Tank of diesel may cost €1.50 extra after carbon tax increase in budget

The cost of a full tank of diesel will go up by almost €1.50 due to the expected carbon tax increase in the budget from next month.

The Department of Finance’s Tax Strategy Group estimates that the planned increase in the tax will add €1.48 to the cost of a 60-litre fill at the pumps.

The cost of petrol, meanwhile, is expected to rise by €1.28 from October 13th due to the increase in carbon tax.

Increases in the cost of other fuels would not kick in until May 2022, according to the documents published by the Department of Finance on Thursday.

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The Government has committed to increasing carbon tax to €100 per tonne by 2030, with €7.50 hikes each year to 2029 and €6.50 in 2030.

It is a key measure in the State’s efforts to tackle climate change and decrease carbon emissions through discouraging the use of fossil fuels.

The estimated impact of the expected €7.50 increase in carbon tax on various fuels is set out in the Tax Strategy Papers, and the figures provided include VAT.

The cost of a 900-litre tank of kerosene is to go up by an estimated €19.40 from May 1st, 2022.

The average yearly household usage of natural gas (11,000 kWh) is expected to cost about €16.95 extra after that increase kicks in on the same date.

A 40kg bag of coal would cost 89c more, and a 12.5kg bale of peat briquettes would cost 20c extra.

The carbon tax rate currently stands at €33.50 per tonne but is expected to increase to €41 per tonne on budget day.

The trajectory of annual carbon tax rate increases was announced in the budget last year, having previously been flagged in the programme for government.

The tax strategy document says that it has been set out on a legislative basis, “sending a clear signal of the Government commitment to carbon pricing”.

New revenue

All new revenue raised through carbon tax rate increases is ring-fenced to target social welfare and other measures that seek to prevent fuel poverty and ensure a “just transition” away from fossil fuels.

The revenues are also to be used for environmental initiatives such as the retrofitting of homes for energy efficiency and to fund a Reps-2 programme to incentivise farmers to farm in a greener and more sustainable way.

The estimated additional yield from a €7.50 increase in the carbon tax is €108 million in 2022 and €147 million in 2023.

The document sets out measures in place to mitigate the impact of the carbon tax for those vulnerable to fuel poverty.

These include the fuel allowance welfare payment of €28 per week from October to April each year, which was increased by €3.50 in the last budget.

It also mentions the household benefits package paid to people aged over 70 (and under 70 in some circumstances).

The package includes a daily allowance of €1.15, paid monthly, to contribute towards the cost of gas or electricity bills.

There are also said to be relief schemes in place to support business sectors that are heavily reliant on fuel as a business input.

Examples of such measures are the diesel rebate scheme, the reduced rate of taxation on marked gas oil, the diesel excise gap, the VAT refund scheme, income tax/corporation tax deductions for fuel excise and the double income tax relief scheme for farmers.