Diesel tax increase ‘justifiable’ – ESRI

A study carried out by the Economic and Social Research Institute (ESRI) has found that a diesel tax increase is ‘justifiable’.

The study – entitled ‘The Environmental Impact of Fiscal Instruments’ – examines the environmental effects of 142 existing and potential fiscal measures, including reduced tax rates, tax exemptions, tax allowances and direct subsidies.

The study, which was commissioned by the Environmental Protection Agency (EPA), examines if these measures lead to behaviour changes that impact on climate change, air quality or land pollution.

A case study carried out as part of the study shows that an increase in the excise rate on diesel can be justified on environmental and fiscal grounds.

The report adds that a change in the diesel price could impact the relationship of fuel demand between Northern Ireland and the Republic of Ireland.

Another aspect to consider is the impact any increase in the excise rate of diesel may have on the substitution of agricultural diesel, the report warned.

An increase in the price differential between ‘white’ and ‘green’ diesel may incentivise fuel fraud; although sampling by Revenue shows that the selling of agricultural diesel is close to being eliminated in the market, which suggests that this problem may not be as big as first thought, according to the report.

The report explained that, overall, an increase in the excise rate of diesel is likely to reduce environmental damage caused by motor fuels.

As it stands, the excise rate on petrol is 59c/L; but, the excise rate on diesel is 11c lower at 48c/L. The equalisation of excise rates is equivalent to a 22% increase in the price of diesel, the report states.

The study points to the importance of considering the potential environmental impact of all fiscal policy changes, in the context of Ireland’s climate change objectives.

One of the authors of the report, Edgar Morgenroth, said: “The unintended environmental effects of tax breaks should be studied more carefully, as some measures have significant environmental costs.

“Appropriate reform of these measures could make a significant contribution to reducing Ireland’s greenhouse gas emissions and reduce local pollution.”