Ministers Paschal Donohoe and Michael McGrath announced measures in Budget 2021 to help achieve Ireland’s climate action plans and emissions targets.
With the Green Party in Government, expectations were high that Budget 2021 would address climate action and Ireland’s green economy.
While the Budget announced today (13 October) weighed heavily on two immediate concerns – Brexit and the ongoing pandemic – both Minister for Finance Paschal Donohoe, TD, and Minister for Public Expenditure and Reform Michael McGrath, TD, emphasised the need to keep the climate crisis in mind for future planning.
Donohoe stressed the need for this Budget to address the immediate threats but also advance a long-term strategy for a better society with more homes, improved healthcare and a better national response to the climate crisis. “From the ashes of the pandemic, together we will build a stronger and more resilient Ireland. Budget 2021 is a bridge to that future,” he said.
Carbon tax increase
Following up the Climate Action Bill published by the Government last week, Budget 2021 aims to encourage lower emissions with a €7.50 increase in carbon tax to €33.50 per tonne of carbon dioxide (CO2). This will result in an increase in petrol and diesel prices, effective from midnight tonight, and for all other fuels from 1 May 2021.
Donohoe also revealed that the plan is for carbon tax to increase each year this decade, reaching €100 per ton of CO2 by 2030.
Norman Crowley, founder and CEO of Crowley Carbon, a company that advises businesses on energy efficiency, said this was a small step in the right direction but did not believe it would make a “meaningful difference”.
“We cannot tax our way to zero carbon. Sadly, the Government continues to ignore the massive economic and jobs opportunity around moving to zero carbon.”
Tax changes based on vehicle emissions
Donohoe was also critical of “artificially deflated CO2 emission levels” of motor vehicles stemming from the “utterly discredited” New Europe Driving Cycle test for fuel economy, which our present vehicle registration and motor tax regimes are based on.
“We need to transition our CO2-based vehicle registration tax regime to the new more robust Worldwide Harmonised Light Vehicle Test Procedure (WLTP) emissions system from January 2021,” said Donohoe. “This new regime will be based on emissions performance levels which are much closer to real-world performance levels than is currently the case.”
However, acknowledging that this regime change will mean a discrepancy between new cars tested under WLTP and cars that received an NEDC rating, the latter will have their values uplifted to a level equivalent to the WLTP test. Vehicles with higher emissions of nitrous oxides will also will also incur higher taxation.
Vehicle registration tax reliefs currently in place for electric and hybrid vehicles will expire now that, under the new regime, their VRT rate will be lower thanks to their lower emissions.
For motor tax, rates will remain the same for all vehicles in the pre-2008 engine-size based regime and all but the most pollutant vehicles in the post-2008 CO2-based regime. A third motor tax table will be introduced from 1 January 2021 to account for the introduction of the WLTP emissions test.
The goal of these changes is to encourage motorists to make greener choices when it comes to buying a car.
Energy efficient homes
Minister McGrath assured the Ceann Comhairle that the new carbon tax regime was not designed to raise revenue for Government but to support other climate action efforts to reduce the country’s carbon footprint, ensure a just transition and protect vulnerable people.
This includes an additional €100m investment in the energy efficiency of homes, which will greatly expand existing grant schemes and ease current waiting lists. The additional funding will also provide for new energy efficiency schemes such as the National Home Retrofit Scheme, which will support homeowners who want to upgrade the energy efficiency rating of their home to a B2.
“This will lower greenhouse gas emissions while also supporting thousands of additional jobs in the construction sector,” said McGrath.
Further resources will be provided to the Department of Communications, Climate Action and Environment and the Sustainable Energy Authority of Ireland to implement these changes.
Kevin Johnson, CEO of the Credit Union Development Association (CUDA), welcomed this announcement and called it “a major achievement for the SEAI and allows them to build on the work they have been doing over many years”.
CUDA runs ProEnergy Homes, an end-to-end home retrofit scheme. Johnson added that public demand for this scheme, piloted in 2019, was “enormous” and demonstrated people’s “appetite for a ‘one-stop-shop’ model”.
McGrath also announced an additional €1bn investment in public transport in 2021. This will fund progress on major programmes such as BusConnects, MetroLink and the DART expansion. On this last point, McGrath announced the largest ever fleet expansion with potential for up to 600 electric carriages as part of DART+.
The public transport allocation will also support the ongoing development of a range of active travel and greenway infrastructure projects, as well as the enhancement of bus, rail and Local Link services.
The Government will also commit to green public procurement in transport with increased deployment of electric vehicles across the public service fleet.
Other measures introduced
Apart from these headline figures, there were other references to climate action and green economy planning in Budget 2021.
An additional €29m in funding will be spread across built heritage, the National Parks and Wildlife Service and peatlands restoration in order to meet a number of Programme for Government commitments in heritage and biodiversity.
Amid the supports announced for the Department of Higher Education was additional funding for more than 10,000 upskilling and reskilling opportunities. These include 1,500 places for retrofitting courses, encouraging employment in the emerging green economy.
Retrofitting also formed part of the housing budget, with €65m to be made available to fund deep retrofitting of social housing stock.
In addition, Donohoe’s announcement of a Commission on Welfare and Taxation – which will independently consider how best the tax system can support economic activity and promote increased employment and prosperity – mentioned that among this commission’s particular regards will be the shift to a low-carbon economy.
“While not quite a ‘green’ budget, the Government is taking us in the right direction – albeit the pace is still not quite fast enough due in some part to the lack of supportive infrastructure,” said Deirdre Hogan, tax partner at EY.