A carbon tax increase with ring-fenced funds may be a move in the right direction, but is it enough to deal with the climate emergency?
The climate crisis proved extremely relevant in Budget 2020. Although there were, to quote Minister of Finance Paschal Donohoe, “absolutely no surprises” in this year’s Budget, it did include a host of new measures designed to address the need to reduce emissions, protect the environment and move towards sustainable energy.
One of the headline changes is that carbon tax has been raised to €6 per tonne, bringing it up to a total of €26 per tonne, effective from midnight on 9 October. This will lead to increased petrol and diesel prices for drivers, while there is also expected to be an increase in the cost of home heating fuels from May 2020, after the winter period.
“A higher carbon tax is an important price signal as we move towards net-zero emissions by 2050,” commented EY’s David McNamara.
“However, with the stick must come the carrot of investment which enables the transition. In this context, the announcement that the additional tax raised will be ring-fenced to fund new initiatives such as a just-transition fund and supports for vulnerable sectors and households, is a welcome development.”
Carbon tax falling short?
Annette Hughes, director of economic advisory services at EY, argued that the tax increase, though seen by many as daring, is ultimately insufficient: “The €6 per tonne increase in carbon tax, deemed to be a bold and new decision, falls way short in the context of moving towards €80 per tonne by 2030 from €20 per tonne currently. We need to be brave in dealing with climate change.”
Though many others have praised the move to ring-fence the funding generated from the increased carbon tax, the move was also met with scepticism on multiple fronts. Representatives from Friends of the Earth argued that this ring-fencing needs to be codified into law to ensure it is delivered upon as promised.
Friends of the Earth director Oisín Coghlan said: “The plan for incremental increases in the carbon tax from now to 2030 must be underpinned by legislation.
“Households and businesses can’t make long-term spending and investment decisions based on one speech from a minister months before a general election.”
Additionally, EY chief economist Neil Gibson expressed concern that the practice of ring-fencing could adversely affect the tax system.
“The ring-fencing of carbon tax receipts to spending on climate change measures was a further example in Budget 2020,” Gibson said. “This is often easier for citizens to accept and tougher for businesses to argue with, but it does run the risk of creating a very fragmented tax and expenditure system. It can also reduce the flexibility needed to adjust to unforeseen circumstances.”
Sustainable transport measures
Various measures were laid out in Budget 2020 to provide funding for sustainable transport initiatives, which Donohoe said were “critical steps to future-proof our transport system”.
The Government moved to replace the 1pc diesel surcharge introduced last year with a nitrogen oxide emissions-based charge. This charge will apply to all passenger cars registered for the first time in Ireland from January 2020. The Budget also revealed that vehicle registration tax relief for hybrid vehicles will be extended to 2020.
A total of €9m was allocated for greenways and new urban cycling project in this Budget, while an extra €3m will be provided for electric vehicle infrastructure. The Government hopes to double the number of on-street charge points installed next year and will support a scheme to install communal charge points into apartment blocks.
‘To meet our Climate Action Target to have 950,000 electric vehicles on the roads by 2030, this investment in electric vehicle infrastructure is well below expectations of where we need to be’
– LORRAINE MCCANN, EY
Some €8m has been allocated to maintain grants for those wishing to purchase electric cars, while €3.7m has been allocated to support the installation of solar panels in the home and €9.7m has been dedicated to fund emerging technologies that harness the power of the Ireland’s ocean resources. The heat sector has also been further incentivised toward sustainability, with €5m set aside to support the uptake of alternative fuels such as biomass.
Finally, the minister revealed that €2.7bn would be allocated to the Department of Transport, Tourism and Sport, an increase of €384m on 2019. Donohoe expressed hope that this funding would allow for investment in the rural transport network and said that this funding was to support efforts to transform the approach to transport with the Climate Action Plan in mind.
Some commentators balked at the amounts set aside for sustainable transport initiatives. Green Party councillor Patrick Costello noted that the amount of funding granted to cycling per budget has steadily decreased since 2015, calling the €9m a “token increase”.
“We need to seriously start proper funding on better and cleaner modes of transport … We spent more in the past and need even more again to make a real difference in cycling, walking and to promote modal shift,” he added.
Cycling per budget:
2016-Almost halved to €10.5m
2018-Fell further to €7m
2020-A token increase to €9m on greenway & urban cycling
We spent more in the past & need even more again to make a real difference in cycling, walking & to promote modal shift! /1
— Patrick Costello (@Costellop) October 8, 2019
Lorraine McCann, sustainability lead at EY, said that the amount of funding set aside for greener transport “is not quite at the level of investment we would have expected for those sectors that represent the greatest emissions for Ireland”.
“To meet our Climate Action Target to have 950,000 electric vehicles on the roads by 2030, this investment in electric vehicle infrastructure is well below expectations of where we need to be.”
Some measures in this year’s Budget are also designed to protect and preserve the Irish environment in addition to the funding dedicated to lowering fuel emissions. A total of €59.4m has been set aside to sustainably develop Ireland’s natural and inland fishery resources.
Meanwhile, this Budget also promised a “radical” new waste strategy to be developed in 2020, which will include increased funding for anti-dumping initiatives, with a total of €3m from the environment fund ring-fenced to help communities tackle illegal dumping.
In addition, a further €12m is being allocated in 2020, which is set to include a landfill remediation project.