The Carbon Tax will see an increase of €7.50 in the upcoming Budget 2022, according to a paper by the government’s Tax Strategy Group.

The Tax Strategy Group is an inter-departmental committee chaired by the Department of Finance. Its purpose is to advise the government on tax policies in upcoming national budgets.

The group’s ‘Climate Action and Tax Paper’ – one of several policy papers covering different types of taxes – outlines that the increase in the tax for 2022 will be €7.50, brining the overall rate to €41/t of carbon dioxide emissions.

The current rate of Carbon Tax is €33.50/t.

The tax is applied on the basis of the carbon dioxide emissions produced when a fuel is combusted.

Last year’s budget (Budget 2021) outlined a planned trajectory to increase the rate of the tax year-on-year up to a rate of €100 in 2030.

The coming €7.50 increase is expected to apply from October 13, 2021 on diesel and petrol and from May 1, 2022 for all other fuels to allow for winter heating requirements.

The Tax Strategy Group paper outlines a number of examples as to how this increase will apply to different sample fuel purchases:

FuelTypical purchaseCarbon Tax at €33.50/t (incl. VAT)Carbon Tax at €41/t (incl. VAT)Increase (incl. VAT)
Petrol60L€5.72€7.00€1.28
Diesel60L€6.62€8.10€1.48
Peat12.5kg bale87c€1.0720c
Coal40kg bag€4.01€4.9089c
Data source: Tax Strategy Group

(In the above table, VAT is applied at the standard rate of 23% for diesel and petrol and the reduced rate of 13.5% for heating fuels).

According to the paper, revenue raised through Carbon Tax increases are to be as expenditure which will:

  • Ensure that the increases in the tax are progressive through targeted social welfare and other initiatives to prevent fuel poverty and “ensure a just transition”;
  • Fund a “socially progressive” national retrofitting programme targeting all homes but with a particular emphasis on the Midlands region and on social and low-income tenancies;
  • Allocate funding to a ‘REPS-2’ programme (the proposed Agri-Environment Climate Measure) to “encourage and incentivise farmers to farm in a greener and more sustainable way”.

The estimated additional yield to the exchequer of a €7.50 increase in the Carbon Tax is €108 million in 2022 and €147 million in 2023 (based on sales of fuels in a normal year).

The paper does not seem to make any suggestion of altering the current arrangement wherein farmers are entitled to income tax relief for Carbon Tax (this relief does not apply to agricultural contracting work).