Government to hike up price of diesel in October budget

The forthcoming Government Budget for 2017 could see a significant rise in the price of diesel, according to reports in The Irish Times this week.

It reports that the move is said to be in response to growing concerns about urban air quality in the wake of the diesel emissions scandals which have rocked the car industry.

According to The Irish Times, pre-budget papers drawn up by senior government officials stated: “The OECD have recommended at least an equalisation of excise rates on petrol and diesel to address negative externalities caused by the combustion of these fossil fuels.

“The basis of this suggestion is the lower tax rate on diesel fails to account for the social and health environmental externalities caused by its combustion. A litre of diesel produces approximately 15.5% more greenhouse gases than a litre of petrol.”

The pre-budget paper calls for a year-on-year rise of 2.18c/L for diesel over five years, as a way of discouraging people from buying diesel cars, the newspaper reports.

As yet it is unclear whether green diesel will be affected by the government move it has historically been subject to a lower rate of excise duty than petrol or auto-diesel.

This rate has been unchanged at just over 4.7c/L since 1988. As a consequence the price of green diesel is substantially lower than the price of petrol or auto-diesel.

It follows that the percentage increase in prices resulting from the carbon tax is higher in the case of green diesel than it is for the other two fuels.

As price takers, farmers will be unable to offset the increases in production costs associated with a potential tax hike by increasing the price of the output they produce. As a result such a tax increase will reduce farm profitability.