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How Much Will a Carbon Tax Cost?
In our April Newsletter (click here), we discussed the prospects
for a Carbon Tax in Ireland in light of the Minister for Finance’s Budget
Speech in April 2009 and the Commission on Taxation’s remit to investigate fiscal measures to protect
and enhance the environment including the introduction of a Carbon Tax. Since then, the Government’s finances
have deteriorated and the Commission on Taxation has published its report
(available here) amid speculation that
the forthcoming budget will include the introduction of a Carbon Tax.
It is the
opinion of the Commission that the level of a Carbon Tax should reflect
the EU Emissions Trading Scheme (ETS) Carbon price. As the market price of Carbon varies
from day to day, the Commission suggested that the rate be based upon the
Carbon futures price for the subsequent calendar year.
Current market
conditions (November 2009) suggest that this would result in a tax rate
of about €15 per tonne CO2 in 2010.
The table below shows the impact on unit fuel prices of a Carbon
Tax based on €15 and €20 per tonne of CO2 (October 2009 energy prices).
|
Fuel
|
Unit
|
Indicative Unit Price
(incl VAT)
|
Impact of Carbon Tax
|
|
€15 per
tonne CO2
|
€20 per
tonne CO2
|
|
Gas Oil
|
litre
|
€0.66
|
+6.1%
|
+8.1%
|
|
Heavy Fuel Oil
|
litre
|
€0.62
|
+7.1%
|
+9.5%
|
|
LPG (bulk)
|
litre
|
€0.54
|
+4.8%
|
+6.5%
|
|
Natural Gas*
|
kWh
|
€0.05
|
+6.4%
|
+8.5%
|
|
Coal
|
tonne
|
€380
|
+10.4%
|
+13.9%
|
|
Peat Briquettes
|
bale
|
€3.85
|
+8.9%
|
+11.9%
|
|
Petrol
|
Litre
|
€1.18
|
+3.0%
|
+4.0%
|
|
Diesel
|
Litre
|
€1.07
|
+3.8%
|
+5.0%
|
|
Electricity*
|
kWh
|
€0.16
|
0%
|
0%
|
* Dependent on
scale of consumption.
The Commission
also recommended that a floor price be introduced in order to eliminate
some of the volatility seen in the Carbon market since 2005. It suggested a floor price of €20 per
tonne CO2, which it considers to be reasonable for meeting the objectives
of a Carbon Tax. However, the
price of European Carbon Futures has not been that high since November
2008 (see figure below). If a
floor price of €20 per tonne CO2 was adopted, this could result in a
discrepancy between the cost of Carbon incurred by energy users inside
and outside the EU ETS.
According to
the Commission, one of the key elements of the proposed tax is to achieve
revenue neutrality. The Commission
recommended that the priority in achieving revenue neutrality should be
to combat fuel poverty, through the funding of energy efficiency schemes
and, potentially, directly through the social welfare system. Other options include the funding of
loans to businesses to finance investment in energy efficiency, the use
of the revenue to minimise the competitive impacts on energy intensive
businesses, and the lowering of direct taxes.
The Commission
also recommended that participants in the EU ETS should be exempt from
the tax and that companies outside the EU ETS that have legally binding action-based and / or
target-based emissions reduction agreements with Sustainable Energy
Ireland should be accommodated, through, for example, exemptions from
the tax, special rates or rebates.
If you are
interested in the content of this article, and would like to discuss it
further, please contact Mr. Tom Cleary
on +353-1-474 1530 or email Tom.Cleary@boc.ie.
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