Government weighs up slower carbon tax hikes as cost-of-living pressures mount

A slowdown of carbon tax hikes for the rest of the Coalition's lifetime is on the table in budget talks. Currently planned annual carbon tax increases will add another €53.50 to a fill of home-heating oil, €4.86 to a tank of petrol and €5.76 to a tank of diesel by 2030. In a watering-down of climate-action promises, the Government is weighing up whether to push out these annual increases in the environmental tax beyond the end of the decade. This summer's hike in carbon tax was postponed to the autumn due to the Middle East crisis and the fuel protests – but that increase is also expected to be pushed out in the Budget. Read more Dáil votes to maintain cuts on fuel excise, but opposition warns it's only a 'stay of execution' However, Department of Finance officials have advised that carbon tax hikes could be implemented more slowly. The current plans set out substantial increases each year until 2030 to tax €100 per tonne of carbon dioxide emissions. But the internal Tax Strategy Group has put the 'trajectory' of the carbon tax rises on the table, making a slower rollout an option. Continuing on the current path to the end of the decade, carbon tax hikes will add another 8.1 cent to a litre of petrol, 9.6 cent to a litre of diesel and 10.7 cent to a litre of home-heating kerosene by 2030. That translates into an additional €53.50 on a fill of a 500-litre tank of kerosene home-heating oil, €4.86 on a 60-litre tank of petrol and €5.76 on a 60-litre tank of diesel. A 40kg bag of coal will go up by €4.37. Read more Ministers to push ahead with September fuel price hikes – but rethink later increases after petrol and diesel hits €2 a litre The carbon tax take has already increased by 45pc over the past five years. Annual carbon tax hikes add an extra 2.5c to the price of a litre of diesel and 2.1c to a litre of petrol. However, the carbon tax is a key plank of the Government's Climate Action Plan, so any slowdown would be criticised by the environmental lobby. 'It's interesting because this now has to be discussed by the leaders [of the Government] ahead of the Budget. The 'trajectory' is now the issue. No decision has been taken at all, even on the October increase, but it's there now for discussion,' a government source said. 'The timetable for the carbon tax was set during different times, before the war in the Middle East, the war in Ukraine and the cost-of-living crisis. 'There are other ways of achieving the targets, such as an electric car scrappage scheme or additional grants for people to convert how they heat their houses from kerosene.' Read more Dáil votes to maintain cuts on fuel excise, but opposition warns it's only a 'stay of execution' The Department of Finance's Tax Strategy Group paper says carbon tax is a key policy to incentivise emissions reductions and drive behavioural change to meet climate change commitments and legally binding emissions targets. 'As such, a policy decision to maintain the carbon tax is in line with best international practice in terms of energy crisis response as well as overall long-term energy and climate policy,' it said. 'It would also be possible to examine alternative options such as elongating the carbon tax trajectory or creating separate carbon tax trajectories for each product. 'Consideration of such a policy change would need to take into account the Programme for Government 2025 commitment to continue with carbon tax increases and the use of revenue raised to fund measures such as energy-efficiency upgrades, agricultural programmes and social welfare interventions.' Tánaiste and Finance Minister Simon Harris specifically referenced that advice this week as he hinted at an extension of the carbon tax rollout. Read more Union leaders have winter strike threat in their back pockets as face-off with Chambers looms 'You'll note the Tax Strategy Group paper, which was published by my own department over the summer, which outlines a range of perspectives and policy options that could be considered in relation to carbon tax,' he said. 'So let me be crystal clear, the Programme for Government supports carbon tax, I support carbon tax. Carbon tax was brought about though, and the trajectory was set, before there was a war in Ukraine, before there was the situation in the Middle East, so there are policy options for Government to consider and the Government will consider all of them in the round,' he said. 'The paper identifies two things: 1. The trajectory, which is currently out to 2030, and 2. The idea of product differentiation. In fairness to the Government, and this affects a number of government departments, it does have fiscal costs, so we need to consider all of this.' Mr Harris also linked the cost-of-living crisis to the advice on delaying the carbon tax hikes. 'But I am really conscious of the fact that fuel costs, energy costs, are a real burden on families and on individuals, and I would like to get to a point that we are having a more informed and sophisticated conversation than just one-off measures and perhaps there are some thoughts in the Tax Strategy Group papers that are helpful in relation to that,' he said.