bio-ethanol petrol blends, and auto-diesel are not included in the categories of goods and services on which the EU Directive allows a lower rate of VAT, and so they are liable to VAT at the standard rate, currently 23%. Biofuel and non-food vegetable oils, such as HVO, used to fuel vehicles are similarly liable to VAT at the standard rate and Ireland has no discretion in this regard.

To support achieving Ireland’s climate targets, Ireland’s Renewable Transport Fuel Obligation (RTFO) places a statutory obligation on suppliers of road transport (fossil) fuels to ensure that a proportion of the fuels they place on the market in Ireland is produced from renewable sources, i.e., complies with EU sustainability and GHG reduction criteria.

Furthermore, the Renewable Transport Fuel Policy 2023-2025 sets out an indicative trajectory of an annual increase to the RTFO rate to 2030, to meet both domestic decarbonisation targets and European renewable energy targets. Therefore, as the proportion on biofuel content increases, the proportion of relief from carbon tax also increases in light of the carbon tax relief applying to biofuel content. A revised trajectory of annual increases in the RTFO rate, indicative to 2030, will be set out in the updated Renewable Fuels for Transport Policy Statement 2025-2027.

The 2025 Programme for Government also includes a commitment to examine the taxation of HVO used for commercial freight to support sustainable transport solutions, which my Department is assessing.

Ultimately, while taxation does affect the final retail price of fuel, a number of factors also contribute to the final cost including fuel market dynamics, wholesale pricing, individual retail pricing policy, transport costs, and exchange rate fluctuations.

The best way of insulating our economy and society from fuel prices shocks is to reduce our dependence on fossil fuels.

In that respect, the existing vehicle tax structures in the State have a strong environmental rationale, with the more pollutant, fossil-fuelled cars paying higher rates of tax, between motor tax, benefit-in-kind (BIK), vehicle registration tax (VRT) and the nitrogen oxide (NOx) charge. In contrast, low emission cars and electric vehicles (EVs) are subject to lower rates of tax. The current policy approach aims to incentivise the uptake of zero to low emission vehicles, which will help to reduce Ireland’s transport emissions.