Barry Ward (Dún Laoghaire, Fine Gael)
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288. 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. [47839/25]

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).

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.

Regarding MOT, 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. 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.

The tax treatment of HVO in the freight sector, and possible further incentives for its use, was recently examined in the Department’s Tax Strategy Group paper on Energy, Environmental and Vehicle Tax, which is available on my Department’s website at: